UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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 ID No.)
incorporation or organization)
P.O. Box 2509; 601 1st Ave. North, Great Falls, Montana 59403
- ---------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (406) 761-2200
--------------
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 of Registrant's $1.00 par value common stock outstanding
on June 30, 1996, was 1,223,312. No preferred shares were outstanding.
Registrant's common stock is traded Over-The-Counter on the NASDAQ National
Market System, symbol UBMT.
UNITED FINANCIAL CORP.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition at June
30, 1996, June 30, 1995 and December 31, 1995
Consolidated Statements of Income-Three Months Ended
June 30, 1996 and June 30, 1995
Consolidated Statements of Income-Six Months Ended
June 30, 1996 and June 30, 1995
Consolidated Statements of Cash Flows-Six Months Ended
June 30, 1996 and June 30, 1995
Consolidated Statement of Changes in Stockholders'
Equity - Six Months Ended June 30, 1996
Notes to Consolidated Financial Statements
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
ITEM 2 CHANGE IN SECURITIES
ITEM 3 DEFAULTS ON SENIOR SECURITIES
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF
SECURITIES HOLDER
ITEM 5 OTHER INFORMATION
ITEM 6 EXHIBITS
REPORTS ON FORM 8-K
SIGNATURES
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
UNITED FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Financial Condition
(Dollars in thousands, except equity/assets, share and per share data)
(Unaudited, except December 31)
June 30, Dec. 31,
1996 1995 1995
-------- -------- ---------
ASSETS
Cash and cash equivalents:
Cash and amounts due from banks $ 421 $ 501 $ 805
Interest-earn. deposits with banks 347 3,290 416
-------- -------- --------
768 3,791 1,221
Investments:
Securities held-to-maturity 34,123 22,606 43,117
Securities available-for-sale 33,595 42,609 35,261
-------- -------- --------
67,718 65,215 78,378
Loans receivable, net 30,977 31,034 30,352
Premises and equipment, net 1,447 1,404 1,494
Real estate owned 674 510 491
Accrued interest receivable 902 949 916
FHLB stock, at cost 379 350 476
Other assets 1,330 1,770 1,112
-------- -------- --------
$104,195 $105,023 $114,440
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
NOW/money market demand accounts 8,302 $ 7,252 $ 8,167
Savings deposits 30,421 34,909 32,461
Time deposits 39,881 37,364 37,663
-------- -------- --------
78,604 79,525 78,291
Federal Home Loan Bank advances 200 10,500
Accrued interest payable 213 219 68
Advance payments by borrowers for
taxes and insurance 271 788 224
Income taxes payable 254 288 260
Other liabilities 146 190 409
-------- -------- --------
79,688 81,010 89,752
Stockholders' equity:
Preferred stock, $1.00 par value
(2,000,000 shares authorized; none outstanding)
Common stock, $1.00 par value
(8,000,000 shares authorized;
1,223,312 outstanding) 1,223 1,223 1,223
Paid-in capital 7,626 7,663 7,663
Retained earnings-part. restricted 16,229 15,642 16,046
Unrealized loss on securities
available-for-sale (571) (515) (244)
-------- -------- --------
24,507 24,013 24,688
-------- -------- --------
$104,195 $105,023 $114,440
======== ======== ========
Equity/Assets 23.5% 22.9% 21.6%
Book Value/Share $20.03 $19.63 $20.18
UNITED FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Income
(Dollars in thousands, except per share data-unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
------- ------- ------- -------
Interest Income:
Loans $ 700 $ 709 $1,394 $1,437
Mortgage-backed securities 475 315 1,043 640
Investment securities 501 754 1,034 1,599
Interest-earning deposits 76 63 110 85
------- ------ ------ ------
1,752 1,841 3,581 3,761
Interest Expense:
Deposits 867 850 1,736 1,691
Borrowings 1 59 1
------- ------ ------ ------
868 850 1,795 1,692
Net interest income 884 991 1,786 2,069
Provision for losses on loans
------- ------ ------ ------
Net interest income after
prov. for loss. on loans 884 991 1,786 2,069
Noninterest Income:
Fees and discounts 98 95 189 153
FHLB stock dividends 7 5 16 11
Investment securities sales,
net gain 132 132 2
Other income 65 52 114 108
------- ------ ------ ------
302 152 451 274
Noninterest Expense:
Salaries and employee bene. 284 286 569 573
Net occupancy and equip. exp. 60 61 121 121
Data processing expense 23 24 45 49
FDIC/SAIF deposit insur. prem. 45 53 90 105
Other expenses 135 110 271 204
------ ------ ------ ------
547 534 1,096 1,052
------ ------ ------ ------
Income before income taxes 639 609 1,141 1,291
Provision for income taxes 239 227 426 481
------ ------ ------ ------
Net income $ 400 $ 382 $ 715 $ 810
====== ====== ====== ======
Earnings per share $.33 $.31 $.59 $.66
UNITED FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows (Dollars in thousands-unaudited)
Six Months Ended
June 30,
1996 1995
------- ------
Operating Activities:
Net income $ 715 $ 810
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation/amortization-bank premises/equip. 58 54
Depreciation of real estate held for investment 19 19
Invest. sec. net (accretion) or amortization (126) 2
Sales of available-for-sale securities, net gain (132) (2)
Loans originated for the secondary market (5,729) (3,014)
Proceeds from secondary market loan sales 5,617 2,846
Federal Home Loan Bank stock dividends (16) (11)
Net change in income taxes payable (6) (4)
Net change in accrued interest receivable 14 57
Net change in accrued interest payable 145 177
Net change in other assets 120 (142)
Net change in other liabilities (265) (81)
-------- -------
Net cash provided by operating activities 414 711
Investing Activities:
Purchases of held-to-maturity securities (8,324)
Proceeds-matured held-to-maturity securities 1,000 1,195
Mortgage-backed securities principal collections 16,459 2,055
Purchases of available-for-sale securities (6,908)
Proceeds-matured available-for-sale securities 3,000
Proceeds-called available-for-sale securities 2,000 2,294
Proceeds-sales of available-for-sale securities 3,139 6,004
Loans originated for portfolio (7,239) (4,705)
Proceeds from sales of portfolio loans 1,885 1,374
Loan principal collections 5,037 4,314
All other changes in loans, net (375) (505)
Purchases of premises and equipment (11) (147)
Net change in real estate owned (135) 35
Federal Home Loan Bank stock redemptions 114 52
-------- -------
Net cash provided by investing activities 9,642 11,966
-------- -------
Financing Activities:
Net increase (decrease) in deposits 313 (9,561)
Net repayment of FHLB advances (10,300)
Increase in advance escrow payments by borrowers 47 522
Capitalized holding company formation costs (37)
Cash dividends paid (532) (483)
-------- -------
Net cash (used) by financing activities (10,509) (9,522)
-------- -------
(Decrease) increase in cash and cash equivalents (453) 3,155
Cash and cash equivalents at beginning of year 1,221 636
-------- -------
Cash and cash equivalents at end of period $ 768 $3,791
======== =======
Supplemental Cash Flow Disclosure:
Cash payments for interest $ 1,649 $1,516
Cash payments for income taxes $ 263 $ 485
UNITED FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statement of Changes in Stockholders' Equity
(Dollars in thousands, except per share data)
(Unaudited, except December 31)
Six Months Ended June 30, 1996
------------------------------
Unrealized
holding
gains
Common Paid-In Retained (losses)
Stock Capital Earnings net Total
------- ------- -------- -------- -------
Balance
December 31, 1995 $1,223 $7,663 $16,046 $(244) $24,688
Net income 715 715
Cash dividends paid
($.435 per share) (532) (532)
Increase in unrealized
loss on investment
securities
available-for-sale (327) (327)
Capitalized holding
company formation
costs (37) (37)
------ ------- ------- ------- --------
Balance
June 30, 1996 $1,223 $7,626 $16,229 $(571) $24,507
====== ======= ======= ======= ========
UNITED FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
Basis of Presentation -- The consolidated financial statements included herein
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with instructions to Form 10-Q and Rule
10-01 of Securities and Exchange Commission Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles 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, changes in stockholders' equity, and changes in cash flows for the
periods disclosed. Operating results for the three and six months ended June
30, 1996, are not necessarily indicative of the results anticipated for the
year ended December 31, 1996. For additional information, refer to the
consolidated audited financial statements and footnotes thereto included in
United Savings Bank's annual report and Form 10-K for the year ending December
31, 1995.
Organizational Structure -- In the second quarter of 1996 a holding company
structure was approved by shareholders and regulators with United Savings Bank
becoming the wholly owned subsidiary of a newly formed Minnesota corporation,
United Financial Corp. Accordingly, the accompanying consolidated financial
statements, as of June 30, 1996, include the accounts of United Financial
Corp. (the Holding Company) and its wholly owned and regulated thrift
institution subsidiary, United Savings Bank (the Bank). The consolidated
financial statements also include the Community Service Corporation, a wholly
owned subsidiary of the Bank. The Community Service Corporation, a Montana
corporation, was formed in 1974 and engages in real estate management. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Cash Equivalents -- For purposes of the Consolidated Statements of Cash Flows,
all cash, daily interest and noninterest-bearing deposits with banks are
classified as cash equivalents.
Computation of Earnings Per Share -- Earnings per share are based on the
weighted average number of shares outstanding during the period. The weighted
average number of shares outstanding for the quarters and six months ended
June 30, 1996, 1995, and for the year ended December 31, 1995, were 1,223,312
shares.
Dividends Declared -- On April 24, 1996, the Board of Directors of the Bank
declared a second-quarter 1996 cash dividend of $.22 per share, paid May 27,
1996, to shareholders of record on May 13, 1996. On July 22, 1996, the Board
of Directors of the Holding Company declared a third-quarter 1996 cash
dividend of $.225 per share, payable August 26, 1996, to shareholders of
record on August 12, 1996.
Material Contracts-Severance Agreements -- During fiscal year 1994, the Bank's
Board of Directors approved change of control severance agreements for the
Bank's President and each of the five Vice-Presidents. The agreements provide
for severance compensation in the event any company or person acquires control
of the Bank, as determined in accordance with applicable federal regulations.
Pursuant to his agreement upon a change of control, the Bank's President would
be entitled to lump-sum compensation equal to two times his annual base salary
plus any target bonuses, and 24 months of continued welfare and employee
benefits. The agreements with each of the five Vice-Presidents provide for
payment, upon a change of control, of lump-sum compensation equal to each
annual base salary, plus any target bonuses, and 12 months of continued
welfare and employee benefits.
Emerging Legislation -- Updating the discussion on pages 6 and 7 of the Bank's
1995 Annual Report, the Budget Reconciliation Bill (Budget Bill) that included
BIF/SAIF FDIC insurance legislation and thrift bad debt reserves recapture
relief was vetoed by President Clinton. Attempts are now being made to
include these two provisions as part of Budget Bill 1996 Continuing
Resolutions. In addition, separate legislation is now being debated before
Congress that addresses both the BIF versus SAIF FDIC insurance premium and
insurance reserve ratio disparity, as well as thrift bad debt reserve
recapture relief. It continues likely, as previous reported, that the Bank
will be charged a one time FDIC insurance special assessment of approximately
$.85 per $100 of insured deposits. If assessed against the Bank's March 31,
1995 insured deposits, this assessment would result in an approximate $713,000
(pre-tax) reduction in earnings and an approximate $.37 per share (after tax)
reduction in earnings per share.
What impact a final Budget Bill, along with other changes in federal law
regarding interstate banking and branching, Glass-Stegall Act revisions, the
potential merger of federal regulatory agencies, the continued consolidation
of the banking industry and other regulatory changes will have on the Bank's
operations are now under review and cannot be predicted at this time.
Debt and Equity Investment Accounting -- In May 1993, the Financial Accounting
Standards Board (FASB) issued Statement No. 115, "Accounting for Investments
in Certain Debt and Equity Securities." This Statement addresses the
accounting and reporting for investments in equity securities that have
readily determinable fair values and all investments in debt securities.
These investments are to be classified into the following three categories and
accounted for as follows:
1) Debt securities purchased with the positive intent and ability to
hold to maturity are classified as held-to-maturity and reported at
amortized cost.
2) Debt and equity securities purchased and held principally for the
purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and losses
included in earnings.
3) Debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as available-for-sale
and reported at fair value, with net unrealized gains and losses
excluded from earnings and reported (net of tax effect) as a separate
component of stockholders' equity.
Statement 115 was implemented January 1, 1994. The existing policy of not
maintaining a trading portfolio was retained. All investment securities are
classified as either held-to-maturity or available-for-sale. Held-to-maturity
investments, shown at cost, are comprised of mortgage-backed securities,
Federal Home Loan Bank certificates of deposit and U.S. Government securities
and agencies. Available-for-sale securities, shown at fair value with net
unrealized holding gains and losses, net of tax, reported in stockholders'
equity, are comprised of the Kemper U.S. Government bond fund and U.S.
Government securities and agencies.
A comparison of the amortized cost and estimated fair value of investment
securities at the dates indicated is as follows:
(Unaudited, except December 31)
June 30, 1996
(Dollars in thousands)
--------------------------------------
Gross Gross Estimated
Amortized Unreal. Unreal. Fair
Cost Gains Losses Value
-------- ------- -------- -------
Held-to-Maturity:
U.S. Government agencies $ 2,566 $ (2) $ 2,564
FHLB certificates of deposit 1,000 1,000
U.S. Government agencies ------- ------- -------- -------
and other 3,566 (2) 3,564
GNMA fixed and adjust. rate 2,209 $ 22 (10) 2,221
FNMA and FHLMC adjust. rate 5,867 26 (65) 5,828
FNMA 7 yr & FHLMC 5 yr balloons 11,012 15 (168) 10,859
FNMA and FHLMC REMIC cert. 11,469 4 (55) 11,418
------- ------- -------- -------
Mortgage-backed securities 30,557 67 (298) 30,326
------- ------- -------- -------
$34,123 $ 67 $ (300) $33,890
======= ======= ======== =======
Available-for-Sale:
U.S. Treasuries and U.S. Gov.
agencies $28,564 $ 75 $ (196) $28,443
Kemper U.S. Gov. bond fund 5,996 (844) 5,152
------- ------- -------- -------
$34,560 $ 75 $(1,040) $33,595
======= ======= ======== =======
December 31, 1995
(Dollars in thousands)
Held-to-Maturity: -------------------------------------
U.S. Treasuries and U.S. Gov.
agencies $ 2,901 $ 1 $ (1) $ 2,901
GNMA fixed and adjust. rate 2,339 35 (1) 2,373
FNMA and FHLMC adjust. rate 5,952 35 (31) 5,956
FNMA 7 yr & FHLMC 5 yr balloons 5,196 79 5,275
FNMA and FHLMC REMIC cert. 26,729 8 (43) 26,694
------- ------- -------- -------
Mortgage-backed securities 40,216 157 (75) 40,298
------- ------- -------- -------
$43,117 $158 $ (76) $43,199
======= ======= ======== =======
Available-for-Sale:
U.S. Treasuries and U.S. Gov.
agencies $29,678 $395 $ (234) $29,839
Kemper U.S. Gov. bond fund 5,996 (574) 5,422
------- ------- -------- -------
$35,674 $395 $ (808) $35,261
======= ======= ======== =======
A comparison of the amortized cost and estimated fair values of held-to-
maturity and available-for-sale investment securities by contractual
maturities at June 30, 1996, is shown below. Estimated maturities may differ
from contractual maturities as some securities have call or prepayment
options. (Unaudited)
June 30, 1996
(Dollars in thousands)
----------------------------
Amortized Estimated
Cost Fair Value
--------- ----------
Held-to-Maturity:
Due in one year or less $ 1,000 $ 1,000
Due after one year through two years 600 600
Due after five years through six years 1,966 1,964
Mortgage-backed securities 30,557 30,326
------- -------
$34,123 $33,890
======= =======
Available-for-Sale:
Due in one year or less $ 7,558 $ 7,583
Due after one year through two years 14,078 13,926
Due after two years through five years 6,928 6,934
Kemper U.S. Government bond fund 5,996 5,152
------- -------
$34,560 $33,595
======= =======
During the six months ended June 30, 1996, one available-for-sale investment
security with a book value of $3,007,090 was sold realizing a gain of
$132,363. During the six months ended June 30, 1995, available-for-sale
investment securities with a book value of $6,001,458 were sold realizing a
net gain of $2,178.
Regulatory Capital -- United Savings Bank (the Bank), the wholly owned
regulated thrift institution of the Holding Company is required to meet three
FIRREA-enacted capital regulations: (1) a tangible capital requirement
(stockholders' equity adjusted for the effects of intangibles, investments and
advances to "nonincludable" subsidiaries and other factors) equal to not less
than 1.5% of tangible assets (as defined in the regulations), (2) a core
capital requirement, comprised of tangible capital adjusted for supervisory
goodwill and other defined factors equal to not less than 3% of tangible
assets, and (3) a risk-based capital requirement equal to 8% of all risk-
weighted assets. For risk-weighting, selected assets are given a risk
assignment of 0% to 100%. For example, cash and securities backed by the full
faith and credit of the U.S. Government are risk-weighted at 0% of book value,
while repossessed assets and delinquent loans over 90 days past due are
assigned a 100% factor, or a risk-weighting equal to their book value. The
Bank's total risk-weighted assets at June 30, 1996 were approximately
$30,911,000.
The following table demonstrates as of June 30, 1996, the extent to which the
Bank exceeds in dollars and in percent, the three minimum regulatory capital
requirements:
Unaudited-Regulatory Capital
(Dollars in thousands)
--------------------------------
Actual Requirement Excess
------ ----------- ------
Tangible capital:
$ Amount $15,282 $1,425 $13,857
% of tangible assets 16.1% 1.5% 14.6%
Core capital:
$ Amount $15,282 $2,849 $12,433
% of tangible assets 16.1% 3.0% 13.1%
Risk-based capital:
$ Amount $15,317 $2,473 $12,844
% of risk-weighted assets 49.6% 8.0% 41.6%
Generally accepted accounting principles (GAAP) capital as shown on the
consolidated financial statements differs from tangible, core and risk-based
regulatory capital at June 30, 1996 as follows: (Unaudited)
(Dollars in thousands)
Consolidated GAAP capital $24,507
Holding company (8,901)
--------
Bank GAAP capital 15,606
Non-includable assets of Bank subsidiary (408)
Unrealized loss on certain securities
available-for-sale 84
--------
Tangible and core capital 15,282
General loan valuation allowances 75
Other assets required to be deducted (40)
--------
Risk-based capital $15,317
========
The Office of Thrift Supervision (OTS) is responsible for insuring that
capital standards reflect interest rate risk (IRR), defined as the potential
for the reduction of earnings and stockholders' equity resulting from changes
in market interest rates. The OTS has delayed implementation of a proposed
capital deduction for savings institutions with a greater than normal level of
IRR as calculated by an OTS Net Portfolio Value Model. Due to its current
capital position, most recent OTS calculated IRR and proposed exemption
criteria, the Bank would not have an IRR capital adjustment.
Failure to comply with applicable regulatory capital requirements can result
in capital directives from the director of the OTS, restrictions on growth,
and other limitations on a savings association's operations.
The following table sets forth for the second quarter 1996, information
regarding (1) average balance sheets, (2) an analysis of net interest income,
and (3) other information regarding changes in interest-earning assets and
interest-bearing liabilities. (Dollars in thousands-unaudited)
Average Interest Average
Balance Earned/Pd Yield/Cost
--------- --------- ----------
ASSETS
Loans receivable $ 30,226 $ 700 9.26%
Mortgage-backed securities 32,335 475 5.88%
Investments-other 33,403 501 5.99%
Interest-earning deposits 5,824 76 5.21%
-------- ------ -----
Total interest-earn. assets 101,788 $1,752 6.89%
Reserve for loan losses (75) ====== =====
Cash and due from banks 544
Unreal. loss sec. avail.-for-sale (786)
FHLB stock 372
Bank premises and equipment 1,462
Accrued interest receivable 659
Non-earning assets 1,513
--------
Total assets $105,477
========
LIABILITIES & STOCKHOLDERS' EQUITY
NOW/MMDA $ 8,613 $ 65 3.02%
Statement savings 30,585 268 3.50%
Time deposits 39,712 534 5.39%
-------- ------ -----
Deposits 78,910 867 4.40%
Borrowings 34 1 5.56%
-------- ------ -----
Total interest-bearing liab. $ 78,944 $ 868 4.40%
======== ====== =====
Unreal. loss sec. avail.-for-sale$ (496)
Stockholders' equity 25,014
--------
Total stockholders' equity $ 24,518
========
Net interest-earning assets $ 22,844
Net interest income $ 884
Net interest spread (1) 2.49%
Net interest margin (2) 3.47%
Net income $ 400
Return on average assets (3) 1.52%
Return on average equity (4) 6.52%
Equity to average assets ratio (5) 23.25%
Dividend payout ratio (6) 67.30%
Interest-earning assets to
interest-bearing liab. ratio 1.29
Cash dividends paid $ 269
(1) Average yield interest-earning assets minus average rate interest-bearing
liabilities
(2) Net interest income divided by average interest-earning assets
(3) Net income divided by average total assets
(4) Net income divided by average equity
(5) Average equity divided by average total assets
(6) Dividends paid per share divided by net income per share
The following table sets forth for the second quarter 1995, information
regarding (1) average balance sheets, (2) an analysis of net interest income,
and (3) other information regarding changes in interest-earning assets and
interest-bearing liabilities. (Dollars in thousands-unaudited)
Average Interest Average
Balance Earned/Pd Yield/Cost
------- --------- ----------
ASSETS
Loans receivable $ 30,890 $ 709 9.18%
Mortgage-backed securities 20,225 315 6.23%
Investments-other 48,403 754 6.23%
Interest-earning deposits 4,243 63 5.95%
-------- ------ -----
Total interest-earning assets 103,761 $1,841 7.10%
Reserve for loan losses (75) ====== =====
Cash and due from banks 490
Average balance adjustment (1,851)
Unreal. loss sec. avail. for sale (1,128)
FHLB stock 346
Bank premises and equipment 1,365
Accrued interest receivable 947
All other assets 2,140
--------
Total assets $105,995
========
LIABILITIES & STOCKHOLDERS' EQUITY
NOW/MMDA $ 7,659 $ 58 3.04%
Statement savings 36,118 321 3.56%
Time deposits 37,066 471 5.08%
Avg. balance adjustment 287
-------- ------ -----
Deposits 81,130 850 4.19%
Borrowings
-------- ------ -----
Total interest-bearing liab. $ 81,130 $ 850 4.19%
======== ====== =====
Unreal. loss sec. avail.-for-sale $ (668)
Stockholders' equity 24,481
--------
Total stockholders' equity $ 23,813
========
Net interest-earning assets $ 22,631
Net interest income $ 991
Net interest spread (1) 2.91%
Net interest margin (2) 3.82%
Net income $ 382
Return on average assets (3) 1.44%
Return on average equity (4) 6.42%
Equity to average assets ratio (5) 22.47%
Dividend payout ratio (6) 63.99%
Interest-earning assets to
interest-bearing liab. ratio 1.28
Cash dividends paid $ 245
(1) Average yield interest-earning assets minus average rate interest-bearing
liabilities
(2) Net interest income divided by average interest-earning assets
(3) Net income divided by average total assets
(4) Net income divided by average equity
(5) Average equity divided by average total assets
(6) Dividends paid per share divided by net income per share
The following table sets forth for the six month period ended June 30, 1996,
information regarding (1) average balance sheets, (2) an analysis of net
interest income, and (3) other information regarding changes in interest-
earning assets and interest-bearing liabilities. (Dollars in thousands-
unaudited)
Average Interest Average
Balance Earned/Pd Yield/Cost
------- --------- ----------
ASSETS
Loans receivable $ 30,165 $1,394 9.24%
Mortgage-backed securities 34,356 1,043 6.07%
Investments-other 34,471 1,034 6.00%
Interest-earning deposits 4,233 110 5.21%
-------- ------ -----
Total interest-earning assets 103,225 $3,581 6.94%
Reserve for loan losses (75) ------ -----
Cash and due from banks 554
Unreal. loss sec. avail.-for-sale (582)
FHLB stock 424
Bank premises and equipment 1,473
Accrued interest receivable 701
All other assets 1,489
--------
Total assets $107,209
========
LIABILITIES & STOCKHOLDERS' EQUITY
NOW/MMDA $ 8,508 $ 128 3.01%
Statement savings 31,262 548 3.50%
Time deposits 39,069 1,060 5.43%
-------- ------ -----
Deposits 78,839 1,736 4.40%
Borrowings 2,026 59 5.80%
-------- ------ -----
Total interest-bearing liab. $ 80,865 $1,795 4.44%
======== ====== =====
Unreal. loss sec. avail.-for-sale $ (370)
Stockholders' equity 24,987
--------
Total stockholders' equity $ 24,617
========
Net interest-earning assets $ 22,360
Net interest income $1,786
Net interest spread(1) 2.50%
Net interest margin (2) 3.46%
Net income $ 715
Return on average assets (3) 1.33%
Return on average equity (4) 5.81%
Equity to average assets ratio (5) 22.96%
Dividend payout ratio (6) 74.41%
Interest-earning assets to
interest-bearing liab. ratio 1.28
Cash dividends paid $ 532
(1) Average yield interest-earning assets minus average rate interest-bearing
liabilities
(2) Net interest income divided by average interest-earning assets
(3) Net income divided by average total assets
(4) Net income divided by average equity
(5) Average equity divided by average total assets
(6) Dividends paid per share divided by net income per share
The following table sets forth for the six month period ended June 30, 1995,
information regarding (1) average balance sheets, (2) an analysis of net
interest income, and (3) other information regarding changes in interest-
earning assets and interest-bearing liabilities. (Dollars in thousands-
unaudited)
Average Interest Average
Balance Earned/Pd Yield/Cost
------- --------- ----------
ASSETS
Loans receivable $ 31,000 $1,437 9.27%
Mortgage-backed securities 20,653 640 6.20%
Investments 51,403 1,599 6.22%
Interest-earning deposits 2,871 85 5.94%
-------- ------ -----
Total interest-earning assets 105,927 $3,761 7.10%
Reserve for loan losses (75) ====== =====
Cash and due from banks 493
Average balance adjustment (1,411)
Unreal. loss sec. avail.-for-sale (1,639)
FHLB stock 360
Bank premises and equipment 1,330
Accrued interest receivable 1,033
All other assets 1,957
--------
Total assets $107,975
========
LIABILITIES & STOCKHOLDERS' EQUITY
NOW/MMDA $ 7,882 $ 121 3.07%
Statement savings 38,392 687 3.58%
Time deposits 36,568 883 4.83%
Avg. balance adjustment 608
-------- ------ -----
Deposits 83,450 1,691 4.05%
Borrowings 52 1 6.30%
-------- ------ -----
Total interest-bearing liab. $ 83,502 $1,692 4.05%
======== ====== =====
Unreal. loss sec. avail.-for-sale $ (971)
Stockholders' equity 24,405
--------
Total stockholders' equity $ 23,434
========
Net interest-earning assets $ 22,425
Net interest income $2,069
Net interest spread (1) 3.05%
Net interest margin (2) 3.91%
Net income $ 810
Return on average assets (3) 1.50%
Return on average equity (4) 6.91%
Equity to average assets ratio (5) 21.70%
Dividend payout ratio (6) 59.68%
Interest-earning assets to
interest-bearing liab. ratio 1.27
Cash dividends paid $ 483
(1) Average yield interest-earning assets minus average rate interest-bearing
liabilities
(2) Net interest income divided by average interest-earning assets
(3) Net income divided by average total assets
(4) Net income divided by average equity
(5) Average equity divided by average total assets
(6) Dividends paid per share divided by net income per share
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
(1) MATERIAL CHANGES IN FINANCIAL CONDITION. COMPARISON OF THE SIX-MONTH
PERIOD FROM DECEMBER 31, 1995, TO JUNE 30, 1996. (Unaudited, except December
31)
Selected Financial Condition Recap
(Dollars in thousands)
June 30, December 31,
1996 1995 Change
--------- ------------ ---------
Total assets $104,195 $114,440 ($10,245)
Cash and cash equivalents 768 1,221 (453)
Investments (held-to-maturity) 34,123 43,117 (8,994)
Investments (available-for-sale) 33,595 35,261 (1,666)
Loans receivable, net 30,977 30,352 625
Real estate owned 674 491 183
Other assets 4,058 3,998 60
Deposits 78,604 78,291 313
Federal Home Loan Bank advances 200 10,500 (10,300)
Total liabilities 79,688 89,753 (10,065)
Stockholders' equity, net 24,507 24,688 (181)
General -- The $10.2 million, or 9%, decrease in assets resulted from the
repayment of borrowings (FHLB advances) outstanding at the end of 1995. The
$10.5 million of debt was repaid from $25.6 million of cash flows from
investment securities.
Due to a weaker economy, the Federal Reserve Board made two interest rate
policy changes and lowered rates in late December 1995 and late January 1996.
However, beginning in February and continuing throughout the first half of
1996 market interest again rose on improving employment and renewed inflation
fears.
Investments -- The two investment categories decreased a combined net $10.7
million, or 14%. This change was comprised primarily of $5.0 million of
matured and called available-for-sale securities, a $1.0 million matured held-
to-maturity investment, and $16.4 million of mortgage-backed securities
principal repayments, offset by $8.3 million of held-to-maturity securities
purchases and $6.9 million of available-for-sale securities purchases. In
addition, $3.1 million of proceeds were received from the sale of an
available-for-sale security. A $132,400 gain was realized from this sale.
Loans Receivable -- For the six months ended June 30, 1996, net loans
receivable increased $.6 million, or 2%, as follows: (Unaudited)
Loans originated for portfolio $ 7.2 million
Sales of portfolio loans (1.9) "
Payments and payoffs (5.0) "
Other changes .3 "
------
Net increase $ .6 million
======
For the six months ended June 30, 1996, $5.7 million of loans were originated
for sale and $5.6 million of loans were sold to the secondary market.
Loans receivable at the dates indicated consisted of the following:
(Dollars in thousands-unaudited)
June 30, Dec. 31,
1996 1995 1995
------- ------- -------
Conventional:
1-4 residential $13,308 $14,040 $13,540
5 or more residential 4,120 3,794 3,987
Construction 3,781 1,859 3,373
Commercial and other non-resident. 2,334 2,747 2,517
FHA insured or VA guaranteed 6,258 7,652 6,970
Home improvement and home consumer 1,256 1,218 1,136
Loans to depositors, savings secured 101 242 175
Recreational vehicle and auto 874 35 31
Other non-mortgage 253 362 306
------- ------- -------
Total loans 32,285 31,949 32,035
Less:
Loans in process 1,227 831 1,600
Discounts 6 9 8
Reserve for possible loan losses 75 75 75
------- ------- -------
Loans receivable, net $30,977 $31,034 $30,352
======= ======= =======
Real Estate Owned -- The $183,000, or 37%, increase consisted of a new
$231,000 foreclosed Great Falls residence, less the sale of a $29,000 Glendive
residence, less additional depreciation for properties held for investment.
The Glendive sale resulted in a $14,000 gain. At June 30, 1996, approximately
$403,000, or 60%, of real estate owned was comprised of two 24-unit apartment
complexes in Glendive, Montana, owned as depreciating investments by the
Bank's wholly-owned subsidiary; plus $271,000 of real estate held for sale
consisting of $40,000 for two Great Falls commercial lots and the $231,000
Great Falls residence.
Other Assets -- This category remained at approximately $4.0 million. The
unrealized tax benefit relating to the FASB 115 adjustment for available-for-
sale securities increased $.2 million to $.4 million. At June 30, 1996, other
assets included $.8 million of loans receivable contracted for sale to the
secondary market.
Deposits -- Deposits increased $.3 million, or less than 1%. The Bank's
average cost of deposits for the first half of 1996 increased to 4.40%,
compared to an average cost of 4.05% for the same six months in 1995. The
Bank's cost of deposits was 4.46% at June 30, 1996, 4.44% at December 31,
1995, 4.30% at June 30, 1995, and 3.94% at December 31, 1994.
The following table indicates the amounts and maturities of time certificates
of deposit of $100,000 or more outstanding as of June 30, 1996:
(Dollars in thousands, unaudited)
Maturity Amount
-------- ------
3 months or less $ 610
>3 months through 6 months 204
>6 months through 1 year 1,031
>1 year 2,087
------
$3,932
======
Borrowings -- During the first quarter of 1996, the cash flows from matured
and called investment securities, together with mortgage-backed securities
repayments were utilized to repay the $10.5 million of FHLB advances
outstanding at December 31, 1995. At June 30, 1996, a $.2 million overnight
FHLB advance was outstanding.
Stockholders' Equity -- The less than $.2 million decrease in stockholders'
equity was comprised of $.7 million of net income, less $.5 million of cash
dividends paid and a $.3 million increase in the unrealized loss adjustment
for available-for-sale securities. In addition, capitalized holding company
formation costs were approximately $37,000. Book value per share decreased to
$20.03 at June 30, 1996, from $20.18 per share at December 31, 1995.
Stockholders' equity ratio (stockholders' equity divided by assets) was 23.5%
at June 30, 1996, compared to 21.6% at December 31, 1995. The ratio of
average interest-earning assets to average interest-bearing liabilities was
1.28 for the first half of 1996 and 1.27 for the same six months in 1995.
Asset Quality and Loss Reserves -- Nonperforming assets consisting of
nonaccrual uninsured loans, accruing uninsured loans past due over 90 days,
restructured loans, and all real estate owned-held for sale (REO/HFS) were
approximately: $271,000 at June 30, 1996, $78,000 at December 31, 1995,
representing .26% and .07% of total assets, respectively.
(Dollars in thousands-unaudited, except December 31)
June 30, December 31,
1996 1995
-------- ------------
Loss reserves $75 $75
Loss reserves as a % of
nonperforming assets 27% 96%
Loss reserves as a % of
uninsured loans & REO/HFS .30% .32%
Federal regulations require the Bank to classify its assets as substandard
(distinct possibility that some loss will be sustained), doubtful (high
likelihood of loss), and loss (uncollectible). At June 30, 1996, the Bank's
substandard assets were approximately $40,000, with no asset classified as
doubtful or loss.
Given the continuing low level of nonperforming and classified assets, the
decrease in loans receivable, and the sale of the majority of new loan
production, no additional loss provision expense was deemed necessary (i.e.
both probable and estimable) during the quarters and six-month periods ended
June 30, 1996.
(2) MATERIAL CHANGES IN RESULTS OF OPERATIONS. COMPARISON OF THE THREE MONTHS
ENDED JUNE 30, 1996, AND JUNE 30, 1995.
(Dollars in thousands, unaudited)
INCOME RECAP
Three Months Ended June 30,
1996 1995 Change
------ ------ ------
Interest income $1,752 $1,841 $(89)
Interest expense 868 850 18
------ ------ ------
Net interest income 884 991 (107)
Noninterest income 302 152 150
Noninterest expense 547 534 13
------ ------ ------
Income before income taxes 639 609 30
Provision for income taxes 239 227 12
------ ------ ------
Net income $ 400 $ 382 $ 18
====== ====== ======
General -- Net income for the second quarter of 1996 was $400,000, an $18,000,
or 5%, increase over the same period in 1995. This increase primarily
resulted from a $132,000 noninterest income gain from the sale of a security
classified as available-for-sale, offset by a $107,000, or 11%, decline in net
interest income. Second quarter 1996 average interest-earning assets and
average deposits declined. The average yield for interest-earning assets was
lower, while the average cost of deposits was higher.
Second quarter 1996 return on average assets was 1.52%, compared to 1.44% for
the same 1995 quarter. Based on weighted average shares outstanding, second-
quarter 1996 net income was $.33 per share, compared to $.31 per share for the
same 1995 quarter.
Interest Income and Expense -- Compared to the same 1995 quarter, average
second quarter 1996 interest-earning assets decreased $2.0 million, or less
than 2%. Due primarily to a decrease in investment securities yields, the
average yield for all interest-earning assets was 6.89%, compared to 7.10% for
the same 1995 quarter. As a result, second quarter 1996 interest income
decreased $89,000, or 5%.
Compared to the same 1995 quarter, second quarter 1996 average deposits
decreased $2.2 million, or 3%. However, due to higher interest rates and time
deposit repricing, deposit interest expense actually increased $17,000, or 2%.
The average cost of deposits was 4.40% for the second quarter of 1996,
compared to 4.19% for the same 1995 quarter. Second quarter 1996 average
borrowings (FHLB advances) were less than $.1 million, average cost was 5.56%,
and borrowing expense was approximately $1,000. There were no borrowings
during the same 1995 quarter. The second quarter 1996 cost of all interest-
bearing liabilities was 4.40%, compared to 4.19% for the same quarter in 1995.
Net Interest Income -- This category decreased $107,000, or 11%, for the
reasons cited above. Net interest spread (the difference between the average
yield on interest-earning assets less the average cost of interest-bearing
liabilities) was 2.49% for the second quarter of 1996, compared to 2.91% for
the same 1995 quarter. Net interest margin (net interest income divided by
average interest-earning assets) was 3.47% for the second quarter of 1996,
compared to 3.82% for the same 1995 quarter.
Noninterest Income -- During the second quarter of 1996, this category
increased $150,000, or 99% to $302,000. The primary reason for this change was
a $132,000 gain from the sale of an available-for-sale investment security.
Loan origination fee and discount income decreased $3,000, or 3%.
Noninterest Expense -- This category increased $13,000, or 2%, and was the net
result of a $2,000, or 1%, decrease in salaries and employee benefits, a
combined $9,000 decrease in data processing and FDIC/SAIF deposit insurance
expense (lower deposit base), offset by a $25,000, or 23%, increase in other
expenses, the primary component of which was advertising expense for an
ongoing marketing campaign.
Income Taxes -- Second quarter 1996 income before taxes was $639,000, a
$30,000, or 5%, increase from the $609,000 earned for the same 1995 quarter.
Taxes increased $12,000, or 5% to $239,000.
(3) MATERIAL CHANGES IN RESULTS OF OPERATIONS. COMPARISON OF THE SIX MONTHS
ENDED JUNE 30, 1996, AND JUNE 30, 1995.
INCOME RECAP (Unaudited)
(Dollars In Thousands)
Six Months Ended June 30,
1996 1995 Change
------ ------ ------
Interest income $3,581 $3,761 $(180)
Interest expense 1,795 1,692 103
------ ------ ------
Net interest income 1,786 2,069 (283)
Noninterest income 451 274 177
Noninterest expense 1,096 1,052 44
------ ------ ------
Income before income taxes 1,141 1,291 (150)
Provision for income taxes 426 481 (55)
------ ------ ------
Net income $ 715 $ 810 $ (95)
====== ====== ======
General -- Net income for the first six months of 1996 was $715,000, a
$95,000, or 12%, decrease when compared to the same six months in 1995. This
decrease resulted primarily from a $283,000, or 14%, decline in net interest
income, offset by a $132,000 noninterest income gain from the sale of a
security classified as available-for-sale. First half 1996 average interest-
earning assets declined, average deposits declined and average borrowings
increased. The first half of 1996 average yield for interest-earning assets
was lower, the average cost of deposits was higher and borrowing expense was
higher.
The first half of 1996 return on average assets was 1.33%, compared to 1.50%
for the same 1995 period. Based on weighted average shares outstanding, year-
to-date 1996 net income was $.59 per share, compared to $.66 per share for the
same 1995 period.
Interest Income and Expense -- Compared to the first half of 1995, average
year-to-date 1996 interest-earning assets decreased $2.7 million, or less than
3%. Due primarily to a decrease in investment securities yields, the average
yield for all interest-earning assets decreased to 6.94%, compared to 7.10%
for the same 1995 period. As a result, year-to-date 1996 interest income
decreased $180,000, or 5%, when compared to the same 1995 period.
Compared to the first half of 1995, year-to-date 1996 average deposits
decreased $4.6 million, or 6%. However, due to higher interest rates and time
deposit repricing, deposit interest expense actually increased $45,000, or 3%.
The average cost of deposits was 4.40% for the first half of 1996, compared to
4.05% for the same 1995 period. First half 1996 average borrowings (FHLB
advances) were $2.0 million, average cost was 5.80%, and borrowing expense was
$59,000. For the same 1995 period, average borrowings (FHLB advances) were
less than $.1 million, average cost was 6.30%, and borrowing expense was
approximately $1,000. The first half 1996 cost of all interest-bearing
liabilities was 4.44%, compared to 4.05% for the same period in 1995.
Net Interest Income -- This category decreased $283,000, or 14%, for the
reasons cited above. Net interest spread (the difference between the average
yield on interest-earning assets less the average cost of interest-bearing
liabilities) was 2.50% for the first half of 1996, compared to 3.05% for the
same 1995 period. Net interest margin (net interest income divided by average
interest-earning assets) was 3.46% for the first half of 1996, compared to
3.91% for the same 1995 period.
Noninterest Income -- For the first half of 1996, this category increased
$177,000, or 65% to $451,000. The primary reason for this change was a
$132,000 gain from the sale of a $3.1 million available-for-sale investment
security. Loan origination fee and discount income increased $35,000, or 23%.
This improvement was the direct result of increased loan production. First
half 1996 loans originated for sale to the secondary market were $5.7 million
compared to $3.0 million for the same period in 1995, and year-to-date 1996
loans originated for portfolio were $7.2 million, compared to $4.7 million for
the same 1995 period.
Noninterest Expense -- This category increased $44,000, or 4%, and was the net
result of a $3,000, or 1%, decrease in salaries and employee benefits, a
combined $20,000 decrease in data processing and FDIC/SAIF deposit insurance
expense (lower deposit base), offset by a $67,000, or 33%, increase in other
expenses, the primary component of which was advertising expense for an
ongoing marketing campaign.
Income Taxes -- First half 1996 income before taxes was $1,141,000, a
$150,000, or 12%, decrease from the $1,291,000 earned for the same 1995
period. Taxes decreased $55,000, or 11% to $426,000.
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS.
There are no pending material legal proceedings to which the registrant or its
subsidiary is a party.
ITEM 2 CHANGE IN SECURITIES.
An Agreement and Plan of Reorganization approved by Directors, shareholders
and federal regulators during the quarter ended June 30, 1996, resulted in a
reorganization of United Savings Bank (the Bank) into the holding company form
of ownership. As a result of the reorganization, all of the issued and
outstanding shares of Bank Common Stock were converted, on a share for share
basis, into United Financial Corp. (the Holding Company) Common Stock.
ITEM 3 DEFAULTS ON SENIOR SECURITIES.
None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
The proxy solicitation for the April 24, 1996, Annual Meeting resulted in the
election of the three nominated Directors, the ratification of the appointment
of KPMG Peat Marwick LLP as independent auditor, and the ratification of the
Agreement and Plan of Holding Company Reorganization.
ITEM 5 OTHER INFORMATION.
None.
ITEM 6 EXHIBITS.
None.
REPORTS ON FORM 8-K.
None.
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 5, 1996 /s/ Bruce K. Weldele
------------------------- ----------------------------
Bruce K. Weldele
President, CEO and
Chairman of the Board
of Directors
Date August 5, 1996 /s/ G. Brent Marvosh
-------------------------- -----------------------------
G. Brent Marvosh, CPA
Vice President-Finance
and Treasurer
(Principal Finance and
Accounting Officer)