**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,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, 2003,  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**                                |
|                                                                        |
| **GREAT  WESTERN BANCORPORATION, INC.**                                     |
| (Exact name of registrant as specified in  its charter)                     |
|                                                                        |
| **Iowa**                                                                    |                                                                                                                                                                                                                                                                     | **42 0867112** |
| (State or other jurisdiction of  incorporation or organization)             |                                                                                                                                                                                                                                                                     | (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)                  |
|                                                                        |
| 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  GWB Capital Trust I        |                                                                                                                                                                                                                                                                     | American Stock Exchange |
| 9.75% Cumulative Trust Preferred Securities of  GWB 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 reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Actof 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports) and (2) has been subject to suchrequirements for the past 90 days. YES  ý       NO  o 

 

Indicate by check mark if disclosure of delinquent filers pursuant toItem 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 informationstatements incorporated by reference in Part III of this Form 10-K or anyamendment to this Form10-K:  ý

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Act). Yes o No ý

 

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

 

At September 18, 2003, there were 124,952 shares of registrant’scommon stock outstanding.

 

 

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TABLE OF CONTENTS

 
| Forward-looking Statements |
|----------------------------|
|                       |
| Part I                     |   |   |
|                       | Item 1. | Business |
|                       |   |   |
|                       | Item 2. | Properties |
|                       |   |   |
|                       | Item 3. | Legal Proceedings |
|                       |   |   |
|                       | Item 4. | Submission of Matters to a Vote of Security  Holders |
|                       |   |   |
| Part II                    |   |   |
|                       | Item  5. | Market  for Registrant’s Common Equity and Related Stockholder Matters |
|                       |   |   |
|                       | Item 6. | Selected Financial Data |
|                       |   |   |
|                       | Item 7. | Management’s Discussion and Analysis of  Financial Condition and Results of Operation |
|                       |   |   |
|                       | Item 7A. | Quantitative  and Qualitative Disclosures about Market Risk |
|                       |   |   |
|                       | Item 8. | Financial  Statements and Supplementary Data |
|                       |   |   |
|                       | Item 9. | Changes  in and Disagreements with Accountants on Accounting and Financial Disclosure |
|                       |   |   |
|                       | Item 9A. | Controls  and Procedures |
|                       |   |   |
| Part III                   |   |   |
|                       |   |   |
|                       | Item  10. | Directors  and Executive Officers of the Registrant |
|                       |   |   |
|                       | Item 11. | Executive  Compensation |
|                       |   |   |
|                       | Item 12. | Security  Ownership of Certain Beneficial Owners and Management |
|                       |   |   |
|                       | Item 13. | Certain  Relationships and Related Transactions |
|                       |   |   |
| Part IV                    |   |   |
|                       |   |   |
|                       | Item 15. | Exhibits,  Financial Statement Schedules and Reports on Form 8-K |
|                       |   |   |
| SIGNATURES                 |

 

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FORWARD-LOOKINGSTATEMENTS

 

This report includes certain forward-looking statements within themeaning 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 onmanagement’s current expectations. Factors that might cause future results to differ from management’sexpectations include, but are not limited to: fluctuations in interest rates,inflation, the effect of regulatory or government legislative changes, expectedcost savings and revenue growth not fully realized, the progress of strategicinitiatives and whether realized within expected time frames, general economicconditions, adequacy of allowance for loan losses, costs or difficultiesassociated with restructuring initiatives, changes in accounting policies orguidelines, changes in the quality or composition of Great Western’s loans andinvestment portfolios, technology changes and competitive pressures in thegeographic and business areas where Great Western conducts its operations.

 

These risks and uncertainties should be considered in evaluating forward-lookingstatements and undue reliance should not be placed on such statements.  Additional information concerning GreatWestern and its business, including other factors that could materially affectGreat Western’s financial results, is included in Great Western’s filings withthe Securities and Exchange Commission.

 

PART I

 

ITEM 1.  BUSINESS

 

THE COMPANY

 

Great Western Bancorporation, Inc., (“Great Western”), formerlySpectrum Bancorporation, Inc., a multi-bank holding company, offers fullservice community banking through 16 banking locations in Nebraska, 21 bankinglocations in South Dakota, 23 banking locations in southern Iowa, two bankinglocations in northern Missouri and one banking location in northeastern Kansas.  Its Chairman, Deryl F. Hamann, acquiredGreat Western (formerly Spectrum) in 1971; at that time it had a single bankcharter in Leon, Iowa with two locations.  In 1974, Mr. Hamann acquired the parent company of Great Western Bank,Watertown, South Dakota (formerly F&M Bank); the parent was merged intoGreat Western on May 31, 1999. Citizens Corporation, an affiliated bank holding company with six Iowabanking locations, was merged into Great Western on August 7, 2000.  On March 23, 2001, Great WesternSecurities, Inc., the parent company of Great Western Bank, Omaha, Nebraska,was merged into Great Western. Acquisitions of other banks and savings institutions have been made byeach of the holding companies on both strategic and opportunistic bases.  Expansion also occurred through acquisitionof offices of other financial institutions and de novo branching.   See “Mergers and Acquisitions” foradditional information.

 

THE BANKS

 

Great Western has three direct subsidiaries:  Great Western Bank, Omaha, Nebraska; Great Western Bank, Watertown,South Dakota (formerly F & M Bank, Watertown, South Dakota; and RushmoreBank & Trust, Rapid City, South Dakota); and Great Western Bank, Clive,Iowa (formerly Citizens Bank, Mt Ayr, Iowa; Citizens Bank of Princeton,Princeton, Missouri; and Citizens Bank, Clive, Iowa).  See “Mergers and Acquisitions” for additional information.  Each subsidiary bank is chartered by thestate banking authorities of the state in which its headquarters islocated.  See “Supervision andRegulation.”

 

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The following table sets forth information regarding Great Western’sbanks as of June 30, 2003:

 
|                          |   | **Common  Stock  Ownership** |       | **Assets** |    | **Net Loans** |   | **Deposits** |   |
|-------------------------------|--------|------------------------------|------------|------------|---------|---------------|--------|--------------|--------|
|                          |   | **(dollars  in thousands)**  | ** ** |
| Great Western Bank, Watertown |   | 96.1                         | %          | $          | 876,465 |          | $      | 654,122      |   | $ | 727,004 |   |
| Great Western Bank, Omaha     |   | 100.0                        | %          | 828,326    |    | 611,228       |   | 683,906      |   |
| Great Western Bank, Clive     |   | 100.0                        | %          | 404,738    |    | 334,368       |   | 329,956      |   |
|                               |        |                              |            |            |         |               |        |              |        |  |  |  |

 

GREAT WESTERN SERVICE CORPORATION

 

Subsidiary banks (excluding Great Western Bank, Omaha) own 100% ofGreat Western Service Corporation (formerly Spectrum Banc Service Corporation),which provides data processing and related services to its bank owners.  See “Mergers and Acquisitions” foradditional information.

 

STRATEGIES

 

Growth.  Great Western intends to grow within itsexisting markets, to branch into or acquire financial institutions in existingmarkets, and to branch into or acquire financial institutions in other marketsconsistent with its capital requirements and management abilities.

 

Great Western seeks opportunities to acquire banks at acceptableprices.  Great Western’s operatingstrategy is to provide high quality community banking services to its customersand increase market share through solicitation of new business, repeat businessand referrals from customers, and selected promotional strategies.

 

Branch Activity.  On December 13, 2002, Great WesternBank, Omaha acquired Peoples Bank, Overland Park, Kansas.  Peoples Bank had $24,847,000 in totalassets, $2,910,000 in net loans and $24,739,000 in deposits.  Peoples Bank has one location, which atclosing became a branch of Great Western Bank, Omaha.  On August 15, 2003, Great Western Bank, Clive opened a newbranch in Bedford, Iowa. Should Great Western be unable to acquire existingbanks or other financial institutions at acceptable prices, it will continue toseek expansion through new branches or possibly by chartering new banks.

 

LENDING ACTIVITIES

 

Great Western provides a broad range of commercial and retail lendingservices.    Each of Great Western’ssubsidiary banks has a written credit policy that addresses the needs of itsmarket.  All of the credit policiescontain underwriting and loan administration criteria, including levels of loancommitment, loan types, credit criteria, concentration limits, loanadministration, loan review and grading and related matters.

 

Great Western is able to facilitate substantial credit requests throughthe purchase and sale of participations among its subsidiary banks, as well asunaffiliated banks or other financial institutions.    As of June 30, 2003, approximately 85% of all loans andleases were to customers within Great Western’s market area.

 

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Real Estate Loans.These include various types of loans for which Great Western’s banks hold realproperty as collateral.  The risks ofreal estate loans include the borrower’s inability to pay and deterioration invalue of the real estate collateral. Real estate loans include primarily one to four family residences andone to four family residences under construction.   Construction loans for one to four family residences areprimarily made to builders that construct the residences.  The construction loans typically havematurities of 6 to 12 months, have rates that are adjustable daily and aresubject to origination fees.  Terms forone to four family residences that are not construction loans primarily havematurities between 5 to 10 years and have rates fixed for a year or more.

 

Commercial and Agricultural Loans.These consist primarily of secured loans to businesses for various purposes,including revolving lines of credit, agricultural operating lines, term loansand equipment financing.  Equipment,accounts receivable, inventory, business assets, agricultural assets orcommercial real estate secure the loans. Revolving lines and agricultural operating lines, in most cases maturein one year and are secured by accounts receivable, inventory, business assetsor agricultural assets.  Loans topurchase equipment including farm equipment usually have maturities betweenthree and six years and have fixed rates of interest for one year or more.  Commercial real estate loans typically havematurities between three and 10 years with fixed rates of interest for at leastone year.  Loans to build commercialbuildings usually have maturities between one and two years and have adjustablerates of interest.

 

Loans to Individuals.Loans to individuals, which are not secured by real estate, generally havematurities of two to six years and bear fixed interest rates.  These loans are generally secured by motorvehicles, investment securities, or other personal assets and in some instancesare unsecured.

 

Great Western Bank, Clive has regional local loan committees that meetat least weekly, subject to loan volume. Great Western Bank, Omaha has a senior loan committee and loan committeethat meet weekly.  Great Western Bank,Watertown has regional loan committee meetings bi-weekly and an Executive BoardCommittee that meets as required by loan volume.

 

Interest rates charged on loans vary with the degree of risk, maturity,underwriting and servicing costs, loan amount and extent of other bankingrelationships maintained with customers and are further subject to competitivepressures, money market rates, availability of funds and governmentregulations.

 

Great Western’s banks issue letters of credit.  See Note 18 to Consolidated FinancialStatements.  Great Western’s banks applythe same credit standards to those commitments as they use in direct lendingactivities and have included these commitments in their lending riskevaluations.  Great Western’s exposureto credit loss under letters of credit is represented by the amount of thosecommitments.

 

Under applicable federal and state law, permissible loans to oneborrower after June 30, 2003, were limited to $11,752,368 for GreatWestern Bank, Watertown, South Dakota; $10,630,846 for Great Western Bank, Omaha, Nebraska; and $6,886,446 forGreat Western Bank, Clive, Iowa.** **Certain exceptions, depending onthe laws of the applicable state, increase the loan limit to one borrower forloans secured by readily marketable securities and certain readily marketableagricultural assets.

 

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COMPETITION

 

The banking and financial services industry is highly competitive andundergoing rapid consolidation.  Withinthe market area of Great Western’s banks, numerous commercial banks, savingsand loan associations, mortgage brokers, finance companies, credit unions,investment firms and private lenders compete with the banks for deposits andloans.  Many of these competitors havesignificantly greater resources than Great Western, including higher lendinglimits and more extensive financial, technical and marketing resources.

 

The Financial Modernization Act, also known as the Gramm-Leach-BlileyAct, enacted in November 1999, affects competition between financialinstitutions.  This act significantlyrevised the laws regulating banks and bank holding companies and otherproviders of financial services, enabling bank holding companies and foreignbanks that meet applicable statutory requirements—defined as financial holdingcompanies—to engage in a broader range of services and to compete moreefficiently in existing business lines. The Gramm-Leach-Bliley Act authorizes financial holding companies toengage in securities, insurance, and other activities that are financial innature or that do not pose a substantial risk to the safety and soundness ofdepository institutions or the financial system generally.  As of August 31, 2003, Great Westernhad not elected to convert to a financial holding company, but reserves thisright under the new rule.

 

EMPLOYEES

 

As of August 31, 2003, Great Western had approximately 735full-time equivalent employees. Management considers its relationship with its employees to be good.

 

SUPERVISION AND REGULATION

 

Great Western and its subsidiary banks are extensively regulated underfederal and state laws.  These laws andregulations are primarily intended to protect depositors and the depositinsurance fund of the FDIC, not securities holders of Great Western.  The following information is qualified inits entirety by reference to the particular statutory and regulatoryprovisions.  Any change in applicablelaws, regulations or regulatory policies may have a material effect on thebusiness, operations and prospects of Great Western and its banks.  Great Western is unable to predict thenature or extent of the effects that fiscal or monetary policies, economiccontrols or new federal or state legislation may have on its business andearnings in the future.

 

The Gramm-Leach-Bliley Act preserves the role of the Federal Reserve asthe umbrella supervisor for holding companies while at the same timeincorporating a system of functional regulation designed to take advantage ofthe strengths of the various federal and state regulators. In particular, theAct replaces the broad exemption from Securities and Exchange Commissionregulation that banks previously enjoyed with more limited exemptions, and itreaffirms that states are the regulators for the insurance activities of allpersons, including federally chartered banks. The Gramm-Leach-Bliley Act alsoestablishes a minimum federal standard of financial privacy. In general, theapplicable federal regulations prohibit affected financial institutions(including banks, insurance agencies and broker/dealers) from sharinginformation 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 outof the disclosure; and (3) the customer has not opted out after being given areasonable opportunity to do so. Compliance with the notice and otherrequirements under the regulations was required by July 1, 2001.

 

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Recent regulatory developments.  On October 26, 2001, President Bushsigned into law the Uniting and Strengthening America by Providing AppropriateTools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USAPATRIOT Act”).  Among its otherprovisions, the USA PATRIOT Act requires each financial institution: (i) toestablish an anti-money laundering program; (ii) to establish due diligencepolicies, procedures and controls with respect to its private banking accountsinvolving foreign individuals and certain foreign banks; and (iii) to avoidestablishing, maintaining, administering, or managing correspondent accounts inthe United States for, or on behalf of, foreign banks that do not have aphysical presence in any country.  TheUSA PATRIOT Act also requires the Secretary of the Treasury to prescribe, byregulations to be issued jointly with the federal banking regulators andcertain other agencies, minimum standards that financial institutions mustfollow to verify the identity of customers, both foreign and domestic, when acustomer opens an account.  In addition,the USA PATRIOT Act contains a provision encouraging cooperation amongfinancial institutions, regulatory authorities and law enforcement authoritieswith respect to individuals, entities and organizations engaged in, orreasonably suspected of engaging in, terrorist acts or money launderingactivities.  Most specific changes areto take effect October 1, 2003.  Atthis time, the provisions of the USA PATRIOT Act will not have a materialimpact on the business of Great Western and its subsidiaries.

 

On July 30, 2002, the President signedinto law the Sarbanes-Oxley Act of 2002 (the “Act”), which mandated a varietyof reforms intended to address corporate and accounting fraud.  The Act provides for the establishment of anew Public Company Accounting Oversight Board (“PCAOB”), which will enforceauditing, quality control and independence standards for firms that audit SECreporting companies and will be funded by fees from all SEC reportingcompanies.  The Act imposes higherstandards for auditor independence and restricts provision of consultingservices by auditing firms to companies they audit and in addition, certainaudit partners must be rotated periodically. The Act requires chief executive officers and chief financial officers,or their equivalents, to certify to the accuracy of periodic reports filed withthe SEC, subject to civil and criminal penalties if they knowingly or willfullyviolate this certification requirement. In addition, under the Act, counsel will be required to report specificviolations, directors and executive officers must report most changes in theirownership of a company’s securities and executives will have restrictions ontrading, and loans. The Act also increases the oversight and authority of auditcommittees of publicly traded companies. Although Great Western anticipates it will incur additional expense incomplying with the provisions of the Act and the related rules, management doesnot expect that such compliance will have a material impact on Great Western’sfinancial condition or results of operation. Certain provisions of the Act were effective immediately upon passage orat various times in fiscal 2003.  Otherprovisions of the Act will be effective through fiscal 2004 and after.

 

GREAT WESTERN

 

General.  Great Western is a bank holding companyregistered under the Bank Holding Company Act of 1956 and is subject toregulation, supervision and examination by the Federal Reserve.  Great Western is required to file an annualreport and other reports as the Federal Reserve now requires or may require.

 

Acquisitions.  As a bank holding company, Great Western isrequired to obtain the prior approval of the Federal Reserve before acquiringdirect or indirect ownership or control of more than 5% of the voting shares ofa bank or bank holding company.  TheFederal Reserve will not approve any acquisition, merger or consolidation thatwould have a substantial anti-competitive 

 

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result, unless the anti-competitive effects of the proposed transactionare outweighed by a greater public interest in meeting the needs andconvenience of the public.  The FederalReserve also considers managerial, capital and other financial factors inacting on acquisition or merger applications.

 

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

 

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

 

The Federal Reserve has adopted a systemusing risk-based capital adequacy guidelines to evaluate the regulatory capitaladequacy of bank holding companies on a consolidated basis.  Under the risk-based capital guidelines,different categories of assets are assigned different risk weights, basedgenerally on the perceived credit risk of the asset.  These risk weights are multiplied by corresponding asset balancesto determine a risk-weighted asset base. Some off balance sheet items, such as loan commitments in excess of oneyear, mortgage loans sold with recourse and letters of credit, are added to therisk-weighted asset base by converting them to a balance sheet equivalent andassigning to them the appropriate risk weight. For purposes of the regulatory risk-based capital guidelines, totalcapital is defined as the sum of core and supplementary capital elements, withsupplementary 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 subsidiariesless the unamortized balance of intangible assets.  No more than 25% of core capital may be comprised of cumulativepreferred stock including the Trust Preferred Securities of itssubsidiaries.  Supplementary capital,also known as Tier II capital, generally includes certain forms of perpetualpreferred stock and cumulative preferred stock not included in core capital, aswell as maturing capital instruments, and the allowance for loan losses limitedto 1.25% of risk-weighted assets.  Theregulatory guidelines require a minimum ratio of total capital to risk-weightedassets of 8% to be adequately capitalized, of which at least 4% should be inthe form of core capital.

 

At June 30, 2003, Great Western’s Tier Icapital was $115,058,000.

 

In addition to the risk-based capitalguidelines, the Federal Reserve and the FDIC use a leverage ratio as anadditional tool to evaluate the capital adequacy of banks and bank holdingcompanies.  The leverage ratio is definedto be a company’s core capital divided by its average tangible assets for thepreceding quarter.  Based upon thecurrent capital status of Great Western, the applicable minimum requiredleverage ratio is 4%.

 

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The table below presents Great Western’sapplicable regulatory capital ratios at June 30, 2003:

 
| **Ratio**                              |   | **Actual** |   | **Minimum  Required** |   |
|----------------------------------------|--------|------------|--------|-----------------------|--------|
|                                   |   |       |   |                  |   |
| Tier I Capital to Average Assets       |   | 5.55       | %      | 4.00                  | %      |
| Tier I Capital to Risk-Weighted Assets |   | 6.76       | %      | 4.00                  | %      |
| Total Capital to Risk-Weighted Assets  |   | 11.19      | %      | 8.00                  | %      |

 

Failure to meet the regulatory capitalguidelines may result in the initiation by the Federal Reserve of appropriatesupervisory or enforcement actions. All three of Great Western’s capital ratioswere above the minimum required as of June 30, 2003.

 

THE BANKS

 

General.  Great Western owns three banks:  Great Western Bank, Omaha, Nebraska, aNebraska banking corporation with 15 banking locations; Great Western Bank,Watertown, South Dakota, a South Dakota banking corporation with 23 bankinglocations; and Great Western Bank, Clive, Iowa an Iowa corporation with 25banking locations.  The FDIC insures thedeposits of each bank and the banks are subject to supervision and regulationby the FDIC.  In addition, Great WesternBank, Omaha is regulated by the Nebraska Department of Banking and Finance; theSouth Dakota Division of Banking regulates Great Western Bank, Watertown; andthe Iowa Division of Banking regulates Great Western Bank, Clive.

 

Permissible Activities.  No state bank may engage in any activity notpermitted for national banks, unless the institution complies with applicablecapital requirements and the FDIC determines that the activity poses nosignificant risk to its Bank Insurance Fund. None of Great Western’s banks is presently involved in the types ofactivities covered by this limitation. Under the Financial Modernization Act and rules adopted pursuantthereto, banks may create financial subsidiaries to engage in activities thatare “financial in nature.”  None ofGreat Western’s bank subsidiaries have elected to do so, but may do so in thefuture.

 

Community Reinvestment Act.  Enacted in 1977, the federal CommunityReinvestment Act  (“CRA”) has becomeimportant to financial institutions, including their holding companies.  This allows regulators to turn down anapplicant seeking to make an acquisition or establish a branch unless it hasperformed satisfactorily under CRA. Satisfactory performance means meetingadequately the credit needs of the communities the applicant serves.  The applicable federal regulators regularlyconduct examinations to assess the performance of financial institutions.During their most recent examinations, ratings of satisfactory were received byeach of Great Western’s banks.  As aresult, management believes that the banks’ performance under CRA will notimpede regulatory approvals of any proposed acquisitions or branches.

 

Dividend Restrictions.  Dividends paid by Great Western’s banksprovide substantially all of the operating and investing cash flow of GreatWestern.  Great Western’s banks aresubject to legal limitations on the frequency and amount of dividends that maybe paid to Great Western.  Under SouthDakota and Nebraska law, the approval of the principal regulator is requiredprior to the declaration of any dividend by a bank if the total of alldividends declared in any calendar year exceeds the total of its net profits ofthat year to date combined with its retained net profits for the preceding twoyears.  Under Iowa law, a bank maydeclare and pay dividends only out of undivided profits and only if notrestricted by the principal regulator. The Iowa principal regulator requires that Iowa state banks maintain anadjusted equity capital ratio 

 

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of not less than 6.5% of adjusted assets plus a fully funded allowancefor loan losses unless the principal regulator approves a lower ratio.  An Iowa state bank operating below theminimum requirement would be subject to immediate dividend restriction; arequest for immediate capital injection and/or a possible cease and desistorder.  Great Western Bank, Clive hascommitted to maintain a ratio for Tier I capital to average assets of not lessthan 8 percent until August 1st, 2004, due to the fact that thebank relocated its principal place of business from Carlisle, Iowa, to Clive,Iowa. The Nebraska principal regulator requires a total capital to asset ratioof 6%, excluding intangibles other than purchased mortgage servicingrights.  At least 5.5% must be primarycapital, which includes all equity capital accounts plus allowances for loanand lease losses.   In addition, eitherthe applicable state banking regulator or the FDIC has the power to prohibitGreat Western’s banks from paying dividends if such payments would constituteunsafe or unsound banking practices or cause the bank to be undercapitalized.

 

Examinations.  The FDIC examines Great Western’s banks fromtime to time.  Based upon an evaluation,the examining regulator may revalue the assets of an insured institution andrequire that it establish specific reserves to compensate for the differencebetween the value determined by the regulator and the book value of GreatWestern’s assets.  The state bankregulators also conduct examinations of state-chartered banks.  State bank regulators may accept the resultsof a federal examination in lieu of conducting an independent examination.  South Dakota, Iowa and Nebraska regulatorshave the authority to revalue the assets of a state-chartered institution andrequire it to establish reserves.

 

Capital Adequacy.  The FDIC has adopted regulationsestablishing minimum requirements for the capital adequacy of insuredinstitutions.  The requirements addressboth risk-based capital and leverage capital, with risk-based assets and coreand supplementary capital being determined in essentially the same manner asdescribed above for bank holding companies. The FDIC may establish higher minimum requirements if, for example, abank has previously received special attention or has a high susceptibility tointerest rate risk.

 

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

 

The FDIC leverage guidelines require thatstate banks maintain core capital of no less than 3% and up to 5% of totaltangible assets.  The applicableguideline for Great Western’s banks is estimated to be 4%. Banks withregulatory capital ratios below the required minimum are subject toadministrative actions, including the termination of deposit insurance uponnotice and hearing, or a temporary suspension of insurance without a hearing inthe event the institution has no tangible capital.

 

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The table below presents the regulatorycapital ratios of the Great Western banks at June 30, 2003:

 
| **Ratio**                              |   | **Great  Western  Bank,  Watertown** |   | **Great Western  Bank,  Omaha** |   | **Great  Western  Bank,  Clive** |   | **Minimum  Required** |   |
|----------------------------------------|--------|--------------------------------------|--------|---------------------------------|--------|----------------------------------|--------|-----------------------|--------|
| Tier I capital to average assets       |   | 8.33                                 | %      | 7.70                            | %      | 8.55                             | %      | 4.00                  | %      |
| Tier I capital to risk-weighted assets |   | 10.44                                | %      | 9.10                            | %      | 10.36                            | %      | 4.00                  | %      |
| Total capital to risk-weighted assets  |   | 11.62                                | %      | 10.30                           | %      | 11.61                            | %      | 8.00                  | %      |

 

Banking regulators have adopted regulationsthat define five capital levels: well capitalized, adequately capitalized,undercapitalized, severely undercapitalized and criticallyundercapitalized.  An institution is criticallyundercapitalized if it has a tangible equity to total assets ratio that isequal to or less than 2%.  Aninstitution is well capitalized if it has a total risk-based capital ratio of10% or greater, Tier I risk-based capital ratio of 6% or greater, and a Tier Ileverage capital ratio of 5% or greater, and the institution is not subject toan order, written agreement, capital directive, or prompt corrective actiondirective to meet and maintain a specific capital level for any capitalmeasure.  An institution is adequately capitalizedif it has a total risk-based capital ratio of not less than 8%, a Tier Irisk-based capital ratio not less than 4% and a leverage ratio of not less than4%.  Under these regulations, as ofJune 30, 2003, the Great Western banks were well capitalized.

 

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

 

As an institution’s capital decreases, thepowers of the federal regulators become greater. An undercapitalized orseverely undercapitalized institution is subject to mandated capital raisingactivities, restrictions on interest rates paid and transactions with affiliates,removal of management, and other restrictions. The regulators have limited discretion in dealing with a criticallyundercapitalized institution and are virtually required to appoint a receiveror conservator if the capital deficiency is not corrected promptly.

 

Real Estate Lending Evaluations.  The federal regulators have adopted uniformstandards for evaluations of loans secured by real estate or made to financeimprovements to real estate.  Banks arerequired to establish and maintain written internal real estate lendingpolicies consistent with safe and sound banking practices and appropriate tothe size of the institution and the nature and scope of its operations.  The regulations establish loan to value ratiolimitations on real estate loans.  GreatWestern’s banks loan policies establish limits on loan to value ratios that areequal to or less than those established in such regulations.

 

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Interstate Banking Legislation.  Federal legislation effectiveSeptember 1995, eliminated many of the historical barriers to theacquisition of banks by out-of-state bank holding companies.  This law facilitates the interstateexpansion and consolidation of banking organizations by permitting:(1) bank holding companies that are adequately capitalized and managed toacquire banks located in states outside their home states regardless of whetheracquisitions are authorized under the laws of the host state; (2) theinterstate merger of banks, subject to the right of individual states either topass legislation providing for earlier effectiveness of mergers or to opt outof this authority after June 1, 1997; (3) banks to establish new brancheson an interstate basis provided that this action is specifically authorized bythe law of the host state; (4) foreign banks to establish, with approval of theappropriate regulators in the United States, branches outside their home statesto the same extent that national or state banks located in that state would beauthorized to do so; and (5) banks to receive deposits, renew time deposits,close loans, service loans and receive payments on loans and other obligationsas agent for any bank or thrift affiliate, whether the affiliate is located inthe same or different state.  In August 2001,each of Great Western’s subsidiary banks executed an agency agreementappointing each of the other subsidiary banks as its agent to receive deposits,renew time deposits, close loans, service loans and receive payments on loansand other obligations to the full extent permitted by applicable law andregulation.

 

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

 

•  Lending,exchanging, transferring, investing for others, or safeguarding money orsecurities;

•  Engagingas agent or broker in any state for purposes of insuring, guaranteeing, orindemnifying against loss, harm, damage, illness, disability, death, defects intitle, or providing annuities as agent or broker.

•  Providingfinancial, investment, or economic advisory services, including advising aninvestment company;

•  Issuingor selling annuities representing interests in pools of assets permissible fora bank to hold directly;

•  Underwriting,dealing in, or making a market in securities;

•  Engagingin activities that the Federal Reserve has determined to be so closely relatedto banking or managing or controlling banks as to be a proper incident thereto;

•  Activitiesthat the Federal Reserve has found to be usual in connection with thetransaction of banking or other financial operations abroad;

•  Additionalactivities that the Secretary of the Treasury in consultation with the FederalReserve determines to be financial in nature or incidental to a financialactivity; and

•  Activitiesthat may be conducted by an operating subsidiary.

 

None of Great Western’s bank subsidiarieshave elected to create financial subsidiaries.

 

CHANGING REGULATORY STRUCTURE

 

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

 

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One of the major additional burdens imposedon the banking industry is the increased authority of federal agencies toregulate the activities of federal and state banks and their holdingcompanies.  The Federal Reserve, theComptroller of the Currency and the FDIC have extensive authority to policeunsafe or unsound practices and violations of applicable laws and regulationsby depository institutions and their holding companies.  These agencies can assess civil moneypenalties. Other laws such as the Sarbanes-Oxley Act of 2002 have expanded theagencies’ authority in recent years, and the agencies have not yet fully testedthe limits of their powers.  Inaddition, the South Dakota Division of Banking, Iowa Division of Banking andNebraska Department of Banking and Finance, possess broad enforcement powers toaddress violations of their banking laws by banks chartered in their respectivestates.

 

ECONOMIC ENVIRONMENT

 

The policies of regulatory authorities,including the monetary policy of the Federal Reserve, have a significant effecton the operating results of bank holding companies and their subsidiaries.  Among the means available to the FederalReserve 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 combinationsto influence overall growth and distribution of bank loans, investments anddeposits, and their use may affect interest rates charged on loans or paid ondeposits.

 

The Federal Reserve’s monetary policies havematerially affected the operating results of commercial banks in the past andare expected to continue to do so in the future.  The nature of future monetary policies and the effect of thesepolicies on the business and earnings of Great Western and its subsidiariescannot be predicted.

 

 

ITEM 2.  PROPERTIES

 

The offices of Great Western are located in aleased one-story building located at 10834 Old Mill Road, Suite One, Omaha,Nebraska 68154.  Great Western, throughits subsidiaries, currently operates 63 banking offices.

 

At June 30, 2003, Great Western, throughits subsidiaries, owned the buildings for 49 of its branch offices and leasedthe remaining 14 offices.  With only oneexception, a branch of Great Western Bank, Clive being leased from Great Western,all leased properties are leased from unaffiliated third parties.  We believe each of our facilities is in goodcondition, adequately covered by insurance and sufficient to meet the needs atthat location for the foreseeable future.

 

ITEM 3.  LEGAL PROCEEDINGS

 

Great Western and its subsidiary banks arefrom time to time parties to various legal actions arising in the normal courseof business.  Management of GreatWestern believes there is no proceeding threatened or pending against GreatWestern or its subsidiary banks, which, if determined adversely, would have amaterial adverse effect on the financial condition or results of operations ofGreat Western.

 

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ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

 

No matter was submitted to a vote of security holders, throughsolicitation of proxies or otherwise, during the quarter ending June 30,2003.

 

PART II

 

ITEM 5.  MARKET FORREGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

Market Information and Holders.  There is no established public tradingmarket for any class of common equity of Great Western Bancorporation, Inc. orany of its subsidiaries.

 

As of August 31, 2003, there were 124,952 shares of common stockissued and outstanding that were held by 23 shareholders of record.

 

Common stock dividends declared for fiscal year 2003 totaled $751,000,or $6.00 per common share, compared to $751,000 or $6.00 per common share infiscal year 2002.    In 2001 dividendsof $1,493,000, or $18.01 per common share were declared.  The 2001 dividend included $1,200,000 in theform of a note payable.  For informationregarding the payment of future dividends and any possible restrictions see“Dividend Restrictions” under Item 1.

 

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

 
|                    |   | **Year ended  June 30, 2003** |   |
|-------------------------|--------|------------------------------------|--------|
|                    |   | **First**                          |   | **Second** |   | **Third** |   | **Fourth** |   |
| Cash dividends declared |   | 1.50                               |   | 1.50 |   | 1.50 |   | 1.50 |   |

 
|                    |   | **Year ended  June 30, 2002** |   |
|-------------------------|--------|------------------------------------|--------|
|                    |   | **First**                          |   | **Second** |   | **Third** |   | **Fourth** |   |
| Cash dividends declared |   | 1.50                               |   | 1.50 |   | 1.50 |   | 1.50 |   |

 

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

 

On August 7, 2000 Great Western issued 7,584 shares of its commonstock in exchange for all outstanding common stock of Citizens Corporation(“Citizens”) and assumption of $1,200,000 Capital Notes to existing GreatWestern stockholders.  Citizens’subsidiary, Citizens Bank, Mt Ayr, Iowa was merged into Great Western’ssubsidiary, Great Western Bank, Clive.  No cash proceeds were generated from the issuance.

 

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ITEM 6.  SELECTED FINANCIAL DATA

 

The following table presents selected consolidated financial data forGreat Western for each of the years in the five-year period ended June 30,2003.  The data set forth below includesthe accounts of Iowa State Bank, Hamburg, Iowa and United National Bank ofIowa, Sidney, Iowa from August 1, 2000, the effective date of acquisitionof those banking subsidiaries of Hamburg Financial, Inc., the accounts of GreatWestern Bank, Omaha, Nebraska from March 23, 2001, the effective date ofacquisition of that banking subsidiary of Great Western Securities, theaccounts of Founders Trust National Bank, Sioux Falls, South Dakota(“Founders”) from March 31, 2001, the date of acquisition of  Founders, the accounts of First WesternBank, N.A., Atkinson, Nebraska  (“FirstWestern”) and Marquette Bank Nebraska, N.A., O’Neill, Nebraska  (“Marquette”) from February 28, 2002,the date of acquisition of First Western and Marquette and the accounts ofPeoples Bank, Overland Park, Kansas (“Peoples”) from December 13, 2002,the date of acquisition of Peoples. The completed acquisitions were accountedfor under the purchase method of accounting.

 

The following table should be read in conjunction with the consolidatedfinancial statements of Great Western and the notes thereto appearing elsewherein this report and the information contained in “Management’s Discussion andAnalysis of Financial Condition and Results of Operation.”

 

The merger of Great Western and Citizens Corporation on August 7,2000 has been accounted for at historical cost in a manner similar to apooling-of-interests combination and, accordingly, the consolidated financialstatements prior to the combination have been restated to include the accountsand results of operations of Great Western and Citizens Corporation.**** See “Certain Relationships and Related Party Transactions.” Theselected consolidated financial data below takes into account this restatement.

 
|                                                                                                                      |   | **At or for  the year ended June 30,**               |       |
|---------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------|------------|
|                                                                                                                      |   | **2003**                                                  |       | **2002** |   | **2001** |   | **2000** |   | **1999** |   |
|                                                                                                                      |   | **(dollars  in thousands, except per common share data)** |       |
| **Consolidated statements of income:**                                                                                    |   |                                                      | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Interest income                                                                                                           |   | $                                                         | 125,070    |   | $ | 127,915 |   | $ | 91,669 |   | $ | 61,363 |   | $ | 51,709 |   |
| Interest expense                                                                                                          |   | 48,205                                                    |       | 60,181 |   | 51,825 |   | 31,515 |   | 25,548 |   |
| Net interest income                                                                                                       |   | 76,865                                                    |       | 67,734 |   | 39,844 |   | 29,848 |   | 26,161 |   |
| Provision for loan losses                                                                                                 |   | 4,371                                                     |       | 6,067 |   | 2,618 |   | 2,036 |   | 1,563 |   |
| Other income                                                                                                              |   | 31,354                                                    |       | 21,897 |   | 11,467 |   | 7,233 |   | 6,662 |   |
| Other expenses                                                                                                            |   | 77,460                                                    |       | 62,318 |   | 33,831 |   | 21,057 |   | 18,621 |   |
| Income taxes                                                                                                              |   | 9,839                                                     |       | 7,393 |   | 4,922 |   | 4,440 |   | 4,089 |   |
|                                                                                                                      |   |                                                      |       |   |   |   |   |   |   |   |   |
| Minority interest in earnings of subsidiaries                                                                             |   | 618                                                       |       | 636 |   | 522 |   | 404 |   | 357 |   |
|                                                                                                                      |   |                                                      |       |   |   |   |   |   |   |   |   |
| Net income                                                                                                                |   | 15,931                                                    |       | 13,217 |   | 9,418 |   | 9,144 |   | 8,193 |   |
| **Per common share data:**                                                                                                |   |                                                      |       |   |   |   |   |   |   |   |   |
| Basic earnings per share                                                                                                  |   | $                                                         | 121.61     |   | $ | 98.36 |   | $ | 101.16 |   | $ | 113.62 |   | $ | 101.42 |   |
| Dividends                                                                                                                 |   | 6.00                                                      |       | 6.00 |   | 18.01 |   | 12.45 |   | 11.49 |   |
| Tangible book value per share(1)                                                                                          |   | 523.18                                                    |       | 393.63 |   | 306.56 |   | 483.05 |   | 472.29 |   |
|                                                                                                                      |   |                                                      |       |   |   |   |   |   |   |   |   |
| **Consolidated balance sheets:**                                                                                          |   |                                                      |       |   |   |   |   |   |   |   |   |
|                                                                                                                      |   |                                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Assets                                                                                                                    |   | $                                                         | 2,148,069  |   | $ | 2,012,157 |   | $ | 1,782,122 |   | $ | 850,776 |   | $ | 684,236 |   |
| Loans, net of unearned income(2)                                                                                          |   | 1,621,212                                                 |       | 1,496,200 |   | 1,303,049 |   | 634,757 |   | 522,800 |   |
| Allowance for loan losses                                                                                                 |   | 21,251                                                    |       | 20,344 |   | 18,955 |   | 8,197 |   | 6,838 |   |
| Deposits                                                                                                                  |   | 1,735,030                                                 |       | 1,635,967 |   | 1,421,090 |   | 691,535 |   | 569,971 |   |
| Long term notes payable                                                                                                   |   | 140,175                                                   |       | 123,157 |   | 116,646 |   | 50,932 |   | 41,116 |   |
| Company obligated mandatorily redeemable preferred  securities of subsidiary trust holding solely subordinated debentures |   | 58,000                                                    |       | 48,000 |   | 48,000 |   | 20,400 |   | — |   |
| Nonperforming assets                                                                                                      |   | 14,667                                                    |       | 19,960 |   | 21,164 |   | 9,567 |   | 7,854 |   |
| Stockholders’ equity                                                                                                 |   | 126,374                                                   |       | 110,163 |   | 96,926 |   | 47,822 |   | 41,768 |   |
|                                                                                                                      |   |                                                      |       |   |   |   |   |   |   |   |   |
| **Key ratios:**                                                                                                           |   |                                                      |       |   |   |   |   |   |   |   |   |
| Net interest margin(3)                                                                                                    |   | 4.06                                                      | %          | 4.01 | % | 3.79 | % | 4.21 | % | 4.34 | % |
| Return on average assets                                                                                                  |   | 0.76                                                      |       | 0.71 |   | 0.82 |   | 1.19 |   | 1.25 |   |
| Return on average stockholders’ equity                                                                               |   | 13.45                                                     |       | 12.76 |   | 14.53 |   | 19.67 |   | 20.47 |   |
| Nonperforming loans to loans, net of unearned  income                                                                     |   | 0.77                                                      |       | 1.17 |   | 1.53 |   | 1.49 |   | 1.48 |   |
| Net loans charged-off to average loans, net of  unearned income                                                           |   | 0.22                                                      |       | 0.41 |   | 0.27 |   | 0.10 |   | 0.21 |   |
| Dividend payout ratio                                                                                                     |   | 4.93                                                      |       | 6.10 |   | 17.80 |   | 10.96 |   | 11.33 |   |
| Allowance for loan losses to loans, net of  unearned income                                                               |   | 1.31                                                      |       | 1.36 |   | 1.45 |   | 1.29 |   | 1.31 |   |
| Allowance for loan losses to nonperforming loans                                                                          |   | 170.57                                                    |       | 116.49 |   | 94.85 |   | 86.70 |   | 88.37 |   |
| Tier I risk-based capital                                                                                                 |   | 6.76                                                      |       | 6.21 |   | 6.06 |   | 9.80 |   | 8.10 |   |
| Total risk-based capital                                                                                                  |   | 11.19                                                     |       | 10.56 |   | 11.17 |   | 11.60 |   | 9.30 |   |
| Tier I leverage ratio                                                                                                     |   | 5.55                                                      |       | 5.00 |   | 4.88 |   | 7.20 |   | 6.40 |   |
| Stockholders’ equity to assets                                                                                       |   | 5.88                                                      |       | 5.47 |   | 5.44 |   | 5.62 |   | 6.10 |   |
|                                                                                                                      |   |                                                      |       |   |   |   |   |   |   |   |   |
| **Ratio of earnings to fixed charges(4):**                                                                                |   |                                                      |       |   |   |   |   |   |   |   |   |
| Including interest on deposits                                                                                            |   | 1.51                                                      | x          | 1.32 | x | 1.28 | x | 1.43 | x | 1.48 | x |
| Excluding interest on deposits                                                                                            |   | 2.86                                                      | x          | 2.33 | x | 2.50 | x | 3.32 | x | 4.29 | x |

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(1)  Stockholders’ equity less preferred stock less goodwill and coredeposit and other intangibles, divided by period end shares of common stockoutstanding.

(2)  Before allowance for loan losses.

(3)  On a tax equivalent basis.

(4)  The ratio of earnings to combined fixed charges and preferencesecurity dividends is computed by dividing (x) the sum of income before incometaxes and fixed charges by (y) fixed charges and dividends on Great Western’sseries 1, 2 and 3 preferred stock. Fixed charges consist of interest on borrowings, amortization of debtissuance expense, and implicit interest on leases.

 

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ITEM 7.  MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

The following is management’s discussion and analysis of the financialcondition and results of the operation of Great Western.  It is intended to explain certain financialinformation regarding Great Western and should be read in conjunction with theConsolidated Financial Statements, related Notes, and the Five Year Summary ofSelected Financial Data included in this report.

 

Great Western Bancorporation, Inc., is a multi-bank holding company,with locations in Nebraska, South Dakota, southern Iowa, northern Missouri andnortheastern Kansas.  To serve itscustomers, Great Western’s banks conduct community banking operations throughtheir branch networks.  Operations focuson offering deposits, making loans and providing customers with a full array offinancial products and a high level of customer service.  In addition to these services, GreatWestern’s banks provide insurance, securities brokerage and other retailfinancial services.

 

CRITICAL ACCOUNTING POLICIES

 

The “Management’s Discussion and Analysis of Financial Condition andResults of Operations,” and disclosures included within this Form 10-K AnnualReport, are based on Great Western’s audited consolidated financialstatements.  These statements have beenprepared in accordance with accounting principles generally accepted in theUnited States of America.  Thepreparation of these financial statements requires management to make estimatesand judgments that affect the reported amounts of assets, liabilities, revenuesand expenses.  On an ongoing basis,management evaluates the estimates used, including the adequacy of theallowance for loan losses, and a valuation of mortgage servicing rights and intangibles.  Estimates are based upon historicalexperience, current economic conditions and other factors that managementconsiders reasonable under the circumstances. These estimates result in judgments regarding the carrying values ofassets and liabilities where these values are not readily available from othersources, as well as assessing and identifying the accounting treatments ofcommitments and contingencies.  Actualresults may differ from these estimates under different assumptions orconditions.  Great Western’s significantaccounting policies are described in the “Notes to Consolidated FinancialStatements” under “Nature of Operations and Summary of Significant AccountingPolicies”.  Three of Great Western’smore critical accounting policies involve the more significant judgments andassumptions used in the preparation of the consolidated financial statements;these are related to the allowance for loan losses, mortgage servicing rightsand intangibles.

 

Provision and allowance for loan losses.                          Theallowance for loan losses is established through a provision for loan lossescharged to expense.  Loans are chargedagainst the allowance for loan losses when management believes thatcollectibility of the principal is unlikely.  Great Western has policies and procedures for evaluating the overallcredit quality of its loan portfolio including timely identification ofpotential problem credits.  On aquarterly or more frequent basis, management reviews the appropriate level forthe allowance for loan losses.  Thisreview and analysis is based on:

 

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•                  Internalmonitoring and reporting system

•                  Economicconditions, including duration of the current cycle

•                  Pastexperience, including recent loss experience

•                  Creditquality trends

•                  Collateralvalues

•                  Volume,composition, and growth of the loan portfolio

•                  Specificcredits and industry conditions

•                  Resultsof bank regulatory and internal credit exams

•                  Actionsby the Federal Reserve Board

•                  Existenceand effects of concentrations of credit

•                  Delayin receipt of information to evaluate loans or confirm existing creditdeterioration

 

To the extent actual results differ from forecasts and management’sjudgment, the allowance for loan losses may be greater or less than futurecharge-offs.

 

Mortgage servicing rights.  Mortgage servicing rights are establishedbased on the cost of acquiring the right to service mortgage loans. These costsare initially capitalized and then amortized in proportion to, and proportionatelyover the period of estimated future net servicing income based on the ratio ofnet servicing income received in the current period to total net servicingincome projected to be realized from the mortgage servicing rights.  Projected net servicing income is determinedon the basis of the future balances of loans after scheduled loan amortizationand estimated prepayments.  Anindependent outside company estimates for Great Western future prepayment ratesbased on relevant characteristics of the servicing portfolio, such as loantypes, interest rate stratification and recent prepayment experience, as wellas current rate levels, market forecasts and other economic conditions.

 

Great Western reports mortgage servicing rights at the lower ofamortized cost or fair value.  Thecarrying value of mortgage servicing rights is adjusted by estimated impairmentlosses.  The fair value of mortgageservicing rights is determined based on the present value of estimated expectedfuture cash flows, using assumptions as to current market discount rates andprepayment speeds.  Mortgage servicingrights are stratified by loan type and interest rate for purposes of impairmentmeasurement.  Loan types includefixed-rate, balloon, government, conventional and adjustable-rate mortgageloans. See Note 8 to the Consolidated Financial Statements. Impairment lossesare recognized in the following manner:

 

1.                                       Themortgage servicing assets are stratified based on predominant riskcharacteristics.

2.                                       Impairmentlosses are recorded as reductions in the carrying value of the asset through avaluation allowance for each individual stratum with a corresponding increaseto amortization expense.  The amount ofimpairment equals the carrying amount for a particular stratum minus its fairmarket value.

3.                                       Thevaluation allowance is adjusted to reflect changes in the measurement ofimpairment after the initial measurement of impairment, based on marketconditions.

 

Intangibles.    Intangible assets consist of goodwill,core deposit intangibles, an unidentifiable intangible asset (related to abranch acquisition), and client listing and franchise costs.  Goodwill represents the excess of theacquisition cost over the fair value of the net

 

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assets acquired in the purchase of subsidiaries. Core depositintangible represents the identifiable intangible value assigned to coredeposit bases arising from purchase acquisitions.  The unidentifiable intangible asset represents the excess ofliabilities assumed over the fair value of net assets acquired in a purchase ofa failed financial institution. This unidentifiable asset was reclassified togoodwill on July 1, 2002 in applying SFAS 147. Client listing intangiblerepresents the identifiable intangible value assigned to a client listingarising from a purchase acquisition. Franchise intangible represents acontractual arrangement under which the franchiser grants the franchisee theright to perform certain functions within a designated geographical area.

 

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

 

MERGERS AND ACQUISITIONS

 

On March 27, 1998,****Great Western Bancorporation, Inc. (“GreatWestern”) acquired all of the outstanding shares of First Savings & LoanAssociation of South Dakota, Inc., Aberdeen, South Dakota.  First Savings was merged into Great WesternBank, Watertown (formerly F&M Bank), a subsidiary bank of Great Western.** **Assets of $16,999,000, loans, netof unearned fees of $14,016,000 and deposits of $14,085,000 were acquired inconnection with the merger.

 

On May 31, 1999, Decatur Corporation became the survivingcorporation in a merger of its affiliated bank holding companies, SpectrumBancorporation, Inc. and Rushmore Financial Services, Inc.  Decatur then changed its name to SpectrumBancorporation, Inc. but retained its Iowa charter to facilitate acquisitionswithin that state.  The merger has beenaccounted for at historical cost in a manner similar to a pooling-of-interestscombination and, accordingly, the consolidated financial statements prior tothe combination have been restated to include the accounts and results ofoperations of Spectrum Bancorporation, Inc. On May 29, 2003, Spectrum Bancorporation, Inc. was renamed GreatWestern Bancorporation, Inc.

 

On January 14, 2000, Great Western chartered Citizens Bank,Carlisle, Iowa (now known as Great Western Bank, Clive), which purchasedcertain assets and assumed certain deposits of the failed Hartford-CarlisleSavings Bank.  In addition to the mainoffice in Carlisle, the bank acquired facilities in Hartford and Runnells,Iowa.  On December 26, 2000, thebank moved its main office from Carlisle to Clive, Iowa, a suburb of DesMoines.  In August 2002, the bankclosed the Hartford office.  Liquidassets of $4,800,000; loans, net of unearned fees of $34,539,000, and depositsof $70,465,000 were acquired in connection with the purchase andassumption.  Great Western owned 95.24%of the stock of this bank.  The newlychartered state bank was capitalized with $10,500,000 in capital; the purchaseincluded a $5,500,000 premium paid to the FDIC.  The acquisition was accounted for in a manner similar to apurchase and the deposit premium was allocated to unidentifiable intangibleasset. This unidentifiable asset was reclassified to goodwill on July 1,2002 in applying SFAS 147. A major reason for this acquisition was theproximity of this bank’s offices to the Des Moines market, and the ability tobranch.

 

On July 13, 2000, Great Western’s subsidiary, Great Western Bank,Clive (successor by merger to Citizens Bank, Mt. Ayr) purchased the assets andassumed the liabilities of the branch of Commercial Federal Bank, FSB locatedin Kellerton, Iowa.  A premium ofapproximately $175,000 was paid to acquire deposits of approximately$3,300,000.

 

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As of August 7, 2000, Great Western acquired all of theoutstanding shares of Hamburg Financial, Inc. (“HFI”), an unaffiliated holdingcompany that owned two banks in southwestern Iowa.  Great Western paid $8,730,995 in cash which included a premium of$2,236,123 to acquire HFI and its subsidiaries; Thurman State Corporation, asecond-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 loansof $48,989,000 were acquired.  Thetransaction was accounted for as a purchase. HFI and Thurman State Corporation were merged into Great Western.  HFI’s bank subsidiaries were merged intoGreat Western’s subsidiary bank, Great Western Bank, Clive (successor by mergerto Citizens Bank, Mt. Ayr).

 

                OnAugust 7, 2000, Great Western acquired all of the outstanding shares ofCitizens Corporation (“Citizens”), an affiliated one-bank holding company thatowned Citizens Bank, Chariton, Iowa. Great Western exchanged 7,584 newly issued shares of common stock forall 4,628 outstanding shares of Citizens, and assumed a $1,200,000, 10.00%capital note payable. Citizens Bank, Chariton, Iowa was merged into GreatWestern’s subsidiary, Citizens Bank, Mt Ayr (which later was merged into GreatWestern Bank, Clive).  Deposits of$60,382,514 and loans of $52,472,988 were acquired.  Since the entities were under common control, the merger has beenaccounted for at historical cost in a manner similar to pooling-of-interestsand, accordingly, the consolidated financial statements for periods prior tothe combination have been restated to include the accounts and results of bothentities.  

 

On March 23, 2001, Great Western acquired Great Western Securities(“GWS”) for $58,348,384 in cash and by issuing 46,319 shares of common stockand $10,000,000 in nonvoting, non-cumulative perpetual preferred stock.  The common stock was issued to existingshareholders in Great Western for their 50% interest in GWS.  The remaining portion was purchased from anunrelated party.  The acquisition hasbeen accounted for as a purchase and results of operation of GWS since the dateof acquisition are included in the consolidated financial statements.  Deposits of $507,207,856 and loans of$511,415,557 were acquired.  The netassets previously attributed to the ownership of Great Western’s shareholderswere recorded at predecessor cost, due to the shareholders’ continuinginterests.  The remaining net assetswere recorded at fair value.  As aresult of the merger, a core deposit intangible of $6,775,000 was recognizedand is being amortized over five years by an accelerated method.  In addition, the intangible cost in excessof net assets acquired, other than purchased mortgage servicing rights, hasbeen allocated to goodwill.

 

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Unaudited pro forma consolidated results of operations as though GWShad been acquired as of July 1, 2000 (in thousands except share data) aresummarized below.

 
|                                |   | **For the  Year  Ended  June 30, 2001** |    |
|-------------------------------------|--------|----------------------------------------------|---------|
| 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 intangibleassets, additional depreciation and amortization on revalued purchased assetsand deposits, and preferred stock dividend requirements.

 

As of March 31, 2001, Great Western Bank, Watertown (formerlyF&M Bank) acquired Founders Trust National Bank, Sioux Falls, South Dakota(“Founders”) for $2,501,000, subject to adjustment for certaincontingencies.  At March 31, 2001Founders 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 resultsof operations of Founders after the date of acquisition are included in theconsolidated financial statements.

 

As of February 28, 2002 Great WesternBank, Watertown (formerly 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 assetsof $110,429,000, deposits of $99,589,000, net loans of $62,981,000 andstockholders’ equity of $10,217,000. The acquisition has been accounted for asa purchase and results of operation of First Western and Marquette after thedate of acquisition are included in the consolidated financial statements.

 

On December 13, 2002, Great WesternBank, Omaha acquired Peoples Bank, Overland Park, Kansas by cash merger.  At December 13, 2002, Peoples Bank had$24,847,000 in total assets, $2,910,000 in net loans and $24,739,000 indeposits.  Peoples Bank has onelocation, which at closing became a branch of Great Western Bank, Omaha. Theresults of operation of Peoples Bank after the date of acquisition are includedin the consolidated financial statements.

 

20

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A summary of the fair value of net assetsacquired and net cash and cash equivalents received (in thousands) on the dateof acquisition is as follows:

 
|                                     |   | **Peoples  Bank** |    |
|------------------------------------------|--------|-------------------|---------|
|                                     |   |              |    |
| Assets acquired:                         |   |              |    |
| Securities                               |   | $                 | 390     |   |
| Loans receivable                         |   | 2,910             |    |
| Other assets                             |   | 22                |    |
| Premises and equipment                   |   | 65                |    |
| Goodwill                                 |   | 2,017             |    |
| Intangible assets                        |   | 304               |    |
|                                     |   |              |    |
| Liabilities assumed:                     |   |              |    |
| Deposits                                 |   | (24,739           | )       |
| Other liabilities                        |   | (108              | )       |
| Net cash and cash equivalents (received) |   | $                 | (19,139 | ) |

 

On September 30, 2002, Great Westernacquired 1,688 shares (4.8%) of the common stock of Great Western Bank, Clive(formerly Citizens Bank, Clive) for $673,288 in cash from a minorityshareholder.  The transaction wasaccounted for as a purchase.

 

In October 2002, Great Western purchaseda total of 24 shares of common stock of Great Western Bank, Watertown (formerlyF & M Bank), from two minority shareholders for $90,765.  This transaction was accounted for as apurchase.

 

Great Western issued 10,000 shares, $1,000par value, of company obligated mandatorily redeemable preferred securities ofGWB Capital Trust III (formerly Spectrum Capital Trust III) on October 29,2002 through a private placement.  Thedistribution rate is set quarterly at three month LIBOR plus 345 basis points,which was set on October 25, 2002 at 5.27%, with a maximum rate of 12.50%through November 7, 2007. Distribution payment dates are February 7, May 7,August 7 and November 7 of each year, beginning February 7, 2003and are payable in arrears.  GreatWestern may, at one or more times, defer interest payments on the capitalsecurities for up to 20 consecutive quarters following suspension of dividendson all other capital stock.  At the endof any deferral period, all accumulated and unpaid distributions will be paid.The securities will be redeemed thirty years from the issuance date; however,Great Western has the option to accelerate the maturity date not earlier thanfive years from the issue date.  Theredemption price is $1,000 per capital security plus any accrued and unpaiddistributions to the date of redemption. Holders of the Preferred Securities have no voting rights.  The Preferred Securities are unsecured andrank junior in priority of payment to all of Great Western’s seniorindebtedness and senior to Great Western’s common and preferred stock.  The Preferred Securities rank equal inpriority of payment to Great Western’s other two issues of PreferredSecurities, GWB Capital Trust I and GWB Capital Trust II.

 

The sole asset of the trust is juniorsubordinated deferrable interest debentures issued by Great Western withinterest and maturity provisions similar in term to the respective PreferredSecurities.  The trust’s ability to payamounts due on the Preferred Securities is solely

 

21

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dependent upon Great Western making payment on the related juniorsubordinated debentures.  GreatWestern’s obligation under the debentures and relevant trust agreementconstitute a full, irrevocable and unconditional guarantee on a subordinatedbasis by it of the obligations of the trust under the Preferred Securities.

 

The Preferred Securities are classified asdebt in the accompanying consolidated financial statements.  For regulatory purposes the PreferredSecurities qualify as elements of capital. Proceeds from the issue were used for general corporate purposes.

 

On January 24, 2003, Great Westernpurchased from minority shareholders 180 shares of common stock and 1,800shares of preferred stock in its subsidiary Great Western Bank, Rapid City(formerly Rushmore Bank & Trust), for $2,111,492.  This transaction was accounted for as a purchase.

 

On February 21, 2003, Citizens Bank, MtAyr, Iowa and Citizens Bank of Princeton, Princeton, Missouri merged with andinto Citizens Bank, Clive, Iowa.  Allthree banks were 100.0% owned subsidiaries of Great Western.  In addition, on March 29, 2003, thesurviving bank was renamed Great Western Bank (“Great Western Bank,Clive”).  Management of Great Westerndoes not expect the merger to have a material effect on the business orearnings of Great Western. The merger was accounted for at historical cost in amanner similar to a pooling-of-interests combination and, accordingly, themerger did not require any restatement of financial statements on aconsolidated basis.

 

On March 3, 2003, Rushmore Bank andTrust, Rapid City, South Dakota and F & M Bank, Watertown, South Dakotawere renamed Great Western Bank.

 

On March 17, 2003, Spectrum Banc ServiceCorporation was renamed Great Western Service Corporation.

 

On May 29, 2003, SpectrumBancorporation, Inc. was renamed Great Western Bancorporation, Inc. (“GreatWestern”).  In addition, on May 29,2003, Spectrum Capital Trust I and Spectrum Capital Trust II were renamed GWBCapital Trust I and GWB Capital Trust II, respectively.  Spectrum Capital Trust III was renamed GWBCapital Trust III on August 7, 2003.

 

In May 2003, Great Western Bank, Watertown(formerly F&M Bank) purchased a total of 40 shares of common stock of GreatWestern Bank, Watertown from minority shareholders for $155,412.  This transaction was accounted for as apurchase.

 

In May 2003, Great Western Bank, Watertown(formerly F&M Bank) sold a total of 200 shares of common stock of GreatWestern Bank, Watertown to a minority shareholder for $1,165,587.

 

On May 30, 2003, Great Western Bank,Rapid City, South Dakota merged with and into Great Western Bank, Watertown,South Dakota. Management of Great Western Bancorporation, Inc. does not expectthe merger to have a material effect on the business or earnings of Great Western.The merger was accounted for at historical cost in a manner similar to apooling-of-interests combination and, accordingly, the merger did require anyrestatement of financial statements on a consolidated basis.

 

RESULTS OF OPERATION

 

GENERAL

 

Net income for the year ended June 30, 2003 was $15,931,000, anincrease of $2,714,000 when compared to net income of $13,217,000 for the yearended June 30, 2002.  The increasein net income was a result of net interest income after provision for loanlosses increasing $10,827,000 and non interest income increasing $9,457,000;offset by an increase in non interest expense of $15,142,000 and an increase inthe provision for income taxes of $2,446,000. Net income for the year ended June 30, 2002 was $13,217,000, an increaseof $3,799,000 when compared to net income of $9,418,000 for the year endedJune 30, 2001.  The increase in netincome was due primarily to the acquisition of Great Western Securities and itssubsidiary, Great Western Bank, Omaha in the third quarter of fiscal 2001 andto Great Western’s internal growth.  The

 

22

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contribution of Great Western Bank, Omaha’s net income to the netincome of Great Western was $7,369,000 in fiscal 2002 compared with $2,266,000in fiscal 2001.

 

Great Western’s return on average assets was 0.76% for the year endedJune 30, 2003 compared to 0.71% for the year ended June 30,2002.  This increase is due to fiscalnet income increasing 20.53% compared to an 11.83% increase in average assets.Great Western’s return on average assets was 0.71% for the year endedJune 30, 2002 compared to 0.82% for the year ended June 30,2001.  This decrease was due to averageassets increasing 61.99% compared to fiscal net income increasing only 40.34%during 2002.

 

NET INTEREST INCOME

 

Net interest income represents the amount by which interest income oninterest-earning assets, including loans and securities, exceeds interest paidon interest-bearing liabilities, including deposits and other borrowedfunds.  Net interest income is theprincipal source of Great Western’s revenue. Interest rate fluctuations, as well as changes in the amount and type ofinterest-earning assets and interest-bearing liabilities, combine to affect netinterest income.

 

The following table presents the average balances of Great Western foreach of the last three fiscal years and indicates the interest earned or paidon each major category of interest-earning assets and interest-bearingliabilities on a fully taxable-equivalent basis, assuming a 35% tax rate foryear ended June 30, 2003 and a 34% tax rate for years ended June 30,2002 and 2001, and the average rates earned or paid on each majorcategory.  This analysis details thecontribution of interest-earning assets and the overall impact of the cost offunds on net interest income.

 
|                                                                                                           |   | **Year Ended  June 30,** |       |
|----------------------------------------------------------------------------------------------------------------|--------|-------------------------------|------------|
|                                                                                                           |   | **2003**                      |       | **2002** |   | **2001** |   |
|                                                                                                           |   | **Average  Balance**          |       | **Interest  Income/  Expense** |   | **Yield/  Rate** |   | **Average  Balance** |   | **Interest  Income/  Expense** |   | **Yield/  Rate** |   | **Average Balance** |   | **Interest  Income/  Expense** |   | **Yield/  Rate** |   |
|                                                                                                           |   | **(dollars  in thousands)**   | ** ** |
| Interest-earning assets:                                                                                       |   |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans, net of unearned fees(1)(2)                                                                              |   | $                             | 1,550,457  |   | $ | 109,877 |   | 7.09 | % | $ | 1,368,931 |   | $ | 110,101 |   | 8.04 | % | $ | 844,280 |   | $ | 77,622 |   | 9.19 | % |
| Investment securities:                                                                                         |   |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                                                                        |   | 266,329                       |       | 12,657 |   | 4.75 | % | 254,493 |   | 15,256 |   | 5.99 | % | 155,832 |   | 10,416 |   | 6.68 | % |
| Tax exempt (tax equivalent)                                                                                    |   | 42,338                        |       | 2,788 |   | 6.58 | % | 27,545 |   | 1,956 |   | 7.10 | % | 21,310 |   | 1,530 |   | 7.18 | % |
| Federal funds sold and other                                                                                   |   | 57,083                        |       | 724 |   | 1.27 | % | 52,755 |   | 1,267 |   | 2.40 | % | 44,796 |   | 2,621 |   | 5.85 | % |
| Total interest-earning assets                                                                                  |   | $                             | 1,916,207  |   | $ | 126,046 |   | 6.58 | % | $ | 1,703,724 |   | $ | 128,580 |   | 7.55 | % | $ | 1,066,218 |   | $ | 92,189 |   | 8.65 | % |
| Interest-bearing liabilities:                                                                                  |   |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand, savings and money market deposits                                                                      |   | $                             | 601,694    |   | $ | 6,318 |   | 1.05 | % | $ | 522,953 |   | $ | 12,736 |   | 2.44 | % | $ | 290,984 |   | $ | 8,520 |   | 2.93 | % |
| Time deposits                                                                                                  |   | 850,483                       |       | 29,475 |   | 3.47 | % | 794,661 |   | 33,884 |   | 4.26 | % | 558,319 |   | 33,785 |   | 6.05 | % |
| Total interest- bearing deposits                                                                               |   | 1,452,177                     |       | 35,793 |   | 2.46 | % | 1,317,614 |   | 46,620 |   | 3.54 | % | 849,303 |   | 42,305 |   | 4.98 | % |
| Federal Home Loan Bank borrowings, federal funds  purchased and securities sold under agreements to repurchase |   | 130,850                       |       | 4,947 |   | 3.78 | % | 140,218 |   | 5,866 |   | 4.18 | % | 86,784 |   | 4,801 |   | 5.53 | % |
| Notes payable                                                                                                  |   | 46,200                        |       | 2,397 |   | 5.19 | % | 49,835 |   | 2,955 |   | 5.93 | % | 21,474 |   | 1,909 |   | 8.89 | % |
| Company obligated mandatorily redeemable preferred  securities                                                 |   | 55,500                        |       | 5,068 |   | 9.13 | % | 48,000 |   | 4,740 |   | 9.88 | % | 28,456 |   | 2,810 |   | 9.88 | % |
| Total interest-bearing liabilities                                                                             |   | $                             | 1,684,727  |   | $ | 48,205 |   | 2.86 | % | $ | 1,555,667 |   | $ | 60,181 |   | 3.87 | % | $ | 986,017 |   | $ | 51,825 |   | 5.26 | % |
|                                                                                                           |   |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                                                                            |   |                          |       | $ | 77,841 |   |   |   |   |   | $ | 68,399 |   |   |   |   |   | $ | 40,364 |   |   |   |
| Interest rate spread(3)                                                                                        |   |                          |       |   |   | 3.72 | % |   |   |   |   | 3.68 | % |   |   |   |   | 3.39 | % |
| Net interest margin(4)                                                                                         |   |                          |       |   |   | 4.06 | % |   |   |   |   | 4.01 | % |   |   |   |   | 3.79 | % |
| Ratio of average interest-bearing liabilities to  average interest-earning assets                              |   | 87.92                         | %          |   |   |   |   | 91.31 | % |   |   |   |   | 92.48 | % |   |   |   |   |

----

(1)     The data includes theaccounts of Peoples Bank from December 28, 2002, the date of itsacquisition, those of First Western and Marquette from February 28, 2002,the date of their acquisition, those of Founders from March 31, 2001, thedate of its acquisition and those of Great Western Bank, Omaha fromMarch 23, 2001.  The acquisitionswere accounted for under the purchase method of accounting.

(2)     Nonaccrual loans are includedin the Average Balance columns and income recognized on these loans, if any, isincluded in the Interest Income/Expense columns.

(3)     The interest rate spread isthe difference between the average yield on interest-earning assets and theaverage cost of interest-bearing liabilities.

(4)     The net interest margin isequal to net interest income (on a tax equivalent basis) divided by averageinterest-earning assets.

 

23

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Net interest income, on a tax-equivalent basis, was $77,841,000 for theyear ended June 30, 2003, an increase of $9,442,000 from $68,399,000 in2002.  This increase resulted from anincrease of $212,483,000 in average interest-earning assets to $1,916,207,000for the year ended June 30, 2003, from $1,703,724,000 in 2002. Themajority of the asset growth occurred in the loans and securities portfolios, bothfrom****acquisitions and internalgrowth.  Average loans increased$181,526,000 to $1,550,457,000 for the year ended June 30, 2003, from$1,368,931,000 in 2002.

 

Interest expense decreased $11,976,000 to $48,205,000 for the yearended June 30, 2003, from $60,181,000 in 2002.  The cost of interest-bearing liabilities for the year endedJune 30, 2003, 

 

24

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was 2.86% compared to 3.87% in2002.  When combined withnoninterest-bearing deposits, the cost of funds was 2.51% for the year endedJune 30, 2003, compared to 3.47% in 2002. The average balance of Federal Home Loan Bank borrowings, federal fundspurchased, and securities sold under agreements to repurchase decreased to$130,850,000 in 2003, a decrease of $9,368,000 from $140,218,000 in 2002.

 

As a result of these factors, net interest margin, on a tax-equivalentbasis, increased to 4.06% for the year ended June 30, 2003, from 4.01% forthe year ended June 30, 2002.

 

Net interest income, on a tax-equivalent basis, was $68,399,000 for theyear ended June 30, 2002, an increase of $28,035,000 from $40,364,000 in2001.  This increase resulted from anincrease of $637,506,000 in average interest-earning assets to $1,703,724,000for the year ended June 30, 2002, from $1,066,218,000 in 2001. Themajority of the asset growth occurred in the loans and securities portfolios,both from****acquisitions andinternal growth.  Average loansincreased $524,651,000 to $1,368,931,000 for the year ended June 30, 2002,from $844,280,000 in 2001.

 

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

 

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

 

The following table presents the changes in the components of netinterest income and identifies the portion of each change due to differences inthe average volume of interest-earning assets and interest-bearing liabilitiesand the portion of each change due to the average rate on those assets andliabilities.  The changes in interestdue to both volume and rate changes in the table have been allocated to volumeor rate change in proportion to the absolute dollar amounts of the change ineach.

 
|                                                                                                           |   | **2003 vs.  2002**                            |   | **2002 vs.  2001**                            |   | **2001 vs.  2000**                            |   |
|----------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|-----------------------------------------------|--------|-----------------------------------------------|--------|
|                                                                                                           |   | **Increase  (Decrease) Due  to  Changes In:** |   | **Increase  (Decrease) Due  to  Changes In:** |   | **Increase  (Decrease) Due  to  Changes In:** |   |
|                                                                                                           |   | **Volume**                                    |   | **Rate**                                      |   | **Total**                                     |   | **Volume** |   | **Rate** |   | **Total** |   | **Volume** |   | **Rate** |   | **Total** |   |
|                                                                                                           |   | **(dollars  in thousands)**                   |   |
| Interest-earning assets:                                                                                       |   |                                          |   |                                          |   |                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans, net of unearned  fees                                                                              |   | $                                             | 13,685 |                                          | $      | (13,909                                       | )      | $ | (224 | ) | $ | 43,210 |   | $ | (10,731 | ) | $ | 32,479 |   | $ | 25,423 |   | $ | 690 |   | $ | 26,113 |   |
| Investment securities:                                                                                         |   |                                          |   |                                          |   |                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                                                                        |   | 683                                           |   | (3,282                                        | )      | (2,599                                        | )      | 6,009 |   | (1,169 | ) | 4,840 |   | 3,324 |   | (129 | ) | 3,195 |   |
| Tax exempt (tax equivalent)                                                                                    |   | 983                                           |   | (151                                          | )      | 832                                           |   | 443 |   | (17 | ) | 426 |   | 259 |   | (38 | ) | 221 |   |
| Federal funds sold and other                                                                                   |   | 97                                            |   | (640                                          | )      | (543                                          | )      | 402 |   | (1,756 | ) | (1,354 | ) | 982 |   | (130 | ) | 852 |   |
| Total interest income                                                                                          |   | 15,448                                        |   | (17,982                                       | )      | (2,534                                        | )      | 50,064 |   | (13,673 | ) | 36,391 |   | 29,988 |   | 393 |   | 30,381 |   |
|                                                                                                           |   |                                          |   |                                          |   |                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                                                                                  |   |                                          |   |                                          |   |                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand, savings and money market deposits                                                                      |   | 1,690                                         |   | (8,108                                        | )      | (6,418                                        | )      | 5,848 |   | (1,632 | ) | 4,216 |   | 2,947 |   | (216 | ) | 2,731 |   |
| Time deposits                                                                                                  |   | 2,259                                         |   | (6,668                                        | )      | (4,409                                        | )      | 11,814 |   | (11,715 | ) | 99 |   | 10,460 |   | 3,298 |   | 13,758 |   |
| Total interest-bearing deposit expense                                                                         |   | 3,949                                         |   | (14,776                                       | )      | (10,827                                       | )      | 17,662 |   | (13,347 | ) | 4,315 |   | 13,407 |   | 3,082 |   | 16,489 |   |
| Federal Home Loan Bank borrowings, federal  funds purchased and securities sold under agreements to repurchase |   | (376                                          | )      | (543                                          | )      | (919                                          | )      | 2,439 |   | (1,374 | ) | 1,065 |   | 1,510 |   | (366 | ) | 1,144 |   |
| Notes payable                                                                                                  |   | (206                                          | )      | (352                                          | )      | (558                                          | )      | 1,851 |   | (805 | ) | 1,046 |   | 1,618 |   | 60 |   | 1,678 |   |
| Company obligated mandatorily redeemable  preferred securities                                                 |   | 703                                           |   | (375                                          | )      | 328                                           |   | 1,930 |   | (0 | ) | 1,930 |   | 1,022 |   | (23 | ) | 999 |   |
| Total interest expense                                                                                         |   | 4,070                                         |   | (16,046                                       | )      | (11,976                                       | )      | 23,882 |   | (15,526 | ) | 8,356 |   | 17,557 |   | 2,753 |   | 20,310 |   |
| Increase (decrease) in net interest income                                                                     |   | $                                             | 11,378 |                                          | $      | (1,936                                        | )      | $ | 9,442 |   | $ | 26,182 |   | $ | 1,853 |   | $ | 28,035 |   | $ | 12,431 |   | $ | (2,360 | ) | $ | 10,071 |   |
|                                                                                                                |        |                                               |        |                                               |        |                                               |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

25

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PROVISION FOR LOAN LOSSES

 

The amount of the provision for loan losses is based on a quarterly ora more frequent evaluation of the loan portfolio, especially non-performing andother potential problem loans.  Duringthese evaluations, consideration is given to such factors as: management’sevaluation of specific loans; the level and composition of non-performingloans; historical loss experience; results of examinations by regulatoryagencies; expectations of current economic conditions and their impact onparticular industries and individual borrowers; the market value of collateral;the strength of available guarantees; concentrations of credits; and otherjudgmental factors.  In addition, thechief credit officer of Great Western, assisted by personnel of affiliated banksand an unaffiliated company performs loan review services on a periodic basis.

 

The provision for loan losses for the year ended June 30, 2003,was $4,371,000 compared to $6,067,000 for the year ended June 30,2002.  This represents a decrease of$1,696,000, or 27.95%.  This decrease isdue to management assessing less risk in the loan portfolio.  See “ Non-performing Loans” and “ Allowancefor Loan Losses”.  The provision forloan losses for the year ended June 30, 2002 increased $3,449,000 whencompared to $2,618,000 for year ended June 30, 2001.  This increase was due to increases in netcharge-offs and acquisitions.

 

26

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OTHER INCOME

 

The following table presents Great Western’s other income for the indicatedperiods.

 
|                                                                    |   | **Year Ended  June 30,** |   |
|-------------------------------------------------------------------------|--------|-------------------------------|--------|
|                                                                    |   | **2003**                      |   | **2002** |   | **2001** |   |
|                                                                    |   | **(dollars  in thousands)**   |   |
| Service charges and other fees                                          |   | $                             | 13,080 |   | $ | 10,134 |   | $ | 6,297 |   |
| Net gains from sale of loans                                            |   | 6,770                         |   | 2,917 |   | 1,152 |   |
| Loan servicing fees                                                     |   | 3,404                         |   | 3,524 |   | 240 |   |
| Gain on securities, net                                                 |   | 1,862                         |   | 215 |   | 133 |   |
| Trust department income                                                 |   | 1,684                         |   | 1,610 |   | 617 |   |
| Net gains (loss) from sale of other real  estate owned and other assets |   | 1,206                         |   | (96 | ) | 158 |   |
| Other income                                                            |   | 3,348                         |   | 3,593 |   | 2,870 |   |
| Total other income                                                      |   | $                             | 31,354 |   | $ | 21,897 |   | $ | 11,467 |   |

 

During the year ended June 30, 2003, total other income increasedto $31,354,000 from $21,897,000 for the year ended June 30, 2002, dueprimarily to increased service charges and other fees and net gains from saleof loans.  With the recent increase inlong-term mortgage rates, net gains from sale of loans is expected todecline.  During the year endedJune 30, 2002, total other income increased to $21,897,000 from$11,467,000 for the year ended June 30, 2001, due primarily to increasedservice charges and other fees and loan servicing fees.  Increases in these fees for fiscal 2002resulted from the acquisition of Great Western Bank, Omaha at the end of thethird quarter of fiscal 2001.  GreatWestern, Omaha had $4,411,000 and $1,060,000 service charges and other fees forfiscal years ended June 30, 2002 and June 30, 2001, respectively and$3,527,000 and $240,000 loan servicing fees for the fiscal years endedJune 30, 2002 and June 30, 2001, respectively.  Great Western Bank, Omaha is the only GreatWestern bank that services mortgage loans, pursuant to purchased mortgageservicing rights.

 

OTHER EXPENSES

 

The following table presents Great Western’s other expenses for theindicated periods.

 
|                                                                 |   | **Year Ended  June 30,** |   |
|----------------------------------------------------------------------|--------|-------------------------------|--------|
|                                                                 |   | **2003**                      |   | **2002** |   | **2001** |   |
|                                                                 |   | **(dollars  in thousands)**   |   |
| Salaries and employee benefits                                       |   | $                             | 33,323 |   | $ | 28,851 |   | $ | 17,569 |   |
| Occupancy expense, net                                               |   | 4,227                         |   | 3,770 |   | 2,268 |   |
| Amortization and valuation adjustment for  mortgage servicing rights |   | 15,358                        |   | 9,049 |   | 304 |   |
| Data processing                                                      |   | 3,676                         |   | 3,091 |   | 2,115 |   |
| Equipment expenses                                                   |   | 2,757                         |   | 2,510 |   | 1,519 |   |
| Advertising                                                          |   | 3,743                         |   | 2,180 |   | 1,270 |   |
| Professional fees                                                    |   | 3,165                         |   | 2,711 |   | 1,894 |   |
| Communication expenses                                               |   | 2,042                         |   | 1,858 |   | 1,210 |   |
| Amortization of goodwill                                             |   | 0                             |   | 0 |   | 728 |   |
| Amortization of core deposit intangible and  other intangibles       |   | 1,901                         |   | 2,629 |   | 960 |   |
| Other expenses                                                       |   | 7,268                         |   | 5,669 |   | 3,994 |   |
| Total other expenses                                                 |   | $                             | 77,460 |   | $ | 62,318 |   | $ | 33,831 |   |

 

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Other expenses increased $15,142,000 or 24.30%, to $77,460,000 duringthe year ended June 30, 2003, from $62,318,000 for the year endedJune 30, 2002.  This increase isprimarily the result of an increase in amortization and valuation adjustment ofmortgage servicing rights acquired and an increase in salary and employeebenefits.  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 anincrease in salary and employee benefits and an increase in amortization ofmortgage servicing rights acquired.

 

Salaries and employee benefits rose $4,472,000 or 15.50%, to$33,323,000 for the year ended June 30, 2003, from $28,851,000 for thecorresponding period of 2002.  Contributing to the increase in salaries and employee benefits weregeneral staffing increases concurrent with internal growth.**  **Salariesand employee benefits rose $11,282,000 or 64.22%, to $28,851,000 for the yearended June 30, 2002, from $17,569,000 for the corresponding period of2001.  This increase is due toacquisitions in fiscal 2002 and 2001; including the acquisition of GreatWestern Bank, Omaha.  At the time of theacquisition on March 23, 2001, Great Western Bank, Omaha had approximately241 full-time equivalent employees. Also contributing to the increase in salaries and employee benefits weregeneral staffing increases concurrent with expansion of offices and businesslines.

 

Net occupancy expense increased $457,000, or 12.12%, to $4,227,000 forthe year ended June 30, 2003, from $3,770,000 for the year endedJune 30, 2002.   Net occupancycosts increased due to internal growth. Net occupancy expense increased $1,502,000, or 66.23%, to $3,770,000 forthe year ended June 30, 2002, from $2,268,000 for the year endedJune 30, 2001.   Net occupancycosts increased due to the acquisitions in fiscal 2002 and 2001 and internalgrowth.

 

Amortizationand valuation adjustments of mortgage servicing rights acquired increased$6,309,000, to $15,358,000 for the year ended June 30, 2003, from$9,049,000 for the previous year. Mortgage servicing rights amortization of $15,358,000 includes therecognition of a valuation allowance due to a change in the estimated futureprepayment rates of the servicing portfolio, caused by a declining interestrate environment in the twelve months ended June 30, 2003. A valuationallowance of $4,208,000 was recognized in the fiscal year ended June 30,2003.   Amortization of mortgageservicing rights acquired increased $8,745,000, to $9,049,000 for the yearended 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 inthe estimated future prepayment rates of the servicing portfolio, caused by adeclining interest rate environment in the twelve months ended June 30,2002. A valuation allowance of $5,233,000 was recognized in the fiscal yearended June 30, 2002.  Great WesternBank, Omaha is currently the only Great Western bank that services mortgageloans pursuant to purchased mortgage servicing rights. A decline in mortgageinterest rates in future periods may result in further changes in prepaymentrates and further acceleration in amortization expenses, the result of whichwill be estimated at the end of each quarter.

 

Dataprocessing costs increased $585,000, or 18.93% to $3,676,000 for the year endedJune 30, 2003, from $3,091,000 during the year ended June 30,2002.  The increase was due to internalgrowth and recent bank merger cost. Data processing costs increased $976,000, or 46.15% to $3,091,000 forthe year ended June 30, 2002, from $2,115,000 during the year endedJune 30, 2001.  The increase wasdue to acquisitions and internal growth.

 

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Equipment costs increased $247,000, or 9.84% to $2,757,000 for the yearended June 30, 2003, from $2,510,000 during the year ended June 30,2002.  The increase was due to internalgrowth. Equipment costs increased $991,000, or 65.24% to $2,510,000 for theyear ended June 30, 2002, from $1,519,000 during the year endedJune 30, 2001.  The increase wasdue to acquisitions and internal growth.

 

Advertising costs increased to $3,743,000, an increase of $1,563,000 or71.70% for the year ended June 30, 2003, from $2,180,000 during the yearended June 30, 2002. The increase was due to internal growth and one timecost of marketing related to recent bank mergers and bank name changes.  Advertising costs increased $910,000, or 71.65%to $2,180,000 for the year ended June 30, 2002, from $1,270,000 during theyear ended June 30, 2001. The increase was due to internal growth.

 

Amortization of goodwill was zero for the years ended June 30,2003 and June 30, 2002, compared to $728,000 for the year endedJune 30, 2001.  This decrease isdue to the early adoption of Statement of Financial Accounting Standard (SFAS)No. 142 *“Goodwill and Other IntangibleAssets”* (“Statement 142”) at the beginning of fiscal year 2002.  Beginning in 2002, goodwill was no longeramortized but will be evaluated at least on an annual basis forimpairment.  For the years endedJune 30, 2003 and 2002, goodwill totaling $45,930,000 and $39,315,000,respectively, was not amortized against current years operations pursuant toStatement 142.  See “ Recent AccountingPronouncement” section for further details.**** See Note 1 and Note 7“Intangible Assets” to the Consolidated Financial Statements.

 

Amortization of core deposit intangible and other intangibles was$1,901,000 for the year ended June 30, 2003 compared to $2,629,000 for theyear ended June 30, 2002.** **This decrease is due primarily toa decrease in the amortization of the core deposit intangible asset from theacquisition of Great Western Bank, Omaha. ** **Amortization of core depositintangible and other intangibles was $2,629,000 for the year endedJune 30, 2002 compared to $960,000 for the year ended June 30, 2001.** **Thisincrease is due to a full year’s amortization of the core deposit intangibleasset, $2,145,000, from the acquisition of Great Western Bank, Omaha in thethird quarter of fiscal 2001. This accounted for 81.59% of the totalamortization of core deposit intangible and other intangibles for the fiscalyear 2003.  This core deposit intangibleis being amortized on an accelerated method over 5 years.**  **SeeNote 1 and Note 7 “Intangible Assets” to the Consolidated Financial Statements.

 

Professional fees increased $454,000, or 16.75%, to $3,165,000 for theyear ended June 30, 2003, from $2,711,000 for the year ended June 30,2002. These expenses increased due to internal growth.  Professional fees increased $817,000, or43.14%, to $2,711,000 for the year ended June 30, 2002, from $1,894,000for the year ended June 30, 2001. ** ** Professional fees expenses increased for this period due to GreatWestern’s growth and acquisitions.

 

                                                Communicationexpenses increased $184,000, or 9.90%, to $2,042,000 for the year endedJune 30, 2003, from $1,858,000 for the year ended June 30, 2002.These expenses increased due to internal growth.  These expenses increased $648,000, or 53.55%, to $1,858,000 forthe year ended June 30, 2002, from $1,210,000 for the year endedJune 30, 2001. ** ** Communication expenses increased for this period due to GreatWestern’s growth and acquisitions.

 

Other operating expenses include, among many other items, armored car,supplies, correspondent bank service charges, travel and entertainment, anddues and subscriptions.  These expensesincreased $1,599,000, or 28.21%, to $7,268,000 for the year ended June 30,2003, from $5,669,000 for the year ended June 30, 2002. These expensesincreased due to 

 

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internal growth.  These expensesincreased $1,675,000, or 41.94%, to $5,669,000 for the year ended June 30,2002, from $3,994,000 for the year ended June 30, 2001. ** **Otheroperating expenses increased for this period due to Great Western’s growth andacquisitions.

 

FEDERAL INCOME TAX

 

Great Western’s consolidated income tax rate varies from statutoryrates principally due to interest income from tax-exempt securities.  The provision for income taxes increased by$2,446,000 to $9,839,000 for the year ended June 30, 2003, from $7,393,000for the year ended June 30, 2002, reflecting the increase of income beforetaxes for the period.  The provision forincome taxes increased by $2,471,000 to $7,393,000 for the year endedJune 30, 2002, from $4,922,000 for the year ended June 30, 2001,reflecting the increase of income before taxes for the period.

 

 

RECENT ACCOUNTING PRONOUNCEMENT

 

In July 2001, the Financial Accounting Standards Board (“FASB”)issued two statements-Statement 141, *BusinessCombinations,* and Statement 142, *Goodwilland Other Intangible Assets, w*hich affected Great Western’saccounting for its reported goodwill.

 

Statement 141:

•                  Eliminatesthe pooling method for accounting for business combinations.

•                  Requiresthat intangible assets that meet certain criteria be reported separately fromgoodwill.

•                  Requiresnegative goodwill arising from a business combination to be recorded as anextraordinary gain.

 

Statement 142:

•                  Eliminatesamortization of goodwill and other intangibles that are determined to have anindefinite life.

•                  Requires,at a minimum, annual impairment tests of goodwill and other intangible assetsthat are determined to have an indefinite life.

•                  Requiresthat carrying value of goodwill that exceeds its implied fair value berecognized as an impairment loss.

 

Upon adoption of these Statements, Great Western is required to:

•                  Evaluateits existing intangible assets and goodwill that were acquired in priorbusiness combinations and make any necessary reclassifications in order toconform to the new criteria.

•                  Reassessthe useful lives of intangible assets and adjust the remaining amortizationperiods accordingly.

 

The provisions of Statement 141 apply to all business combinationsinitiated after June 30, 2002 and all business combinations accounted forby the purchase method for which the date of acquisition is July 1, 2001,or later.  The provisions of Statement142 were required to be implemented by Great Western by the first quarter ofits 2003 fiscal year. Great Western has elected early adoption and implementedStatement 142 in the first quarter of fiscal 2002.  The 

 

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impact of adopting Statement 142 was to eliminate the amortization ofgoodwill and other intangibles that are determined to have an indefinite lifeand subject goodwill and other intangibles to annual impairment tests.  See Note 1 “Intangible Assets” to theconsolidated financial statements.

 

In October 2002, the FASB issued SFAS No. 147, “Acquisitions ofCertain Financial Institutions, An Amendment of FASB Statements No. 72 and 144and FASB Interpretation No. 9.” Statement 147 provides guidance for theaccounting and reporting for the acquisition of all or part of a financialinstitution and accounting for the impairment or disposal of acquired long-termcustomer-relationship intangible assets of financial institutions.  Statement 147 is effective for acquisitionsdated on or after October 1, 2002. Management does not believe this Statement will have a material effecton Great Western’s financial position, liquidity or results of operation.

 

Effective January 1, 2003, the initial recognition and measurementprovisions of FASB Interpretation No. 45 “Guarantor’s Accounting and DisclosureRequirements for Guarantees, Including Guarantees of Indebtedness of Others “applied to Great Western.  ThisInterpretation elaborates on the disclosures to be made by a guarantor aboutits obligations under certain guarantees issued.  It also clarifies that a guarantor is required to recognize, atthe inception of a guarantee, a liability for the fair value of the obligationundertaken in issuing the guarantee. The Interpretation also identifies several situations where therecognition of a liability at inception for a guarantor’s obligation is notrequired.  The Interpretation expands onthe accounting guidance of SFAS No. 5 “Accounting for Contingencies,” SFAS No.57 “Related Party Disclosures” and SFAS No. 107 “Disclosures about IndirectGuarantees of Indebtedness of Others. “ which it supersedes.  The adoption of this Interpretation did nothave material effect on Great Western’s financial position, liquidity orresults of operation. See Note 18 “Commitments and Contingencies” to theConsolidated Financial Statements.

 

In January 2003, the FASB issued Interpretation No. 46“Consolidation of Variable Interest Entities.” This Interpretation was issued in an effort to expand upon andstrengthen existing accounting guidance that addresses when a company shouldinclude in its financial statements the assets, liabilities and activities ofanother entity.  In general, a variableinterest entity is a corporation, partnership, trust, or any other legalstructure used for business purposes that either (i) does not have equityinvestors with voting rights or (ii) has equity investors that do not providesufficient financial resources for the entity to support its activities.  A variable interest entity often holdsfinancial assets, including loans or receivables, real estate or otherproperty.  To further assist financialstatement users in assessing a company’s risks, the Interpretation alsorequires disclosures about variable interest entities that the company is notrequired to consolidate but in which it has a significant variableinterest.  The consolidated requirementsof Interpretation No. 46 apply immediately to period interest entities createdafter January 31, 2003.  Theconsolidation requirements apply to older entities in the first fiscal year orinterim period regardless of when the variable interest entity was established.  Management does not believe that thisInterpretation will have a material effect on Great Western’s financialposition, liquidity or results of operation, however, management continues toreview guidance from the FASB and Federal Reserve.

 

In April 2003, FASB issued SFAS No. 149, “Amendment of Statement133 on Derivative Instruments and Hedging Activities”.  This Statement improves financial reportingby requiring that contracts with comparable characteristics be accounted forsimilarly.  In particular, thisStatement (1) clarifies under what circumstances a contract with an initial netinvestment meets the characteristics of a derivative discussed in paragraph6(b) of Statement 133, (2) clarifies when a derivative contains a financingcomponent, (3) amends the definition of an underlying to conform it to languageused in FASB Interpretation No. 45, “Guarantor’s Accounting and 

 

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Disclosure Requirements forGuarantees, Including Indirect Guarantees of Indebtedness of Others”, and (4)amends certain other existing pronouncements. Those changes will result in more consistent reporting on contracts andhedging relationships entered into or modified after June 30, 2003.   Management does not believe the abovepronouncements will have a material effect on Great Western’s financialposition, liquidity or results of operation.

 

In May 2003, FASBissued Statement of Financial Accounting Standards No. 150, “Accounting forCertain Financial Instruments with Characteristics of both Liabilities andEquity”.  This Statement establishes standardsfor how an issuer classifies and measures certain financial instruments withcharacteristics of both liabilities and equity. It requires that an issuerclassify a financial instrument that is within its scope as a liability (or anasset in some circumstances). This Statement is effective for financialinstruments entered into or modified after May 31, 2003, and otherwise iseffective at the beginning of the first interim period beginning afterJune 15, 2003, except for mandatorily redeemable financial instruments ofnonpublic entities.  Management does notbelieve the above pronouncements will have a material effect on Great Western’sfinancial position, liquidity or results of operation, however, management continuesto review guidance from the FASB and Federal Reserve.

 

ANALYSIS OF FINANCIAL CONDITION

 

LOAN PORTFOLIO

 

Total loans, net of unearnedfees, increased $125,012,000, or 8.36%, to $1,621,212,000 at June 30,2003, from $1,496,200,000 at June 30, 2002.  The increase was due to normal internal growth.** **Totalloans, 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 tothe acquisitions of First Western and Marquette that accounted for 32.61% ofthe increase and internal growth.

 

Great Western’s subsidiarybanks primarily make commercial loans to small and medium-sized businesses andprofessionals and installment loans to individuals.  The subsidiary banks offer a variety of commercial lendingproducts including revolving lines of credit, letters of credit, workingcapital loans and loans to finance accounts receivable, inventory andequipment.  See “Business-Loans.”  Typically, the subsidiary banks’ commercialloans have floating rates of interest, are for varying terms, (generally notexceeding five years), are personally guaranteed by principals of the borrowingcompany, and are collateralized by accounts receivable, inventory or otherbusiness assets.

 

The following tables presentGreat Western’s loan balances at the dates indicated categorized by loan type:

 
|                            |   | **June 30, 2003**     |      | **June 30, 2002** |   | **June 30, 2001** |   |
|---------------------------------|--------|----------------------------|-----------|------------------------|--------|------------------------|--------|
|                            |   | **(dollars in thousands)** |      |
| Loans to individuals            |   | $                          | 190,579   |                   | 11.91  | %                      | $      | 199,896 |   | 13.55 | % | $ | 215,071 |   | 16.75 | % |
| Real estate loans               |   | 194,367                    |      | 12.15                  |   | 164,812                |   | 11.17 |   | 172,786 |   | 13.46 |   |
| Commercial and  agricultural    |   | 1,235,406                  |      | 77.22                  |   | 1,126,417              |   | 76.32 |   | 912,611 |   | 71.07 |   |
| Other loans                     |   | 2,576                      |      | 0.16                   |   | 6,241                  |   | 0.42 |   | 3,242 |   | 0.25 |   |
| Total face amount of loans      |   | 1,622,928                  |      | 101.44                 |   | 1,497,366              |   | 101.46 |   | 1,303,710 |   | 101.53 |   |
| Unearned loan fees              |   | (1,716                     | )         | (0.11                  | )      | (1,166                 | )      | (0.08 | ) | (661 | ) | (0.05 | ) |
| Loans                           |   | 1,621,212                  |      | 101.33                 |   | 1,496,200              |   | 101.38 |   | 1,303,049 |   | 101.48 | % |
| Less allowance for loan  losses |   | (21,251                    | )         | (1.33                  | )      | (20,344                | )      | (1.38 | ) | (18,955 | ) | (1.48 | ) |
| Net Loans                       |   | $                          | 1,599,961 |                   | 100.00 | %                      | $      | 1,475,856 |   | 100.00 | % | $ | 1,284,094 |   | 100.00 | % |

 

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|                            |   | **June 30, 2000**     |       | **June 30, 1999** | ** ** |
|---------------------------------|--------|----------------------------|------------|------------------------|------------|
|                            |   | **(dollars in thousands)** | ** ** |
| Loans to individuals            |   | $                          | 106,499    |                   | 17.00      | % | $ | 86,243 |   | 16.71 | % |
| Real estate loans               |   | 135,033                    |       | 21.55                  |       | 107,944 |   | 20.92 |   |
| Commercial and  agricultural    |   | 388,615                    |       | 62.03                  |       | 326,515 |   | 63.28 |   |
| Other loans                     |   | 4,910                      |       | 0.78                   |       | 2,563 |   | 0.50 |   |
| Total face amount of loans      |   | 635,057                    |       | 101.36                 |       | 523,265 |   | 101.41 |   |
| Unearned loan fees              |   | (300                       | )          | (0.05                  | )          | (465 | ) | (0.09 | ) |
| Loans                           |   | 634,757                    |       | 101.31                 | %          | 522,800 |   | 101.32 | % |
| Less allowance for loan  losses |   | (8,197                     | )          | (1.31                  | )          | (6,838 | ) | (1.32 | ) |
| Net loans                       |   | $                          | 626,560    |                   | 100.00     | % | $ | 515,962 |   | 100.00 | % |

 

Great Western’s primarycategory of loans, commercial and agricultural loans, constituting overthree-fourths of loans as of June 30, 2003, trended upward as indicated atthe stated dates.  At June 30,2003, agricultural loans totaled $182,079,000. Of this amount, $78,897,000 comprised loans secured by agricultural realestate, and $103,182,000 comprised loans secured by agricultural operatingassets.  At June 30, 2002,agricultural loans totaled $174,076,000. Of this amount, $65,215,000 comprised loans secured by agricultural realestate, and $108,861,000 comprised loans secured by agricultural operatingassets.

 

Commercial and agriculturalloans were $1,235,406,000 as of June 30, 2003, an increase of $108,989,000over the $1,126,417,000 balance as of June 30, 2002.  This increase is due to internal growth.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 primarily due tointernal growth, which accounted for 62.63% of the growth for these loantypes.  The acquisition of First Westernand Marquette accounted for 37.37% of the increase.

 

Loan concentrations areconsidered to exist when there are amounts loaned to a multiple number ofborrowers engaged in similar activities, or loans secured by similarcollateral, that would cause them to be similarly impacted by economic or otherconditions. Great Western had loans secured by real estate amounting to$942,601,000 as of June 30, 2003, an increase of $174,715,000 over the$767,886,000 balance as of June 30,2002. Other than loans secured by real estate and the loan categories setforth in the above table, Great Western had no concentrations of loans atJune 30, 2003. Great Western had no loans outstanding to foreign countriesor borrowers headquartered in foreign countries at June 30, 2003.

 

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Management of GreatWestern’s subsidiary banks may renew loans at maturity, when requested by acustomer whose financial strength appears to support such renewal or when suchrenewal appears to be in Great Western’s best interest.  Great Western requires payment of accruedinterest in such instances and may adjust the rate of interest, require aprincipal reduction or modify other terms of the loan at the time of renewal.

 

Although the risk ofnon-payment exists for a variety of reasons relating to all loans, other morespecific risks are associated with each type of loan.  Risks associated with real estate mortgage loans include the borrower’sinability to pay and deterioration in value of real estate held ascollateral.  Several risks are presentin construction loans, including economic conditions in the building industry,fluctuating land values, failure of the contractor to complete work and theborrower’s inability to repay.  As ofJune 30, 2003, construction loans were $149,978,000 or 9.25% of totalloans, an increase of $33,345,000 over the $116,633,000 or 7.8% of the totalloan balance as of June 30, 2002. Risks associated with commercial andagricultural loans are the quality of the borrower’s management and the impactof local economic factors as well as prices received for products andservices.  Loans to individuals face therisk of a borrower’s unemployment as a result of deteriorating economic conditionsas well as the personal circumstances of the borrower.  Management believes that risk levelsassociated with the various types of loans are dependent upon the existence ofthe risks at any particular time, for example, economic conditions in thebuilding industry.

 

LOAN MATURITIES

 

The following tablespresent, at June 30, 2003, and June 30, 2002, loans, net of unearnedfees, by maturity in each major category of Great Western’s portfolio based oncontractual repricing schedules.  Actualmaturities may differ from the contractual repricing maturities shown below asa result of renewals and prepayments. Great Western’s management evaluates loan renewals in the same manner asnew credit applications.  If loans arenot repaid upon maturity, these loans are subject to the same credit evaluationand other underwriting criteria as new loan applications, and are subject tonew terms and conditions as deemed appropriate by Great Western’s lendingpersonnel.

 
|                         |   | **At June 30, 2003**             |       |
|------------------------------|--------|---------------------------------------|------------|
|                         |   | **Over One Year  Through Five Years** |       | **Over Five Years** |   |
|                         |   | **One Year  or Less**                 |       | **Fixed Rate** |   | **Floating   Rate** |   | **Fixed Rate** |   | **Floating   Rate** |   | **Total** |   |
|                         |   | **(dollars in thousands)**            | ** ** |
| Loans to individuals         |   | $                                     | 58,926     |   | $ | 110,060 |   | $ | 2,069 |   | $ | 18,620 |   | $ | 14 |   | $ | 189,689 |   |
| Real estate loans            |   | 59,050                                |       | 26,513 |   | 68,293 |   | 35,861 |   | 1,309 |   | 191,026 |   |
| Commercial and  agricultural |   | 673,385                               |       | 343,657 |   | 189,822 |   | 26,971 |   | 2,802 |   | 1,236,637 |   |
| Other loans                  |   | 2,868                                 |       | 904 |   | 0 |   | 88 |   | 0 |   | 3,860 |   |
| Total loans                  |   | $                                     | 794,229    |   | $ | 481,134 |   | $ | 260,184 |   | $ | 81,540 |   | $ | 4,125 |   | $ | 1,621,212 |   |

 

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|                         |   | **At June 30, 2002**             |       |
|------------------------------|--------|---------------------------------------|------------|
|                         |   | **Over One Year  Through Five Years** |       | **Over Five Years** |   |
|                         |   | **One Year  or Less**                 |       | **Fixed Rate** |   | **Floating   Rate** |   | **Fixed Rate** |   | **Floating   Rate** |   | **Total** |   |
|                         |   | **(dollars in thousands)**            | ** ** |
| Loans to individuals         |   | $                                     | 46,265     |   | $ | 135,510 |   | $ | 447 |   | $ | 17,360 |   | $ | 0 |   | $ | 199,582 |   |
| Real estate loans            |   | 48,696                                |       | 31,909 |   | 56,362 |   | 26,314 |   | 2,252 |   | 165,533 |   |
| Commercial and  agricultural |   | 567,255                               |       | 344,316 |   | 189,480 |   | 23,384 |   | 246 |   | 1,124,681 |   |
| Other loans                  |   | 2,723                                 |       | 3,584 |   | 0 |   | 97 |   | 0 |   | 6,404 |   |
| Total loans                  |   | $                                     | 664,939    |   | $ | 515,319 |   | $ | 246,289 |   | $ | 67,155 |   | $ | 2,498 |   | $ | 1,496,200 |   |

 

LOAN REVIEW PROCESS

 

Great Western’s banks followboth internal and external loan review programs to evaluate the credit risk intheir loan portfolios and assess the adequacy of the allowance for loan losses.

 

Internally, each bankmaintains a classified loan list that, along with the list of non-performingloans discussed below, helps Great Western’s management assess the overallquality of the loan portfolio and the adequacy of the allowance for loanlosses.  The classification categoriesof substandard, doubtful and loss correspond with those of state and FDICexaminers.  Loans classified as“substandard” are those loans with clear and defined weaknesses such as highlyleveraged positions, unfavorable financial ratios, uncertain repayment sourcesor poor financial condition, which may jeopardize repayment.  Loans classified as “doubtful” are thoseloans that have characteristics similar to substandard loans, but also have anincreased risk of loss or would require a partial write-off inliquidation.  Although loans classifiedas substandard do not duplicate loans classified as doubtful, both substandardand 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 theprocess of being charged off.

 

In addition to theinternally classified loans, each subsidiary bank has a “watch list” of loansthat further assists monitoring of its loan portfolios.  A loan is included on the watch list if itdemonstrates one or more deficiencies requiring attention in the near term.  Such loans do not have all thecharacteristics of a classified loan (substandard, doubtful or loss), but dohave elements of weakness as compared with those of a satisfactory credit.  Management of the subsidiary banks reviewsthese loans to assist in assessing the adequacy of the allowance for loanlosses.  Substantially all of the loanson the watch list at June 30, 2003 were current and paying in accordancewith loan terms.

 

Great Western’s externalloan review process consists of an intensive on-site review of more than 40% ofdollar value of loans at each subsidiary bank (other than Great Western Bank,Omaha) during twelve to twenty-four month periods, depending onconditions.  Reviews are performed by aregional consulting firm and by loan officers of Great Western’s subsidiarybanks for Great Western Bank, Clive. The chief credit officer and loan officers of subsidiary banks performthe Great Western Bank, Watertown reviews. Great Western’s chief credit officer and its President are responsiblefor determining the frequency and scope of external loan reviews and evaluatingthe results of those reviews.  Thereport of the consulting firm and chief credit officer is presented to eachbank’s management and board of directors for review.

 

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The external review is used to supplement and provide a check on theinternal review conducted by subsidiary bank management.

 

Great Western Bank, Omaha isGreat Western’s only bank with an internal loan review staff.  Forty percent of the dollar values of GreatWestern Bank’s loans are reviewed in a 24-month cycle.   The chief credit officer of Great Westernworks with Great Western Bank’s internal review staff.

 

NON-PERFORMING LOANS

 

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

 

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

 

Assets fully orsubstantially collateralize non-performing loans.  In general, the excess of loan balances over collateral values isallocated in the allowance.  Assetsacquired through foreclosure are carried at the lower of cost or estimated fairvalue, net of estimated costs of disposal, if any.

 

The following table listsnonaccrual, over 90 days past due and restructured loans, other real estate andother repossessed assets at June 30, 2003, and for each of the prior fouryears.

 
|                                                                                                      |   | **At June 30,**       |   |
|-----------------------------------------------------------------------------------------------------------|--------|----------------------------|--------|
|                                                                                                      |   | **2003**                   |   | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** | **1999** | ** ** |
|                                                                                                      |   | **(dollars in thousands)** |   |
| Nonaccrual loans                                                                                          |   | $                          | 9,561  |   | $ | 11,592 |   | $ | 4,703 |   | $ | 1,920 |   | $ | 1,503 |   |
| Accruing loans past due  over 90 days                                                                     |   | 2,130                      |   | 1,895 |   | 1,772 |   | 2,370 |   | 1,082 |   |
| Restructured loans                                                                                        |   | 768                        |   | 3,977 |   | 13,510 |   | 5,164 |   | 5,153 |   |
| Total non-performing loans                                                                                |   | 12,459                     |   | 17,464 |   | 19,985 |   | 9,454 |   | 7,738 |   |
| Other real estate and  other repossessed assets                                                           |   | 2,208                      |   | 2,496 |   | 1,179 |   | 113 |   | 116 |   |
| Total non-performing  assets                                                                              |   | $                          | 14,667 |   | $ | 19,960 |   | $ | 21,164 |   | $ | 9,567 |   | $ | 7,854 |   |
| Ratio of total  nonperforming loans to loans, net of unearned fees                                        |   | 0.77                       | %      | 1.17 | % | 1.53 | % | 1.49 | % | 1.48 | % |
| Ratio of total  non-performing assets to total loans plus other real estate and other  repossessed assets |   | 0.90                       |   | 1.33 |   | 1.62 |   | 1.51 |   | 1.50 |   |
| Ratio of non-performing  assets to total assets                                                           |   | 0.68                       |   | 0.99 |   | 1.19 |   | 1.12 |   | 1.15 |   |

 

36

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Nonaccrual loans were$9,561,000 as of June 30, 2003, a decrease of $2,031,000 over the balanceof $11,592,000 as of June 30, 2002.** **This decrease is primarily due toone commercial borrower whose $1,400,000 loan was reclassified to other realestate owned and one commercial borrower, which had a $500,000 principalreduction. Nonaccrual loans were $11,592,000 as of June 30, 2002, anincrease of $6,889,000 over the balance of $4,703,000 as of June 30, 2001.** **Thisincrease is primarily due to internal growth and acquisitions in fiscal 2002.Two loans accounted for 14.6% of the increase and acquisition of Marquette andFirst Western Banks accounted for 13.8% of the increase.

 

Restructured loans were****$768,000 and $3,977,000 at June 30,2003 and 2002, respectively.   Thedecrease is primarily due to a single commercial borrower refinancing a$3,100,000 loan, which resulted in this loan being reclassified.  Restructured loans were****$3,977,000 and $13,510,000 atJune 30, 2002, and 2001, respectively.  A single commercial borrower paid off a total of $7,379,543 ofrestructured loans in February 2002. This primarily caused the decrease in restructured loans andnon-performing loans and assets in fiscal year 2002.

 

A potential problem loan isdefined as a loan where information about possible credit problems of the borroweris known, causing management to have serious doubts as to the ability of theborrower to comply with the present loan repayment terms and which may resultin the inclusion of such loan in one of the nonperforming asset categories.  Great Western does not believe it has anypotential problem loans other than those reported in the above table.

 

Foreclosures on defaultedloans result in Great Western acquiring other real estate and other repossessedassets.  Accordingly, Great Westernincurs other expenses, specifically net costs applicable to other real estateand other repossessed assets, in maintaining, insuring and selling suchassets.  Great Western’s subsidiarybanks attempt to convert nonperforming loans into interest-earning assetseither through liquidation of the collateral securing the loan or throughintensified collection efforts.

 

ALLOWANCE FOR LOAN LOSSES

 

Implicit in Great Western’slending activities is the fact that loan losses will be incurred and that therisk of loss will vary with the type of loan being made and thecreditworthiness of the borrower over the term of the loan.  To reflect the currently perceived risk ofloss associated with Great Western’s loan portfolio, provisions are made to theallowance for loan losses.  The allowanceis created by direct charges of the provision against income and the allowanceis available to absorb realized loan losses.

 

The allowance for loanlosses is maintained to absorb probable losses inherent in the loanportfolio.  Great Western’s allowancewas $21,251,000 or 1.31% of loans, net of unearned fees, at June 30, 2003compared to  $20,344,000 or 1.36% ofloans, net of unearned fees, at June 30, 2002, and $18,955,000 or 1.45% ofloans, net of unearned fees, at June 30, 2001. The increase in fiscal year2003 compared to 2002 is due primarily to loan growth.  The increase in the total allowance is dueto acquisitions and internal growth when comparing fiscal 2002 to 2001.

 

37

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Management performs regularmonthly assessments of these estimated losses by utilizing a methodology thatrelies on several key elements. Larger-balance, non-homogeneous loans representing significantindividual credit exposures are evaluated based upon the borrower’s overall financialcondition, resources and payment record; the prospects for support from anyfinancially responsible guarantors and, if appropriate, the realizable value ofthe collateral.  The allowance on theseloans is calculated by applying loss factors to outstanding loans and certainunused commitments.  Loss factorsinclude management’s assessment of current economic conditions and thepotential impact on various industries, and the financial conditions of theborrowers.

 

Net loans charged off forthe year ended June 30, 2003 was $3,464,000 compared with $5,677,000 in2002 and $2,296,000 in 2001.  Oneborrower accounted for $2,653,000 of the loans charged-off for the fiscal year2002.

 

Specific allowances aremaintained for larger-balance, non-homogeneous loans that have beenindividually determined to be impaired as prescribed by Statement of FinancialAccounting Standard No. 114, “Accounting by Creditors for Impairment of aLoan.”  Impairment is measured on aloan-by-loan basis for these loans by either the present value of the expectedfuture cash flows discounted at the loan’s effective interest rate, the loan’sobtainable market price, or the method predominantly used, which is the fairvalue of the collateral.

 

Each portfolio of smallerbalance, homogeneous loans, including individual installment, consumer andresidential loans, is collectively evaluated for impairment.  The allowance for loan losses attributed tothese loans is established from an estimate of probable losses inherent in theportfolio.  Loss factors are applied tooutstanding loans based upon historical credit losses, trends in volumes andterms of loans, and consideration of economic, geographical, product and otherfactors.

 

The allowance for loanlosses is based upon estimates, and actual charge-offs can vary significantlyfrom the estimated amounts.  Byassessing the probable estimated losses inherent in the loan portfolio on aquarterly or more frequent basis, adjustments are made to specific and inherentloss estimates based upon the most recent information available.

 

The following table presentsthe provisions, loans charged off and recoveries of loans previously chargedoff, the amount of the allowance, average loans outstanding and certainpertinent ratios for the year ended June 30, 2003, and for each of theprior four years.

 
|                                                         |   | **At June 30,**       |      |
|--------------------------------------------------------------|--------|----------------------------|-----------|
|                                                         |   | **2003**                   |      | **2002** |   | **2001** |   | **2000** |   | **1999** |   |
|                                                         |   | **(dollars in thousands)** |      |
| Average loans  outstanding(1)                                |   | $                          | 1,550,457 |   | $ | 1,368,931 |   | $ | 844,280 |   | $ | 567,658 |   | $ | 479,533 |   |
| Total loans at end of  period(1)                             |   | $                          | 1,621,212 |   | $ | 1,496,200 |   | $ | 1,303,049 |   | $ | 634,757 |   | $ | 522,800 |   |
| Allowance at beginning of  period                            |   | $                          | 20,344    |   | $ | 18,955 |   | $ | 8,197 |   | $ | 6,701 | (2) | $ | 6,276 |   |
| Loans charged off:                                           |   |                       |      |   |   |   |   |   |   |   |   |
| Loans to individuals                                         |   | 858                        |      | 1,197 |   | 828 |   | 399 |   | 216 |   |
| Real estate loans                                            |   | 292                        |      | 288 |   | 402 |   | 68 |   | 57 |   |
| Commercial and  agricultural                                 |   | 2,729                      |      | 5,046 |   | 899 |   | 217 |   | 855 |   |
| Other loans                                                  |   | 181                        |      | (80 | ) | 498 |   | 198 |   | 106 |   |
| Total charge-offs                                            |   | 4,060                      |      | 6,451 |   | 2,627 |   | 882 |   | 1,234 |   |
|                                                         |   |                       |      |   |   |   |   |   |   |   |   |
| Recoveries of loans  previously charged off:                 |   |                       |      |   |   |   |   |   |   |   |   |
| Loans to individuals                                         |   | 221                        |      | 190 |   | 223 |   | 110 |   | 89 |   |
| Real estate loans                                            |   | 116                        |      | 104 |   | 12 |   | 46 |   | 9 |   |
| Commercial and  agricultural                                 |   | 233                        |      | 446 |   | 72 |   | 115 |   | 133 |   |
| Other loans                                                  |   | 26                         |      | 34 |   | 24 |   | 71 |   | 2 |   |
| Total recoveries                                             |   | 596                        |      | 774 |   | 331 |   | 342 |   | 233 |   |
|                                                         |   |                       |      |   |   |   |   |   |   |   |   |
| Net loans charged off                                        |   | 3,464                      |      | 5,677 |   | 2,296 |   | 540 |   | 1,001 |   |
| Provision for loan losses                                    |   | 4,371                      |      | 6,067 |   | 2,618 |   | 2,036 |   | 1,563 |   |
| Business acquisition(3)                                      |   | 0                          |      | 999 |   | 10,436 |   | 0 |   | 0 |   |
| Allowance at end of period                                   |   | $                          | 21,251    |   | $ | 20,344 |   | $ | 18,955 |   | $ | 8,197 |   | $ | 6,838 | (2) |
|                                                         |   |                       |      |   |   |   |   |   |   |   |   |
| Net loans charged off to  average loans, net unearned income |   | 0.22                       | %         | 0.41 | % | 0.27 | % | 0.10 | % | 0.21 | % |
| Allowance for loan losses  to loans, net unearned income     |   | 1.31                       | %         | 1.36 | % | 1.45 | % | 1.29 | % | 1.31 | % |

 

----

(1)          Netof unearned fees.

(2)          Restatedbalance at end of 1999 does not equal the 2000 beginning due to a change inreporting periods. 

(3)          Theallowance for loan losses includes the allowance related to Iowa State Bank,Hamburg, Iowa and United National Bank, Sidney, Iowa (collectively) for theirmerger into Great Western Bank, Clive (successor by merger to Citizens Bank,Mt. Ayr, Iowa) of $2,153,000, the allowance related to Founders Trust NationalBank, Sioux Falls, South Dakota for its merger into Great Western Bank,Watertown (formerly F&M Bank) of $304,000, allowance related to acquisitionof Great Western Bank, Omaha, Nebraska of $7,979,000 and the allowance of$999,000 related to the acquisition of First Western and Marquette banks(collectively) for their merger into Great Western Bank, Watertown (formerlyF&M Bank).  See “NonperformingLoans.”

 

38

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Management and the boards ofdirectors of the subsidiary banks make credit and loan decisions in conformitywith loan policies established by their boards of directors.  The subsidiary banks’ practices are tocharge off any loan or portion of a loan when the loan is determined bymanagement to be uncollectable due to the borrower’s failure to meet repaymentterms, the borrower’s deteriorating or deteriorated financial condition, thedepreciation of the underlying collateral, the loan’s classification as a lossby regulatory examiners or for other reasons. Great Western charged off $4,060,000 during the year ended June 30,2003 and $6,451,000 for June 30, 2002. Recoveries during fiscal year 2003were $596,000 when compared to $774,000 for fiscal year June 30,2002.  Great Western charged off$6,451,000 during the year ended June 30, 2002 and $2,627,000 forJune 30, 2001.  One borroweraccounted for $2,653,000 or 41.10% of the total charged off loans for thefiscal year 2002 as discussed earlier in this section.** **Recoveriesduring fiscal year 2002 were $774,000 when

 

39

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compared to $331,000 for fiscal year June 30, 2001.** **Onecommercial borrower accounted for $316,000 or 40.8% of the total recoveries infiscal year 2002.  See “Non-PerformingLoans”.

 

The following table showsthe allocations in the allowance and the respective percentages of each loancategory to total loans at June 30, 2003, and at year-end for each of theprior four years. Portions of the allowance have been allocated to categoriesbased on an analysis of the status of particular loans and homogenous pools ofloans.  The allocation table should notbe interpreted as an indication of the specific amounts, by loanclassification, to be charged to the allowance.  Management believes that the table may be useful information forassessing the adequacy of the allowance as a whole.  The table has been derived in part by applying historical loanloss ratios to both internally classified loans and the portfolio as a whole indetermining the allocation of the loan losses attributable to each category ofloans.

 
|                             |   | **At June 30, 2003**  |       | **At June 30, 2002**                     |   | **At June 30, 2001** |   |
|----------------------------------|--------|----------------------------|------------|-----------------------------------------------|--------|---------------------------|--------|
|                             |   | **Amount of  Allowance**   |       | **Percent  of  Loans by  Category  to Loans** |   | **Amount of  Allowance**  |   | **Percent  of  Loans by  Category  to Loans** |   | **Amount of  Allowance** |   | **Percent  of  Loans by  Category  to Loans** |   |
|                             |   | **(dollars in thousands)** | ** ** |
| Loans to individuals             |   | $                          | 2,003      |                                          | 11.74  | %                         | $      | 2,401 |   | 13.35 | % | $ | 4,023 |   | 16.50 | % |
| Real estate loans                |   | 2,109                      |       | 11.98                                         |   | 1,999                     |   | 11.05 |   | 1,719 |   | 13.25 |   |
| Commercial and  agricultural     |   | 16,481                     |       | 76.12                                         |   | 15,554                    |   | 75.17 |   | 13,034 |   | 70.00 |   |
| Other loans                      |   | 658                        |       | 0.16                                          |   | 390                       |   | 0.43 |   | 179 |   | 0.25 |   |
| Total allowance for loan  losses |   | $                          | 21,251     |                                          | 100.00 | %                         | $      | 20,344 |   | 100.00 | % | $ | 18,955 |   | 100.00 | % |

 

 
|                             |   | **At June 30, 2000**  | ** ** | **At June 30, 1999**                     | ** ** |
|----------------------------------|--------|----------------------------|------------|-----------------------------------------------|------------|
|                             |   | **Amount of  Allowance**   |       | **Percent  of  Loans by  Category  To Loans** | ** ** | **Amount of  Allowance** | ** ** | **Percent  of  Loans by  Category  to Loans** | ** ** |
|                             |   | **(dollars in thousands)** | ** ** |
| Loans to individuals             |   | $                          | 1,383      |                                          | 16.77      | % | $ | 877 |   | 16.48 | % |
| Real estate loans                |   | 1,288                      |       | 21.26                                         |       | 980 |   | 20.63 |   |
| Commercial and  agricultural     |   | 5,266                      |       | 61.20                                         |       | 4,876 |   | 62.40 |   |
| Other loans                      |   | 260                        |       | 0.77                                          |       | 105 |   | 0.49 |   |
| Total allowance for loan  losses |   | $                          | 8,197      |                                          | 100.00     | % | $ | 6,838 |   | 100.00 | % |

 

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SECURITIES

 

Securities, all of which areclassified as available-for-sale, decreased $20,923,000, or 6.26%, to$313,136,000 at June 30, 2003, from $334,059,000 at June 30,2002.  The decrease was due to fundingthe growth in loans versus reinvesting in securities.  Securities increased $69,049,000, or 26.06%, to $334,059,000 atJune 30, 2002, from $265,010,000 at June 30, 2001.  The increase was due to internal growth andacquisitions.

 

The board of directors ofeach subsidiary bank reviews all securities transactions at each board meetingand the securities portfolio periodically.  For obligations of U.S. Government agencies and corporation, state,county, municipal and other securities, Great Western’s investment policyallows for the purchase of securities with maturities in excess of tenyears.  As of June 30, 2003, 96.03%of Great Western’s securities with defined maturities mature in less than tenyears.  Mortgage-backed securities aredeemed not to have defined maturities for purposes of this analysis.

 

As of June 30, 2003,88.80% of Great Western’s investment portfolio had defined maturities.  The investment portfolio with definedmaturities was concentrated in the following categories: obligations of theU.S. Treasury, U.S. government agencies, corporations and state and localpolitical subdivisions totaled $238,586,000, or 76.19% of the portfolio and corporatedebt totaled $30,873,000, or 9.86% of the portfolio.  Mortgage-backed securities totaled $35,061,000 or 11.20% of GreatWestern’s investment portfolio.  Theremaining $8,616,000 or 2.75% of Great Western’s investment portfolio is inequity securities, which primarily are stock in the Federal Home Loan Banks ofDes Moines and Topeka totaled $7,503,000 as of June 30, 2003.

 

Certain of Great Western’ssecurities are pledged to secure public and trust fund deposits and for otherpurposes required or permitted by law. At June 30, 2003, the face value of U.S. Government and othersecurities so pledged amounted to $197,528,000, or 63.08% of the totalsecurities portfolio.

 

The following table providesthe maturity distribution and weighted average interest rates of GreatWestern’s securities portfolio at June 30, 2003.  The yield has been computed by dividing the forward annualizedincome stream on the securities, plus or minus the anticipated amortization ofpremium or accretion of discount, by the book value of the securities.  The book

 

41

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value of available-for-sale securities is their fair value.  All securities are classified asavailable-for-sale.  The restatement ofthe yields on tax-exempt securities to a fully taxable-equivalent basis hasbeen computed assuming a tax rate of 35%. The equity securities are primarily composed of stock in the FederalHome Loan Banks of Des Moines and Topeka. The yield is set quarterly by each Federal Home Loan Bank’s board ofdirectors.  For the quarter endedJune 30, 2003, the yields were 3.00% and 3.50%****at Federal Home Loan Banks of Des Moines and Topeka,respectively.

 
|                                                             |   | **At  June 30, 2003**  |    |
|------------------------------------------------------------------|--------|-----------------------------|---------|
| **Type and Maturity**                                            |   | **Principal  Amount**       |    | **Amortized  Cost** |   | **Estimated  Fair  Value** |   | **Weighted  Average  Yield** |   |
|                                                             |   | **(dollars  in thousands)** |    |
| U.S. Treasury securities:                                        |   |                        |    |   |   |   |   |   |   |
| Within one year                                                  |   | $                           | 2,500   |   | $ | 2,492 |   | $ | 2,531 |   | 5.71 | % |
| After one but within five years                                  |   | 16,000                      |    | 16,225 |   | 16,419 |   | 2.44 |   |
| After five but within 10 years                                   |   | 10,000                      |    | 10,078 |   | 10,300 |   | 3.53 |   |
|                                                             |   |                        |    |   |   |   |   |   |   |
| Total U.S. Treasury securities                                   |   | 28,500                      |    | 28,795 |   | 29,250 |   | 3.10 |   |
|                                                             |   |                        |    |   |   |   |   |   |   |
| Obligations of other U.S. Government  agencies and corporations: |   |                        |    |   |   |   |   |   |   |
| Within one year                                                  |   | 23,150                      |    | 23,195 |   | 23,610 |   | 4.22 |   |
| After one but within five years                                  |   | 118,079                     |    | 118,390 |   | 122,035 |   | 3.52 |   |
| After five but within ten years                                  |   | 12,000                      |    | 12,013 |   | 12,260 |   | 3.82 |   |
| After ten years                                                  |   | 5,000                       |    | 4,988 |   | 4,989 |   | 4.30 |   |
| Total obligations of U.S. Government  agencies and corporations  |   | 158,229                     |    | 158,586 |   | 162,894 |   | 3.67 |   |
|                                                             |   |                        |    |   |   |   |   |   |   |
| Obligations of states and political  subdivisions:               |   |                        |    |   |   |   |   |   |   |
| Within one year                                                  |   | 3,582                       |    | 3,602 |   | 3,658 |   | 7.42 |   |
| After one but within five years                                  |   | 21,598                      |    | 21,954 |   | 22,982 |   | 5.82 |   |
| After five but within ten years                                  |   | 14,833                      |    | 14,920 |   | 15,923 |   | 7.45 |   |
| After ten years                                                  |   | 3,580                       |    | 3,591 |   | 3,879 |   | 7.44 |   |
| Total obligations of states and political  subdivisions          |   | 43,593                      |    | 44,067 |   | 46,442 |   | 6.60 |   |
|                                                             |   |                        |    |   |   |   |   |   |   |
| Other securities:                                                |   |                        |    |   |   |   |   |   |   |
| Within one year                                                  |   | 1,000                       |    | 1,000 |   | 1,010 |   | 2.37 |   |
| After one but within five years                                  |   | 22,096                      |    | 22,402 |   | 23,614 |   | 5.39 |   |
| After five but within ten years                                  |   | 4,000                       |    | 4,081 |   | 4,424 |   | 6.30 |   |
| After ten years                                                  |   | 2,000                       |    | 1,950 |   | 1,825 |   | 2.34 |   |
| Total other securities                                           |   | 29,096                      |    | 29,433 |   | 30,873 |   | 5.06 |   |
|                                                             |   |                        |    |   |   |   |   |   |   |
| Total securities with defined maturities                         |   | 259,418                     |    | 260,881 |   | 269,459 |   | 4.02 |   |
|                                                             |   |                        |    |   |   |   |   |   |   |
| Mortgage-Backed Securities                                       |   | 33,690                      |    | 34,052 |   | 35,061 |   | 5.34 |   |
|                                                             |   |                        |    |   |   |   |   |   |   |
| Equity securities                                                |   | 8,505                       |    | 8,505 |   | 8,616 |   | 3.03 |   |
|                                                             |   |                        |    |   |   |   |   |   |   |
| Total securities                                                 |   | $                           | 301,613 |   | $ | 303,438 |   | $ | 313,136 |   | 4.09 | % |

 

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DEPOSITS

 

Total deposits increased$99,063,000, or 6.06%, to $1,735,030,000 at June 30, 2003, from$1,635,967,000 at June 30, 2002. The increase in deposits is primarily due to internal growth.  Total deposits increased $214,877,000, or15.12%, to $1,635,967,000 at June 30, 2002, from $1,421,090,000 atJune 30, 2001.  The increase indeposits is due to internal growth and the purchase of First Western andMarquette Banks, which account for 46.37% of the increase.  See “Mergers and Acquisitions”.

 

The following table presents the average amounts and the average ratespaid on deposits of Great Western for the year ended June 30, 2003, andfor each of the prior two years:

 
|                                                        |   | **Year Ended  June 30,** |      |
|-------------------------------------------------------------|--------|-------------------------------|-----------|
|                                                        |   | **2003**                      |      | **2002** |   | **2001** |   |
|                                                        |   | **Average  Amount**           |      | **Average  Rate** |   | **Average  Amount** |   | **Average  Rate** |   | **Average  Amount** |   | **Average  Rate** |   |
|                                                        |   | **(dollars  in thousands)**   |      |
| Interest-bearing demand, savings and money  market deposits |   | $                             | 601,694   |   | 1.05 | % | $ | 522,953 |   | 2.44 | % | $ | 290,984 |   | 2.93 | % |
| Time deposits of less than $100,000                         |   | 593,428                       |      | 3.48 |   | 564,126 |   | 4.32 |   | 412,866 |   | 6.05 |   |
| Time deposits of $100,000 or more                           |   | 257,055                       |      | 3.42 |   | 230,535 |   | 4.13 |   | 145,453 |   | 6.05 |   |
| Total interest-bearing deposits                             |   | 1,452,177                     |      | 2.46 |   | 1,317,614 |   | 3.54 |   | 849,303 |   | 4.98 |   |
| Noninterest-bearing demand deposits                         |   | 233,594                       |      | 0.00 |   | 177,411 |   | 0.00 |   | 95,070 |   | 0.00 |   |
| Total deposits                                              |   | $                             | 1,685,771 |   | 2.12 | % | $ | 1,495,025 |   | 3.12 | % | $ | 944,373 |   | 4.48 | % |

 

The maturity distribution oftime deposits of $100,000 or more at June 30, 2003 is presented below:

 
|                                     |   | **At June 30, 2003** |    |
|------------------------------------------|--------|---------------------------|---------|
|                                     |   | **(in thousands)**        |    |
| 3 months or less                         |   | $                         | 66,486  |   |
| Over 3 through 6 months                  |   | 51,876                    |    |
| Over 6 through 12 months                 |   | 71,171                    |    |
| Over 12 months                           |   | 75,777                    |    |
| Total time deposits of  $100,000 or more |   | $                         | 265,310 |   |

 

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

 

SHORT-TERM BORROWINGS

 

Short-term borrowingsinclude Federal Funds purchased and securities sold under agreement torepurchase.   See Note 10 to the “Notesto Consolidated Financial Statements” for additional information regardingshort-term borrowings.

 

FEDERAL HOME LOAN BANK BORROWINGS

 

All of the subsidiary banksare members of the Federal Home Loan Bank. Due to the competitive rates available, each subsidiary bank hasutilized Federal Home Loan Bank advances as a source of funding.  At June 30, 2003, the subsidiary bankshad $102,162,000 in Federal Home Loan Bank advances compared to $69,337,000 atJune 30, 2002 and $70,696,000 at June 30, 2001.  At June 30, 2003, based on its FederalHome Loan Bank stockholdings, the aggregate unused borrowing capacity of GreatWestern was $97,793,000.

 

A variety of borrowing termsand maturities can be chosen from the Federal Home Loan Bank.  Maturities available range generally fromone day to 10 years.  Interest rates canbe either fixed or variable and prepayment options are available ifdesired.  The Federal Home Loan Bank offersboth amortizing and non-amortizing advances. Historically, Federal Home Loan Bank stock has been redeemable at thepreset price of $100 per share, its current carrying value, but there can be noassurance that this policy will continue.

 

NOTES PAYABLE TO BANK

 

Great Western has notespayable to an unaffiliated bank of $7,500,000 at June 30, 2003 compared to$17,500,000 at June 30, 2002 and $9,750,000 at June 30, 2001.  The decrease when comparing June 30,2003 to June 30, 2002 is due to a note payoff; the source of funds for thepayoff came from Great Western issuing $10,000,000 of company obligatedmandatorily redeemable preferred securities of a subsidiary trust.  The increase when comparing June 30,2002 to June 30, 2001 is due to the Marquette and First Western Bankacquisitions in fiscal 2002 and the Great Western Bank, Omaha acquisition infiscal 2001.

 

Great Western has committedto maintain specific covenants each quarter and year-end with the unaffiliatedbank as stated in the March 23, 2001 loan agreement.  For the period ended June 30, 2003,Great Western satisfies all covenants. 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 anunaffiliated bank of $35,000,000 to purchase Great Western’s subordinatedcapital notes.  The loan has thefollowing terms: the option to either fix the rate of interest at the five-yeartreasury rate plus 350 basis points but not less than the lender’s cost offunds plus 250 basis points at the date the loan is closed, or to select a rateof interest at LIBOR plus 215 basis points fixed at intervals ranging from 30days to 180 days.   Interest is payablequarterly and principal due March 23, 2006, but expected to be payable inequal installments annually in each year beginning 2007 through 2011.  Capital Investors collateralized itsborrowing by pledging the subordinated capital notes to the unaffiliatedbank.  In addition, the stockholders ofGreat Western pledged their common stock as additional collateral for CapitalInvestors’ loan.

 

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LINE OF CREDIT

 

Great Western has a$5,000,000 revolving line of credit from the unaffiliated bank, to be used byGreat Western as a short-term liquidity facility.  Great Western entered into a covenant with the unaffiliatedlender not to pledge the stock of its subsidiary banks except to the lender ascollateral for Great Western’s loans.

 

LIQUIDITY

 

SOURCES OF LIQUIDITY

 

Liquidity with respect to afinancial institution is the ability to meet its short-term needs for cashwithout suffering an unfavorable impact on its on-going operations. The needfor the subsidiary banks to maintain funds on hand arises principally frommaturities of short-term borrowings, deposit withdrawals, customers’ borrowingneeds and the maintenance of reserve requirements.  Liquidity with respect to a financial institution can be met fromeither assets or liabilities.  On theasset side of the balance sheet, the primary sources of liquidity are cash anddue from banks, federal funds sold, maturities of securities and scheduledrepayments and maturities of loans. The subsidiary banks maintain adequatelevels of cash and near-cash investments to meet their day-to-day needs.  Cash and due from banks averaged $52,070,000and $46,285,000 during the years ended June 30, 2003 and 2002.  These amounts comprised 2.50% and 2.48% ofaverage total assets during the years ended June 30, 2003 and 2002.  The average level of securities and federalfunds sold was $364,232,000 and $334,296,000 during the years endedJune 30, 2003 and 2002.

 

At June 30, 2003,$30,809,000, or 11.43%, of Great Western’s securities portfolio, excludingmortgage-backed securities and equity securities, is scheduled to mature withinone year and $185,050,000 or 68.67%, excluding mortgage-backed securities,matured after one but within five years. The subsidiary banks’ commerciallending activities are concentrated in loans with maturities of less than fiveyears and with both fixed and adjustable interest rates.  Its installment lending activities areconcentrated in loans with maturities of three to six years and with generallyfixed interest rates. At June 30, 2003, approximately $794,229,000, or48.99%, of Great Western’s loans, net of unearned fees, matures within oneyear.  See “Loan Maturities.”

 

On the liability side of thebalance sheet, the principal sources of liquidity are deposits, borrowed fundsand accessibility to money and capital markets.  Great Western attracts its deposits primarily from individualsand 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 Bankborrowings, Great Western’s notes payable to an unaffiliated bank and the saleof subordinated capital notes to an affiliate. Interest is due quarterly to the unaffiliated bank at either thelender’s cost of funds plus 1.75% per annum or the LIBOR rate plus 1.50% (fixedfor periods of up to 180 days) per annum, at the option of Great Western.  The maturity dates of these outstandingdebts are March 23, 2006.  OnAugust 12, 1999, Great Western issued $20,400,000 of company obligatedmandatorily redeemable preferred securities of a subsidiary trust, withinterest due at 10% per annum payable quarterly.  The maturity date of the securities is August 18, 2029.  On March 19, 2001 Great Western issued$27,600,000 of company obligated mandatorily redeemable preferred securities ofa subsidiary trust, with interest due at 9.75% per annum payablequarterly.  The maturity date of thesecurities is March 19, 2031.** **On October 29, 2002, GreatWestern issued $10,000,000 of company obligated mandatorily redeemablepreferred securities of a subsidiary trust, with interest payable quarterly atthree month LIBOR plus 345 basis points, set quarterly.

 

45

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CAPITAL RESOURCES

 

Great Western monitorscompliance 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 30,2003, Great Western was above the total capital minimum requirements.  Under the risk-based capital method ofcapital measurement, the ratio computed is dependent upon the amount andcomposition of assets recorded on the balance sheet, and the amount andcomposition of off-balance sheet items, in addition to the level ofcapital.  Included in the risk-basedcapital method are two measures of capital adequacy, core capital and totalcapital, which consist of core and supplementary capital.

 

The following tables presentGreat Western’s capital ratios as of the indicated dates.

 
|                           |   | **Risk-Based Capital Ratios** |       |
|--------------------------------|--------|-------------------------------|------------|
|                           |   | **June 30, 2003**        |       | **June 30, 2002** |   |
|                           |   | **Amount**                    |       | **Ratio** | ** ** | **Amount** | ** ** | **Ratio** | ** ** |
|                           |   | **(dollars in thousands)**    | ** ** |
| Core (Tier I) capital          |   | $                             | 115,058    |   | 6.76 | % | $ | 96,618 |   | 6.21 | % |
|                           |   |                          |       |   |   |   |   |   |   |
| Minimum requirement            |   | 68,037                        |       | 4.00 |   | 62,257 |   | 4.00 |   |
|                           |   |                          |       |   |   |   |   |   |   |
| Excess                         |   | $                             | 47,021     |   | 2.76 | % | $ | 34,361 |   | 2.21 | % |
|                           |   |                          |       |   |   |   |   |   |   |
| Total capital                  |   | $                             | 190,323    |   | 11.19 | % | $ | 164,356 |   | 10.56 | % |
|                           |   |                          |       |   |   |   |   |   |   |
| Minimum requirement            |   | 136,074                       |       | 8.00 |   | 124,515 |   | 8.00 |   |
|                           |   |                          |       |   |   |   |   |   |   |
| Excess                         |   | $                             | 54,249     |   | 3.19 | % | $ | 39,841 |   | 2.56 | % |
|                           |   |                          |       |   |   |   |   |   |   |
| Total risk-weighted assets     |   | $                             | 1,700,925  |   |   |   | $ | 1,556,435 |   |   |   |
|                           |   |                          |       |   |   |   |   |   |   |
|                           |   | **Leverage Ratios**           | ** ** |
|                           |   | **June 30, 2003**        |       | **June 30, 2002** | ** ** |
|                           |   | **Amount**                    |       | **Ratio** | ** ** | **Amount** | ** ** | **Ratio** | ** ** |
|                           |   | **(dollars in thousands)**    | ** ** |
| Core capital                   |   | $                             | 115,058    |   | 5.55 | % | $ | 96,618 |   | 5.00 | % |
|                           |   |                          |       |   |   |   |   |   |   |
| Minimum requirement            |   | 82,905                        |       | 4.00 |   | 77,313 |   | 4.00 |   |
|                           |   |                          |       |   |   |   |   |   |   |
| Excess                         |   | $                             | 32,153     |   | 1.55 | % | $ | 19,305 |   | 1.00 | % |
|                           |   |                          |       |   |   |   |   |   |   |
| Average total adjusted  assets |   | $                             | 2,072,625  |   |   |   | $ | 1,932,825 |   |   |   |

 

IMPACT OF INFLATION

 

The effects of inflation onthe local economy and on Great Western’s operating results have been relativelymodest for the past several years. Because substantially all of Great

 

46

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Western’s assets and liabilities are monetary in nature, such as cash,securities, loans and deposits, their values are less sensitive to the effectsof inflation than to changes in interest rates, which do not necessarily changein accordance with inflation rates. Great Western attempts to control the impact of interest ratefluctuations by managing the relationship between its interest rate sensitiveassets and liabilities.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Interest rate risk ariseswhen an interest-earning asset matures, is called, is prepaid or when suchasset’s rate of interest changes in a time frame different from that of thesupporting interest-bearing liability. Great Western seeks to control the riskof significant adverse effects on Great Western’s net interest income caused byinterest rate changes.

 

Great Western does notattempt to match each interest-earning asset with a specific interest-bearingliability. Instead, as shown in the table below, it aggregates all of itsinterest-earning assets and interest-bearing liabilities to determine thedifference between the two in specific time frames. This difference is known asthe rate-sensitivity gap.  A positivegap indicates that more interest-earning assets than interest-bearingliabilities mature in a time frame, and a negative gap indicates the opposite.Maintaining a balanced rate-sensitivity gap will reduce the risk associatedwith interest rate changes, but it will not guarantee a stable interest ratespread since various rates within a particular time frame may change bydiffering amounts and in different directions. Management regularly monitorsthe rate-sensitivity gap and considers this position in its decisions withregards to interest rates and maturities for interest-earning assets acquiredand interest-bearing liabilities issued or accepted.

 

The following table showsthe ratio of the cumulative gap to total assets to be 1.65% at the less thanthree-month interval, (11.72)% at the three month to less than one-yearinterval and 10.12% at the one to five year intervals at June 30,2003.  Currently, Great Western is in aliability-sensitive position in the near term. Great Western had $613,367,000 of interest-bearing demand, savings andmoney market deposits at June 30, 2003 that are somewhat lessrate-sensitive.  Excluding thesedeposits, Great Western’s interest-sensitive ratio would have been 13.27% atthe less than three-month interval, 8.47% at the three month to less thanone-year interval and 35.82% at the one to five year intervals at June 30,2003.  The interest sensitivity positionis presented as of a point in time and can be modified to some extent bymanagement as changing conditions dictate.

 

The following table showsthe interest rate sensitivity position of Great Western at June 30, 2003:

 

47

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|                                                                                                                              |   | **Estimated Maturity or Repricing at June 30,  2003** |       |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------|------------|
|                                                                                                                              |   | **Less Than  Three  Months**                               |       | **Three  Months to  Less Than  One Year** |   | **One to  Five  Years** |   | **Over  Five  Years** |   | **Total** |   |
|                                                                                                                              |   | **(dollars in thousands)**                                 | ** ** |
| Interest-earning assets:                                                                                                          |   |                                                       |       |   |   |   |   |   |   |   |   |
|                                                                                                                              |   |                                                       |       |   |   |   |   |   |   |   |   |
| Loans, net of unearned  fees                                                                                                      |   | $                                                          | 534,431    |   | $ | 258,503 |   | $ | 737,465 |   | $ | 90,813 |   | $ | 1,621,212 |   |
| Investment securities:                                                                                                            |   |                                                       |       |   |   |   |   |   |   |   |   |
| Taxable                                                                                                                           |   | 11,288                                                     |       | 33,357 |   | 180,157 |   | 41,892 |   | 266,694 |   |
| Tax exempt                                                                                                                        |   | 401                                                        |       | 3,257 |   | 22,982 |   | 19,802 |   | 46,442 |   |
| Federal funds sold and  other                                                                                                     |   | 43,373                                                     |       | — |   | 99 |   | — |   | 43,472 |   |
| Total interest-earning  assets                                                                                                    |   | 589,493                                                    |       | 295,117 |   | 940,703 |   | 152,507 |   | 1,977,820 |   |
| Interest-bearing  liabilities:                                                                                                    |   |                                                       |       |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                         |   |                                                       |       |   |   |   |   |   |   |   |   |
| Demand, savings and money  market deposits                                                                                        |   | 249,691                                                    |       | 184,010 |   | 118,329 |   | 61,337 |   | 613,367 |   |
| Time deposits                                                                                                                     |   | 178,514                                                    |       | 382,686 |   | 298,004 |   | 298 |   | 859,502 |   |
| Federal funds purchased  and securities sold under agreements to repurchase                                                       |   | 60,163                                                     |       | — |   | — |   | — |   | 60,163 |   |
| Federal Home Loan Advances  and other                                                                                             |   | 12,004                                                     |       | 15,562 |   | 55,337 |   | 20,477 |   | 103,380 |   |
| Notes payable                                                                                                                     |   | 43,700                                                     |       | — |   | — |   | — |   | 43,700 |   |
| Company obligated  mandatorily redeemable preferred securities of subsidiary trust holding  solely junior subordinated debentures |   | $                                                          | 10,000     |   | $ | — |   | $ | — |   | $ | 48,000 |   | $ | 58,000 |   |
| Total interest-bearing  liabilities                                                                                               |   | $                                                          | 554,072    |   | $ | 582,258 |   | $ | 471,670 |   | $ | 130,112 |   | $ | 1,738,112 |   |
|                                                                                                                              |   |                                                       |       |   |   |   |   |   |   |   |   |
| Interest rate gap                                                                                                                 |   | $                                                          | 35,421     |   | $ | (287,141 | ) | $ | 469,033 |   | $ | 22,395 |   | $ | 239,708 |   |
|                                                                                                                              |   |                                                       |       |   |   |   |   |   |   |   |   |
| Cumulative interest rate  gap at June 30, 2003                                                                               |   | $                                                          | 35,421     |   | $ | (251,720 | ) | $ | 217,313 |   | $ | 239,708 |   | $ | 479,416 |   |
|                                                                                                                              |   |                                                       |       |   |   |   |   |   |   |   |   |
| Cumulative interest rate  gap to total assets                                                                                     |   | 1.65                                                       | %          | (11.72 | )% | 10.12 | % | 11.16 | % | 22.32 | % |

 

The following tableindicates that at June 30, 2003, if there had been a sudden and sustainedincrease in prevailing market interest rates, Great Western’s 2003 interestincome would be expected to decrease, while a decrease in rates would indicatean increase in income.

 
|                      |   | **Net interest income**    |         | **(Decrease) Increase** |   | **Percent Change** |   |
|---------------------------|--------|----------------------------|--------------|-------------------------|--------|--------------------|--------|
|                      |   | **(dollars in thousands)** |         |
| Changes in Interest Rates |   |                       |         |                    |   |               |   |
|                      |   |                       |         |                    |   |               |   |
| 200 basis point rise      |   | $                          |  73,896 |                    | (2,969 | )                  | (3.86  | )% |
| 100 basis point rise      |   | 75,380                     |         | (1,485                  | )      | (1.93              | )      |
| Base rate scenario        |   | 76,865                     |         | 0                       |   | 0.00               |   |
| 100 basis point decline   |   | 78,350                     |         | 1,485                   |   | 1.93               |   |
| 200 basis point decline   |   | 79,834                     |         | 2,969                   |   | 3.86               |   |
|                           |        |                            |              |                         |        |                    |        |  |

 

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The following tableindicates that at June 30, 2002, if there had been a sudden and sustainedincrease in prevailing market interest rates, Great Western’s 2003 net interestincome would be expected to decrease, while a decrease in rates would indicatean increase in income.  Great Western’sinterest rate risk profile was slightly less sensitive to changes in interestrates at June 30, 2003 versus June 30, 2002.

 
|                      |   | **Net interest income** |                       | **(Decrease)Increase** |   | **Percent Change** |   |
|---------------------------|--------|-------------------------|----------------------------|------------------------|--------|--------------------|--------|
|                      |   |                    | **(dollars in thousands)** |                   |   |
| 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               |   |
|                           |        |                         |                            |                        |        |                    |        |  |

 

ITEM 8.                        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The financial statements ofGreat Western at June 30, 2003 and 2002, together with the IndependentAuditor’s Report, are included in this Form 10-K below.

 

ITEM 9.                        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTSON ACCOUNTING AND FINANCIAL DISCLOSURE

 

GreatWestern filed a current report on Form 8-K (Item 4) during the quarter endedMarch 31, 2003.  The Form 8-K wasfiled on March 3, 2003, and reported the Audit Committee of the Board ofDirectors of Great Western Bancorporation, Inc., notified McGladrey &Pullen, LLP that they were dismissed as Great Western’s independent auditor,effective February 27, 2003.  Thereport included a letter from McGladrey & Pullen, LLP regarding itsconcurrence with a Great Western Bancorporation, Inc. statement regardingchange of accountants.

 

Great Western filed acurrent report on Form 8-K (Item 4) subsequent to the quarter ended March 31,2003.  The Form 8-K was filed onApril 1, 2003, and reported the Audit Committee of the Board of Directorsof Great Western Bancorporation, Inc, engaged BKD, LLP, as its new auditor andBKD, LLP accepted such appointment.

 

ITEM 9A.              CONTROLS AND PROCEDURES

 

Basedupon their evaluation of the effectiveness of Great Western’s disclosurecontrols and procedures (as defined in Exchange Act rules 13a-14(c) and15d-14(c), Deryl F. Hamann, Chairman of the Board, Chief Executive Officer, andJames R. Clark, Chief Financial Officer, believe that Great Western’sdisclosure controls and procedures were effective as of June 30, 2003.

 

Therewere no significant changes in Great Western’s internal controls or in otherfactors that could significantly affect these controls subsequent toJune 30, 2003 through the date of this Annual Report on Form 10-K,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 

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PART III

 

ITEM 10.                  DIRECTORS AND EXECUTIVE OFFICERS OF THEREGISTRANT

 

Theexecutive officers and directors of Great Western and their respective ages andpositions as of the date of this report are as follows:

 
| **Name**            |   | **Age** |   | **Position  with Great  Western**       |   | **Position  with Subsidiary**                                                                                                                                                                                        |
|---------------------|--------|---------|--------|-----------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Deryl F. Hamann     |   | 70      |   | Chairman of the Board, CEO and Director |   | Chairman and Director of Great Western Bank, Watertown and Great  Western Bank, Omaha                                                                                                                                |
| Daniel A. Hamann    |   | 45      |   | President, COO and Director             |   | Chairman and Director of Great Western Bank, Clive; Vice Chairman and  Director of Great Western Bank, Watertown; Chairman and Director of Great  Western Service Corporation, Director of Great Western Bank, Omaha |
| Daniel J. Brabec    |   | 44      |   | Executive Vice President and Director   |   | President, CEO and Director of Great Western Bank , Omaha                                                                                                                                                            |
| Jeffory A. Erickson |   | 45      |   | Director                                |   | President, CEO and Director of Great Western Bank, Watertown,  Director of Great Western Service Corporation                                                                                                         |
| Thomas B. Fischer   |   | 56      |   | Senior Vice President and Director      |   | None                                                                                                                                                                                                                 |
| Art N. Burtscher    |   | 52      |   | Director                                |   | Vice Chairman and Director of Great Western Bank, Omaha                                                                                                                                                              |
| Andrew C. Hove, Jr. |   | 68      |   | Director                                |   | None                                                                                                                                                                                                                 |
| Robert W. Murray    |   | 68      |   | Director                                |   | None                                                                                                                                                                                                                 |
| Leo W. Smith II     |   | 67      |   | Director                                |   | Director of Great Western Bank, Omaha                                                                                                                                                                                |
| James R. Clark      |   | 52      |   | CFO, Secretary and Treasurer            |   | None                                                                                                                                                                                                                 |
| John L. Hendren     |   | 48      |   | None                                    |   | President, CEO & Director of Great Western Bank, Clive, Iowa,  Director of Great Western Service Corporation                                                                                                     |

 

DerylF. Hamann is the father of Daniel A. Hamann and the father-in-law of Daniel J.Brabec.  All directors of Great Westernhold office until the next meeting of stockholders or until their successorsare elected and qualified.

 

**Deryl F. Hamann***.*  Mr. Hamann has been Chairman or Presidentand CEO of Great Western since 1971.  Heis Chairman of the affiliated Spectrum Life Insurance Company, an Arizonareinsurance company.  He is Chairman ofthe affiliated Spectrum Financial Services, Inc.  He is a Senior Counsel in the Omaha, Nebraska law firm of Baird,Holm, McEachen, Pedersen, Hamann & Strasheim LLP, counsel to Great Western.

 

50

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**Daniel A. Hamann***.*  Mr. Daniel Hamann has been President ofGreat Western since 1996 and served as Vice President of Great Western from1992 to 1996.  He is Chairman andDirector of Great Western Bank, Clive; Vice Chairman and Director of GreatWestern Bank, Watertown and a Director of Great Western Bank, Omaha.  He is Chairman and Director of GreatWestern’s banks’ subsidiary, Great Western Service Corporation.  He is President and Director of theaffiliated Spectrum Life Insurance Company. He is Executive Vice President ofSpectrum Financial Services, Inc., an affiliate of Great Western.

 

**Daniel J. Brabec***.*  Mr. Brabec has served as Vice President ofGreat Western since 1992 and as Executive Vice President since 1999.  Mr. Brabec served as Executive VicePresident and Director of Great Western Bank, Watertown (successor by merger toRushmore Bank & Trust) from 1993 until 1999, when he was named CFO,Secretary and Treasurer of Great Western. Mr. Brabec became President and CEO of Great Western Bank, Omaha inJanuary 2001.  He is a Director ofthe affiliated Spectrum Life Insurance Company.

 

**Jeffory A. Erickson. **Mr. Erickson has served as President and CEOof Great Western Bank, Watertown (formerly F&M Bank) since 1995.  He was elected a Director of Great Westernin January 2002.  SinceJuly 2002 he has served as Vice Chairman and Chief Executive Officerof  Rushmore Bank & Trust until itsmerger into Great Western Bank, Watertown in May 2003.

 

**Thomas B. Fischer***.*  Mr. Fischer has been President of SpectrumFinancial Services, Inc. an affiliate of Great Western since 1996.  He was elected Senior Vice President andDirector of Great Western in 1997.  From1992 to 1996, Mr. Fischer was Vice President, General Counsel, and Secretary ofFirsTier Financial, Inc., a multi-bank holding company headquartered in Omaha,Nebraska.

 

**Art N. Burtscher**. **  **Mr. Burtscher is President of McCarthy Group AssetManagement in Omaha.  He has been aDirector of Great Western since 2001. He is Vice Chairman and Director of Great Western Bank, Omaha, where heserved as President from 1988 to 2001.

 

**Andrew C. Hove, Jr**.  Mr. Hove (retired) was ViceChairman and Acting Chairman of the Federal Deposit Insurance Corporation inWashington, DC, from 1990 to 2001.  Heis 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 Great Western in 2001.

 

**Robert W. Murray**.  Mr. Murray is a Director ofEMC National Life Company, Urbandale, Iowa. He is the former Vice Chairman of National Travelers Life InsuranceCompany, former Chairman and CEO of Mercantile Bank Iowa and former Chairmanand CEO of Hawkeye Bancorporation.  Mr.Murray became a Director of Great Western in 2001.

 

**Leo W. Smith II**.  General Smith (retired) is anindependent consultant.  He has beenDirector of Great Western Bank, Omaha since September 1998 and Director ofGreat Western since May 2001. Prior to his service as a Director with United Way of the Midlands inOmaha, Nebraska, General Smith was the last Vice Commander-In-Chief of theStrategic Air Command.

 

**James R.Clark**.** **Mr.Clark joined Great Western as Chief Financial Officer, Treasurer, and Secretaryin August 2001.  From 1994 to 1999,he was Vice President of Finance and Administration of (i)Structure, Inc.  From 1977 to 1994, he held financialpositions with Peter Kiewit Sons’, Inc., Omaha, Nebraska.

 

**John L.Hendren**.  Mr. Hendren has served as President and CEOof Great Western Bank, Clive since August 2002 (formerly Citizens Bank,Clive).  Since August 1986 he hasserved as President and CEO of Citizens Bank, My Ayr until its merger intoGreat Western Bank, Clive in February 2003.  He served as a Director and Vice President of former CitizensBank of Princeton, Princeton, Missouri, since 1986 which merged into GreatWestern Bank, Clive in February 2003.

 

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ITEM 11.                  EXECUTIVE COMPENSATION

 

The following table presentsthe cash compensation paid by Great Western and its subsidiaries to certainexecutive officers for the fiscal years 2001 through 2003.  No other executive officer of Great Westernreceived compensation from Great Western exceeding $100,000 for these years.

 
| **Name and  Principal Position**                                |   | **Year** |   | **Salary** |    | **Bonus** |   | **All Other Compensation(1)** |   |
|-----------------------------------------------------------------|--------|----------|--------|------------|---------|-----------|--------|-------------------------------|--------|
| Deryl F. Hamann, Chairman  and Chief Executive Officer (2) |   | 2003     |   | $          | 533,891 |      | $      | 159,135                       |   | $ | 20,300 |   |
|                                                            |   | 2002     |   | 527,312    |    | 154,500   |   | 29,733                        |   |
|                                                            |   | 2001     |   | 340,822    |    | 150,000   |   | 10,000                        |   |
|                                                            |   |     |   |       |    |      |   |                          |   |
| Daniel A. Hamann,  President and Chief Operating Officer        |   | 2003     |   | $          | 240,500 |      | $      | 118,750                       |   | $ | 47,231 |   |
|                                                            |   | 2002     |   | 170,000    |    | 0         |   | 16,914                        |   |
|                                                            |   | 2001     |   | 158,500    |    | 0         |   | 15,070                        |   |
|                                                            |   |     |   |       |    |      |   |                          |   |
| Daniel J. Brabec,  Executive Vice President and Director        |   | 2003     |   | $          | 240,469 |      | $      | 93,750                        |   | $ | 45,925 |   |
|                                                            |   | 2002     |   | 181,245    |    | 0         |   | 18,009                        |   |
|                                                            |   |     |   |       |    |      |   |                          |   |
| James R. Clark, Chief  Financial Officer, Secretary, Treasurer  |   | 2003     |   | $          | 112,333 |      | $      | 28,000                        |   | $ | 1,719 |   |

 

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(1)  Amounts represent 401(k) Plan employer contributions,a portion of “Split-Dollar” insurance premiums prior to 2003, and amountsallocated under Phantom Stock Agreements. (See “Phantom Stock Agreements.”)

(2)  Excludes compensation from Great WesternBank, Omaha prior to March 23, 2001.

 

Great Western does not haveany compensatory stock option plan for its executive officers anddirectors.  None of the directors orofficers of Great Western have any options, warrants or other similar rights topurchase securities of Great Western.

 

Great Western has no boardcommittees at the holding company level except an audit committee and anexecutive committee.  On June 14,2000, Great Western adopted an Audit Committee Charter in compliance with SECand American Stock Exchange rules.  As aresult of this action, Great Western added three independent directors to serveon its audit committee.

 

52

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INDEMNIFICATION

 

The articles ofincorporation of Great Western provide that the board of directors isauthorized to indemnify, in the manner and to the extent provided by the IowaBusiness Corporation Act, any person entitled to indemnificationthereunder.  Generally under Iowa law,any individual who is made a party to a proceeding because the individual is orwas a director may be indemnified if the individual acted in good faith and hadreasonable basis to believe that:  (1)in the case of conduct in the individual’s official capacity with thecorporation, 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 notopposed to the corporation’s best interest; and regarding any criminalproceedings, the individual had no reasonable cause to believe the individual’sconduct was unlawful.  Iowa law alsoextends such indemnification to officers, employees, and agents of thecorporation and further provides that an Iowa corporation may advance expensesto a director, officer, employee, or agent of the corporation.  Great Western has adopted resolutions toimplement such indemnity.

 

Iowa law also provides thatan Iowa corporation may purchase and maintain insurance on behalf of anindividual who is or was a director, officer, employee, or agent of thecorporation, or who, while a director, officer, employee, or agent of thecorporation, is or was serving at the request of the corporation as a director,officer, partner, trustee, employee, or agent of another foreign or domesticcorporation, partnership, joint venture, trust, employee benefit plan, or otherenterprise, against liability asserted against or incurred by that individualin that capacity or arising from the individual’s status as a director,officer, employee, or agent.  GreatWestern has not purchased such insurance.

 

The indemnification andadvancement of expenses provided by Iowa law are not exclusive of any otherrights to which persons seeking indemnification or advancement of expenses areentitled under a provision in the articles of incorporation or bylaws,agreements, vote of stockholders or disinterested directors, or otherwise, bothas to action in a person’s official capacity and as to action in anothercapacity while holding office.  However,such provisions, agreements, votes or other actions shall not provideindemnification for a breach of a director’s duty of loyalty to the corporationor its stockholders, for acts or omissions not in good faith or which involveintentional misconduct or knowing violation of the law, for a transaction fromwhich the person seeking indemnification derives an improper personal benefit,or for liability for unlawful distributions.

 

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

 

Great Western is not awareof any other threatened litigation that may result in claims forindemnification by any director, officer, employee or other agent.

 

PHANTOM STOCK AGREEMENTS

 

Great Western’s subsidiarybanks have phantom stock agreements with several senior bank officers,including Daniel A. Hamann, Chairman of Great Western Bank, Clive, Jeffory A.Erickson, President and CEO of Great Western Bank, Watertown and Daniel J.Brabec, President and CEO of Great Western Bank, Omaha.  Amounts are accrued for the officers basedon their bank’s performance, 50% by achieving certain annual growth rates innet income and 50% by achieving certain annual rates of return on assets.  Accumulated amounts are payable to theofficers over ten years beginning at age 65 or prior due to death or permanentdisability.

 

53

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ITEM 12.                  SECURITY OWNERSHIP OF CERTAIN BENEFICIALOWNERS AND MANAGEMENT

 

The following table presentsinformation regarding beneficial ownership of common stock of Great Western asof August 31**,** 2003 by (1)each shareholder known by Great Western to be the beneficial owner of more than5% of its outstanding common stock and (2) each director of Great Western andeach named executive officer and (3) all directors and executive officers as agroup.  Based on information furnishedby the owners, management believes that the stockholders listed below have soleinvestment and voting power regarding their shares, except that co-trusteesshare investment and voting power.

 
| **Name and  Address of Beneficial Owner**                      |   | **Shares  Beneficially  Owned** |   | **Percentage  of Class** |   |
|----------------------------------------------------------------|--------|---------------------------------|--------|--------------------------|--------|
|                                                           |   |                            |   |                     |   |
| Deryl F. Hamann                                                |   | 90,  112                        | (1)    | 72.12                    | %      |
| 1500 Woodmen Tower                                             |   |                            |   |                     |   |
| Omaha, NE 68102                                                |   |                            |   |                     |   |
|                                                           |   |                            |   |                     |   |
| Daniel A. Hamann                                               |   | 22,707                          | (2)    | 18.17                    | %      |
| 10834 Old Mill Road, Suite  One                                |   |                            |   |                     |   |
| Omaha, NE 68154                                                |   |                            |   |                     |   |
|                                                           |   |                            |   |                     |   |
| Esther Hamann Brabec                                           |   | 24,934                          | (3)    | 19.95                    | %      |
| 10834 Old Mill Road, Suite  One                                |   |                            |   |                     |   |
| Omaha, NE 68154                                                |   |                            |   |                     |   |
|                                                           |   |                            |   |                     |   |
| Daniel J. Brabec                                               |   | 485                             | (4)    |                     | *      |
| 14545 West Center Road                                         |   |                            |   |                     |   |
| Omaha, NE 68144                                                |   |                            |   |                     |   |
|                                                           |   |                            |   |                     |   |
| Julie Hamann Hodgson                                           |   | 27,759                          | (5)    | 22.22                    | %      |
| 10834 Old Mill Road, Suite  One                                |   |                            |   |                     |   |
| Omaha, NE 68154                                                |   |                            |   |                     |   |
|                                                           |   |                            |   |                     |   |
| Art N. Burtscher                                               |   | -0                              | -      | -0                       | -      |
| 1125 So. 103rd  St., Suite 450                                 |   |                            |   |                     |   |
| Omaha, NE 68124                                                |   |                            |   |                     |   |
|                                                           |   |                            |   |                     |   |
| Jeffory A. Erickson                                            |   | -0                              | -      | -0                       | -      |
| 35 First Ave NE                                                |   |                            |   |                     |   |
| Watertown, SD 57201                                            |   |                            |   |                     |   |
|                                                           |   |                            |   |                     |   |
| Andrew C. Hove, Jr.                                            |   | -0                              | -      | -0                       | -      |
| 6610 Blue Ridge Lane                                           |   |                            |   |                     |   |
| Lincoln, NE 68516                                              |   |                            |   |                     |   |
|                                                           |   |                            |   |                     |   |
| Robert W. Murray                                               |   | -0                              | -      | -0                       | -      |
| 1716 So. 42nd  St.                                             |   |                            |   |                     |   |
| West Des Moines, IA 50265                                      |   |                            |   |                     |   |
|                                                           |   |                            |   |                     |   |
| Leo W. Smith II                                                |   | -0                              | -      | -0                       | -      |
| 1805 Harney St.                                                |   |                            |   |                     |   |
| Omaha, NE 68102                                                |   |                            |   |                     |   |
|                                                           |   |                            |   |                     |   |
| Thomas B. Fischer                                              |   | -0                              | -      | -0                       | -      |
| 10834 Old Mill Road, Suite  One                                |   |                            |   |                     |   |
| Omaha, NE 68154                                                |   |                            |   |                     |   |
|                                                           |   |                            |   |                     |   |
| James R. Clark                                                 |   | -0                              | -      | -0                       | -      |
| 15830 Burt Street                                              |   |                            |   |                     |   |
| Omaha, NE 68118                                                |   |                            |   |                     |   |
|                                                           |   |                            |   |                     |   |
| All executive officers and  directors as a group (ten persons) |   | 113,304                         |   | 90.68                    | %      |

 

----

(1)          Of this amount, an aggregate of 61,263 sharesare held by four separate trusts for which Mr. Hamann serves as trustee for thebenefit of his children, Daniel A. Hamann, Esther Hamann Brabec, Julie HamannHodgson, and Karl E. Hamann.  Mr. Hamannas trustee owns an additional 454 shares held by an affiliated company.  In addition, Mr. Hamann owns 28,395 sharesindividually.

(2)          Of this amount, 2,186 shares are owned by hisrevocable trust for which he serves as sole trustee, 241 shares are owned byhis spouse, and an aggregate of 20,280 shares are held by various Hamann familytrusts for which he serves as co-trustee with Esther Hamann Brabec and JulieHamann Hodgson.

(3)          Of this amount, 1,881 shares are owned by herrevocable trust for which she serves as sole trustee, 485 shares are owned byher spouse, an aggregate of 20,280 shares are held by various Hamann familytrusts for which she serves as co-trustee with Daniel A. Hamann and JulieHamann Hodgson, and 2,288 shares are owned by her as trustee for Julie HamannHodgson’s issue.

(4)          Does not include shares beneficially owned byhis spouse.  Mr. Brabec disclaimsbeneficial ownership of such shares.

(5)          Of this amount, 2,099 shares are owned by herrevocable trust for which she serves as sole trustee, an aggregate of 20,280shares are held by various Hamann family trusts for which she serves asco-trustee with Daniel A. Hamann and Esther Hamann Brabec, 2,955 shares areowned by her as trustee for Esther Hamann Brabec’s issue and 2,425 shares areowned by her as trustee for Daniel A. Hamann’s issue.

*  Less than 1%.

 

54

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ITEM 13.                  CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS

 

Spectrum Life InsuranceCompany and Spectrum Financial Services, Inc. are affiliates of GreatWestern.  Deryl F. Hamann owns them,directly or indirectly, individually or as trustee for the benefit of hischildren.  Spectrum Life Insurance Companyreinsures certain credit life, accident and health insurance policies sold byGreat Western’s subsidiary banks and unaffiliated banks as agents for anunaffiliated insurance company. Spectrum Life Insurance Company reinsures certain of the mortality andmorbidity risks under such policies in accordance with separate treaties withthe unaffiliated insurance company, and received compensation from suchinsurance company of $1,074,368 during Great Western’s fiscal year endedJune 30, 2003, and $945,665 for the year ended June 30, 2002, forassuming such reinsurance risks with respect to credit insurance originated byGreat Western’s subsidiary banks.  GreatWestern’s subsidiary banks receive a commission on such sales of creditinsurance as permitted by applicable state law.

 

In addition, SpectrumFinancial Services, Inc. receives a commission as general agent from theunaffiliated insurance company on such sales of credit insurance wherepermitted by law.  Such commissions oncredit life insurance originated by Great Western’s subsidiary banks was$54,157 during the fiscal year ended June 30, 2003, and $17,091 during thefiscal year ended June 30, 2002. Great Western believes that the foregoing arrangements are on terms

 

55

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similar to those which would be obtained with an unaffiliated party.

 

Spectrum Financial Services,Inc. places investment centers in banks, including Great Western’s subsidiarybanks, and unaffiliated banks.  Theinvestment centers engage in the sale of life insurance, annuities, mutualfunds and certain other securities on the premises of the banks under leasearrangements and with joint or common employees.  Spectrum Financial Services, Inc. pays Great Western’s subsidiarybanks lease rentals based on commissions generated.  Gross commissions originated from Great Western’s subsidiarybanks were $762,170 during Great Western’s fiscal year ended June 30,2003, and $764,097 during the fiscal year ended June 30, 2002.  Each Great Western bank receivedapproximately 75% (before broker compensation) of the amount of grosscommissions generated from its leased space as rental.  Great Western believes that thesearrangements are on terms similar to those that would be obtained with anunaffiliated party.   Spectrum FinancialServices, Inc. sold its interest in the investment center business to anunaffiliated party on July 15, 2003.

 

Great Western’s banks(excluding Great Western Bank, Omaha) own all of the stock of Great WesternService Corporation.  It provides dataprocessing services and certain related services to the two banks on abreak-even basis.  Great Western ServiceCorporation operates under a lease arrangement for office space from GreatWestern Bank, Watertown.  Great Westernbelieves that these arrangements are on terms similar to those that would beobtained with an unaffiliated party.

 

On August 7, 2000,Great Western became the surviving corporation in a merger with the affiliatedCitizens Corporation, which owned Citizens Bank, Chariton, Iowa.  The Hamann family or their interests ownedbeneficially all of the stock to all parties to the merger.  In the merger, the Hamann family or theirinterests received a total of 7,584 shares of common stock of GreatWestern.  Shortly prior to the mergerthe Hamann family or their interests received 10% subordinated capital notes ofCitizens 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.  Great Western assumedthe liability on the capital notes in the merger.

 

In January of 2001,Great Western Bank, Watertown (formerly F&M Bank), a subsidiary of GreatWestern, purchased the insurance agency business of Watertown Agency, Inc. fromSpectrum Financial Services, Inc. for $539,652.  The selling corporation has been owned by the Hamann family andwas engaged in the insurance agency business in Watertown, South Dakota since1976. Great Western believes that the price paid was similar to the price thatwould have been paid by an unaffiliated party.

 

On March 23, 2001, GreatWestern became the surviving corporation in a merger with the affiliated GreatWestern Securities, which owned Great Western Bank, Omaha.  The Hamann family or their interests owned50% of the common stock of Great Western Securities, Inc.  In the merger, the Hamann family or theirinterests received a total of 46,319 shares of common stock of GreatWestern.  The remainder of theconsideration was paid to an unaffiliated party.

 

In connection with theacquisition of Great Western Securities, stockholders of Great Western formedCapital Investors, LLC.  CapitalInvestors, LLC is owned by stockholders of Great Western for the purpose offinancing the purchase of Great Western’s subordinated capital notes.  This structure was designed to meetrequirements of the third party lender to Capital Investors and to qualifyGreat Western’s subordinated capital notes as Tier II capital for regulatorypurposes.  The subordinated capitalnotes bear interest at a floating rate of one percent per annum over prime rateand will be due March 23, 2011 with interest payable quarterly.  Great Western has the right to prepay thesubordinated capital notes without penalty.

 

56

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Depending upon the availability of funds and Great Western’s capitalrequirements, Great Western intends to prepay the subordinated capital notes atthe rate of 20% of the original principal amount each year beginning in 2007through 2011.  Great Western’sobligations under its preferred securities guarantee and the juniorsubordinated debentures are unsecured and rank junior to Great Western’sobligations under its subordinated capital notes.

 

Capital Investors negotiateda loan from an unaffiliated bank of $35,000,000 to purchase Great Western’ssubordinated capital notes.  The loanterms include the option to either fix the rate of interest at the one tofive-year treasury rate plus 350 basis points but not less than the lender’scost of funds plus 250 basis points, or to select a rate of interest at LIBOR plus215 basis points fixed at intervals ranging from 30 days to 180 days.   Interest is payable quarterly on the loanand principal due March 23, 2006, but expected to be payable  in equal installments annually in each yearbeginning 2007 through 2011.  CapitalInvestors collateralized its borrowing by pledging the subordinated capitalnotes to the unaffiliated bank.  Inaddition, the stockholders of Great Western pledged their common stock asadditional collateral for Capital Investors’ loan.

 

Daniel A. Hamann, EstherHamann Brabec and Julie Hamann Hodgson, children of Deryl F. Hamann wereparties to a Split Dollar Agreement dated July 12, 1995 pursuant to whichGreat Western paid premiums for insurance on the life of Deryl F. Hamann whichare to be repaid upon maturity of the policy. See Exhibit Document 10.7.  OnAugust 14, 2003, the owners assigned sole ownership of the policy to GreatWestern and made Great Western sole beneficiary of the policy.

 

Deryl F. Hamann is SeniorCounsel to the law firm of Baird, Holm, McEachen, Pedersen, Hamann &Strasheim LLP, Omaha, Nebraska, counsel to Great Western.  See “Legal Proceedings.”  Mr. Hamann devotes approximately 5% of histime to law firm matters, 90% to Great Western matters, and the remaining 5% ofhis time to other interests.

 

57

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PART IV

 

ITEM 15.                  EXHIBITS, FINANCIAL STATEMENT SCHEDULES ANDREPORTS ON FORM 8-K

 

(a)                                  Documents filed with this report.

 

(1)  See index to Consolidated FinancialStatements on page F-1 of this report.

 

(2)  All supplemental schedules are omittedbecause of the absence of conditions under which they are required or becausethe information is shown in the Consolidated Financial Statements or notesthereto.

 

(3)  Exhibits

 

(a) (3) EXHIBITS

 
| **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 Great  Western 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  Great Western Bancorporation, Inc. and Great Western Securities, Inc.            |   | (2)                                                                    |   | Not Applicable                                                                               |
| 3.1                                       |   | Articles of Amendment to Articles of Incorporation of Great Western  Bancorporation, Inc.                                                            |   | (1)                                                                    |   | Not Applicable                                                                               |
| 3.2                                       |   | Bylaws of Great Western Bancorporation, Inc.                                                                                                         |   | (1)                                                                    |   | Not Applicable                                                                               |
| 4.1                                       |   | Form of Subordinated Indenture dated August 18, 1999, 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 entered into  between the Registrant and Wilmington Trust Company, as Indenture Trustee.    |   | (2)                                                                    |   | Not Applicable                                                                               |
| 4.1                                       |   | Form of Subordinate Indenture dated October 29, 2002 entered  into between the Registrant and Wilmington Trust Company as Indenture Trustee.    |   | (7)                                                                    |   | Not Applicable                                                                               |
| 4.2                                       |   | Form of Junior Subordinated Debenture.                                                                                                               |   | (1)                                                                    |   | Not Applicable                                                                               |
| 4.2                                       |   | Form of Junior Subordinated Debenture.                                                                                                               |   | (2)                                                                    |   | Not Applicable                                                                               |
| 4.2                                       |   | Form of Junior Subordinated Debenture.                                                                                                               |   | (7)                                                                    |   | Not Applicable                                                                               |
| 4.3                                       |   | Certificate of Trust of GWB Capital Trust I.                                                                                                         |   | (1)                                                                    |   | Not Applicable                                                                               |
| 4.3                                       |   | Certificate of Trust of GWB Capital Trust II.                                                                                                        |   | (2)                                                                    |   | Not Applicable                                                                               |
| 4.3                                       |   | Certificate of Trust of GWB Capital Trust III.                                                                                                       |   | (7)                                                                    |   | Not Applicable                                                                               |

 

58

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| 4.4  |   | Trust Agreement of GWB Capital Trust I dated as of June 11,  1999.                                                                                                                                                                        |   | (1) |   | Not Applicable |
|------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----|--------|----------------|
| 4.4  |   | Trust Agreement of GWB Capital Trust II dated as of January 4,  2001.                                                                                                                                                                     |   | (2) |   | Not Applicable |
| 4.4  |   | Trust Agreement of GWB Capital Trust III dated as of October 15,  2002.                                                                                                                                                                   |   | (7) |   | Not Applicable |
| 4.5  |   | Form of Amended and Restated Trust Agreement of GWB Capital Trust I  dated August 18, 1999.                                                                                                                                               |   | (1) |   | Not Applicable |
| 4.5  |   | Form of Amended and Restated Trust Agreement of GWB Capital Trust II  dated March 19, 2001.                                                                                                                                               |   | (2) |   | Not Applicable |
| 4.5  |   | Form of Amended and Restated Trust Agreement of GWB Capital Trust III  dated October 29, 2002.                                                                                                                                            |   | (7) |   | Not Applicable |
| 4.6  |   | Form of Preferred Security Certificate of GWB Capital Trust I.                                                                                                                                                                                 |   | (1) |   | Not Applicable |
| 4.6  |   | Form of Preferred Security Certificate of GWB Capital Trust II.                                                                                                                                                                                |   | (2) |   | Not Applicable |
| 4.6  |   | Form of Preferred Security Certificate of GWB Capital Trust III.                                                                                                                                                                               |   | (7) |   | Not Applicable |
| 4.7  |   | Form of Preferred Securities Guarantee Agreement.                                                                                                                                                                                              |   | (1) |   | Not Applicable |
| 4.7  |   | Form of Preferred Securities Guarantee Agreement.                                                                                                                                                                                              |   | (2) |   | Not Applicable |
| 4.7  |   | Form of Preferred Securities Guarantee Agreement.                                                                                                                                                                                              |   | (7) |   | 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 |
| 4.8  |   | Form of Agreement as to Expenses and Liabilities.                                                                                                                                                                                              |   | (7) |   | Not Applicable |
| 4.9  |   | Revised Form of Great Western’s Subordinated Capital Notes due 2011                                                                                                                                                                       |   | (3) |   | Not Applicable |
| 10.1 |   | Time Note dated July 18, 2000, between Great Western  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 CMSTM Agency Agreement (reverse repurchase agreement) between  Great Western Bank, Watertown and its customers.                                                                                                                    |   | (1) |   | Not Applicable |
| 10.5 |   | Phantom Stock Long-Term Incentive Plan dated April 30, 2003,  between Daniel A. Hamann and Great Western Bank, Clive.                                                                                                                     |   | (6) |   |           |
| 10.6 |   | License Agreement dated September 5, 1997 between Jack Henry  & Associates, Inc. and Great Western Service Corporation.                                                                                                               |   | (1) |   | Not Applicable |
| 10.7 |   | Split-Dollar Agreement dated July 12, 1995 among Great Western  and Daniel A. Hamann, Esther Hamann Brabec and Julie Hamann Hodgson.                                                                                                      |   | (1) |   | Not Applicable |
| 10.8 |   | Phantom Stock Long-Term Incentive Plan dated January 24,2000,  between Jeffory A. Erickson and Great Western Bank, Watertown.                                                                                                             |   | (5) |   | Not Applicable |
| 10.9 |   | Phantom Stock Long-Term Incentive Plan dated January 17, 2001,  between Dan J. Brabec and Great Western Bank, Omaha.                                                                                                                      |   | (5) |   | Not Applicable |
| 12.1 |   | Statement re Computation of Ratios.                                                                                                                                                                                                            |   | (6) |   |           |
| 21   |   | Subsidiaries of Registrant.                                                                                                                                                                                                                    |   | (6) |   |           |
| 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) |   | Not Applicable |
| 31.1 |   | Chief Executive Officer’s Certificate Pursuant to 18 U.S.C.  Section 1350, as Adopted Pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002                                                                                |   | (6) |   |           |
| 31.2 |   | Chief Financial Officer’s Certificate Pursuant to 18 U.S.C. Section 1350,  as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                 |   | (6) |   |           |
| 32.1 |   | Chief Executive Officer’s Certificate Pursuant to 18                                                                                                                                                                                      |   | (6) |   |           |

 

59

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|   |   | U.S.C Section 1350, as Adopted Pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002.                                                            |   |   |   |   |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| 32.2   |   | 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. |   | (6)    |   |   |

 

----

(1)                                  Filed as exhibits to Great Western’s Form S-1registration statement filed on June 11, 1999**, (**File No. 333-80551) pursuant to Section 5 of theSecurities Act of 1933.

 

(2)                                  Filed as exhibits to Great Western’s Form S-1registration statement filed on January 12, 2001 (File No. 333-53644)pursuant to Section 5 of the Securities Act of 1933.

 

(3)                                  Filed as an exhibit to Great Western’s FormS-1 registration statement filed on February 28, 2001 (File No. 333-53644)pursuant to Section 5 of the Securities Act of 1933.

 

(4)                                  Filed as an exhibit to Great Western’s AnnualReport on Form 10-K for the year ended June 30, 2001 and incorporatedherein by reference.

 

(5)                                  Filed as an exhibit to Great Western’s AnnualReport on Form 10-K for the year ended June 30, 2002 and incorporatedherein by reference.

 

(6)                                  Filed herewith.

 

(7)                                  Pursuant to Item 601 (b) (4) (iii) (A) ofRegulation S-K, upon request of the Commission, Great Western agrees to furnisha copy of instruments defining the rights of security holders, includingindentures for GWB Capital Trust III.

 

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

 

(b)                                 REPORTS ON FORM 8-K

 

Great Western filed acurrent report on Form 8-K (Item 5) subsequent to the quarter endedMarch 31, 2003.  The Form was filedon May 29, 2003, and reported the name change from SpectrumBancorporation, Inc. to Great Western Bancorporation, Inc. In addition, twoseparate issues of Trust Preferred Securities, Spectrum Capital Trust I andSpectrum Capital Trust II are now known as GWB Capital Trust I and GWB CapitalTrust II, respectively, the securities will be traded under the symbols GWB PRAand GWB PRB, respectively.

 

60

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SIGNATURES

 

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

 
|   | GREAT WESTERN BANCORPORATION, INC. |
|--------|------------------------------------|
|   |                               |
|   |                               | By | /s/  Deryl F. Hamann |   |
|   |                               |   | Deryl F. Hamann, Chairman  and Chief Executive Officer  (Duly Authorized Representative) |

 

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

 
| /s/  Deryl F. Hamann                        |                                                | /s/  Daniel A. Hamann                              |                                                 |
|--------------------------------------------------|-----------------------------------------------------|---------------------------------------------------------|------------------------------------------------------|
| Deryl F. Hamann, Chairman,                       | Daniel A. Hamann, President                         |
| Chief Executive Officer and Director             | Chief Operating Officer and                         |
| (Principal Executive and Operating Officer)      | Director                                            |
| Date:                                            | 9/18/03                                             |                                                    | Date:                                                | 9/18/03 |   |
|                                             |                                                |
| /s/  Thomas B. Fischer                      |                                                | /s/  Arthur N.  Burtscher    * |                                                 |
| Thomas B. Fischer,                               | Arthur N. Burtscher, Director                       |
| Senior Vice President and Director               | Date:                                               | 9/18/03                                                 |                                                 |
| Date:                                            | 9/18/03                                             |                                                    |                                                 |   |
|                                             |                                                |
| /s/ Daniel J. Brabec                             |                                                | /s/  Andrew C. Hove,  Jr.    * |                                                 |
| Daniel J. Brabec,                                | Andrew C. Hove, Jr; Director                        |
| Executive Vice President                         | Date:                                               | 9/18/03                                                 |                                                 |
| and Director                                     |                                                |                                                    |
| Date:                                            | 9/18/03                                             |                                                    | /s/  Robert W.  Murray    * |   |
|                                             |                                                | Robert W. Murray, Director                              |
| /s/ James R. Clark                               |                                                | Date:                                                   | 9/18/03                                              |   |
| Chief Financial Officer and                      |                                                |
| Secretary/Treasurer                              | /s/  Leo W. Smith  II    * |                                                    |
| Date:                                            | 9/18/03                                             |                                                    | Leo W. Smith II, Director                            |
|                                             |                                                | Date:                                                   | 9/18/03                                              |   |
|                                             |                                                |                                                    |
| /s/ Jeffory A. Erickson    * |                                                | *By:  /s/ Deryl F. Hamann                          |                                                 |
| Jeffory A. Erickson, Director                    | Deryl F. Hamann                                     |
| Date:                                            | 9/18/03                                             |                                                    | *As: Attorney-in-Fact*                               |
|                                             |                                                | Date:                                                   | 9/18/03                                              |   |
|                                                  |                                                     |                                                         |                                                      |  |  |  |  |  |

 

61

----

 

**Great Western Bancorporation, Inc.**

 

Accountants’ Report and Consolidated Financial Statements

 

June 30, 2003, 2002 and 2001

 

----

 

**Great Western Bancorporation, Inc.**

 

**Contents**

 
| **Independent Accountants’  Report for 2003**       |
|----------------------------------------------------------|
|                                                     |
| **Independent Auditors’ Report for 2002 and  2001** |
|                                                     |
| **Consolidated Financial Statements**                    |
| Balance Sheets                                           |
| Statements of Income                                     |
| Statements  of Stockholders’ Equity                 |
| Statements  of Cash Flows                                |
| Notes to  Financial Statements                           |

 

F-1

----

 

**IndependentAccountants’ Report**

 

 

Board of DirectorsGreat Western Bancorporation, Inc.Omaha, Nebraska

 

We have audited theaccompanying consolidated balance sheet of Great Western Bancorporation, Inc.(formerly Spectrum Bancorporation, Inc.) as of June 30, 2003, and therelated consolidated statements of income, stockholders’ equity, and cash flowsfor the year then ended. These financial statements are the responsibility ofthe Company’s management. Our responsibility is to express an opinion on thesefinancial statements based on our audit. The financial statements of Great Western Bancorporation, Inc. as ofJune 30, 2002 and for the years ended June 30, 2002 and 2001, wereaudited by other accountants whose report dated July 30, 2002, expressedan unqualified opinion on those statements.

 

We conducted our audit inaccordance with auditing standards generally accepted in the United States ofAmerica. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audit provides a reasonable basisfor our opinion.

 

In our opinion, the 2003consolidated financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of Great Western Bancorporation,Inc., and the results of its operations and its cash flows for the year thenended in conformity with accounting principles generally accepted in the UnitedStates of America.

 
|                  | /s/ **BKD, LLP** |
|-----------------------|------------------|
|                  |
|                  |
| Lincoln,  Nebraska    |
| August 15,  2003 |

 

F-2

----

 

**INDEPENDENTAUDITOR’S REPORT**

 

 

To the Board of Directors

Great WesternBancorporation, Inc**.**

Omaha, Nebraska

 

We haveaudited the accompanying consolidated balance sheet of Great WesternBancorporation, Inc. (formerly Spectrum Bancorporation, Inc.) and subsidiaries as of June 30,2002, and the related consolidated statements of income, stockholders’ equityand cash flows for each of the two years in the period ended June 30,2002.  These financial statements arethe responsibility of the Company’s management.  Our responsibility is to express an opinion on these financialstatements based on our audits.

 

We conducted our audits inaccordance with auditing standards generally accepted in the United States ofAmerica.  Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement.  An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements.  An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonablebasis for our opinion.

 

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of Great Western Bancorporation, Inc.and subsidiaries as of June 30, 2002, and the results of their operations andtheir cash flows for each of the two years in the period ended June 30, 2002 inconformity with accounting principles generally accepted in the United Statesof America.

 
|                      |                             |
|---------------------------|----------------------------------|
|                      | /s/ McGladrey &  Pullen, LLP |
| Sioux Falls, South Dakota |                             |
| July 30, 2002             |                             |

 

F-3

----

 

**Great Western Bancorporation, Inc.**

**ConsolidatedBalance Sheets**

**June 30, 2003 and 2002**

**(In thousands, except share data)**

 
|                                                                                                                                                                                                                                            |   | **2003**  |       | **2002**  |       |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|------------|-----------|------------|
| **Assets**                                                                                                                                                                                                                                      |   |      | ** ** |      | ** ** |
|                                                                                                                                                                                                                                            |   |      |       |      |       |
| Cash and due from banks                                                                                                                                                                                                                         |   | $         | 64,637     |      | $          | 52,927 |   |
| Federal funds sold and FHLB overnight  deposits                                                                                                                                                                                                 |   | 42,522    |       | 16,351    |       |
| Cash and cash equivalents                                                                                                                                                                                                                       |   | 107,159   |       | 69,278    |       |
| Certificates of deposit                                                                                                                                                                                                                         |   | 99        |       | 497       |       |
| Securities available for sale                                                                                                                                                                                                                   |   | 313,136   |       | 334,059   |       |
| Loans, net of allowance for loan losses of  $21,251 and  $20,344 in 2003 and 2002,  respectively                                                                                                                                           |   | 1,599,961 |       | 1,475,856 |       |
| Premises and equipment                                                                                                                                                                                                                          |   | 43,675    |       | 41,803    |       |
| Accrued interest receivable                                                                                                                                                                                                                     |   | 13,679    |       | 15,089    |       |
| Core deposits and other intangibles                                                                                                                                                                                                             |   | 3,371     |       | 9,892     |       |
| Goodwill                                                                                                                                                                                                                                        |   | 45,930    |       | 39,315    |       |
| Mortgage servicing rights                                                                                                                                                                                                                       |   | 5,274     |       | 15,131    |       |
| Other assets                                                                                                                                                                                                                                    |   | 15,785    |       | 11,237    |       |
|                                                                                                                                                                                                                                            |   |      |       |      |       |
| Total assets                                                                                                                                                                                                                                    |   | $         | 2,148,069  |      | $          | 2,012,157 |   |
|                                                                                                                                                                                                                                            |   |      |       |      |       |
| **Liabilities and Stockholders’ Equity**                                                                                                                                                                                                   |   |      |       |      |       |
|                                                                                                                                                                                                                                            |   |      |       |      |       |
| **Liabilities**                                                                                                                                                                                                                                 |   |      |       |      |       |
| Deposits                                                                                                                                                                                                                                        |   |      |       |      |       |
| Noninterest bearing                                                                                                                                                                                                                             |   | $         | 262,161    |      | $          | 194,792 |   |
| Interest bearing                                                                                                                                                                                                                                |   | 1,472,869 |       | 1,441,175 |       |
| Total deposits                                                                                                                                                                                                                                  |   | 1,735,030 |       | 1,635,967 |       |
|                                                                                                                                                                                                                                            |   |      |       |      |       |
| Federal funds purchased and securities sold  under agreements to repurchase                                                                                                                                                                     |   | 60,163    |       | 70,544    |       |
| FHLB advances and other borrowings                                                                                                                                                                                                              |   | 103,380   |       | 70,564    |       |
| Notes payable                                                                                                                                                                                                                                   |   | 43,700    |       | 53,700    |       |
| Company obligated mandatorily redeemable  preferred securities of subsidiary trusts holding solely junior subordinated  debentures                                                                                                              |   | 58,000    |       | 48,000    |       |
| Accrued interest and other liabilities                                                                                                                                                                                                          |   | 17,558    |       | 17,990    |       |
| Total liabilities                                                                                                                                                                                                                               |   | 2,017,831 |       | 1,896,765 |       |
|                                                                                                                                                                                                                                            |   |      |       |      |       |
| **Minority interests**                                                                                                                                                                                                                          |   | 3,864     |       | 5,229     |       |
|                                                                                                                                                                                                                                            |   |      | ** ** |      | ** ** |
| **Stockholders’ equity**                                                                                                                                                                                                                   |   |      | ** ** |      | ** ** |
| Preferred stock, $100 par value; authorized  500,000 shares; 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    |       | 11,700    |       |
| Common stock, $1.00 par value, authorized  1,000,000 shares; issued and outstanding 2003 - 124,952 shares, 2002 -  125,132 shares                                                                                                               |   | 125       |       | 125       |       |
| Additional paid-in capital                                                                                                                                                                                                                      |   | 2,051     |       | 2,058     |       |
| Retained earnings                                                                                                                                                                                                                               |   | 106,433   |       | 92,285    |       |
| Accumulated other comprehensive income                                                                                                                                                                                                          |   | 6,065     |       | 3,995     |       |
| Total stockholders’ equity                                                                                                                                                                                                                 |   | 126,374   |       | 110,163   |       |
|                                                                                                                                                                                                                                            |   |      |       |      |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                                                 |   | $         | 2,148,069  |      | $          | 2,012,157 |   |

 

See Notes to ConsolidatedFinancial Statements.

 

F-4

----

 

**Great Western Bancorporation, Inc.**

**ConsolidatedStatements of Income**

**Years Ended June 30, 2003, 2002 and 2001**

**(In thousands, except share and per sharedata)**

 
|                                                                          |   | **2003** |    | **2002** |   | **2001** |   |
|-------------------------------------------------------------------------------|--------|----------|---------|----------|--------|----------|--------|
| **Interest and Dividend Income**                                              |   |     |    |     |   |     |   |
| Loans                                                                         |   | $        | 109,877 |     | $      | 110,101  |   | $ | 77,622 |   |
| Taxable securities                                                            |   | 12,415   |    | 14,966   |   | 10,148   |   |
| Nontaxable securities                                                         |   | 1,812    |    | 1,291    |   | 1,010    |   |
| Dividends on securities                                                       |   | 242      |    | 290      |   | 268      |   |
| Federal funds sold and other                                                  |   | 724      |    | 1,267    |   | 2,621    |   |
|                                                                          |   |     |    |     |   |     |   |
| Total interest and dividend income                                            |   | 125,070  |    | 127,915  |   | 91,669   |   |
|                                                                          |   |     |    |     |   |     |   |
| **Interest Expense**                                                          |   |     |    |     |   |     |   |
| Deposits                                                                      |   | 35,793   |    | 46,620   |   | 42,305   |   |
| Federal funds purchased and securities sold  under agreements to repurchase   |   | 824      |    | 1,644    |   | 1,567    |   |
| FHLB advances and other borrowings                                            |   | 4,123    |    | 4,218    |   | 3,321    |   |
| Notes payable                                                                 |   | 2,397    |    | 2,955    |   | 1,909    |   |
| Company obligated mandatorily redeemable  preferred securities                |   | 5,068    |    | 4,744    |   | 2,723    |   |
|                                                                          |   |     |    |     |   |     |   |
| Total interest expense                                                        |   | 48,205   |    | 60,181   |   | 51,825   |   |
|                                                                          |   |     |    |     |   |     |   |
| **Net Interest Income**                                                       |   | 76,865   |    | 67,734   |   | 39,844   |   |
|                                                                          |   |     |    |     |   |     |   |
| **Provision for Loan Losses**                                                 |   | 4,371    |    | 6,067    |   | 2,618    |   |
|                                                                          |   |     |    |     |   |     |   |
| **Net Interest Income After Provision for  Loan Losses**                      |   | 72,494   |    | 61,667   |   | 37,226   |   |
|                                                                          |   |     |    |     |   |     |   |
| **Noninterest Income**                                                        |   |     |    |     |   |     |   |
| Service charges and other fees                                                |   | 13,080   |    | 10,134   |   | 6,297    |   |
| Net gains from sale of loans                                                  |   | 6,770    |    | 2,917    |   | 1,152    |   |
| Loan servicing fees                                                           |   | 3,404    |    | 3,524    |   | 240      |   |
| Casualty insurance commissions                                                |   | 995      |    | 741      |   | 689      |   |
| Credit life and H&A insurance  commissions                                |   | 375      |    | 416      |   | 262      |   |
| Health and life insurance commissions                                         |   | 100      |    | 136      |   | 82       |   |
| Other insurance commissions                                                   |   | 268      |    | 222      |   | 112      |   |
| Real estate brokerage commissions                                             |   | 14       |    | 84       |   | 99       |   |
| Investment center income                                                      |   | 635      |    | 855      |   | 503      |   |
| Gain on securities, net                                                       |   | 1,862    |    | 215      |   | 133      |   |
| Trust department income                                                       |   | 1,684    |    | 1,610    |   | 617      |   |
| Net gain (loss) from sale of other real  estate owned and other assets        |   | 1,206    |    | (96      | )      | 158      |   |
| Other                                                                         |   | 961      |    | 1,139    |   | 1,123    |   |
|                                                                          |   |     |    |     |   |     |   |
| Total noninterest income                                                      |   | 31,354   |    | 21,897   |   | 11,467   |   |
|                                                                          |   |     |    |     |   |     |   |
| **Noninterest Expense**                                                       |   |     |    |     |   |     |   |
| Salaries and employee benefits                                                |   | $        | 33,323  |     | $      | 28,851   |   | $ | 17,569 |   |
| Occupancy expenses, net                                                       |   | 4,227    |    | 3,770    |   | 2,268    |   |
| Data processing                                                               |   | 3,676    |    | 3,091    |   | 2,115    |   |
| Equipment expenses                                                            |   | 2,757    |    | 2,510    |   | 1,519    |   |
| Advertising                                                                   |   | 3,743    |    | 2,180    |   | 1,270    |   |
| Professional fees                                                             |   | 3,165    |    | 2,711    |   | 1,894    |   |
| Communication expenses                                                        |   | 2,042    |    | 1,858    |   | 1,210    |   |
| Amortization of goodwill                                                      |   | —   |    | —   |   | 728      |   |
| Amortization and valuation adjustments of  mortgage servicing rights acquired |   | 15,358   |    | 9,049    |   | 304      |   |
| Amortization of core deposits and other  intangibles                          |   | 1,901    |    | 2,629    |   | 960      |   |
| Other                                                                         |   | 7,268    |    | 5,669    |   | 3,994    |   |
|                                                                          |   |     |    |     |   |     |   |
|                                                                          |   | 77,460   |    | 62,318   |   | 33,831   |   |
|                                                                          |   |     |    |     |   |     |   |
| **Income Before Income Taxes and Minority  Interests**                        |   | 26,388   |    | 21,246   |   | 14,862   |   |
|                                                                          |   |     |    |     |   |     |   |
| **Provision for Income Taxes**                                                |   | 9,839    |    | 7,393    |   | 4,922    |   |
|                                                                          |   |     |    |     |   |     |   |
| **Income Before Minority Interests**                                          |   | 16,549   |    | 13,853   |   | 9,940    |   |
|                                                                          |   |     |    |     |   |     |   |
| **Minority Interests**                                                        |   | 618      |    | 636      |   | 522      |   |
|                                                                          |   |     |    |     |   |     |   |
| **Net Income**                                                                |   | $        | 15,931  |     | $      | 13,217   |   | $ | 9,418 |   |
|                                                                          |   |     |    |     |   |     |   |
| **Basic Earnings Per Common Share**                                           |   | $        | 121.61  |     | $      | 98.36    |   | $ | 101.16 |   |
|                                                                          |   |     |    |     |   |     |   |
| **Weighted Average Shares Outstanding**                                       |   | 125,071  |    | 125,221  |   | 91,598   |   |

 

See Notes to ConsolidatedFinancial Statements.

 

F-5

----

 

**Great Western Bancorporation, Inc.**

**Consolidated Statements of Stockholders’Equity**

**Years Ended June 2003, 2002 and 2001**

**(In thousands, except share and per sharedata)**

 
|                                                                                       |   | **Comprehensive  Income** |   | **Preferred  Stock  Par Value** |   | **Common  Stock  Par Value** |   | **Additional  Paid-in  Capital** |   | **Retained  Earnings** |   | **Accumulated  Other  Comprehensive  Income (Loss)** |   |
|--------------------------------------------------------------------------------------------|--------|---------------------------|--------|---------------------------------|--------|------------------------------|--------|----------------------------------|--------|------------------------|--------|------------------------------------------------------|--------|
|                                                                                       |   |                      |   |                            |   |                         |   |                             |   |                   |   |                                                 |   |
| **Balance, July 1, 2000**                                                             |   |                      |   | $                               | 1,700  |                         | $      | 79                               |   | $                      | 2,069  |                                                 | $      | 46,331 |   | $ | (2,357 | ) |
|                                                                                       |   |                      |   |                            |   |                         |   |                             |   |                   |   |                                                 |   |
| Net income                                                                                 |   | $                         | 9,418  |                            | — |                         | — |                             | — |                   | 9,418  |                                                 | — |   |
| Other comprehensive income, net of tax:                                                    |   |                      |   |                            |   |                         |   |                             |   |                   |   |                                                 |   |
| Net change in unrealized gain on securities available for sale                             |   | 3,865                     |   | —                          |   | —                       |   | —                           |   | —                 |   | 3,865                                                |   |
| Comprehensive income                                                                       |   | $                         | 13,283 |                            |   |                         |   |                             |   |                   |   |                                                 |   |   |
| Redeem 120 shares of common stock                                                          |   |                      |   | —                          |   | —                       |   | (5                               | )      | (73                    | )      | —                                               |   |
| Issue 100,000 shares of preferred stock and 46,319 shares of common  stock for acquisition |   |                      |   | 10,000                          |   | 46                           |   | —                           |   | 26,761                 |   | 737                                                  |   |
| Cash dividends paid:                                                                       |   |                      |   |                            |   |                         |   |                             |   |                   |   |                                                 |   |
| Preferred stock                                                                            |   |                      |   | —                          |   | —                       |   | —                           |   | (152                   | )      | —                                               |   |
| Common stock, $18.01 per share                                                             |   |                      |   | —                          |   | —                       |   | —                           |   | (1,493                 | )      | —                                               |   |
|                                                                                       |   |                      |   |                            |   |                         |   |                             |   |                   |   |                                                 |   |
| **Balance, June 30, 2001**                                                            |   |                      |   | 11,700                          |   | 125                          |   | 2,064                            |   | 80,792                 |   | 2,245                                                |   |
|                                                                                       |   |                      |   |                            |   |                         |   |                             |   |                   |   |                                                 |   |
| Net income                                                                                 |   | $                         | 13,217 |                            | — |                         | — |                             | — |                   | 13,217 |                                                 | — |   |
| Other comprehensive income, net of tax:                                                    |   |                      |   |                            |   |                         |   |                             |   |                   |   |                                                 |   |
| Net change in unrealized gain on securities available for sale                             |   | 1,750                     |   | —                          |   | —                       |   | —                           |   | —                 |   | 1,750                                                |   |
| Comprehensive income                                                                       |   | $                         | 14,967 |                            |   |                         |   |                             |   |                   |   |                                                 |   |   |
| Redeem 135 shares of common stock                                                          |   |                      |   | —                          |   | —                       |   | (6                               | )      | (73                    | )      | —                                               |   |
| Cash dividends paid:                                                                       |   |                      |   |                            |   |                         |   |                             |   |                   |   |                                                 |   |
| Preferred stock                                                                            |   |                      |   | —                          |   | —                       |   | —                           |   | (900                   | )      | —                                               |   |
| Common stock, $6.00 per share                                                              |   |                      |   | —                          |   | —                       |   | —                           |   | (751                   | )      | —                                               |   |
|                                                                                       |   |                      |   |                            |   |                         |   |                             |   |                   |   |                                                 |   |
| **Balance, June 30, 2002**                                                            |   |                      |   | 11,700                          |   | 125                          |   | 2,058                            |   | 92,285                 |   | 3,995                                                |   |
|                                                                                       |   |                      |   |                            |   |                         |   |                             |   |                   |   |                                                 |   |
| Net income                                                                                 |   | $                         | 15,931 |                            | — |                         | — |                             |   |                   | 15,931 |                                                 | — |   |
| Other comprehensive income, net of tax:                                                    |   |                      |   |                            |   |                         |   |                             |   |                   |   |                                                 |   |
| Net change in unrealized gain on securities available for sale                             |   | 2,070                     |   | —                          |   | —                       |   | —                           |   | —                 |   | 2,070                                                |   |
| Comprehensive income                                                                       |   | $                         | 18,001 |                            |   |                         |   |                             |   |                   |   |                                                 |   |   |
| Redeem 180 shares of common stock                                                          |   |                      |   | —                          |   | —                       |   | (7                               | )      | (115                   | )      | —                                               |   |
| Deemed dividend to affiliate                                                               |   |                      |   | —                          |   | —                       |   | —                           |   | (196                   | )      | —                                               |   |
| Cash dividends paid:                                                                       |   |                      |   |                            |   |                         |   |                             |   |                   |   |                                                 |   |
| Preferred stock                                                                            |   |                      |   | —                          |   | —                       |   | —                           |   | (721                   | )      | —                                               |   |
| Common stock, $6.00 per share                                                              |   |                      |   | —                          |   | —                       |   | —                           |   | (751                   | )      | —                                               |   |
|                                                                                       |   |                      |   |                            |   |                         |   |                             |   |                   |   |                                                 |   |
| **Balance, June 30, 2003**                                                            |   |                      |   | $                               | 11,700 |                         | $      | 125                              |   | $                      | 2,051  |                                                 | $      | 106,433 |   | $ | 6,065 |   |

 

*See Notes to Consolidated Financial Statements.*

 

F-6

----

 

**Great Western Bancorporation, Inc.**

**Consolidated Statements of Cash Flows**

**Years Ended June 30, 2003, 2002 and 2001**

**(In thousands)**

 
|                                                                 |   | **2003** |   | **2002** |   | **2001** |   |
|----------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| **Operating Activities**                                             |   |     |   |     |   |     |   |
| Net income                                                           |   | $        | 15,931 |     | $      | 13,217   |   | $ | 9,418 |   |
| Items not requiring (providing) cash                                 |   |     |   |     |   |     |   |
| Depreciation and amortization                                        |   | 16,973   |   | 9,713    |   | 4,332    |   |
| Gain on sale of securities                                           |   | (1,862   | )      | (215     | )      | (133     | )      |
| Gain on sale of loans                                                |   | (6,770   | )      | (2,923   | )      | (1,152   | )      |
| (Gain) loss from sale of other real estate  owned and other assets   |   | (1,206   | )      | 96       |   | (158     | )      |
| Provision for loan losses                                            |   | 4,371    |   | 6,067    |   | 2,618    |   |
| Provision for impairment of mortgage  servicing rights               |   | 4,208    |   | 5,233    |   | 37       |   |
| Deferred income taxes                                                |   | (5,335   | )      | (3,742   | )      | (720     | )      |
| Minority interests                                                   |   | 618      |   | 636      |   | 522      |   |
| Loans originated for resale                                          |   | (405,482 | )      | (171,386 | )      | (87,311  | )      |
| Proceeds from sale of loans originated for  resale                   |   | 384,476  |   | 171,601  |   | 84,987   |   |
| Changes in                                                           |   |     |   |     |   |     |   |
| Accrued interest receivable                                          |   | 1,422    |   | 946      |   | (3,517   | )      |
| Other assets                                                         |   | (2,858   | )      | 865      |   | 8,543    |   |
| Accrued interest and other liabilities                               |   | (1,092   | )      | (4,640   | )      | (6,758   | )      |
|                                                                 |   |     |   |     |   |     |   |
| Net cash provided by operating activities                            |   | 3,394    |   | 25,468   |   | 10,708   |   |
|                                                                 |   |     |   |     |   |     |   |
| **Investing Activities**                                             |   |     |   |     |   |     |   |
| Purchase of certificates of deposit                                  |   | —   |   | (4,199   | )      | (5,465   | )      |
| Proceeds from maturities of certificates of  deposit                 |   | 398      |   | 5,235    |   | 6,704    |   |
| Purchase of securities available for sale                            |   | (213,279 | )      | (169,624 | )      | (39,683  | )      |
| Proceeds from sales and maturities of  securities available for sale |   | 238,555  |   | 129,521  |   | 44,074   |   |
| Purchase of mortgage servicing rights                                |   | (518     | )      | (4,939   | )      | (4,844   | )      |
| Proceeds from sale of mortgage servicing  rights                     |   | —   |   | 38       |   | —   |   |
| Net increase in loans                                                |   | (97,881  | )      | (132,146 | )      | (78,508  | )      |
| Purchase of premises and equipment                                   |   | (6,147   | )      | (4,511   | )      | (6,129   | )      |
| Proceeds from sale of premises and  equipment                        |   | 754      |   | 67       |   | 4        |   |
| Purchase of other assets                                             |   | —   |   | (125     | )      | —   |   |
| Proceeds from sale of other assets                                   |   | 5,120    |   | 572      |   | —   |   |
| Business acquisition                                                 |   | 19,139   |   | 83       |   | (43,819  | )      |
|                                                                 |   |     |   |     |   |     |   |
| Net cash used in investing activities                                |   | (53,859  | )      | (180,028 | )      | (127,666 | )      |
|                                                                      |        |          |        |          |        |          |        |  |  |  |

 

F-7

----

 
|                                                                                                   |   | **2003** |    | **2002** |   | **2001** |   |
|--------------------------------------------------------------------------------------------------------|--------|----------|---------|----------|--------|----------|--------|
| **Financing Activities**                                                                               |   |     |    |     |   |     |   |
| Net increase in deposits                                                                               |   | $        | 74,324  |     | $      | 115,288  |   | $ | 131,263 |   |
| Net increase (decrease) in federal funds  purchased and securities sold under agreements to repurchase |   | (10,373  | )       | 8,440    |   | 842      |   |
| Proceeds from issuance of preferred securities                                                         |   | 10,000   |    | —   |   | 27,600   |   |
| Proceeds from notes payable                                                                            |   | 40,690   |    | 40,522   |   | 47,826   |   |
| Principal payments on notes payable                                                                    |   | (17,882  | )       | (35,095  | )      | (24,268  | )      |
| Debt issuance costs incurred                                                                           |   | (8       | )       | (38      | )      | (1,402   | )      |
| Purchase of minority interests                                                                         |   | (3,017   | )       | —   |   | —   |   |
| Proceeds from sale of minority interests                                                               |   | 1,166    |    | —   |   | 1,063    |   |
| Purchase of common stock for retirement                                                                |   | (122     | )       | (79      | )      | (78      | )      |
| Dividends paid, including $184, $245 and  $133 paid to minority interests, respectively                |   | (1,656   | )       | (1,896   | )      | (578     | )      |
| Payment of other liabilities                                                                           |   | (4,776   | )       | (9,740   | )      | —   |   |
| Net cash provided by financing activities                                                              |   | 88,346   |    | 117,402  |   | 182,268  |   |
|                                                                                                   |   |     |    |     |   |     |   |
| **Increase (Decrease) in Cash and Cash  Equivalents**                                                  |   | 37,881   |    | (37,158  | )      | 65,310   |   |
|                                                                                                   |   |     |    |     |   |     |   |
| **Cash and Cash Equivalents, Beginning of  Year**                                                      |   | 69,278   |    | 106,436  |   | 41,126   |   |
|                                                                                                   |   |     |    |     |   |     |   |
| **Cash and Cash Equivalents, End of Year**                                                             |   | $        | 107,159 |     | $      | 69,278   |   | $ | 106,436 |   |
|                                                                                                   |   |     |    |     |   |     |   |
| **Supplemental Disclosures of Cash Flows  Information**                                                |   |     |    |     |   |     |   |
| Cash payments for interest                                                                             |   | $        | 50,205  |     | $      | 63,996   |   | $ | 50,368 |   |
| Income taxes                                                                                           |   | 14,032   |    | 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     |   | $        | 2,070   |     | $      | 1,750    |   | $ | 3,865 |   |
| Dividend declared in the form of notes  payable                                                        |   | —   |    | —   |   | 1,200    |   |
| Purchase of mortgage servicing rights for  other liabilities                                           |   | 4,984    |    | 914      |   | 10,000   |   |
| Loans transferred to other real estate  owned and other assets                                         |   | 2,496    |    | 2,005    |   | 621      |   |

 

See Notes to ConsolidatedFinancial Statements.

 

F-8

----

 

**Great Western Bancorporation, Inc.**

**Notes to Consolidated Financial Statements**

 

**Note1:****                            Natureof Operations and Summary of Significant Accounting Policies**

 

***Nature of Operations***

 

Great WesternBancorporation, Inc. (“Great Western”, formerly Spectrum Bancorporation, Inc.)is a multi-bank holding company organized under the laws of Iowa whose primarybusiness is providing the traditional functions of trust, commercial, consumer,and mortgage banking services through its Nebraska, South Dakota and Iowa basedsubsidiary banks.  The Banks are subjectto competition from other financial institutions.  The Banks are subject to the regulation of certain federal andstate agencies and undergo periodic examinations by those regulatoryauthorities.  Substantially all of GreatWestern’s income is generated from banking operations.

 

***Principles ofConsolidation***

 

Theconsolidated financial statements include the accounts of Great Western and itssubsidiaries.  All significantintercompany accounts and transactions have been eliminated in consolidation.

 

Theconsolidated subsidiaries are as follows: Great Western Bank, (Great WesternBank, Omaha, 100.0% owned), which is chartered in Omaha, Nebraska; GreatWestern Bank, (Great Western Bank, Watertown, 96.1% owned), which is charteredin Watertown, South Dakota; Great Western Bank, (Great Western Bank, Clive,100.0% owned), which is chartered in Clive, Iowa; Great Western ServiceCorporation, (100.0% owned by bank subsidiaries, excluding Great Western Bank,Omaha), a data processing organization; GWB Capital Trust I (100.0% owned); GWBCapital Trust II (100.0% owned) and GWB Capital Trust III (100.0% owned). GreatWestern Bank, Omaha also owns 100.0% of GWB Leasing, Inc., a leasingcompany.  See “Changes in MinorityInterests and Business Acquisitions”.

 

***Use of Estimates***

 

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period.  Actualresults could differ from those estimates. Material estimates that are particularly susceptible to significantchange relate to the determination of the allowance for loan losses and thevaluation of mortgage servicing rights.

 

***Cash and CashEquivalents***

 

For purposesof reporting cash flows, cash and cash equivalents include cash on hand,amounts due from banks (including cash items in process of clearing), federalfunds sold and FHLB overnight deposits.

 

***Trust Assets***

 

Assets (otherthan cash deposits) held in fiduciary or agency capacities for customers, arenot included in these financial statements, since such items are not assets ofGreat Western.

 

F-9

----

 

***Securities***

 

Debtsecurities that management has the positive intent and ability to hold tomaturity are classified as “held to maturity” and recorded at amortizedcost.  Securities not classified as heldto maturity, including equity securities with readily determinable fair values,are classified as “available for sale” and recorded at fair value, withunrealized gains and losses, net of related income taxes, excluded from incomeand reported in other comprehensive income.

 

Purchasepremiums and discounts are recognized in interest income over the terms of thesecurities.  Declines in the fair valueof held-to-maturity and available-for-sale securities below their cost that aredeemed to be other than temporary are reflected in income as realizedlosses.  Gains and losses on the sale ofthe securities are recorded on the trade date and are determined using thespecific identification method.

 

GreatWestern’s investments in nonmarketable equity securities are substantially allstock of the Federal Home Loan Bank and the Federal Reserve Bank and privatelyheld equity securities.  Although noready open market exists for the stock, and they have no quoted market value,the issuers will generally repurchase the stock at par value.

 

Interest anddividends on investments in debt and equity securities are included in incomewhen earned.

 

***Loans Receivable***

 

Loansreceivable that management has the intent and ability to hold for theforeseeable future or until maturity or pay-off generally are reported at theiroutstanding unpaid principal balance, adjusted for charge-offs, the allowancefor loan losses and any deferred fees or costs on originated loans.

 

Interest onloans is accrued daily on the outstanding balances.  For impaired loans, accrual of interest is discontinued when managementbelieves, after considering collection efforts and other factors, that theborrower’s financial condition is such that collection of interest isdoubtful.  For loans on which theaccrual of interest has been discontinued, cash collections are credited to theloan receivable balance, and interest income is not recognized on those loansuntil the principal balance has been collected.

 

Substantialportions of loan fees charged or received on the origination of mortgage loansare related to loans sold on the secondary market with servicing released andare recognized as income when received. Certain other loan fees, net of certain direct loan origination costs,are deferred and the net amount amortized as an adjustment of the relatedloan’s yield.  Great Western isgenerally amortizing these amounts over the contractual life of the loan.  Commitment fees based upon the amount of acustomer’s line of credit and fees related to letters of credit are notsignificant and are recognized in income when received.

 

F-10

----

 

Great Westerngrants real estate, commercial and consumer loans to customers primarily inNebraska, South Dakota, Missouri, Kansas and Iowa and has purchased loansprimarily originated in those states and surrounding states.  The amount of collateral obtained, if deemednecessary, is based on management’s credit evaluation of the borrower.  Collateral held varies, but includesaccounts receivable, inventory, property and equipment, residential realestate, income-producing commercial properties and government guarantees.

 

Loansoriginated and intended for sale on the secondary market are sold on aprearranged basis.  Loans held for saleare included in loans receivable and are stated at the lower of cost orestimated fair value in the aggregate. Loans held for sale totaled $27,401,000 and $6,396,000 as ofJune 30, 2003 and 2002, respectively.

 

***Allowance for LoanLosses***

 

The allowancefor loan losses is established as losses are estimated to have occurred througha provision for loan losses charged to income. Loan losses are charged against the allowance when management believesthe uncollectibility of a loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance.

 

The allowancefor loan losses is evaluated on a regular basis by management and is based uponmanagement’s periodic review of the collectibility of the loans in light ofhistorical experience, the nature and volume of the loan portfolio, adversesituations that may affect the borrower’s ability to repay, estimated value ofany underlying collateral and prevailing economic conditions.  This evaluation is inherently subjective, asit requires estimates that are susceptible to significant revision, as moreinformation becomes available.

 

A loan isconsidered impaired when, based on current information and events, it isprobable that Great Western will be unable to collect the scheduled payments ofprincipal or interest when due according to the contractual terms of the loanagreement.  Factors considered bymanagement in determining impairment include payment status, collateral value,and probability of collecting scheduled payments of principal and interest whendue according to contractual terms of the loan agreement.  Loans that experience insignificant paymentdelays and payment shortfalls generally are not classified as impaired.  Management determines the significance ofpayment delays and payment shortfalls on a case-by-case basis, taking intoconsideration all of the circumstances surrounding the loan and the borrower,including the length of the delay, the reasons for the delay, the borrower’sprior payment record, and the amount of the shortfall in relation to theprincipal and interest owed.  Impairmentis measured on a loan-by-loan basis by either the present value of expectedfuture cash flows discounted at the loan’s effective interest rate, the loan’sobtainable market price, or the fair value of the collateral if the loan iscollateral dependent.

 

Large groupsof smaller balance homogeneous loans are collectively evaluated forimpairment.  Accordingly, Great Westerndoes not separately identify individual consumer and residential loans forimpairment disclosures.

 

F-11

----

 

***Other Real EstateOwned***

 

Other realestate owned (OREO) represents properties acquired through foreclosure or otherproceedings and is initially recorded at fair value at the date of foreclosure,which establishes cost.  Afterforeclosure, OREO is held for sale and is carried at the lower of cost or fairvalue less estimated costs of disposal. Any write-down to fair value at the time of transfer to OREO is chargedto the allowance for loan losses. Property is evaluated regularly to ensure the recorded amount issupported by its current fair value; and valuation allowances, to reduce thecarrying amount to fair value less estimated costs to dispose, are recorded ifnecessary.  OREO is included in other assetsin the accompanying consolidated balance sheets.

 

***Premises andEquipment***

 

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

 
|                                |   | **Years**    |   |
|-------------------------------------|--------|--------------|--------|
| Buildings and building improvements |   | 3  – 50 |   |
| Furniture and equipment             |   | 5  – 15 |   |

 

***Intangible Assets***

 

Intangibleassets consist of goodwill, value of core deposits, an unidentifiableintangible asset related to a branch acquisition, client listing andfranchise.  Goodwill represents theexcess of the acquisition cost over the fair value of the net assets acquiredin the purchase of subsidiaries. Core deposits represents the identifiableintangible value assigned to core deposit bases arising from purchaseacquisitions.  The unidentifiableintangible asset represents the excess of fair value of liabilities assumedover the fair value of net assets acquired in a purchase of a failed financialinstitution in accordance with Financial Accounting Standards Board (FASB)Statement No. 72, “Accounting for Certain Acquisitions of Banking or ThriftInstitutions”. Client listing intangible represents the identifiable intangiblevalue assigned to a client listing arising from a purchase acquisition.  Franchise intangible represents a contractualarrangement under which the franchiser grants the franchisee the right toperform certain functions within a designated geographical area.

 

OnOctober 1, 2002, Great Western elected adoption of FASB Statement No. 147,“Acquisitions of Certain Financial Institutions”.  This Statement addresses the financial accounting and reportingfor the acquisition of all or part of a financial institution, except for atransaction between two or more mutual enterprises.  This Statement removes acquisitions of financial institutions,other than transactions between two or more mutual enterprises, from the scopeof FASB Statement No. 72, “Accounting for Certain Acquisitions of Banking orThrift Institutions”, and FASB Interpretation No. 9, “Applying APB Opinions No.16 and 17 When a Savings and Loan Association or a Similar Institution isAcquired in a Business Combination Accounted for by the Purchase Method.”  Transaction provisions for previouslyrecognized unidentifiable intangible assets are effective on October 1, 2002,with earlier application permitted.  Thecarrying amount of an unidentifiable intangible asset shall continue to beamortized as set forth in paragraph 5 of FASB Statement 72

 

F-12

----

 

afterOctober 1, 2002, unless the transaction in which the asset arose was abusiness combination.  If thetransaction that gave rise to the unidentifiable intangible asset was abusiness combination, the carrying amount of the asset shall be reclassified togoodwill as of the later of the date of acquisition or the date FASB StatementNo. 142 was applied in its entirety.

 

Great Westernhas identified those unidentifiable intangible assets that arose from abusiness combination.  In applying FASBStatement No. 147, Great Western has reclassified the carrying amount ofunidentifiable intangible assets of $4,598,000 to goodwill as of July 1,2002.   As of June 30, 2003 totalgoodwill (including reclassified unidentifiable intangible assets of$4,598,000) was $45,930,000 and core deposit intangible and other, net was$3,371,000.  The effect of thisreclassification on the consolidated financial statements is not material.

 

OnJuly 1, 2001, Great Western elected early adoption of FASB Statements No.141, “Business Combinations,” and No. 142, “Goodwill and Other IntangibleAssets”.  FASB Statement No. 141addresses financial accounting and reporting for business combinations andreplaces APB Opinion No. 16, “Business Combinations” (APB 16).  FASB Statement No. 141 no longer allows thepooling of interests method of accounting for acquisitions, provides newrecognition criteria for intangible assets and carries forward withoutreconsideration the guidance in APB 16 related to the application of thepurchase method of accounting.  FASB StatementNo. 142 addresses financial accounting and reporting for acquired goodwill andother intangible assets and replaces APB Opinion No. 17, “IntangibleAssets.”  FASB Statement No. 142addresses how intangible assets should be accounted for upon their acquisitionand after they have been initially recognized in the financial statements.  The new standards provide specific guidanceon measuring goodwill for impairment annually using a two-step process.  The first step identifies potentialimpairment and the second step measures the amount of goodwill impairment lossto be recognized.

 

Great Westernhas identified those intangible assets that remain separable under theprovisions of the new standard and those that are to be included ingoodwill.  In applying FASB StatementNo. 142, Great Western has re-evaluated the useful lives of theseseparable intangible assets.  Theweighted average life of the remaining amortizable intangible assets is 6years.  In the year of adoption, FASBStatement No. 142 requires the first step of the goodwill impairment test to becompleted within the first six months and the final step to be completed withintwelve months of adoption.  The firststep of the test was completed as of July 1, 2001 and no indications ofgoodwill impairment were found; therefore, step two of the goodwill impairmenttest was not applicable.  As ofJune 30, 2003 and 2002, the fair values of each reporting unit werereviewed and it was determined that the fair values were equal to or greaterthan the fair values as of July 1, 2001; hence no indications of goodwillimpairment were found.

 

F-13

----

 

The methodsand lives used to amortize intangible assets are as follows:

 
| **Intangible**                   |   | **Method**                                  |   | **Years**    |
|----------------------------------|--------|---------------------------------------------|--------|--------------|
| Goodwill                         |   | Straight-line  (prior to July 1, 2001) |   | 11 – 40 |
| Core deposit                     |   | Straight-line  & accelerated            |   | 5            |
| Unidentifiable  intangible asset |   | Straight-line  (prior to July 1, 2002) |   | 15           |
| Client  listing                  |   | Straight-line                               |   | 10 - 15      |
| Franchise                        |   | Straight-line                               |   | 5 - 10       |

 

***Mortgage ServicingRights***

 

The cost ofmortgage servicing rights acquired is amortized in proportion to, and over theperiod of, estimated net servicing revenues. The cost of mortgage servicing rights acquired and the amortizationthereon is periodically evaluated in relation to estimated future net servicingrevenues.  Projected net servicingrevenue is in turn determined on the basis of the estimated future balance ofthe underlying mortgage loan portfolio. Great Western estimates future prepayment rates based on relevantcharacteristics of the servicing portfolio. Impairment of mortgage servicing rights acquired is assessed based onthe fair value of those rights as compared to amortized cost.  For purposes of measuring impairment, therights are stratified based on investor remittance type.  Fair values are estimated using discountedcash flows based on interest rates commensurate with the risks involved.  Impairment, if any, is recognized through avaluation allowance for an individual stratum, to the extent that fair value isless than the capitalized amount of the stratum.

 

***Income Taxes***

 

Deferred taxesare provided on a liability method whereby deferred tax assets are recognizedfor deductible temporary differences and deferred tax liabilities arerecognized for taxable temporary differences. Temporary differences are the differences between the reported amountsof assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in theopinion of management, it is more likely than not that some portion or all ofthe deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects ofchanges in tax laws and rates on the dates of enactment.

 

***DeferredCompensation***

 

The netpresent value of payments expected to be made under deferred compensationagreements is being accrued over the respective employees’ expected employmentservice period.

 

***Earnings Per CommonShare***

 

Earnings percommon share has been computed on the basis of the weighted-average number ofcommon shares outstanding during each period presented.  Dividends accumulated or declared oncumulative preferred stock, which totaled $721,000, $900,000 and $152,000 forthe years ended June 30, 2003, 2002 and 2001, respectively, reduced theearnings available to common stockholders in the computation.  Great Western has no common stockequivalents.

 

F-14

----

 

***Operating Segments***

 

Great Westernuses the “management approach” for reporting information about segments inannual and interim financial statements. The management approach is based on the way the chief operatingdecision-maker organizes segments within a company for making operatingdecisions and assessing performance. Reportable segments are based on products and services, geography, legalstructure, management structure and any other manner in which managementdisaggregates a company.  Based on the“management approach” model, Great Western has determined that its business iscomprised of a single operating segment.

 

***Fair Value ofFinancial Instruments***

 

Great Westernin estimating the fair value of its financial instruments as presented in Note20, used the following methods and assumptions:

 

**Carryingamounts approximate fair values** for the followinginstruments:

 

Cash and duefrom banks

Federal fundssold and FHLB overnight deposits

Certificatesof deposit

Securitiesavailable for sale

Variable rateloans that reprice frequently where no significant change in credit risk hasoccurred

Accruedinterest receivable

Variable ratemoney market deposit accounts and deposits payable on demand

Federal fundspurchased and securities sold under agreements to repurchase

Notes payablewith a variable interest rate

Accruedinterest payable

 

**Discountedcash flows** using interest rates currently beingoffered on instruments with similar terms and with similar credit quality:

 

All loansexcept variable rate loans described above

Fixed ratetime certificates

Notes payablewith a fixed interest rate

Companyobligated mandatorily redeemable preferred securities

Mortgageservicing rights acquired

 

**Feescurrently being charged**for similar instruments,taking into account the remaining terms of the agreements and thecounterparties’ credit standing:

 

Off-balancesheet instruments:

Letters ofcredit

Commitments toextend credit

 

F-15

----

 

**Note2:****                            Changesin Minority Interests and Business Acquisitions**

 

OnMay 30, 2003, Great Western Bank, Rapid City (formerly Rushmore Bank &Trust) merged with and into Great Western Bank, Watertown (formerly F & MBank).  Management of Great Western doesnot expect the merger to have a material effect on the business or earnings ofGreat Western. The merger will be accounted for at historical cost in a mannersimilar to a pooling-of-interests combination and, accordingly, the merger willnot require any restatement of financial statements on a consolidated basis.Regulatory approval was obtained.

 

In May 2003,Great Western Bank, Watertown (formerly F&M Bank) purchased a total of 40shares of common stock of Great Western Bank, Watertown from minorityshareholders for $155,412.  Thistransaction was accounted for as a purchase.

 

In May 2003,Great Western Bank, Watertown (formerly F&M Bank) sold a total of 200shares of common stock of Great Western Bank, Watertown to a minorityshareholder for $1,165,587.

 

OnMay 29, 2003, Spectrum Bancorporation, Inc. was renamed Great WesternBancorporation, Inc. In addition, on May 29, 2003, Spectrum Capital TrustI and Spectrum Capital Trust II were renamed GWB Capital Trust I and GWBCapital Trust II, respectively.

 

OnMarch 17, 2003, Spectrum Banc Service Corporation was renamed GreatWestern Service Corporation.

 

OnMarch 3, 2003, Rushmore Bank and Trust, Rapid City, South Dakota and F& M Bank, Watertown, South Dakota were renamed Great Western Bank.

 

OnFebruary 21, 2003, Citizens Bank, Mt Ayr, Iowa and Citizens Bank ofPrinceton, Princeton, Missouri merged with and into Citizens Bank, Clive, Iowa.  All three banks are 100.0% ownedsubsidiaries of Great Western.  Inaddition, on March 29, 2003, the surviving bank was renamed Great WesternBank.  Management of Great Western doesnot expect the merger to have a material effect on the business or earnings ofGreat Western. The merger was accounted for at historical cost in a mannersimilar to a pooling-of-interests combination and, accordingly, the merger didnot require any restatement of financial statements on a consolidated basis.  Regulatory approval had been obtained.

 

OnJanuary 24, 2003, Great Western purchased from a minority shareholder 180shares of common stock and 1,800 shares of preferred stock in its subsidiary,Great Western Bank, Rapid City (formerly Rushmore Bank & Trust), for $2,111,492.  This transaction was accounted for as apurchase.  After January 24, 2003,Great Western owned 100.0% of Great Western Bank, Rapid City.

 

OnDecember 13, 2002, Great Western Bank, Omaha acquired Peoples Bank,Overland Park, Kansas by cash merger.  AtDecember 13, 2002, Peoples Bank had $24,847,000 in total assets,$2,910,000 in net loans and $24,739,000 in deposits.  Peoples Bank has one location, which at closing became a branchof Great Western Bank, Omaha. The results of operations of Peoples Bank afterthe date of acquisition are included in the consolidated financialstatements.  Certain disclosures werenot made due to the insignificance of this acquisition to the consolidatedfinancial statements.

 

InOctober 2002, Great Western purchased a total of 24 shares of common stockof Great Western, Watertown (formerly F & M Bank), from two minorityshareholders for $90,765.  Thistransaction was accounted for as a purchase.

 

OnSeptember 30, 2002, Great Western acquired 1,688 shares (4.8%) of the commonstock of Great Western, Clive (formerly Citizens Bank, Clive, Iowa) for$673,288 in cash from a minority shareholder. The transaction was accounted for as a purchase.

 

F-16

----

 

As ofFebruary 28, 2002 Great Western Bank, Watertown (formerly F&M Bank)acquired by merger First Western Bank, N.A., Atkinson, Nebraska (“FirstWestern”) 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 operationof First Western and Marquette after the date of acquisition are included inthe consolidated financial statements.

 

OnMarch 23, 2001 Great Western (formerly Spectrum) acquired Great WesternSecurities (“GWS”) for $58,348,384 in cash and by issuing 46,319 shares ofcommon stock and $10,000,000 in nonvoting, non-cumulative perpetual preferredstock.  The common stock was issued toexisting shareholders in Great Western for their 50% interest in GWS.  The remaining portion was purchased from anunrelated party.  The acquisition hasbeen accounted for as a purchase and results of operation of GWS since the dateof acquisition are included in the consolidated financial statements.  The net assets previously attributed to theownership of Great Western’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 depositintangible of $6,775,000 has been recognized and is being amortized over 5years by an accelerated method.

 

Unaudited pro formaconsolidated results of operations as though Great Western Securities had beenacquired as of the July 1, 2000 (in thousands except share data) aresummarized below.

 
|                                |   | **June 30,  2001** |    |
|-------------------------------------|--------|-------------------------|---------|
| 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 aboveamounts reflect adjustments for amortization of intangible assets, additionaldepreciation and amortization on revalued purchased assets and deposits, andpreferred stock dividend requirements.

 

OnMarch 31, 2001 Great Western Bank, Watertown (formerly 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 assetsof $34,644,000, deposits of $31,588,000, and net loans of $17,762,000.  The acquisition has been accounted for as apurchase and results of operations of Founders after the date of acquisitionare included in the consolidated financial statements.

 

F-17

----

 

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

 
|                                                   |   | **Fiscal  2003  Acquisitions** |    | **Fiscal  2002  Acquisitions** |   | **Fiscal  2001  Acquisitions** |   |
|--------------------------------------------------------|--------|--------------------------------|---------|--------------------------------|--------|--------------------------------|--------|
|                                                   |   |                           |    |                           |   |                           |   |
| **Assets acquired:**                                   |   |                           |    |                           |   |                           |   |
| Securities                                             |   | $                              | 390     |                           | $      | 27,289                         |   | $ | 126,333 |   |
| Loans receivable                                       |   | 2,910                          |    | 62,981                         |   | 578,167                        |   |
| Other assets                                           |   | 22                             |    | 1,638                          |   | 10,172                         |   |
| Premises and equipment                                 |   | 65                             |    | 3,285                          |   | 15,612                         |   |
| Mortgage servicing rights                              |   | —                         |    | —                         |   | 3,825                          |   |
| Core deposit and other intangibles                     |   | 304                            |    | 754                            |   | 6,775                          |   |
| Goodwill                                               |   | 2,017                          |    | 4,182                          |   | 33,433                         |   |
|                                                   |   |                           |    |                           |   |                           |   |
| **Liabilities assumed and equity instruments issued:** |   |                           |    |                           |   |                           |   |
|                                                   |   |                           |    |                           |   |                           |   |
| Deposits                                               |   | (24,739                        | )       | (99,589                        | )      | (598,292                       | )      |
| Common stock issued                                    |   | —                         |    | —                         |   | (27,544                        | )      |
| Preferred stock issued                                 |   | —                         |    | —                         |   | (10,000                        | )      |
| Other liabilities                                      |   | (108                           | )       | (623                           | )      | (94,662                        | )      |
| Net cash and cash equivalents paid  (received)         |   | $                              | (19,139 | )                              | $      | (83                            | )      | $ | 43,819 |   |

 

**Note3:****                            Restrictionson Cash and Due from Banks**

 

GreatWestern’s banking subsidiaries are required to maintain reserve balances incash and on deposit with the Federal Reserve based on a percentage ofdeposits.  The total requirement wasapproximately $1,335,000 and $6,288,000 at June 30, 2003 and 2002,respectively.

 

F-18

----

 

**Note 4:****                            SecuritiesAvailable for Sale**

 

Amortized costand fair value of investments in securities, all of which are classified asavailable 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, 2003:**                                                    |   |                |    |                         |   |                          |   |           |   |
| U.S. Treasury securities                                                         |   | $                   | 28,795  |                         | $      | 455                           |   | $              | — |   | $ | 29,250 |   |
| U.S. Government agencies and corporations,  including mortgage-backed securities |   | 192,638             |    | 5,339                        |   | (22                           | )      | 197,955        |   |
| States and political subdivision securities                                      |   | 44,067              |    | 2,380                        |   | (5                            | )      | 46,442         |   |
| Corporate debt securities                                                        |   | 29,433              |    | 1,457                        |   | (17                           | )      | 30,873         |   |
| Stock in Federal Home Loan Bank, Federal  Reserve Bank and other                 |   | 8,505               |    | 111                          |   | —                        |   | 8,616          |   |
|                                                                             |   |                |    |                         |   |                          |   |           |   |
|                                                                             |   | $                   | 303,438 |                         | $      | 9,742                         |   | $              | (44    | ) | $ | 313,136 |   |
|                                                                             |   |                |    |                         |   |                          |   |           |   |
| **As of June 30, 2002:**                                                    |   |                |    |                         |   |                          |   |           |   |
| U.S. Treasury securities                                                         |   | $                   | 10,077  |                         | $      | 243                           |   | $              | — |   | $ | 10,320 |   |
| U.S. Government agencies and corporations,  including mortgage-backed securities |   | 242,414             |    | 5,090                        |   | (27                           | )      | 247,477        |   |
| States and political subdivision securities                                      |   | 40,194              |    | 792                          |   | (30                           | )      | 40,956         |   |
| Corporate debt securities                                                        |   | 28,010              |    | 398                          |   | (231                          | )      | 28,177         |   |
| Stock in Federal Home Loan Bank, Federal  Reserve Bank and other                 |   | 7,129               |    | —                       |   | —                        |   | 7,129          |   |
|                                                                             |   |                |    |                         |   |                          |   |           |   |
|                                                                             |   | $                   | 327,824 |                         | $      | 6,523                         |   | $              | (288   | ) | $ | 334,059 |   |

 

The amortizedcost and fair value of debt securities available for sale (in thousands) as ofJune 30, 2003, by contractual maturity, are shown below.  Maturities may differ from contractualmaturities in mortgage-backed securities because the mortgages underlying thesecurities may be called or repaid without any penalties.  Therefore, these securities are not includedin the maturity categories in the following maturity summary.

 
|                                   |   | **Amortized  Cost** |    | **Fair Value** |   |
|----------------------------------------|--------|---------------------|---------|----------------|--------|
|                                   |   |                |    |           |   |
| Due in one year or less                |   | $                   | 30,289  |           | $      | 30,809 |   |
| Due after one year through five years  |   | 178,971             |    | 185,050        |   |
| Due after five years through ten years |   | 41,092              |    | 42,907         |   |
| Due after ten years                    |   | 10,529              |    | 10,693         |   |
| Mortgage-backed securities             |   | 34,052              |    | 35,061         |   |
|                                   |   |                |    |           |   |
|                                   |   | $                   | 294,933 |           | $      | 304,520 |   |

 

F-19

----

 

Proceeds fromsales of securities available for sale were $63,116,000, $9,760,000,****and$7,453,000 for the years ended June 30, 2003, 2002, and 2001,respectively.** **Gross gains of$1,862,000, $217,000 and $133,000 and gross losses of $0, $2,000 and $0 wererealized on those sales for the years ended June 30, 2003, 2002, and 2001,respectively.  Income taxes on net gainson sales of securities were $652,000, $75,000 and $49,000, in 2003, 2002 and2001, respectively.

 

Securitieswith an amortized cost of approximately $197,528,000 and $197,047,000 atJune 30, 2003 and 2002, respectively, were pledged as collateral on publicdeposits, securities sold under agreements to repurchase, notes payable toFederal Home Loan Bank and for other purposes as required or permitted by law.

 

The componentsof other comprehensive income, net unrealized gain (loss) on securitiesavailable for sale, (in thousands) are as follows:

 
|                                                                    |   | **Years  Ended June 30,** |   |
|-------------------------------------------------------------------------|--------|--------------------------------|--------|
|                                                                    |   | **2003**                       |   | **2002** |   | **2001** |   |
| Unrealized holding gain arising during the  period                      |   | $                              | 5,115  |   | $ | 3,010 |   | $ | 6,396 |   |
| Less reclassification adjustment for net  gain realized in net income   |   | (1,862                         | )      | (215 | ) | (133 | ) |
| Net change in unrealized gain before income  taxes                      |   | 3,253                          |   | 2,795 |   | 6,263 |   |
| Income taxes                                                            |   | (1,139                         | )      | (978 | ) | (2,328 | ) |
| Minority interest in unrealized gain                                    |   | (44                            | )      | (67 | ) | (70 | ) |
| Other comprehensive income-net change in  unrealized gain on securities |   | $                              | 2,070  |   | $ | 1,750 |   | $ | 3,865 |   |

 

**Note 5:****                            LoansReceivable**

 

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

 
|                        |   | **June 30,** |      |
|-----------------------------|--------|-------------------|-----------|
|                        |   | **2003**          |      | **2002** |   |
|                        |   |              |      |   |   |
| Commercial and agricultural |   | $                 | 1,235,406 |   | $ | 1,126,417 |   |
| Real estate loans           |   | 194,367           |      | 164,812 |   |
| Loans to individuals        |   | 190,579           |      | 199,896 |   |
| Other loans                 |   | 2,576             |      | 6,241 |   |
|                        |   | 1,622,928         |      | 1,497,366 |   |
| Deduct:                     |   |              |      |   |   |
| Allowance for loan losses   |   | (21,251           | )         | (20,344 | ) |
| Unearned net loan fees      |   | (1,716            | )         | (1,166 | ) |
|                        |   |              |      |   |   |
|                        |   | $                 | 1,599,961 |   | $ | 1,475,856 |   |

 

F-20

----

 

Loans guaranteed by agencies of the U.S. government totaled $40,872,000and $38,462,000 at June 30, 2003 and 2002, respectively.

 

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

 
|                                                                     |   | **As of and  for the Year Ended June 30,** |   |
|--------------------------------------------------------------------------|--------|-------------------------------------------------|--------|
|                                                                     |   | **2003**                                        |   | **2002** |   | **2001** |   |
| Loans receivable for which there is a  related allowance for loan losses |   | $                                               | 11,819 |   | $ | 14,081 |   | $ | 14,090 |   |
| Other impaired loans                                                     |   | 5,497                                           |   | — |   | — |   |
|                                                                     |   |                                            |   |   |   |   |   |
| Total impaired loans                                                     |   | $                                               | 17,316 |   | $ | 14,081 |   | $ | 14,090 |   |
|                                                                     |   |                                            |   |   |   |   |   |
| Related allowance for loan losses                                        |   | $                                               | 1,863  |   | $ | 3,952 |   | $ | 872 |   |
| Average monthly balance of impaired loans  (based on month end balances) |   | $                                               | 14,204 |   | $ | 14,411 |   | $ | 12,941 |   |
| Interest income recognized on impaired  loans                            |   | $                                               | 522    |   | $ | 970 |   | $ | 782 |   |

 

At June 30, 2003 and 2002 accruing loans delinquent ninety days ormore totaled $2,130,000 and $1,895,000, respectively.  Nonaccruing loans totaled $9,562,000 at June 30, 2003 and$11,593,000 at June 30, 2002.

 

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

 
|                                   |   | **Years  Ended June 30,** |   |
|----------------------------------------|--------|--------------------------------|--------|
|                                   |   | **2003**                       |   | **2002** |   | **2001** |   |
| **Balance, beginning**                 |   | $                              | 20,344 |   | $ | 18,955 |   | $ | 8,197 |   |
|                                   |   |                           |   |   |   |   |   |
| Provision charged to operating expense |   | 4,371                          |   | 6,067 |   | 2,618 |   |
| Business acquisitions (Note 2)         |   | —                         |   | 999 |   | 10,436 |   |
| Recoveries of amounts charged off      |   | 596                            |   | 774 |   | 331 |   |
|                                   |   | 25,311                         |   | 26,795 |   | 21,582 |   |
| Amounts charged off                    |   | (4,060                         | )      | (6,451 | ) | (2,627 | ) |
|                                   |   |                           |   |   |   |   |   |
| **Balance, ending**                    |   | $                              | 21,251 |   | $ | 20,344 |   | $ | 18,955 |   |

 

F-21

----

 

**Note 6:****                           ****Premises and Equipment**

** **

Themajor classes of premises and equipment and the total amount of accumulateddepreciation (in thousands) are as follows:

 
|                                |   | **June 30,** |   |
|-------------------------------------|--------|-------------------|--------|
|                                |   | **2003**          |   | **2002** |   |
| Land                                |   | $                 | 6,243  |   | $ | 6,405 |   |
| Buildings and building improvements |   | 35,078            |   | 32,782 |   |
| Furniture and equipment             |   | 25,694            |   | 24,289 |   |
| Construction in process             |   | 1,200             |   | 303 |   |
|                                |   | 68,215            |   | 63,779 |   |
| Less accumulated depreciation       |   | (24,540           | )      | (21,976 | ) |
|                                |   | $                 | 43,675 |   | $ | 41,803 |   |

 

Depreciationexpense was $3,320,000, $2,961,000, and $2,378,000 for the years endedJune 30, 2003, 2002 and 2001, respectively.

 

**Note 7:****                           ****Intangible Assets**

** **

Goodwill,which is not being amortized subsequent to June 30, 2001, is net of accumulatedamortization of $2,934,000 at June 30, 2003 and 2002. No impairment hasbeen recognized on goodwill.

 

Changesin the carrying amount of goodwill (in thousands) are as follows:

 
|                                         |   | **June 30,** |   |
|----------------------------------------------|--------|-------------------|--------|
|                                         |   | **2003**          |   | **2002** |   |
| Balance, beginning                           |   | $                 | 39,315 |   | $ | 35,133 |   |
| Arising from completed business acquisitions |   | 2,017             |   | 4,182 |   |
| Reclassification adjustment                  |   | 4,598             |   | — |   |
|                                         |   |              |   |   |   |
| Balance, ending                              |   | $                 | 45,930 |   | $ | 39,315 |   |

 

Asummary of intangible assets subject to amortization is as follows (inthousands):

 
|                          |   | **Mortgage  Servicing  Rights** |       | **Core  Deposit  Intangible** |       | **Other** |       | **Total** |       |
|-------------------------------|--------|---------------------------------|------------|-------------------------------|------------|-----------|------------|-----------|------------|
| **As of June 30, 2003**  |   |                            |       |                          |       |      |       |      |       |
| Gross carrying amount         |   | $                               | 32,462     |                          | $          | 7,758     |       | $         | 309        |   | $ | 40,529 |   |
| Accumulated amortization      |   | (17,709                         | )          | (4,615                        | )          | (81       | )          | (22,405   | )          |
| Impairment                    |   | (9,479                          | )          | —                        |       | —    |       | (9,479    | )          |
|                          |   | $                               | 5,274      |                          | $          | 3,143     |       | $         | 228        |   | $ | 8,645 |   |
| **As of  June 30, 2002** |   |                            | ** ** |                          | ** ** |      | ** ** |      | ** ** |
| Gross carrying amount         |   | $                               | 26,960     |                          | $          | 7,454     |       | $         | 6,203      |   | $ | 40,617 |   |
| Accumulated amortization      |   | (6,558                          | )          | (2,755                        | )          | (1,010    | )          | (10,323   | )          |
| Impairment                    |   | (5,271                          | )          | —                        |       | —    |       | (5,271    | )          |
|                          |   | $                               | 15,131     |                          | $          | 4,699     |       | $         | 5,193      |   | $ | 25,023 |   |

 

F-22

----

 

Amortizationof intangible assets, including adjustments for impairments, for the fiscalyears ended June 30, 2003, 2002 and 2001 was $17,259,000, $11,678,000 and$1,992,000 respectively.

 

Estimatedamortization of intangible assets for each of the next five fiscal years(assuming no activities, such as acquisitions, which would result in additionalamortizable intangible assets and excluding the effect of previous impairments)are as follows (in thousands):

 
| 2004 |   | $     | 6,391  |   |
|------|--------|-------|--------|--------|
| 2005 |   | 4,149 |   |
| 2006 |   | 2,402 |   |
| 2007 |   | 1,626 |   |
| 2008 |   | 1,036 |   |

 

Hadthe provisions of FASB Statements No. 141 and 142 been applied in fiscal year2001, Great Western’s net income (in thousands) and net income per share wouldhave been as follows:

 
|                       |   | **Year Ended June 30, 2001** |       |
|----------------------------|--------|-----------------------------------|------------|
|                       |   | **Net Income**                    |       | **Per Share** |   |
| **Net Income:**            |   |                              |       |   |   |
| As reported                |   | $                                 | 9,418      |   | $ | 101.16 |   |
| Add: Goodwill amortization |   | 728                               |       | 7.95 |   |
|                       |   |                              | ** ** |   | ** ** |
| Pro forma net income       |   | $                                 | 10,146     |   | $ | 109.11 |   |

 

**Note 8:****                           ****Mortgage Servicing RightsAcquired**

** **

Mortgageloans serviced for others are not included in the accompanying financialstatements.  The unpaid principalbalances (in thousands) of these loans are summarized as follows:

 
|                                       |   | **June 30,** |    |
|--------------------------------------------|--------|-------------------|---------|
|                                       |   | **2003**          |    | **2002** |   |
| **Mortgage loan portfolios serviced for:** |   |              |    |   |   |
| GNMA                                       |   | $                 | 2,668   |   | $ | 3,538 |   |
| FHLMC                                      |   | 108,591           |    | 161,767 |   |
| FNMA                                       |   | 693,243           |    | 887,351 |   |
| Other investors                            |   | 23,584            |    | 41,248 |   |
|                                       |   | $                 | 828,086 |   | $ | 1,093,904 |   |

 

Custodialescrow balances maintained in connection with the foregoing loan servicing,which are held by Great Western, were approximately $6,982,000 and $7,734,000at June 30, 2003 and 2002, respectively. At June 30, 2003 and 2002, the number of mortgage loan poolsserviced for GNMA totaled six.

 

F-23

----

 

Followingis an analysis of the changes in the mortgage servicing rights:

 
|                               |   | **June 30,** |   |
|------------------------------------|--------|-------------------|--------|
|                               |   | **2003**          |   | **2002** |   | **2001** |   |
|                               |   |              |   |   |   |   |   |
| Balance at the beginning of period |   | $                 | 15,131 |   | $ | 18,366 |   | $ | — |   |
| Additions                          |   | 5,501             |   | 5,852 |   | 18,670 |   |
| Sales                              |   | —            |   | (38 | ) | — |   |
| Amortization                       |   | (11,150           | )      | (3,816 | ) | (267 | ) |
| Valuation adjustment               |   | (4,208            | )      | (5,233 | ) | (37 | ) |
|                               |   |              |   |   |   |   |   |
| Balance at end of period           |   | $                 | 5,274  |   | $ | 15,131 |   | $ | 18,366 |   |

 

Mortgageservicing rights had an estimated fair value of $5,274,000 and $15,139,000 atJune 30, 2003 and 2002, respectively. A total valuation allowance of$9,479,000 and $5,271,000 was recorded as of June 30, 2003 and 2002,respectively.

 

**Note 9:****                           ****Deposits**

** **

Thecomposition of deposits (in thousands) is as follows:

 
|                                   |   | **June 30,** |      |
|----------------------------------------|--------|-------------------|-----------|
|                                   |   | **2003**          |      | **2002** |   |
| Noninterest bearing demand             |   | $                 | 262,161   |   | $ | 194,792 |   |
| NOW accounts, money market and savings |   | 613,367           |      | 596,859 |   |
| Time certificates, $100,000 or more    |   | 265,310           |      | 258,329 |   |
| Other time certificates                |   | 594,192           |      | 585,987 |   |
|                                   |   |              |      |   |   |
|                                   |   | $                 | 1,735,030 |   | $ | 1,635,967 |   |

 

AtJune 30, 2003, the scheduled maturities of time certificates (inthousands) are as follows:

 
| 2004                |   | $       | 563,945 |   |
|---------------------|--------|---------|---------|--------|
| 2005                |   | 149,019 |    |
| 2006                |   | 70,224  |    |
| 2007-2008           |   | 70,227  |    |
| 2009 and thereafter |   | 6,087   |    |
|                |   |    |    |
|                |   | $       | 859,502 |   |

 

F-24

----

 

**Note 10:****                    ****Federal Funds Purchased andSecurities Sold Under Agreements to Repurchase**

** **

Federalfunds purchased totaled $15,140,000 at June 30, 2002.  There were no federal funds purchased atJune 20, 2003.

 

Securitiessold under agreements to repurchase, which generally mature within one to fourdays from the transaction date totaled $60,163,000 and $55,404,000 atJune 30, 2003 and 2002, respectively. Securities underlying the agreements had an amortized cost ofapproximately $67,621,000 and $64,436,000, and fair value of approximately$70,037,000 and $66,089,000 at June 30, 2003 and 2002 respectively.  Great Western holds the securities underthird-party safekeeping agreements. For the years ended June 30, 2003,2002 and 2001, respectively, the maximum month-end balance of the agreementswas $69,144,000, $74,471,000 and $65,420,000, and they had an average balanceof $59,499,000, $64,943,000 and $53,893,000 and an average interest rate of4.5%, 4.4% and 5.8%.

 

**Note 11:****                    ****Notes Payable**

** **

Notespayable consist of the following (in thousands):

 
|                                                                                                                                                                                                                                                              |   | **June 30,** |    |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|---------|
|                                                                                                                                                                                                                                                              |   | **2003**          |    | **2002** |   |
| Subordinated capital notes to Capital Investors, LLC, due  March 2011, interest paid quarterly at prime rate plus 100 basis points,  unsecured (1)                                                                                                           |   | $                 | 35,000  |   | $ | 35,000 |   |
| Subordinated capital notes, to shareholders, due December 2010,  10% interest paid quarterly                                                                                                                                                                 |   | 1,200             |    | 1,200 |   |
| Note 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                                                 |   | 500               |    | 7,500 |   |
| Note payable to bank, due March 2006, interest paid quarterly at  LIBOR plus 150 basis points, annual principal payments of $2,500,000 starting  March 2003 due each year thereafter, secured by stock in subsidiary  banks                             |   | 7,000             |    | 10,000 |   |
| Notes payable to Federal Home Loan Bank, interest rates from  2.02%-6.37% and maturity dates from July 2003 to December 2013,  secured by real estate loans and Federal Home Loan Bank (FHLB) stock, with  various call dates at the option of the FHLB |   | 102,162           |    | 69,337 |   |
| Notes payable to Federal Reserve Bank, consisting of treasury, tax  and loan deposits, due on demand                                                                                                                                                              |   | 1,115             |    | 1,107 |   |
| Other                                                                                                                                                                                                                                                             |   | 103               |    | 120 |   |
|                                                                                                                                                                                                                                                              |   |              |    |   |   |
|                                                                                                                                                                                                                                                              |   | $                 | 147,080 |   | $ | 124,264 |   |

 

----

(1)          Capital Investors, LLC is owned by certain stockholders of GreatWestern.

 

F-25

----

 

GreatWestern has a $5,000,000 line of credit from an unaffiliated bank, secured bystock in subsidiary banks, with a maturity date of March 31, 2004.  There were no advances on this line ofcredit as of June 30, 2002 or 2003.

 

Asof June 30, 2003, notes payable are due or callable (whichever is earlier)as follows (in thousands):

 
| 2004       |   | $      | 30,123  |   |
|------------|--------|--------|---------|--------|
| 2005       |   | 21,378 |    |
| 2006       |   | 13,541 |    |
| 2007       |   | 12,542 |    |
| 2008       |   | 13,042 |    |
| Thereafter |   | 56,454 |    |
|       |   | $      | 147,080 |   |

 

**Note 12:****                    ****Company ObligatedMandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding SolelySubordinated Debentures**

** **

GreatWestern issued 2,040,000 shares, $10 par value, of Company ObligatedMandatorily Redeemable Preferred Securities (Preferred Securities) of GWBCapital Trust I (formerly Spectrum Capital Trust I) on August 18,1999.  Cumulative cash distributionsbear a 10.0% annual rate.  Great Westernissued 2,760,000 shares, $10 par value, of Company Obligated MandatorilyRedeemable Preferred Securities (Preferred Securities) of GWB Capital Trust II(formerly Spectrum Capital Trust II) on March 19, 2001.  Cumulative cash distributions bear a 9.75%annual rate.  Distributions on bothseries are paid quarterly. Great Western may, at one or more times, deferinterest 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 unpaiddistributions will be paid.  The capitalsecurities will be redeemed thirty years from the issuance date; however, GreatWestern has the option to shorten the maturity date to a date not earlier thanfive years from the issue date.  Theredemption price is $10 per capital security plus any accrued and unpaiddistributions to the date of redemption. Holders of the Preferred Securitieshave no voting rights. The Preferred Securities are unsecured and rank juniorin priority of payment to all of Great Western’s indebtedness and senior toGreat Western’s common and preferred stock.

 

GreatWestern issued 10,000 shares, $1,000 par value, of Company ObligatedMandatorily Redeemable Preferred Securities (Preferred Securities) of GWBCapital Trust III (formerly Spectrum Capital Trust III) on October 29,2002 through a private placement.  Thedistribution rate is set quarterly at three month LIBOR plus 345 basis points,which was set on October 25, 2002 at 5.27%, with a maximum rate of 12.50%through November 7, 2007. Distribution payment dates are February 7, May 7,August 7 and November 7 of each year, beginning February 7, 2003and are payable in arrears.  GreatWestern may, at one or more times, defer interest payments on the capitalsecurities for up to 20 consecutive quarters following suspension of dividendson all other capital stock.  At the endof any deferral period, all accumulated and unpaid distributions will be paid.The capital securities will be redeemed thirty years from the issuance date;however, Great Western has the option to accelerate the maturity date notearlier than five years from the issue date. The

 

F-26

----

 

redemptionprice is $1,000 per capital security plus any accrued and unpaid distributionsto the date of redemption.  Holders ofthe Preferred Securities have no voting rights.  The Preferred Securities are unsecured and rank junior inpriority of payment to all of Great Western’s senior indebtedness and senior toGreat Western’s common and preferred stock. Proceeds from the issue were usedfor general corporate purposes.

 

Thesole assets of the trusts are junior subordinated deferrable interestdebentures issued by Great Western with interest and maturity provisionssimilar in term to the respective preferred securities. The trusts’ ability topay amounts due on the Preferred Securities is solely dependent upon GreatWestern making payment on the related junior subordinated debentures.  Great Western’s obligation under the debenturesand relevant trust agreements constitute a full, irrevocable and unconditionalguarantee on a subordinated basis by it of the obligations of the trusts underthe preferred securities.

 

ThePreferred Securities are classified as debt in the accompanying consolidatedfinancial statements.  For regulatorypurposes the Preferred Securities qualify as elements of capital.  As of June 30, 2003, $41,087,000 ofPreferred Securities was eligible for treatment as Tier 1 capital and$16,913,000 was eligible as Tier 2 capital.

 

**Note 13:****                    ****Income Tax Matters**

** **

Theprovision for income taxes charged to operations consists of the following (inthousands):

 
|                           |   | **Years Ended June 30,** |   |
|--------------------------------|--------|-------------------------------|--------|
|                           |   | **2003**                      |   | **2002** |   | **2001** |   |
| **Currently paid or payable:** |   |                          |   |   |   |   |   |
| Federal                        |   | $                             | 13,589 |   | $ | 9,883 |   | $ | 4,757 |   |
| State                          |   | 1,585                         |   | 1,252 |   | 885 |   |
| **Deferred benefit**           |   | (5,335                        | )      | (3,742 | ) | (720 | ) |
|                           |   | $                             | 9,839  |   | $ | 7,393 |   | $ | 4,922 |   |

 

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

 

F-27

----

 
|                                                                                            |   | **Year Ended June 30,** |       |
|-------------------------------------------------------------------------------------------------|--------|------------------------------|------------|
|                                                                                            |   | **2003**                     |       | **2002** |   | **2001** |   |
| **Computed “expected” tax expense**                                                   |   | $                            | 9,236      |   | $ | 7,436 |   | $ | 5,202 |   |
| **Increase (decrease) in incomes taxes resulting from:**                                        |   |                         | ** ** |   | ** ** |   | ** ** |
| Benefit of income taxed at lower rates                                                          |   | —                       |       | — |   | (100 | ) |
| Tax exempt interest income, net                                                                 |   | (1,084                       | )          | (832 | ) | (527 | ) |
| State income taxes, net of federal benefit                                                      |   | 1,011                        |       | 819 |   | 575 |   |
| Effect of Citizens Corporation income not subject to Federal tax due  to S-corporation election |   | —                       |       | — |   | (320 | ) |
| Goodwill amortization                                                                           |   | —                       |       | — |   | 222 |   |
| Other                                                                                           |   | 676                          |       | (30 | ) | (130 | ) |
|                                                                                            |   | $                            | 9,839      |   | $ | 7,393 |   | $ | 4,922 |   |
|                                                                                            |   |                         |       |   |   |   |   |
| Net deferred tax assets  (liabilities) (in thousands) consist of the following components:      |   |
|                                                                                            |   |                         |       | **June 30,** |   |
|                                                                                            |   |                         |       | **2003** |   | **2002** | ** ** |
| **Deferred tax assets:**                                                                        |   |                         |       |   |   |   |   |
| Allowance for loan losses                                                                       |   |                         |       | $ | 7,137 |   | $ | 6,646 |   |
| Compensation                                                                                    |   |                         |       | 775 |   | 274 |   |
| Net operating loss carryforward                                                                 |   |                         |       | 677 |   | 737 |   |
| Deposits                                                                                        |   |                         |       | 129 |   | 156 |   |
| Mortgage servicing rights                                                                       |   |                         |       | 6,675 |   | 2,435 |   |
| Other                                                                                           |   |                         |       | 115 |   | 652 |   |
|                                                                                            |   |                         |       | 15,508 |   | 10,900 |   |
|                                                                                            |   |                         |       |   |   |   |   |
| **Deferred tax liabilities:**                                                                   |   |                         |       |   |   |   |   |
| Premises and equipment                                                                          |   |                         |       | (3,004 | ) | (3,255 | ) |
| Securities available for sale                                                                   |   |                         |       | (3,325 | ) | (2,416 | ) |
| Core deposit intangible                                                                         |   |                         |       | (778 | ) | (1,423 | ) |
| Other                                                                                           |   |                         |       | (767 | ) | (598 | ) |
|                                                                                            |   |                         |       | (7,874 | ) | (7,692 | ) |
|                                                                                            |   |                         |       |   |   |   |   |
| Net deferred tax asset                                                                          |   |                         |       | $ | 7,634 |   | $ | 3,208 |   |

 

Inthe accompanying consolidated balance sheets, net deferred tax assets areincluded in other assets.  The deferredtax asset amounts above include no valuation allowance.

 

Retainedearnings at June 30, 2003 includes approximately $1,107,000 related to thepre-1998 allowance for loan losses of an acquired savings bank for which nodeferred income tax liability has been recognized.  If Great Western no longer qualifies as a bank or in the event ofa liquidation of Great Western, income would be created, for tax purposes only,which would be subject to the then current corporate income tax rate. Theunrecorded deferred income tax liability on the above amount for financialstatement purposes was $367,000 at June 30, 2003.

 

F-28

----

 

**Note 14:****                    ****Deferred Compensation**

 

GreatWestern has entered into deferred compensation agreements with certainofficers, directors and employees which provide for payments to the employeesor their beneficiaries over a period of ten years beginning at age 65 or prior,due to death or disability.  The levelof payments is dependent upon Great Western’s earnings during employment.  The net present value of the payments isbeing accrued over the respective employees’ expected employment serviceperiod.  Deferred compensation chargedto expense during the years ended June 30, 2003, 2002, and 2001 was$167,000, $163,000 and $190,000, respectively, with a total amount accrued asof June 30, 2003 and 2002 of $869,000 and $748,000, respectively.

 

**Note 15:****                    ****Profit Sharing-Plan**

** **

GreatWestern participates in a multiple employer 401(k) profit sharing plan (thePlan).  All employees are eligible toparticipate beginning with the first eligibility date following the completionof one year of service and having reached the age of 21.  In addition to employee contributions, GreatWestern may contribute discretionary amounts for eligible participants.  Contribution rates for participatingemployers must be equal.  Great Westerncontributed $1,240,000, $776,000 and 686,000 to the Plan for the years endedJune 30, 2003, 2002 and 2001, respectively.

 

**Note 16:****                    ****Regulatory Restrictions**

** **

GreatWestern and its bank subsidiaries are subject to certain restrictions on theamount of dividends which may be declared without prior regulatory approval andare subject to various regulatory capital requirements administered by thefederal banking agencies.  Failure tomeet minimum capital requirements can initiate certain mandatory, and possiblyadditional discretionary, actions by regulators that, if undertaken, could havea direct material effect on Great Western’s financial statements.  Under capital adequacy guidelines and theregulatory framework for prompt corrective action, Great Western and its banksubsidiaries must meet specific capital guidelines that involve quantitativemeasures of assets, liabilities, and certain off-balance-sheet items ascalculated under regulatory accounting practices.  Capital amounts and classification are also subject toqualitative judgments by the regulators about components, risk weightings, andother factors.

 

Quantitativemeasures established by regulation to ensure capital adequacy require GreatWestern and its bank subsidiaries to maintain minimum amounts and ratios (setforth in the table following) of total and Tier I capital to risk-weightedassets, and of Tier I capital to average assets (all defined in theregulations).  Management believes GreatWestern and its bank subsidiaries meet all capital adequacy requirements towhich they are subject as of June 30, 2003.

 

Themost recent notifications from the regulatory agencies categorize each of GreatWestern’s bank subsidiaries as well capitalized under the regulatory frameworkfor prompt corrective action.  To becategorized as well capitalized the banks must maintain minimum totalrisk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in thefollowing table.  There are noconditions or events since those notifications that management believes havechanged the category.

 

F-29

----

 

Actualcapital amounts and ratios are also presented in the following table (amountsin thousands).

** **
|                                                   |   | **Actual** |    | **For Capital  Adequacy Purposes** |   | **To Be Well  Capitalized Under  Prompt Corrective  Action Provisions** |   |
|--------------------------------------------------------|--------|------------|---------|------------------------------------|--------|-------------------------------------------------------------------------|--------|
|                                                   |   | **Amount** |    | **Ratio**                          |   | **Amount**                                                              |   | **Ratio** |   | **Amount** |   | **Ratio** |   |
| **As of June 30, 2003**                           |   |       |    |                               |   |                                                                    |   |   |   |   |   |   |   |
| Total capital (to risk-weighted assets):               |   |       |    |                               |   |                                                                    |   |   |   |   |   |   |   |
| Consolidated                                           |   | $          | 190,323 |                               | 11.19  | %                                                                       | $      | 136,074 |   | 8.00 | % | N/A |   | N/A |   |
| Great Western Bank, Watertown                          |   | 79,546     |    | 11.62                              |   | 54,783                                                                  |   | 8.00 |   | $ | 68,479 |   | 10.00 | % |
| Great Western Bank, Omaha                              |   | 70,872     |    | 10.30                              |   | 55,045                                                                  |   | 8.00 |   | 68,806 |   | 10.00 |   |
| Great Western Bank, Clive                              |   | 37,584     |    | 11.61                              |   | 25,898                                                                  |   | 8.00 |   | 32,372 |   | 10.00 |   |
|                                                   |   |       |    |                               |   |                                                                    |   |   |   |   |   |   |   |
| Tier 1 capital (to risk-weighted assets):              |   |       |    |                               |   |                                                                    |   |   |   |   |   |   |   |
| Consolidated                                           |   | 115,058    |    | 6.76                               |   | 68,037                                                                  |   | 4.00 |   | N/A |   | N/A |   |
| Great Western Bank, Watertown                          |   | 71,462     |    | 10.44                              |   | 27,392                                                                  |   | 4.00 |   | 41,087 |   | 6.00 |   |
| Great Western Bank, Omaha                              |   | 62,593     |    | 9.10                               |   | 27,522                                                                  |   | 4.00 |   | 41,284 |   | 6.00 |   |
| Great Western Bank, Clive                              |   | 33,527     |    | 10.36                              |   | 12,949                                                                  |   | 4.00 |   | 19,423 |   | 6.00 |   |
|                                                   |   |       |    |                               |   |                                                                    |   |   |   |   |   |   |   |
| Tier 1 capital (to average assets):                    |   |       |    |                               |   |                                                                    |   |   |   |   |   |   |   |
| Consolidated                                           |   | 115,058    |    | 5.55                               |   | 82,905                                                                  |   | 4.00 |   | N/A |   | N/A |   |
| Great Western Bank, Watertown                          |   | 71,462     |    | 8.33                               |   | 34,308                                                                  |   | 4.00 |   | 42,885 |   | 5.00 |   |
| Great Western Bank, Omaha                              |   | 62,593     |    | 7.70                               |   | 32,504                                                                  |   | 4.00 |   | 40,630 |   | 5.00 |   |
| Great Western Bank, Clive                              |   | 33,527     |    | 8.55                               |   | 15,687                                                                  |   | 4.00 |   | 19,609 |   | 5.00 |   |
|                                                   |   |       |    |                               |   |                                                                    |   |   |   |   |   |   |   |
| **As of June 30, 2002 (as adjusted for mergers)** |   |       |    |                               |   |                                                                    |   |   |   |   |   |   |   |
| Total capital (to risk-weighted assets):               |   |       |    |                               |   |                                                                    |   |   |   |   |   |   |   |
| Consolidated                                           |   | $          | 164,356 |                               | 10.56  | %                                                                       | $      | 124,515 |   | 8.00 | % | N/A |   | N/A |   |
| Great Western Bank, Watertown                          |   | 70,372     |    | 11.19                              |   | 50,311                                                                  |   | 8.00 |   | $ | 62,889 |   | 10.00 | % |
| Great Western Bank, Omaha                              |   | 69,527     |    | 11.08                              |   | 50,201                                                                  |   | 8.00 |   | 62,751 |   | 10.00 |   |
| Great Western Bank, Clive                              |   | 36,455     |    | 12.31                              |   | 23,686                                                                  |   | 8.00 |   | 29,608 |   | 10.00 |   |
|                                                   |   |       |    |                               |   |                                                                    |   |   |   |   |   |   |   |
| Tier I capital (to risk-weighted assets):              |   |       |    |                               |   |                                                                    |   |   |   |   |   |   |   |
| Consolidated                                           |   | 96,618     |    | 6.21                               |   | 62,257                                                                  |   | 4.00 |   | N/A |   | N/A |   |
| Great Western Bank, Watertown                          |   | 62,891     |    | 10.00                              |   | 25,156                                                                  |   | 4.00 |   | 37,733 |   | 6.00 |   |
| Great Western Bank, Omaha                              |   | 61,680     |    | 9.83                               |   | 25,100                                                                  |   | 4.00 |   | 37,650 |   | 6.00 |   |
| Great Western Bank, Clive                              |   | 32,740     |    | 11.06                              |   | 11,843                                                                  |   | 4.00 |   | 17,765 |   | 6.00 |   |
|                                                   |   |       |    |                               |   |                                                                    |   |   |   |   |   |   |   |
| Tier I capital (to average assets):                    |   |       |    |                               |   |                                                                    |   |   |   |   |   |   |   |
| Consolidated                                           |   | 96,618     |    | 5.00                               |   | 77,313                                                                  |   | 4.00 |   | N/A |   | N/A |   |
| Great Western Bank, Watertown                          |   | 62,891     |    | 7.68                               |   | 32,741                                                                  |   | 4.00 |   | 40,926 |   | 5.00 |   |
| Great Western Bank, Omaha                              |   | 61,680     |    | 8.44                               |   | 29,236                                                                  |   | 4.00 |   | 36,544 |   | 5.00 |   |
| Great Western Bank, Clive                              |   | 32,740     |    | 8.73                               |   | 14,997                                                                  |   | 4.00 |   | 18,746 |   | 5.00 |   |

 

Limitationsexist on the availability of the subsidiary banks’ undistributed income for thepayment of dividends without prior approval of the regulatory authorities.  At June 30, 2003, approximately$26,307,000 of the banks’ retained earnings were available for dividenddeclaration without prior regulatory approval.

 

F-30

----

 

**Note 17:****                    ****Stock Purchase andRedemption Agreement**

** **

GreatWestern has entered into a stock purchase agreement with one minoritystockholder of a subsidiary bank under which Great Western has the right offirst refusal to purchase the minority shares of common stock offered for saleby said stockholder at a specified price. In addition, Great Western has agreed to purchase the shares upon thedeath or termination of employment of said shareholder, and obligates the estateor shareholder to sell such shares.  Ifthe purchase occurred on June 30, 2003, the total purchase price would beapproximately $3,864,000, which is recorded as a component of minorityinterest.

 

**Note 18:****                    ****Commitments andContingencies**

** **

***Financial Instruments WithOff-Balance-Sheet Risk***

*** ***

GreatWestern is party to financial instruments with off-balance-sheet risk in thenormal course of business to meet the financing needs of its customers.  These financial instruments includecommitments to extend credit and letters of credit.  They involve, to varying degrees, elements of credit risk inexcess of the amount recognized in the balance sheets.  Great Western’s exposure to credit loss inthe event of nonperformance by the other party to the financial instrument forcommitments to extend credit and letters of credit is represented by thecontractual amount of those instruments. A summary of Great Western’s commitments (in thousands) is as follows:

 
|                         |   | **June 30,** |    |
|------------------------------|--------|-------------------|---------|
|                         |   | **2003**          |    | **2002** |   |
| Commitments to extend credit |   | $                 | 394,032 |   | $ | 256,881 |   |
| Letters of credit            |   | 10,879            |    | 4,921 |   |
|                              |        |                   |         |  |  |  |  |

 

Commitmentsto extend credit are agreements to lend to a customer as long as there is noviolation of any condition established in the contract.  Since many of the commitments are expectedto expire without being drawn upon, the total commitment amounts do notnecessarily represent future cash requirements.  Letters of credit are conditional commitments issued by GreatWestern to guarantee the performance of a customer to a third party.  Those guarantees are primarily issued tosupport public and private borrowing arrangements.  The credit risk involved in issuing letters of credit isessentially the same as that involved in extending loans to customers.  Great Western evaluates each customer’scredit worthiness on a case-by-case basis. The credit and collateral policy for commitments and letters of creditis comparable to that for granting loans.

 

***Construction in Progress***

*** ***

GreatWestern has entered into contracts to complete construction of additionalfacilities.  Total estimated costs tocomplete these projects are approximately $6,010,000 at June 30,2003.  Construction in progress isapproximately $1,200,000 as of June 30, 2003.

 

***Contingencies***

*** ***

Inthe normal course of business, Great Western is involved in various legalproceedings.  In the opinion ofmanagement, any liability resulting from such proceedings would not have amaterial adverse effect on Great Western’s financial statements.

 

F-31

----

 

***Financial Instruments WithConcentration of Credit Risk by Geographic Location***

*** ***

Asubstantial portion of Great Western’s customers’ abilities to honor theircontracts is dependent on the economy in eastern and northern Nebraska,northern Missouri, northeastern Kansas, Iowa and South Dakota.  Although Great Western’s loan portfolio isdiversified, there is a relationship in these regions between the agriculturaleconomy and the economic performance of loans made to nonagriculturalcustomers.  The concentration of creditin the regional agricultural economy is taken into consideration by managementin determining the allowance for loan losses.

 

**Note 19:****                    ****Transactions with RelatedParties**

** **

GreatWestern and its subsidiaries have had, and may be expected to have in thefuture, banking transactions in the ordinary course of business with directors,executive officers, their immediate families and affiliated companies in whichthey have 10% or more beneficial ownership (commonly referred to as relatedparties). Total loans committed to related parties were approximately$22,725,000 and $24,770,000 at June 30, 2003 and 2002, respectively. Loantransactions during the years ended June 30, 2003 and 2002 consisted ofnew loans of $3,789,000 and $13,268,000, respectively, repayments of $3,076,000and $14,008,000, respectively and other reductions of $2,758,000 and$3,424,000, respectively.  In addition,interest expense to related parties for notes payable as discussed in Note 11was $1,954,000, $2,486,000, and $332,000 at June 30, 2003, 2002 and 2001,respectively.  These transactions havebeen, in the opinion of management, on the same terms, including interest ratesand collateral, as those prevailing at the time for comparable transactionswith others.

 

**Note 20:****                    ****Fair Value of FinancialInstruments and Interest Rate Risk**

** **

Theestimated fair values of Great Western’s financial instruments are (inthousands) as follows:

 
|                                           |   | **June 30,**    |   |
|------------------------------------------------|--------|----------------------|--------|
|                                           |   | **2003**             |   | **2002** |   |
|                                           |   | **Carrying  Amount** |   | **Fair Value** | ** ** | **Carrying  Amount** | ** ** | **Fair Value** | ** ** |
| **Financial Assets**                           |   |                 |   |   |   |   |   |   |   |
| Cash and due from banks                        |   | $                    | 64,637 |   | $ | 64,637 |   | $ | 52,927 |   | $ | 52,927 |   |
| Federal funds sold and FHLB overnight deposits |   | 42,522               |   | 42,522 |   | 16,351 |   | 16,351 |   |
| Certificates of deposit                        |   | 99                   |   | 99 |   | 497 |   | 497 |   |
| Securities                                     |   | 313,136              |   | 313,136 |   | 334,059 |   | 334,059 |   |
| Loans receivable                               |   | 1,599,961            |   | 1,607,029 |   | 1,475,856 |   | 1,485,697 |   |
| Mortgage servicing rights                      |   | 5,274                |   | 5,274 |   | 15,131 |   | 15,139 |   |
| Accrued interest receivable                    |   | 13,679               |   | 13,679 |   | 15,089 |   | 15,089 |   |
|                                                |        |                      |        |  |  |  |  |  |  |  |  |  |  |

 

F-32

----

 
|                                                                        |   | **June 30,**    |       |
|-----------------------------------------------------------------------------|--------|----------------------|------------|
|                                                                        |   | **2003**             |       | **2002** |   |
|                                                                        |   | **Carrying  Amount** |       | **Fair Value** | ** ** | **Carrying  Amount** | ** ** | **Fair Value** | ** ** |
| **Financial Liabilities**                                                   |   |                 |       |   |   |   |   |   |   |
| Deposits                                                                    |   | $                    | (1,735,030 | ) | $ | (1,743,125 | ) | $ | (1,635,967 | ) | $ | (1,643,292 | ) |
| Federal funds purchased and securities sold under agreements to  repurchase |   | (60,163              | )          | (60,163 | ) | (70,544 | ) | (70,544 | ) |
| Notes payable                                                               |   | (147,080             | )          | (149,420 | ) | (124,264 | ) | (124,799 | ) |
| Company obligated mandatorily redeemable preferred securities               |   | (58,000              | )          | (60,785 | ) | (48,000 | ) | (49,789 | ) |
| Accrued interest payable                                                    |   | (9,706               | )          | (9,706 | ) | (11,946 | ) | (11,946 | ) |
|                                                                             |        |                      |            |  |  |  |  |  |  |  |  |  |  |

 

Theestimated fair value of commitments to extend credit and letters of credit atJune 30, 2003 and 2002 is insignificant. Loan commitments on which the committed interest rate is less than thecurrent market rate are also insignificant at June 30, 2003 and 2002.

 

GreatWestern assumes interest rate risk (the risk that general interest rate levelswill change) as a result of its normal operations.  As a result, fair values of Great Western’s financial instrumentswill change when interest rate levels change and the change may be eitherfavorable or unfavorable to Great Western. Management attempts to match maturities of assets and liabilities to theextent believed necessary to minimize interest rate risk.  However, borrowers with fixed rateobligations are less likely to prepay in a rising rate environment and morelikely to prepay in a falling rate environment.  Conversely, depositors who are receiving fixed rates are more likelyto withdraw funds before maturity in a rising environment and less likely to doso in a falling rate environment. Management monitors rates and maturities of assets and liabilities andattempts to minimize interest rate risk by adjusting terms of new loans anddeposits and by investing in securities with terms that mitigate GreatWestern’s overall interest rate risk.

 

**Note 21:****                    ****Condensed FinancialStatements - Parent Company Only**

** **

Thefollowing presents condensed parent company only financial statements for GreatWestern Bancorporation, Inc.

 
|                                     |   | **Condensed Balance  Sheets  June 30,** |       |
|------------------------------------------|--------|----------------------------------------------|------------|
|                                     |   | **2003**                                     |       | **2002** | ** ** |
|                                     |   | **(In thousands)**                           | ** ** |
| **Assets**                               |   |                                         |       |   |   |
| Cash                                     |   | $                                            | 5,694      |   | $ | 2,740 |   |
| Investment in subsidiaries               |   | 223,383                                      |       | 210,352 |   |
| Other assets                             |   | 5,366                                        |       | 5,855 |   |
| Total assets                             |   | $                                            | 234,443    |   | $ | 218,947 |   |
|                                     |   |                                         |       |   |   |
| **Liabilities**                          |   |                                         |       |   |   |
| Notes payable                            |   | $                                            | 103,495    |   | $ | 103,185 |   |
| Accounts payable and accrued liabilities |   | 4,574                                        |       | 5,599 |   |
| Total liabilities                        |   | 108,069                                      |       | 108,784 |   |

 

F-33

----

 
|                                            |   | **Condensed Balance  Sheets  June 30,** |       |
|-------------------------------------------------|--------|----------------------------------------------|------------|
|                                            |   | **2003**                                     |       | **2002** | ** ** |
|                                            |   | **(In thousands)**                           | ** ** |
| **Stockholders’ Equity**                   |   |                                         |       |   |   |
| Preferred stock                                 |   | $                                            | 11,700     |   | $ | 11,700 |   |
| Common stock                                    |   | 125                                          |       | 125 |   |
| Additional paid-in capital                      |   | 2,051                                        |       | 2,058 |   |
| Retained earnings                               |   | 106,433                                      |       | 92,285 |   |
| Accumulated other comprehensive income, net     |   | 6,065                                        |       | 3,995 |   |
| Total stockholders’ equity                 |   | 126,374                                      |       | 110,163 |   |
|                                            |   |                                         |       |   |   |
| Total liabilities and stockholders’ equity |   | $                                            | 234,443    |   | $ | 218,947 |   |

 
|                                                                                              |   | **Condensed Statements of  Income  Years Ended June 30,** |       |
|---------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------|------------|
|                                                                                              |   | **2003**                                                       |       | **2002** | ** ** | **2001** | ** ** |
|                                                                                              |   | **(In thousands)**                                             | ** ** |
| **Income:**                                                                                       |   |                                                           |       |   |   |   |   |
| Dividends received from subsidiaries                                                              |   | $                                                              | 12,454     |   | $ | 9,617 |   | $ | 5,111 |   |
| Real estate brokerage commissions                                                                 |   | 14                                                             |       | 84 |   | 18 |   |
| Interest                                                                                          |   | 45                                                             |       | 85 |   | 99 |   |
| Other                                                                                             |   | 12                                                             |       | 18 |   | 265 |   |
| Total income                                                                                      |   | 12,525                                                         |       | 9,804 |   | 5,493 |   |
|                                                                                              |   |                                                           |       |   |   |   |   |
| **Expense:**                                                                                      |   |                                                           |       |   |   |   |   |
| Salaries and employee benefits                                                                    |   | 808                                                            |       | 548 |   | 317 |   |
| Interest                                                                                          |   | 7,622                                                          |       | 7,846 |   | 4,911 |   |
| Other                                                                                             |   | 552                                                            |       | 559 |   | 423 |   |
| Total expenses                                                                                    |   | 8,982                                                          |       | 8,953 |   | 5,651 |   |
| **Income (loss) before income tax (benefit) and equity  in undistributed income of subsidiaries** |   | 3,543                                                          |       | 851 |   | (158 | ) |
| **Income tax benefit**                                                                            |   | 3,143                                                          |       | 3,790 |   | 1,995 |   |
| **Income before equity in undistributed income of  subsidiaries**                                 |   | 6,686                                                          |       | 4,641 |   | 1,837 |   |
| **Equity in undistributed income of subsidiaries**                                                |   | 9,245                                                          |       | 8,576 |   | 7,581 |   |
|                                                                                              |   |                                                           |       |   |   |   |   |
| **Net income**                                                                                    |   | $                                                              | 15,931     |   | $ | 13,217 |   | $ | 9,418 |   |

 

F-34

----

 
|                                                                               |   | **Condensed Statements of Cash  Flows  Years ended June 30,** |       |
|------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------|------------|
|                                                                               |   | **2003**                                                           |       | **2002** | ** ** | **2001** | ** ** |
|                                                                               |   | **(In thousands)**                                                 | ** ** |
| **Cash flows from operating activities**                                           |   |                                                               |       |   |   |   |   |
| Net income                                                                         |   | $                                                                  | 15,931     |   | $ | 13,217 |   | $ | 9,418 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities: |   |                                                               |       |   |   |   |   |
| Depreciation and other                                                             |   | 37                                                                 |       | 5 |   | 9 |   |
| Equity in undistributed income of subsidiaries                                     |   | (9,245                                                             | )          | (8,576 | ) | (7,581 | ) |
| Changes in deferrals and accruals:                                                 |   |                                                               |       |   |   |   |   |
| Other assets                                                                       |   | (613                                                               | )          | 1,081 |   | (1,668 | ) |
| Accounts payable and accrued liabilities                                           |   | (580                                                               | )          | (629 | ) | 5,228 |   |
| Net cash provided by operating activities                                          |   | 5,530                                                              |       | 5,098 |   | 5,406 |   |
|                                                                               |   |                                                               |       |   |   |   |   |
| **Cash flows from investing activities:**                                          |   |                                                               |       |   |   |   |   |
| Investment in subsidiaries                                                         |   | (605                                                               | )          | (11,502 | ) | (1,250 | ) |
| Business acquisitions                                                              |   | —                                                             |       | — |   | (70,711 | ) |
| Purchase of securities available for sale                                          |   | (120                                                               | )          | (83 | ) | (134 | ) |
| Other                                                                              |   | —                                                             |       | (43 | ) | (21 | ) |
| Net cash used in investing activities                                              |   | (725                                                               | )          | (11,628 | ) | (72,116 | ) |
|                                                                               |   |                                                               |       |   |   |   |   |
| **Cash flows from financing activities:**                                          |   |                                                               |       |   |   |   |   |
| Proceeds from notes payable                                                        |   | 10,310                                                             |       | 10,000 |   | 75,454 |   |
| Payments on notes payable                                                          |   | (10,000                                                            | )          | (2,250 | ) | (4,550 | ) |
| Purchase of minority interest in subsidiary                                        |   | (764                                                               | )          | — |   | — |   |
| Debt issuance costs incurred                                                       |   | —                                                             |       | (38 | ) | (1,402 | ) |
| Deemed dividend to affiliate                                                       |   | 196                                                                |       | — |   | — |   |
| Dividends paid                                                                     |   | (1,471                                                             | )          | (1,651 | ) | (445 | ) |
| Stock purchased for retirement                                                     |   | (122                                                               | )          | (79 | ) | (78 | ) |
| Net cash provided by (used in) financing activities                                |   | (1,851                                                             | )          | 5,982 |   | 68,979 |   |
|                                                                               |   |                                                               |       |   |   |   |   |
| Net increase (decrease) in cash                                                    |   | 2,954                                                              |       | (548 | ) | 2,269 |   |
| Cash at beginning of year                                                          |   | 2,740                                                              |       | 3,288 |   | 1,019 |   |
|                                                                               |   |                                                               |       |   |   |   |   |
| Cash at end of year                                                                |   | $                                                                  | 5,694      |   | $ | 2,740 |   | $ | 3,288 |   |

 

F-35

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**Note 22:****                    ****Quarterly FinancialInformation (Unaudited)**

** **

(Dollarsin thousands except earnings per share data)

 
|                            |   | **Year Ended June 30, 2003** |       |
|---------------------------------|--------|-----------------------------------|------------|
|                            |   | **First**                         |       | **Second** |   | **Third** |   | **Fourth** |   |
| Total interest income           |   | $                                 | 32,559     |   | $ | 31,691 |   | $ | 30,198 |   | $ | 30,622 |   |
| Net interest income             |   | 19,263                            |       | 19,246 |   | 18,877 |   | 19,479 |   |
| Provision for loan losses       |   | 1,241                             |       | 1,288 |   | 857 |   | 985 |   |
| Net income                      |   | 3,318                             |       | 4,345 |   | 5,042 |   | 3,226 |   |
| Basic earnings per common share |   | 23.93                             |       | 34.42 |   | 37.74 |   | 25.51 |   |
|                            |   |                              |       |   |   |   |   |   |   |
|                            |   | **Year Ended June 30,2002**  | ** ** |
|                            |   | **First**                         |       | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
| Total interest income           |   | $                                 | 32,870     |   | $ | 31,492 |   | $ | 30,900 |   | $ | 32,653 |   |
| Net interest income             |   | 15,257                            |       | 16,136 |   | 17,281 |   | 19,060 |   |
| Provision for loan losses       |   | 1,161                             |       | 2,300 |   | 1,505 |   | 1,100 |   |
| Net income                      |   | 1,133                             |       | 3,959 |   | 4,950 |   | 3,175 |   |
| Basic earnings per common share |   | 6.18                              |       | 31.30 |   | 35.83 |   | 25.07 |   |

 

F-36

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