UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
___X___ QUARTERLY REPORT PERSUANT TO SECTION 13 OR 15 (d) OF
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
_______ 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: 0-28080
UNITED FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
MINNESOTA 81-0507591
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 2779; 120 1st Ave. North, Great Falls, Montana 59403
(Address of principal executive offices) (Zip Code)
(406) 727-6106
Registrant's telephone number, including area code:
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of each of the Issuer's
Classes of Common Stock, as of the latest date is:
Class: Common Stock, No par value; Outstanding at August 7, 1998
-- 1,698,312 shares
UNITED FINANCIAL CORP.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS...............................................................1
Consolidated Condensed Statements of Financial Condition at
June 30, 1998 (unaudited) and December 31, 1997...................................1
Consolidated Condensed Statements of Income - Three and Six Months Ended
June 30, 1998 and June 30, 1997 (unaudited).......................................2
Consolidated Condensed Statements of Cash Flows - Six Months Ended
June 30, 1998 and June 30, 1997 (unaudited).......................................3
Notes to Consolidated Condensed Financial Statements................................4
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................................9
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........................17
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS.................................................................17
ITEM 2 CHANGE IN SECURITIES..............................................................17
ITEM 3 DEFAULTS ON SENIOR SECURITIES.....................................................17
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.............................17
ITEM 5 OTHER INFORMATION.................................................................18
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K..................................................18
SIGNATURES..................................................................................19
i
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS.
UNITED FINANCIAL CORP.
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
(Unaudited, except December 31)
JUNE 30, December 31,
-------- ------------
1998 1997
-------- --------
ASSETS
Cash and cash equivalents $ 8,714 9,869
Time deposits in banks 98 98
Investment securities available-for-sale 58,336 14,219
Loans receivable, net 126,513 56,796
Loans held for sale 3,425 1,467
Premises and equipment, net 3,379 1,636
Real estate owned, net 439 -
Accrued interest receivable 1,745 688
Federal Home Loan Bank stock, at cost 1,087 404
Goodwill, net of accumulated amortization of $191,537
and 150,444 at June 30, 1998 and December 31, 1997,
respectively 1,012 494
Cash surrender value of life insurance 261 257
Other assets 336 341
-------- --------
Total assets $205,345 $ 86,269
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits 145,783 70,386
FHLB advances 15,425 6,425
Securities sold under agreements to repurchase 11,786 3,173
Accrued interest payable 1,242 807
Advance payments by borrowers for taxes and insurance 299 138
Income taxes payable 68 34
Other liabilities 465 208
Long-term debt - 2,350
-------- --------
Total liabilities 175,068 83,521
Stockholders' equity:
Preferred stock, no par value (2,000,000 shares
authorized; none outstanding) - -
Common stock, no par value (8,000,000 shares
authorized; 1,698,312 outstanding) 28,002 1,080
Retained earnings-partially restricted 2,184 1,540
Unrealized gain on securities available-for-sale, net 91 128
-------- --------
Total stockholders' equity 30,277 2,748
-------- --------
Total liabilities and stockholders' equity $205,345 $ 86,269
======== ========
Equity/Assets 14.7% 3.2%
Book Value/Share $ 17.83 $ 5.79
See Notes to Consolidated Condensed Financial Statements
Page 1
UNITED FINANCIAL CORP.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
------ ------ ------ ------
INTEREST INCOME
Loans $2,539 $1,079 $4,492 $2,063
Mortgage-backed securities 583 217 1,016 436
Investment securities 249 62 463 99
Other interest earning assets 126 27 341 69
------ ------ ------ ------
Total interest income 3,497 1,385 6,312 2,667
INTEREST EXPENSE
Deposits 1,530 642 2,770 1,243
Short-term borrowings 249 43 440 85
Long-term debt - 50 12 98
------ ------ ------ ------
Total interest expense 1,779 735 3,222 1,426
------ ------ ------ ------
Net interest income 1,718 650 3,090 1,241
Provision for losses on loans 175 93 220 93
------ ------ ------ ------
Net interest income after provision for 1,543 557 2,870 1,148
losses on loans
NON-INTEREST INCOME
Loan origination fees and discounts 684 163 1,045 300
Loan servicing fees 19 15 38 34
Customer service charges 87 67 157 132
FHLB stock dividends 21 6 36 12
Gain on sales of investment securities, net 18 - 12 -
Other income 69 25 122 49
------ ------ ------ ------
Total non-interest income 898 276 1,410 527
NON-INTEREST EXPENSE
Salaries and employee benefits 844 290 1,403 568
Net occupancy and equipment expense 156 59 270 115
Data processing expense 71 49 142 96
Other expenses 421 129 726 307
------ ------ ------ ------
Total non-interest expense 1,492 527 2,541 1,086
------ ------ ------ ------
Income before income taxes 949 306 1,739 589
Provision for income tax expense 375 86 670 216
------ ------ ------ ------
Net income $ 574 $ 220 $1,069 $ 373
====== ====== ====== ======
Net income per share $ .34 $ .46 $ .72 $ .79
------ ------ ------ ------
Weighed average shares outstanding 1,698 475 1,475 475
------ ------ ------ ------
See Notes to Consolidated Condensed Financial Statements
Page 2
UNITED FINANCIAL CORP.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands, Unaudited)
SIX MONTHS ENDED
-------------------------------
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
OPERATING ACTIVITIES
Net income $ 1,069 $ 373
Adjustments to reconcile net income to net
Cash provided by (used in) operating activities:
Provision for loan losses 220 93
Amortization of goodwill 41 22
Amortization of premiums on loans 36 5
Amortization of core deposit premium 7 -
Depreciation and amortization of bank premises and
equipment 113 55
Depreciation of real estate held for investment 25 -
Deferred loan fees, net (3) (17)
Amortization of discounts and premiums on investments, net (11) (26)
Gain on sales of available-for-sale, net (12) -
Net change in loans held for sale (260) 697
Federal Home Loan Bank stock dividends (39) (12)
Net change in income taxes payable (23) (5)
Net change in accrued interest receivable (259) (139)
Net change in accrued interest payable 151 180
Increase in the cash surrender value of life insurance (4) (7)
Net change in other assets 135 2
Net change in other liabilities (1,930) (173)
-------- --------
Net cash provided by (used in) operating activities (744) 1,048
-------- --------
INVESTING ACTIVITIES
Purchases of investment securities available-for-sale (8,617) (1,498)
Purchases of mortgage-backed securities available-for-sale (16,958) (1,989)
Purchase of Federal Home Loan Bank stock (109) -
Proceeds from maturities, calls, and paydowns of securities
available-for-sale 12,055 500
Mortgage-backed securities principal payments 8,039 1,244
Proceeds from sale of investment securities available-for-sale 5,716 -
Proceeds from sale of real-estate held for investment 360 -
Net change in loans receivable (30,419) (10,032)
Purchases of premises and equipment (180) (86)
Purchase of loan production offices (225) -
Acquired United Financial Corp.'s cash and cash equivalents 8,112 -
-------- --------
Net cash used in investing activities (22,226) (11,861)
-------- --------
FINANCING ACTIVITIES
Net increase in deposits 4,804 8,469
Net increase in Federal Home Loan Bank advances 9,000 4,500
Net increase (decrease) in securities sold under repurchase
agreements 8,613 (4,918)
Net increase (decrease) in advance by borrowers for taxes and
insurance (103) 25
Payments on long-term debt (2,350) -
Cash dividends paid to shareholders (424) -
Capital contribution 2,275 -
-------- --------
Net cash provided by financing activities 21,815 8,076
-------- --------
Decrease in cash and cash equivalents (1,155) (2,737)
Cash and cash equivalents at beginning of year 9,869 10,089
-------- --------
Cash and cash equivalents at end of period $ 8,714 $ 7,352
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURE
- ---------------------------------------------------------------------
Cash payments for interest $ 2,874 $ 1,580
Cash payments for income taxes $ 699 $ 178
See Notes to Consolidated Condensed Financial Statements
Page 3
UNITED FINANCIAL CORP.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
United Financial Corp. (United) is a bank holding company
headquartered in Great Falls, Montana. United was approved as a bank
holding company by the Federal Reserve System on August 7, 1998 as the
result of the formation of its newly chartered banking subsidiary,
Heritage State Bank (see note 15 for more information regarding Heritage
State Bank). United has two wholly owned subsidiaries, Heritage Bank,
F.S.B. (Heritage Bank) and Heritage State Bank. Heritage Bank is a
federally chartered stock savings bank and Heritage State Bank is a state
chartered community bank. Heritage Bank has a wholly owned subsidiary,
Community Service Corporation, which owns and manages real estate held
for investment. United and its subsidiaries are collectively referred to
as the Company and United Financial is sometimes used to refer to the
Company as it existed prior to the Heritage Merger described below. Full
service branches are located in Shelby, Chester, Havre and Glendive,
Montana, and loan production offices are located in Bozeman, Missoula,
Hamilton, Libby, Polson and Kalispell, Montana. Heritage Bank's deposits
are insured by the Federal Deposit Insurance Corporation - Savings
Association Insurance Fund (SAIF). Heritage Bank is a member of the
Federal Home Loan Bank of Seattle, Washington and is subject to
comprehensive supervision, regulation, and examination by the Office of
Thrift Supervision and the FDIC. Heritage Bank is also subject to the
regulations of the Board of Governors of the Federal Reserve System. See
Note 2 for additional information regarding the Heritage Merger.
The Company's principal business is attracting deposits from the
general public through its offices and using those deposits, together
with other available funds, to originate commercial (including lease
financing), commercial real estate, residential, agriculture and consumer
loans. The Company also invests in mortgage-backed securities, U.S.
Treasury obligations, other U.S. Government agency obligations and
interest-earning deposits.
The Company's financial condition and results of operations are
dependent primarily on net interest income and fee income. Net interest
income is the difference between the interest income earned on loans,
mortgage-backed securities, other investment securities and
interest-earning deposits, less cost of funds, consisting of interest
paid on deposits and borrowed money. The Company's financial condition
and results of operations are also significantly influenced by local and
national economic conditions, changes in market interest rates,
governmental policies, tax laws and the actions of various regulatory
agencies.
2. HERITAGE MERGER
On February 3, 1998, United Financial and Heritage Bancorporation
(Heritage) merged (the Heritage Merger). In connection with the Heritage
Merger, which was structured as a merger of Heritage into United
Financial, each outstanding share of Heritage common stock was converted
into 47.5 shares of United Financial's common stock. An aggregate of
475,000 shares (or 28%) of United Financial's common stock was issued in
connection with the Heritage Merger. A capital contribution of $2,275,000
was made just prior to the Heritage Merger and the proceeds were used to
pay-off the outstanding long-term debt as part of the conditions of the
Heritage Merger.
The Heritage Merger was treated as a reverse acquisition and
accounted for as a purchase by Heritage in accordance with generally
accepted accounting principles (GAAP). Heritage was considered the
accounting acquirer because Heritage effectively acquired the operations
of United Financial as a result of the change in control and other
related consequences of the Heritage Merger.
Page 4
Prior to the Heritage Merger, United Financial owned one
subsidiary, United Savings Bank, F.A. (United Bank) and Heritage owned
Heritage Bank. The merger of Heritage Bank and United Bank (collectively
referred to as the Banks) was completed on May 4, 1998, with United Bank
merging into Heritage Bank. On that date, the operations of the Banks
merged into one main branch located at 120 First Avenue North, Great
Falls, Montana and United Bank's former location was closed, except for
its drive-up facility. In addition, United Bank was converted to Heritage
Bank's data center.
3. BASIS OF PRESENTATION
The Company's consolidated condensed financial statements included
herein have been prepared in accordance with GAAP for interim financial
information and the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and footnotes required by GAAP
for complete financial statements. In the opinion of management, the
information contained herein reflects all postings and disclosures
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the consolidated financial condition, results of
operations, and changes in cash flows for the periods disclosed.
Operating results for the three and six months ended June 30, 1998, are
not necessarily indicative of the results anticipated for the year ending
December 31, 1998. For additional information, refer to the consolidated
audited financial statements and footnotes thereto included in the
Company's Annual Report to Shareholders and Annual Report on Form 10-K
for the year ended December 31, 1997.
Consistent with Heritage being the acquiring corporation for
accounting purposes, the historical financial statements of the Company,
commencing with the Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, were those of Heritage, and not United Financial as it
existed prior to the Heritage Merger. Accordingly, the historical
statements of operations of the Company reflect only the operations of
United Financial commencing with the closing date of the Merger. Under
the purchase method of accounting, the assets and liabilities of United
Financial and its subsidiary were adjusted to their estimated fair value
and combined with the historical book values of the assets and
liabilities of Heritage. The actual revaluation of United Financial's net
assets acquired is subject to the completion of studies and evaluations
of management.
4. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standard (SFAS) No. 130,
"Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its components in a
full set of general-purpose financial statements. This statement requires
that all items required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement
that is displayed with the some prominence as other financial statements.
This Company adopted the provisions of SFAS No. 130 as of January 1,
1998.
Page 5
COMPREHENSIVE INCOME DISCLOSURE:
(Dollars in thousands)
(Unaudited)
THREE MONTHS ENDED Three Months Ended
JUNE 30, 1998 June 30, 1997
--------------------------------------- ---------------------------------------
BEFORE TAX TAX EXPENSE AFTER TAX Before Tax Tax Expense After Tax
----------- ------------- ----------- ----------- ------------- -----------
Unrealized holding gains
arising during period $166 $64 $102 $97 $36 $61
Less: reclassification
adjustment for gains
included in net income 18 7 11 - - -
----------- ------------- ----------- ----------- ------------- -----------
Net unrealized gains on
securities $148 $57 $91 $97 $36 $61
=========== ============= =========== =========== ============= ===========
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
--------------------------------------- ---------------------------------------
BEFORE TAX TAX EXPENSE AFTER TAX Before Tax Tax Expense After Tax
----------- ------------- ----------- ----------- ------------- -----------
Unrealized holding gains
arising during period $160 $62 $98 $97 $36 $61
Less: reclassification
adjustment for gains
included in net income 12 5 7 - - -
----------- ------------- ----------- ----------- ------------- -----------
Net unrealized gains on
securities $148 $57 $91 $97 $36 $61
=========== ============= =========== =========== ============= ===========
5. RECLASSIFICATIONS
Certain reclassifications have been made to the June 30, 1997 and
December 31, 1997 financial statements to conform with the June 30, 1998
presentation.
6. CASH EQUIVALENTS
For purposes of the Consolidated Condensed Statements of Cash
Flows, the Company considers all cash, daily interest and non-interest
bearing demand deposits with banks with maturities of three months or
less at the date of purchase to be cash equivalents.
7. INVESTMENT PORTFOLIO
The investment activities of the Company are designed to provide
an investment alternative for funds not presently required to meet loan
demand, assist Heritage Bank in meeting potential liquidity requirements,
assist in maximizing income consistent with quality and liquidity
requirements, supply collateral to secure public funds and retail
repurchase agreements, provide a means for balancing market and credit
risks, and provide consistent income and market value throughout changing
economic times.
The Company's portfolio consists primarily of obligations of U.S.
government and its agencies and mortgage backed securities, state and
local governments, and agency collateralized obligation securities. The
Company's investment portfolio does not contain concentration of
investments in any one issuer in excess of 10% of Heritage's total
investment portfolio. Exempt from this calculation are securities of the
U.S. government and U.S. government agencies. All of Heritage's
investments are classified as available-for-sale.
Page 6
8. STOCKHOLDERS' EQUITY
Stockholder's equity increased $27,529,000 from December 31, 1997
of which $24,646,000 was the purchase price consideration of the stock
deemed to be issued to United Financial in connection with the Heritage
Merger. A capital contribution of $2,275,000 was made just prior to the
Heritage Merger and the proceeds were used to pay-off the outstanding
long-term debt of Heritage as part of the conditions of the Heritage
Merger. The Company had net income for the six months ended June 30, 1998
of 1,069,000. The Company paid cash dividends to shareholders totaling
$424,000. There was a $37,000 decrease in the unrealized gain on
investment securities available-for-sale. The balance of paid-in capital
was capitalized into common stock due to the fact that the Company's
stock has no par value.
On February 3, 1998 the Company issued a warrant (the Warrant) to
purchase 10,000 shares of its common stock to D.A. Davidson & Co.,
exercisable at the price of $26.25 per share, in exchange for investment
banking services provided to the Company.
9. COMPUTATION OF NET INCOME PER SHARE
Basic earnings per share (EPS) excludes dilution and is computed
by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock
that then shared in the earnings of the equity. Basic and diluted EPS are
the same, as the potential common shares do not have a material impact.
10. DIVIDENDS DECLARED
On July 27, 1998, the Board of Directors of the Company declared a
third-quarter cash dividend of $.25 per share, payable August 10, 1998,
to shareholders of record on August 24, 1998.
11. RELATED PARTIES
Central Financial Services, Inc. (CFS) provides various management
services to the Company, including accounting and tax services,
investment consulting, personnel consulting, insurance advisory services
and regulatory consulting. CFS is owned by the Company's Chairman of the
Board of Directors and largest shareholder. CFS fees were $75,000, and
$40,000 for the six months ended June 30, 1998 and 1997, respectively.
12. COMMITMENTS AND CONTINGENCIES
The Bank has sold loans to various investors in the secondary
market under sales agreements that contain recourse provisions. Under the
recourse provisions, the Bank may be required to repurchase a loan if a
borrower fails to make three monthly payments within 120 days after the
sale of the loan. The balance of loans sold with recourse provisions
remaining at June 30, 1998 is approximately $18.5 million.
In June 1997, Heritage Bank entered into a five-year service
contract for data processing services. In the event of early termination
of the service contract by Heritage Bank, the bank has agreed to pay an
amount equal to fifty percent of the average monthly fee paid for
services multiplied by the number of months remaining under the term of
the contract.
The Company has a Salary Continuation Agreement with the Banks'
President, Kevin P. Clark. The agreement contains a lifetime retirement
benefit, a disability benefit, a change of control benefit and a death
benefit. The benefits are based on Mr. Clark's
Page 7
years of service. The Company holds a fully funded life insurance policy
in connection with this agreement.
13. SIGNIFICANT TRANSACTIONS
In February 1998, the Company purchased the assets of three loan
production offices located in Missoula, Hamilton, and Libby, Montana, for
approximately $225,000.
On June 30, 1998, the Company sold real estate held for investment
consisting of a twenty-four unit apartment building owned and managed by
Heritage Bank's subsidiary, Community Service Corporation, for $360,000
in cash. There was no gain or loss recorded in conjunction with this
transaction.
14. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Statement of Financial Accounting Standards No. 133, issued June
1998, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. This statement is effective for the
fiscal year beginning after June 15, 1999. Management has not determined
its strategy for the adoption of Statement No. 133 or its effect on the
financial statements.
15. SUBSEQUENT EVENT
On July 8, 1998, the Company and Chouteau County Bancshares, Inc.
(Chouteau) announced that they have signed a definitive merger agreement
involving their previously announced merger. Chouteau is a bank holding
company based in Fort Benton, Montana. Its wholly owned subsidiary, First
State Bank of Fort Benton is a commercial bank with approximately $66
million in assets and one banking office in Fort Benton, Montana. The
Company will serve as the parent company of the combined entity, which
would include Heritage Bank and its subsidiary, Community Service
Corporation, and First State Bank of Fort Benton and Fort Benton
Insurance Agency, Inc. The merger is subject to regulatory and
shareholder approval.
On August 7, 1998 the Federal Deposit Insurance Corporation
("FDIC") has approved the assumption of the insured deposits of Q Bank,
Fort Benton, Montana, by Heritage State Bank, Fort Benton, a newly
chartered banking subsidiary of the Company. Q Bank, with total assets of
$15.1 million, was closed by Montana's Commissioner of Financial
Institutions, and the FDIC was named receiver. The failed bank had total
deposits of about $13.6 million. Q Bank had offices in Fort Benton and
Geraldine, Montana. Heritage State Bank assumed the failed bank's
deposits and purchased $2.5 million of the failed bank's assets. The
Company paid a premium of $454,000 to the FDIC for the right to enter
into this transaction.
Page 8
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
1. MATERIAL CHANGES IN FINANCIAL CONDITION. COMPARISON OF THE SIX MONTHS ENDED
JUNE 30, 1998 TO THE YEAR ENDED DECEMBER 31, 1997.
(Dollars in thousands)
(Unaudited, except December 31)
SELECTED FINANCIAL CONDITION RECAP
-----------------------------------------------------------------------
United Financial
JUNE 30, December 31, Acquired
1998 1997 Change Feb. 3, 1998
-----------------------------------------------------------------------
Total assets $205,345 $86,269 $119,076 $98,042
Cash and cash equivalents 8,714 9,869 (1,155) 8,112
Mortgage-backed securities 40,590 10,664 29,926 20,967
Investment securities 17,746 3,555 14,191 23,417
Loans receivable, net 126,513 56,796 69,717 39,551
Loans held for sale 3,425 1,467 1,958 1,698
FHLB stock 1,087 404 683 535
Real estate owned 439 - 439 824
Premises and equipment 3,379 1,636 1,743 1,635
Goodwill 1,012 494 518 375
All other assets 2,440 1,384 1,056 928
Deposits 145,783 70,386 75,397 70,586
Borrowed funds 27,211 9,598 17,613 -
Long-term debt - 2,350 (2,350) -
All other liabilities 2,074 1,187 887 2,810
Total liabilities 175,068 83,521 91,547 73,396
Stockholders' equity, net 30,277 2,748 27,529 24,646
GENERAL - The consolidated financial statements for the year ended
December 31, 1997 contained in this Report reflect the historical
financial position and results of operations of Heritage and thus do not
reflect or include the financial position and results of operations of
United Financial.
Total assets increased $119.0 million to $205.3 million at June
30, 1998 from $86.3 million at December 31, 1997. The increase in assets
was primarily the result of the acquisition of $98.0 million of assets
from United Financial in connection with the Heritage Merger.
Mortgage-backed securities increased $29.9 million, investment securities
increased $14.2 million and loans receivable increased $69.7 million. In
addition, deposits increased $75.4 million and stockholders' equity
increased $27.5 million.
MORTGAGE-BACKED AND INVESTMENT SECURITIES - Mortgage-backed
securities increased $29.9 million to $40.6 million at June 30, 1998 from
$10.7 million at December 31, 1997. The increase was the result of the
acquisition of $21.0 million of mortgage-backed securities associated
with the Heritage Merger and $16.9 million of purchases, partially offset
by $8.0 million of principal repayments.
Investment securities increased $14.2 million to $17.7 million at
June 30, 1998 from $3.5 million at December 31, 1997. The increase was
the result of the acquisition of $23.4 million of investment securities
related to the Heritage Merger and the purchase of $8.6 million of
investments. These increases were offset by the sale of the $5.3 million
Kemper U.S. Government bond mutual fund at a realized loss of $6,000, the
sale of two
Page 9
corporate bonds with a book values of $.4 million for a gain of $18,000
and $12.1 million of calls, maturities, and principal payments on other
investments and securities.
A comparison of the amortized cost and estimated fair value of the
Company's available-for-sale investment portfolio at the dates indicated
is as follows:
(Dollars in thousands)
(Unaudited, except for December 31, 1997)
June 30, 1998
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- -------- --------
U.S. Government and agencies $ 16,369 $ 85 $ (59) $ 16,395
Mortgage backed securities 40,430 373 (213) 40,590
Municipal bonds 1,200 43 (6) 1,237
Other investments 117 - (3) 114
---------- ---------- -------- --------
$ 58,116 $ 501 $ (281) $ 58,336
========== ========== ======== ========
December 31, 1997
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- -------- --------
U.S. Government and agencies $ 1,890 $ 21 $ (2) $ 1,909
Mortgage backed securities 10,529 152 (17) 10,664
Municipal bonds 1,207 40 (8) 1,239
Other investments 390 17 - 407
---------- ---------- -------- --------
$ 14,016 $ 230 $ (27) $ 14,219
========== ========== ======== ========
ANALYSIS OF INVESTMENT YIELDS AND MATURITIES
(Dollars in thousands)
(unaudited except for December 31)
June 30, 1998
Up to 1 - 5 5 - 10 10 Years
1 year years years and beyond Total
------- ------- ------- ---------- -------
U.S. Government and agencies $ 1,999 $12,902 $ 1,494 - $16,395
Mortgage backed securities 901 15,443 3,822 20,424 40,590
Municipal bonds - 7 1,176 54 1,237
Other securities 114 - - - 114
------- ------- ------- ------- -------
Total investments $ 3,014 $28,352 $ 6,492 $20,478 $58,336
======= ======= ======= ======= =======
Weighted average yield 6.41% 6.39% 6.25% 5.89% 6.20%
December 31, 1997
Up to 1 - 5 5 - 10 10 Years
1 year years years and beyond Total
------- ------- ------- ---------- -------
U.S. Government and agencies - $ 1,402 $ 507 - $ 1,909
Mortgage backed securities 884 5,024 1,125 3,631 10,664
Municipal bonds - 67 1,069 103 1,239
Other securities - - 407 - 407
------- ------- ------- ------- -------
Total investments $ 884 $ 6,493 $ 3,108 $ 3,734 $14,219
======= ======= ======= ======= =======
Weighted average yield 5.64% 6.69% 6.27% 7.42% 6.70%
Expected maturities of mortgage-backed securities will differ from
contractual maturities because borrowers have the right to prepay
obligations with or without penalties.
Page 10
LOANS RECEIVABLE AND LOANS HELD FOR SALE - Net loans receivable
increased $69.7 million to $126.5 million at June 30, 1998 from $56.8
million at December 31, 1997. This increase was primarily due to the
acquisition of $39.6 million of net loans receivable in connection with
the Heritage Merger. The additional $30.1 million net loans receivable
increase is a direct result of strong loan demand generated through
officer call programs, the Heritage Bank's four branches and four loan
production offices, continued purchase of participation loans and lease
financing loans, and a favorable interest rate environment in the past
six months. Heritage Bank is in the process of establishing two
additional loan production offices in the western Montana cities of
Kalispell and Polson. The Heritage Bank diverse loan portfolio includes:
real estate residential mortgages, commercial and agricultural mortgages,
agricultural and commercial non-mortgage, consumer loans secured by real
estate, and various consumer installment loans. Heritage Bank also
purchases and participates in commercial and lease financing loans.
Heritage Bank sells and retains servicing for a portion of its
residential real estate loans to agencies of Montana such as the Montana
Board of Investments and the Montana Board of Housing.
The loan loss reserve at June 30, 1998 was $1,344,000 compared to
846,000 at December 31, 1997. The increase in the reserve was primarily
the result of $302,000 of loan loss reserves acquired in connection with
the Heritage Merger. The provision for loan losses was $220,000 for the
six months ended June 30, 1998 and loans in the amount of $23,000 were
determined by management to be uncollectable and subsequently
charged-off. However, management aggressively pursues recoveries. The
loan loss reserve at June 30, 1998 is an amount which management believes
is adequate given the low level of non-performing assets and management's
assessment of loan risk.
Heritage Bank follows regulatory guidelines with respect to
placing loans on non-accrual status. When a loan is placed on non-accrual
status, all previously accrued and uncollected interest is reversed. At
June 30, 1998 Heritage Bank had one non-accrual loan of $65,000 and
$335,500 of loans past due 90 days and still accruing.
During the six months ended June 30, 1998, loans held for sale
increased $2.0 million to $3.4 million at June 30, 1998 from
approximately $1.4 at December 31, 1997. This increase was primarily due
to the acquisition of $1.7 million of loans held for sale in connection
with the Heritage Merger. Approximately $34.6 million loans were
originated for sale and $34.3 million of loans were sold to the secondary
market during the six month period ending June 30, 1998.
REAL ESTATE HELD FOR INVESTMENT - The $439,000 increase from
December 31, 1997 was primarily the result of $824,000 of real estate
acquired in connection with the Heritage Merger which consisted of two
24-unit apartment complexes in Glendive, Montana, owned by Heritage
Bank's wholly owned subsidiary, Community Service Corporation. On June
30, 1998, one of the 24-unit apartment building was sold for $360,000 in
cash. There was no gain or loss recorded in conjunction with this sale.
FHLB STOCK - FHLB stock increased approximately $683,000 to
$1,087,000 at June 30, 1998 from $404,000 at December 31, 1997. This
increase was the result of $535,000 of FHLB stock acquired in connection
with the Heritage Merger, $109,000 of FHLB stock purchases, and $39,000
of reinvested stock dividends.
PREMISES AND EQUIPMENT - This category increased $1.7 million to
$3.3 million at June 30, 1998 from $1.6 million at December 31, 1997.
This increase was primarily due to the acquisition of $1.6 million of
premises and equipment related to the Heritage Merger. Approximately
$180,000 of the increase was due to the purchase of computer and office
equipment acquired in conjunction with the purchase of the loan
production facilities (approximately $41,000) and remodeling of the main
banking facility in Great Falls, Montana. The purchases of premises and
equipment were offset by approximately $113,000 of depreciation.
Page 11
GOODWILL - Goodwill increased $518,000 to $1,012,000 at June 30,
1998 from $494,000 at December 31, 1997. This increase is primarily due
to $375,000 of goodwill acquired in relation to the Heritage Merger and
$184,000 acquired in the purchase of the loan production offices. The
goodwill is being amortized over 10 years.
DEPOSITS - Deposits increased $75.4 million to $145.8 million at
June 30, 1998 from $70.4 million at December 31, 1997. This increase was
primarily the result of the acquisition of $70.6 million of deposits from
United Financial. The additional $4.8 million increase was comprised of
an increase of $2.2 million in NOW and money market demand accounts, a
decrease of $1.9 million in savings accounts and an increase of 4.5
million in time deposits.
BORROWED FUNDS - Borrowed funds increased $17.6 million to $27.2
million at June 30, 1998 from $9.6 million at December 31, 1997. United
Financial did not have any outstanding debt at the time of the Heritage
Merger. The increase was due to $19.2 million in new FHLB advances less
$10.2 million in repayments of FHLB advances and a net increase of $8.6
million in securities sold under repurchase agreements.
LONG-TERM DEBT - This category decreased $2.35 million to zero
from $2.35 million at December 31, 1997. The reduction was the result of
a principal reduction payment of $75,000 made by Heritage in January
1998, and the balance of the long-term debt being paid on February 3,
1998 immediately preceding the Merger with funding from a corresponding
$2,275,000 contribution of capital.
STOCKHOLDERS' EQUITY - Stockholders' equity increased $27.6
million to $30.3 million at June 30, 1998 from $2.7 million at December
31, 1997. This increase is due to $1,069,000 of net income for the six
months ended June 30, 1998 less cash dividends paid to shareholders of
$424,000, a $37,000 decrease in unrealized gains associated with assets
classified as available-for-sale being adjusted to market value, a $2.3
million contribution of capital, and $24.6 million, which is net of
$180,000 of direct acquisition cost, of net stockholders' equity acquired
in connection with the Heritage Merger.
2. MATERIAL CHANGES IN RESULTS OF OPERATIONS - COMPARISON OF THE THREE MONTHS
ENDED JUNE 30, 1998, AND JUNE 30, 1997
(Dollars in thousands)
(Unaudited)
INCOME RECAP
----------------------------------
THREE MONTHS ENDED JUNE 30,
----------------------------------
1998 1997 Change
------ ------ ------
Interest income $3,497 $1,385 $2,112
Interest expense 1,779 735 1,044
------ ------ ------
Net interest income 1,718 650 1,068
Provision for loan losses 175 93 82
Non-interest income 898 276 622
Non-interest expense 1,492 527 965
------ ------ ------
Income before income taxes 949 306 643
Provision for income taxes 375 86 289
------ ------ ------
Net income $ 574 $ 220 $ 354
====== ====== ======
Page 12
The following chart compares the unaudited statement of income for
the three months ended June 30, 1998 to the unaudited pro forma statement
of income for the three months ended June 30, 1997. The unaudited pro
forma combined financial information for the three months ended June 30,
1997 gives effect to the Heritage Merger based on the purchase accounting
adjustments, estimates and other assumptions as if the Heritage Merger
had become effective on January 1, 1997.
UNITED FINANCIAL CORP.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
THREE MONTHS ENDED JUNE 30,
---------------------------
1998 1997
------ ------
Interest income 3,497 3,233
Interest expense 1,779 1,597
------ ------
Net interest income 1,718 1,636
Provision for losses on loans 175 93
Non-interest income 898 425
Non-interest expense 1,492 1,076
------ ------
Income before income taxes 949 892
Provision for income tax expense 375 306
------ ------
Net income $ 574 $ 586
====== ======
Net income per share $ .34 $ .35
------ ------
Weighed average shares outstanding 1,698 1,698
------ ------
See Notes to Consolidated Condensed Financial Statements
GENERAL - Consistent with the purchase method of accounting, the
historical information being presented reflects only the operations of
Heritage for the three months ended June 30, 1997.
NET INCOME - Net income increased $353,600, or 16.1%, to $573,800
for the three months ended June 30, 1998 from $220,200 for the same
period last year. Net income decreased $12,300 to $573,800 for the three
months ended June 30, 1998 compared to pro forma net income of $586,100
for the same period last year.
INTEREST INCOME - Interest income increased $2.1 million to $3.5
million for the three months ended June 30, 1998 from $1.4 million for
the same period last year. The increase was primarily the result of
income from the interest earning assets acquired in the Heritage Merger
and an increase in interest earning assets from the same period in 1997.
Interest income on loans receivable increased $1.5 million to $2.5
million for the three months ended June 30, 1998 from $1.0 million for
the same period last year. Interest income on mortgage-backed securities
increased $367,000 to $583,300 for the three months ended June 30, 1998
from $216,200 for the same period last year. Interest income on all other
interest earning investments including investment securities increased
$284,700 to $374,500 for the three months ended June 30, 1998 from
$89,800 for the same period last year. Interest income increased 8.2%, or
$.3 million, to $3.5 million for the three months ended June 30, 1998
compared to pro forma net income of $3.2 million for the same period in
1997.
Page 13
INTEREST EXPENSE - Total interest expense increased approximately
$1.1 million or 142%, to $1.8 million for the three months ended June 30,
1998 from $.7 million for the same period last year. The increase was
primarily the result of the deposit expense associated with the deposit
base acquired in the Heritage Merger. Interest expense on deposits
increased $.9 million to $1.5 million for the three months ended June 30,
1998 from $.6 million for the same period last year. Interest expense on
FHLB advances and securities sold under agreements to repurchase
increased $205,800 to $248,900 for the three months ended June 30, 1998
from $43,100 for the same period last year. This increase is primarily
due to an increase in average interest bearing liabilities. Interest
expense on long-term debt decreased $50,000 to zero for the three months
ended June 30, 1998 from $50,000 for the same period last year. The
decrease in interest expense on long-term debt is due to the fact that
the debt was paid off on February 3, 1998 from cash provided by a capital
contribution to the Company. Interest expense increased approximately $.2
million, or 11.4%, to $1.8 million for the three months ended June 30,
1998, compared to pro forma interest expense of $1.6 million for the same
period last year.
PROVISION FOR LOAN LOSSES - The provision for loan losses
increased $82,600 to 175,000 for the three months ended June 30, 1998 as
compared to $92,400 for the same period last year. The Company increased
the provision for loan losses due to the increase in total loans held in
its portfolio.
The provision for loan losses is determined by management as the
amount to be added to the allowance for loan losses after net charge-offs
have been deducted to bring the allowance to a level which is considered
adequate to absorb losses inherent in the loan portfolio in accordance
with GAAP. Future additions to the Company's allowance for loan losses
and any change in the related ratio of the allowance for loan losses to
non-performing loans are dependent upon the performance and composition
of the Company's loan portfolio, the economy, inflation, changes in real
estate values and interest rates and the view of the regulatory
authorities toward adequate reserve levels.
NON-INTEREST INCOME - Non-interest income increased $621,900, or
225%, to $897,900 for the three months ended June 30, 1998 from $276,000
for the same period last year. This increase was primarily the result of
loan origination fees and discounts increasing $520,000, or 319%, in the
second quarter of 1998 compared to the same period last year. The Company
sold two corporate bonds for a gain of $17,900 in the second quarter of
1998. Non-interest income increased $473,300 to $897,900 for the three
months ended June 30, 1998 compared to pro forma non-interest income of
$424,600 for the same quarter last year.
NON-INTEREST EXPENSE - This category increased 1.0 million, or
183%, to $1.5 for the three months ended June 30, 1998 from $.5 million
for the same period last year. This increase was primarily due to the
Heritage Merger. Salary and employee benefits increased $553,300 to
$844,400 for the three months ended June 30, 1998 compared to $291,100
for the same quarter last year. This increase was primarily due to the
addition of the employees of United Bank. Net occupancy and equipment
increased $96,900 to $155,500 for the three months ended June 30, 1998
from $58,600 for the same quarter last year. This increase was primarily
due to the Heritage Merger and the acquisition of United Bank's four
branches, as well as the purchase of three loan production offices.
Non-interest expense increased $.4 million to $1.5 million for the three
months ended June 30, 1998, compared to pro forma non-interest expense of
$1.1 million for the same quarter last year.
INCOME TAXES - Income tax expense increased $289,000 due to the
$642,600 increase in income before taxes, which is tax affected for
non-deductible goodwill amortization and tax-free interest on municipal
bonds and loans. Income tax expense was approximately $375,000 for the
second quarter 1998 compared to pro forma income tax expense of $305,200
for the same period last year.
Page 14
3. MATERIAL CHANGES IN RESULTS OF OPERATIONS - COMPARISON OF THE SIX MONTHS
ENDED JUNE 30, 1998, AND JUNE 30, 1997
(Dollars in thousands)
(Unaudited)
INCOME RECAP
----------------------------------
SIX MONTHS ENDED JUNE 30,
----------------------------------
1998 1997 Change
------ ------ ------
Interest income $6,312 $2,667 $3,645
Interest expense 3,222 1,426 1,796
------ ------ ------
Net interest income 3,090 1,241 1,849
Provision for loan losses 220 93 127
Non-interest income 1,410 527 883
Non-interest expense 2,541 1,086 1,455
------ ------ ------
Income before income taxes 1,739 589 1,150
Provision for income taxes 670 216 454
------ ------ ------
Net income $1,069 $ 373 $ 696
====== ====== ======
The following unaudited pro forma combined financial information
gives effect to the Heritage Merger based on the purchase accounting
adjustments, estimates and other assumptions. The unaudited pro forma
combined statement of income for the six months ended June 30, 1998
combines the historical consolidated statements of income of Heritage and
United Financial as if the Merger had become effective on January 1,
1998. The unaudited pro forma combined statement of income for the six
months ended June 30, 1997 combines the historical consolidated
statements of income of Heritage and United Financial as if the Heritage
Merger had become effective on January 1, 1997.
UNITED FINANCIAL CORP.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
SIX MONTHS ENDED JUNE 30,
-------------------------
1998 1997
------ ------
Interest income 6,872 6,300
Interest expense 3,478 3,095
------ ------
Net interest income 3,394 3,205
Provision for losses on loans 225 93
Non-interest income 1,498 817
Non-interest expense 2,830 2,189
------ ------
Income before income taxes 1,837 1,740
Provision for income tax expense 706 648
------ ------
Net income $1,131 $1,092
====== ======
Net income per share $ .67 $ .64
------ ------
Weighed average shares outstanding 1,698 1,698
------ ------
See Notes to Consolidated Condensed Financial Statements
GENERAL - Consistent with the purchase method of accounting, the
historical information being presented reflects only the operations of
Heritage for the six months ended June 30, 1997. The statement of
operations for the six months ended June 30, 1998 includes the results of
operations of Heritage combined with the results of operations of United
Financial commencing after the Heritage Merger on February 3, 1998.
Page 15
NET INCOME - Net income increased $696,300, or 187%, to $1,069,200
for the six months ended June 30, 1998 from $372,900 for the same period
last year. Pro forma net income increased $38,500 to $1,130,600 for the
six months ended June 30, 1998 from $1,092,100 for the same period last
year.
INTEREST INCOME - Interest income increased $3.6 million to $6.3
million for the six months ended June 30, 1998 from $2.7 million for the
same period last year. The increase was primarily the result of income
from the interest earning assets acquired in the Heritage Merger and an
increase in interest earning assets from the same period in 1997.
Interest income on loans receivable increased $2.4 million to $4.5
million for the six months ended June 30, 1998 from $2.1 million for the
same period last year. Interest income on mortgage-backed securities
increased $.6 million to $1.0 million for the six months ended June 30,
1998 from $.4 million for the same period last year. Interest income on
all other interest earning investments including investment securities
increased $635,400 to $803,700 for the six months ended June 30, 1998
from $168,300 for the same period last year. Pro forma interest income
increased 9.1%, or $.6 million to $6.9 million for the six months ended
June 30, 1998 from $6.3 million for the same period in 1997.
INTEREST EXPENSE - Total interest expense increased approximately
$1.8 million, or 126%, to $3.2 million for the six months ended June 30,
1998 from $1.4 million for the same period last year. The increase was
primarily the result of the deposit expense associated with the deposit
base acquired in the Heritage Merger. Interest expense on deposits
increased $1.5 million to $2.8 million for the six months ended June 30,
1998 from $1.3 million for the same period last year. Interest expense on
FHLB advances and securities sold under agreements to repurchase
increased $354,900 to $440,100 for the six months ended June 30, 1998
from $85,200 for the same period last year. This increase is primarily
due to an increase in average interest bearing liabilities. Interest
expense on long-term debt decreased $86,400 to 11,900 for the three
months ended June 30, 1998 from $98,300 for the same period last year.
The decrease in interest expense on long-term debt is primarily due to
the fact that the debt was paid off on February 3, 1998 from cash
provided by a capital contribution to the Company. Pro forma interest
expense increased approximately $.4 million, or 12.4%, to $3.5 million
for the six months ended June 30, 1998 from $3.1 million for the same
period last year.
PROVISION FOR LOAN LOSSES - The provision for loan losses
increased $127,600 to $220,000 for the six months ended June 30, 1998 as
compared to $92,400 for the same period last year. The Company increased
the provision for loan losses due to the increase in total loans held in
its portfolio.
The provision for loan losses is determined by management as the
amount to be added to the allowance for loan losses after net charge-offs
have been deducted to bring the allowance to a level which is considered
adequate to absorb losses inherent in the loan portfolio in accordance
with GAAP. Future additions to the Company's allowance for loan losses
and any change in the related ratio of the allowance for loan losses to
non-performing loans are dependent upon the performance and composition
of the Company's loan portfolio, the economy, inflation, changes in real
estate values and interest rates and the view of the regulatory
authorities toward adequate reserve levels.
NON-INTEREST INCOME - Non-interest income increased $.9 million or
167%, to $1.4 million for the six months ended June 30, 1998 from $.5
million for the same period last year. This increase was primarily the
result of loan origination fees and discounts increasing $744,800, or
248%, in the six months ended June 30, 1998 compared to last same period
year. The Company sold the Kemper U.S. Government mutual bond fund for a
loss of $6,000 in the first quarter of 1998 and two corporate bonds for a
gain of $17,900 in the second quarter of 1988. Pro forma non-interest
income increased $.7 million to $1.5 million for the six months ended
June 30, 1998 from $.8 million for the same period last year.
Page 16
NON-INTEREST EXPENSE - This category increased 1.4 million, or
187%, to $2.5 million for the six months ended June 30, 1998 from $1.1
million for the same quarter last year. This increase was primarily due
to the Heritage Merger. Salary and employee benefits increased $.8
million to $1.4 million for the six months ended June 30, 1998 compared
to $.6 million for the same period last year. This increase was primarily
due to the addition of the employees of United Bank. Net occupancy and
equipment increased $155,300 to $269,800 for the six months ended June
30, 1998 from $114,500 for the same quarter last year. This increase was
primarily due to the Heritage Merger and the acquisition of United Bank's
four branches, as well as the purchase of three loan production offices.
Also included in non-interest expense were one-time Heritage Merger
related costs incurred in the first quarter of approximately $85,000, and
increased data processing expense and other services due to duplication
of services prior to the merger of the Banks on May 4th, 1998. Pro forma
non-interest expense increased $.6 to $2.8 million for the six months
ended June 30, 1998 from $2.2 million for the same period last year.
INCOME TAXES - Income tax expense increased $453,700 due to the
$1,150,100 increase in income before taxes, which is tax affected for
non-deductible goodwill amortization and tax-free interest on municipal
bonds and loans. Pro forma income tax expense was approximately $705,800
for the six month period ending June 30, 1998 compared to $647,600 for
the same period last year.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management believes there has been no material change in interest
rate risk since December 31, 1997. For additional information, see
Management's Discussion and Analysis of Financial Condition and Results
of Operations included herein in Item 2 and refer to the Interest Rate
Risk Management discussion included in United Financial's Annual Report
on Form 10-K for the year ended December 31, 1997.
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS.
The Company is involved from time to time in litigation normal for its
type of business.
ITEM 2 CHANGE IN SECURITIES.
None
ITEM 3 DEFAULTS ON SENIOR SECURITIES.
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
On May 18, 1998, United Financial Corp. held its Annual Meeting of
Shareholders. The shareholders elected five directors and ratified KPMG Peat
Marwick LLP as independent auditors for the Company.
Page 17
The shareholders of United Financial Corp. voted as follows with respect
to the approval of the Directors:
FOR WITHHELD
J. William Bloemendaal 1,571,604 4,675
Elliott L. Dybdal 1,571,604 4,675
William L. Madison 1,571,604 4,675
Kevin P. Clark 1,571,584 4,675
Steve L. Feurt 1,552,334 4,375
To ratify appointment of KPMG Peat Marwick LLP as independent auditors
for the Company:
For: 1,572,404
Against: 900
Abstain: 2,975
ITEM 5 OTHER INFORMATION.
On July 8, 1998, the Company and Chouteau County Bancshares, Inc.
(Chouteau) announced that they have signed a definitive merger agreement
involving their previously announced merger. Chouteau is a bank holding company.
Its wholly owned subsidiary, First State Bank of Fort Benton is a commercial
bank with approximately $66 million in assets and one banking office in Fort
Benton, Montana. The Company will serve as the parent company of the combined
entity, which would include Heritage Bank and its subsidiary, Community Service
Corporation, and First State Bank of Fort Benton and its subsidiary, Fort Benton
Insurance Agency, Inc. The merger is subject to regulatory and shareholder
approval.
On August 7, 1998 the Federal Deposit Insurance Corporation ("FDIC")
has approved the assumption of the insured deposits of Q Bank, Fort Benton,
Montana, by Heritage State Bank, Fort Benton, a newly chartered banking
subsidiary of the Company. Q Bank, with total assets of $15.1 million, was
closed by Montana's Commissioner of Financial Institutions, and the FDIC was
named receiver. The failed bank had total deposits of about $13.6 million. Q
Bank had offices in Fort Benton and Geraldine, Montana. Heritage State Bank
assumed the failed bank's deposits and purchased $2.5 million of the failed
bank's assets. The Company paid a premium of $454,000 to the FDIC for the right
to enter into this transaction.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.
A. The following exhibits are included herein:
Exhibit
Number Description of Exhibit
- ------- ----------------------
2.1 Agreement and Plan of Merger (Dated July 8, 1998 and entered into
by and among United Financial Corp., Great Falls, Montana and
Chouteau County Bancshares, Inc., Fort Benton, Montana)
27.1 Financial Data Schedule
B. Reports on Form 8-K
The Company did not file a current Report on form 8-K in the quarter
ended June 30, 1998.
Page 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:
United Financial Corp.
Date August 14, 1998 /s/ John M. Morrison
--------------------- -------------------------------
John M. Morrison
Chairman and Chief
Executive Officer
(Duly Authorized
Representative)
Date August 14, 1998 /s/ Kurt R. Weise
--------------------- -------------------------------
Kurt R. Weise
President and Chief
Operating Officer
(Duly Authorized
Representative)
Page 19