<PAGE>
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, 1997
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 no par value common stock outstanding
on June 30, 1997, 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.
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UNITED FINANCIAL CORP.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition at June
30, 1997, June 30, 1996 and December 31, 1996 1
Consolidated Statements of Income - Three Months Ended 2
June 30, 1997 and June 30, 1996
Consolidated Statements of Income - Six Months Ended 2
June 30, 1997 and June 30, 1996
Consolidated Statements of Cash Flows - Six Months Ended 3
June 30, 1997 and June 30, 1996
Consolidated Statement of Changes in Stockholders' 4
Equity - Six Months Ended June 30, 1997
Notes to Consolidated Financial Statements 5
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 15
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS 21
ITEM 2 CHANGE IN SECURITIES 21
ITEM 3 DEFAULTS ON SENIOR SECURITIES 21
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS 21
ITEM 5 OTHER INFORMATION 21
ITEM 6 EXHIBITS 21
REPORTS ON FORM 8-K 21
SIGNATURES 22
i
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PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
UNITED FINANCIAL CORP.-CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except equity/assets, share and per share data)
(Unaudited, except December 31) June 30, December 31,
1997 1996 1996
ASSETS -------- -------- ------------
Cash and cash equivalents:
Cash and amounts due from banks $ 749 $ 421 $ 921
Interest-earning deposits with banks 1,668 347 2,013
-------- -------- --------
2,417 768 2,934
Investments:
Securities held-to-maturity 38,857 34,123 35,828
Securities available-for-sale 25,248 33,595 25,185
-------- -------- --------
64,105 67,718 61,013
Loans receivable, net 34,335 30,977 35,176
Premises and equipment, net 1,390 1,447 1,407
Real estate owned 367 674 425
Accrued interest receivable 1,107 902 817
FHLB stock, at cost 514 379 379
Other assets 1,365 1,330 1,686
-------- -------- --------
$105,600 $104,195 $103,837
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
NOW and money market accounts $ 7,996 $ 8,302 $ 8,669
Savings deposits 26,973 30,421 29,918
Time deposits 39,090 39,881 40,110
-------- -------- --------
74,059 78,604 78,697
FHLB advances 5,950 200
Accrued interest payable 245 213 66
Advance payments by borrowers for
taxes and insurance 320 271 211
Income taxes payable 261 255 259
Other liabilities 173 145 188
-------- -------- --------
81,008 79,688 79,421
Stockholders' equity:
Preferred stock, no par value
(2,000,000 shares authorized;
none outstanding)
Common stock, no par value
(8,000,000 shares authorized;
1,223,312 outstanding) 8,849 1,223 1,223
Paid-in capital 7,626 7,626
Retained earnings-partially restricted 16,217 16,229 16,060
Unrealized loss on securities
available-for-sale (474) (571) (493)
-------- -------- --------
24,592 24,507 24,416
-------- -------- --------
$105,600 $104,195 $103,837
======== ======== ========
Equity/Assets 23.3% 23.5% 23.5%
Book Value/Share $20.10 $20.03 $19.96
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UNITED FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- -------
Interest Income:
Loans $ 806 $ 700 $1,621 $1,394
Mortgage-backed securities 392 475 815 1,043
Investment securities 663 501 1,211 1,034
Interest-earning deposits 29 76 68 110
------ ------ ------ ------
1,890 1,752 3,715 3,581
Interest Expense:
Deposits 834 867 1,680 1,736
FHLB advances 75 1 80 59
------ ------ ------ ------
909 868 1,760 1,795
Net interest income 981 884 1,955 1,786
Provision for losses on loans
------ ------ ------ ------
Net interest income after
provision for losses on loans 981 884 1,955 1,786
Noninterest Income:
Fees and discounts 91 98 176 189
FHLB stock dividends 10 7 17 16
Investment securities sales,
net gain 132 132
Other income 48 65 97 114
------ ------ ------ ------
149 302 290 451
Noninterest Expense:
Salaries and employee benefits 304 284 605 569
Net occupancy and equipment expense 66 60 132 121
Data processing expense 22 23 46 45
FDIC/SAIF deposit insurance premium 12 45 25 90
Other expenses 124 135 255 271
------ ------ ------ ------
528 547 1,063 1,096
------ ------ ------ ------
Income before income taxes 602 639 1,182 1,141
Provision for income taxes 226 239 444 426
------ ------ ------ ------
Net income $ 376 $ 400 $ 738 $ 715
====== ====== ====== ======
Net income per share $.31 $.33 $.60 $.59
2
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UNITED FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended
(Dollars in thousands) June 30,
(Unaudited) ------------------
1997 1996
Operating Activities: -------- --------
Net income $ 738 $ 715
Adjustments to reconcile net cash
provided by operating activities:
Depreciation and amortization of Bank
premises and equipment 57 58
Depreciation of real estate held for investment 18 19
Investment securities net accretion (43) (126)
Sales of available-for-sale securities, net gain (132)
Loans originated for the secondary market (4,221) (5,729)
Proceeds from secondary market loan sales 4,538 5,617
FHLB stock dividends (17) (16)
Net change in income taxes payable 2 (6)
Net change in accrued interest receivable (290) 14
Net change in accrued interest payable 179 145
Net change in other assets (40) 120
Net change in other liabilities (15) (265)
------- -------
Net cash provided by operating activities 906 414
Investing Activities:
Purchases of held-to-maturity securities (17,350) (8,324)
Proceeds from matured and called held-to-maturity securities 10,100 1,000
Mortgage-backed securities principal collections 4,264 16,459
Purchases of available-for-sale securities (2,000) (6,908)
Proceeds from matured and called available-for-sale
securities 2,000 5,000
Proceeds from sales of available-for-sale securities 3,139
Loans originated for portfolio (7,318) (7,239)
Loan principal collections 7,259 5,037
Proceeds from sales of portfolio loans 1,152 1,885
All other changes in loans, net (252) (375)
Purchases of premises and equipment (40) (11)
Net change in real estate owned 40 (135)
Proceeds from redemption of FHLB stock 114
FHLB stock purchase (118)
------- -------
Net cash (used) provided by investing activities (2,263) 9,642
Financing Activities:
Net (decrease) increase in deposits (4,638) 313
Net increase (decrease) in FHLB advances 5,950 (10,300)
Net increase in advance escrow payments by borrowers 109 47
Capitalized holding company formation costs (37)
Cash dividends paid (581) (532)
------- -------
Net cash provided (used) by financing activities 840 (10,509)
------- -------
(Decrease) in cash and cash equivalents (517) (453)
Cash and cash equivalents at beginning of year 2,934 1,221
------- -------
Cash and cash equivalents at end of period $ 2,417 $ 768
Supplemental Cash Flow Disclosure: ======= =======
- ----------------------------------
Cash payments for interest $ 1,590 $ 1,649
Cash payments for income taxes $ 442 $ 263
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UNITED FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
(Unaudited, except December 31)
Six Months Ended June 30, 1997
----------------------------------------------
Unrealized
holding
gains
Common Paid-In Retained (losses)
Stock Capital Earnings net Total
------- ------- -------- -------- -------
Balance-December 31, 1996 $1,223 $7,626 $16,060 $(493) $24,416
Net income 738 738
Cash dividends paid
($.475 per share) (581) (581)
Decrease in unrealized loss
on investment securities
available-for-sale 19 19
Elimination of par value 7,626 (7,626)
------ ------- ------- ----- -------
Balance-June 30, 1997 $8,849 $16,217 $(474) $24,592
====== ======= ======= ===== =======
4
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UNITED FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
General -- United Financial Corp. (the Holding Company), a Minnesota
corporation formed in 1996, is a unitary savings bank holding company
headquartered in Great Falls, Montana. United Financial Corp.'s wholly owned
subsidiary, United Savings Bank, F.A. (the Bank) is a federally chartered
stock savings bank. The Bank's wholly owned subsidiary, Community Service
Corporation, a Montana corporation formed in 1974, owns and manages real
estate held for investment. The Holding Company (or Parent), the Bank, and
the Bank's subsidiary are collectively referred to as the Company. The Bank's
Great Falls Montana headquarters serves its primary market, the Great Falls
metropolitan area. Full service branches are located in Shelby, Glendive and
Havre, Montana. The Bank's deposits are insured by the Federal Deposit
Insurance Corporation (FDIC) - Savings Association Insurance Fund (SAIF). The
Bank is a member of the Federal Home Loan Bank (FHLB) of Seattle, Washington,
and is subject to comprehensive supervision, regulation and examination by the
Office of Thrift Supervision (OTS) and the FDIC.
Basis of Presentation -- The Company's 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 six
months ended June 30, 1997, are not necessarily indicative of the results
anticipated for the year ended December 31, 1997. For additional information,
refer to the consolidated audited financial statements and footnotes thereto
included in the Company's annual report and Form 10-K for the year ending
December 31, 1996.
Merger Announcement -- On June 24, 1997, a joint press release announced that
United Financial Corp. and Heritage Bancorporation had signed a letter of
intent to merge. Heritage Bancorporation is the parent company of Heritage
Bank, FSB, a Great Falls, Montana federally chartered savings bank with $69
million in assets. A combination of United Financial Corp. and Heritage would
create a banking institution with approximately $177 million in assets, $81
million in loans, $137 million in deposits and $29 million in stockholders'
equity.
Under the terms of the letter of intent, United Financial Corp. and Heritage
will merge in a tax-free reorganization pursuant to which United Financial
Corp. shareholders will own 72% of the combined entity and Heritage
shareholders will own 28% of the combined entity. The parties have agreed
that the bank holding company which results from the merger will be called
United Financial Corp. and that the resulting bank will be called Heritage
Bank.
The merger has been approved by the Boards of Directors of both companies with
the effective date expected to be in the fourth quarter of 1997, pending the
exercise of due diligence, regulatory approval and a favorable vote by
shareholders.
5
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Stockholders' Equity -- On April 23, 1997, the shareholders of the Company
approved a resolution which amended the Company's Articles of Incorporation
and changed the par value of the Company's common stock and preferred stock
from $1.00 par value to no par value. As a result, the Company's additional
paid-in capital account has been combined with common stock as presented in
the Consolidated Statement of Changes in Stockholders' Equity. In addition,
the Stockholders' Equity section of the Company's Consolidated Statements of
Financial Condition reflect no par value for preferred and common stock.
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 Net Income Per Share -- Net income or earnings per share is
calculated by dividing net income by the weighted average number of common
shares outstanding during the period. The weighted average number of common
shares outstanding for the quarters and six months ended June 30, 1997, and
June 30, 1996, were 1,223,312.
Financial Accounting Standards Board (FASB) Statement No. 128 "Earnings per
Share," was issued in February 1997. This Statement will replace the
presentation of primary earnings per share (EPS) with a presentation of basic
and diluted EPS on the face of the income statement for all entities with
complex capital structures. Basic 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 stocks were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity.
Statement No. 128 is effective for the Company for periods ending after
December 15, 1997. Once effective, all prior period EPS data presented must
be restated to conform to the provisions of the Statement. Since the Company
has never had employee stock options or any other provisions whereby common
stock could be exercised or converted into additional common stock, the
adoption of Statement No. 128 is not expected to have a material impact on the
calculation of EPS.
Dividends Declared -- On April 23, 1997, the Board of Directors of the Holding
Company declared a second-quarter 1997 cash dividend of $.24 per share, paid
May 26, 1997, to shareholders of record on May 12, 1997. On July 28, 1997,
the Board of Directors of the Holding Company declared a third-quarter 1997
cash dividend of $.245 per share, payable August 25, 1997, to shareholders of
record on August 11, 1997.
Material Contracts-Severance Agreements -- Beginning in 1993, and renewed each
year, the Bank's Board of Directors provided change of control severance
agreements to its President and each of its 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 their annual base salary, plus any target bonuses, and
12 months of continued welfare and employee benefits.
6
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FDIC/SAIF Insurance Special Assessment and Change in Insurance Premium --
Enacted into law in 1996 was legislation providing for a special assessment
against FDIC/SAIF member institutions which capitalized the SAIF insurance
reserve to the statutory prescribed 1.25% of insured deposits level. For the
Bank, this one-time special assessment was $549,700, based upon 65.7 basis
points per $100 of the Bank's insured deposit base on March 31, 1995. The
Company's 1996 consolidated financial statements reflect this additional
FDIC/SAIF insurance expense, the after tax impact amounting to a $338,300, or
$.28 per share, reduction in third quarter and all 1996 net income.
Based upon the Bank's 1996 year-end "1A" FDIC risk classification, the Bank's
semi-annual FDIC/SAIF assessment rate, beginning January 1, 1997, decreased
from 23 basis points to 6.5 basis points per $100 of insured deposits. Most
commercial banks, now insured under the FDIC/Bank Insurance Fund (BIF), began
paying 1.3 basis points per $100 of insured deposits. For the second half of
1997 the Bank's FDIC/SAIF assessment rate will be 6.3 basis points and BIF
members will pay 1.26 basis points. In addition, this new law provides for
the merger of the BIF/SAIF insurance funds on January 1, 1999, provided the
bank and savings association charters have been merged by that date.
Now being debated in the U.S. Congress and Senate are several "Banking" and
"Financial Modernization" bills that include such issues as thrift and thrift
holding company charter changes, conversion of thrifts to national bank
charter status, changes in bank holding company powers, merger of the BIF and
SAIF FDIC insurance funds, consolidation of federal regulatory agencies,
"modernization" of the FHLB system, branch banking and several other
"consumer" and regulatory issues. What final form, and impact, this type of
legislation and other potential changes in federal law regarding interstate
banking and branching, Glass-Stegall Act revisions, the continued
consolidation of the banking industry and other regulatory changes will have
on the Bank's operations cannot be predicted at this time.
Debt and Equity Investment Accounting -- FASB Statement No. 115, "Accounting
for Investments in Certain Debt and Equity Securities" addresses the
accounting and reporting for investments in equity securities that have
readily determinable fair values and all investments in debt securities.
Statement No. 115 requires that the Company's investments 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.
The Company does not maintain a trading portfolio. All investment securities
are therefore 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 (FHLB) certificates of deposit and U.S.
7
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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
mutual 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:
(Dollars in thousands) June 30, 1997
(Unaudited, except December 31) ----------------------------------------
Gross Gross Estimated
Amortized Unreal. Unreal. Fair
Cost Gains Losses Value
Held-to-Maturity: --------- ------- -------- -------
U.S. Government agencies $15,850 $ 82 $ (3) $15,929
GNMA fixed and adjustable rate 1,925 39 1,964
FNMA and FHLMC adjustable rate 5,627 56 (80) 5,603
FNMA and FHLMC 7 yr and
FHLMC 5 yr balloons 13,719 79 (6) 13,792
FNMA and FHLMC REMIC certificates 1,736 (5) 1,731
------- ------- ------ -------
Mortgage-backed securities 23,007 174 (91) 23,090
------- ------- ------ -------
$38,857 $256 $ (94) $39,019
======= ======= ====== =======
Available-for-Sale:
U.S. Treasuries and U.S.
Government agencies $20,024 $ 63 $ (45) $20,042
Kemper U.S. Government bond
mutual fund 5,996 (790) 5,206
------- ------- ------ -------
$26,020 $ 63 $(835) $25,248
======= ======= ====== =======
December 31, 1996
----------------------------------------
Held-to-Maturity:
U.S. Government agencies $ 2,600 $ 9 $ 2,609
FHLB certificates of deposit 6,000 6,000
------- ---- ----- -------
U.S. Government agencies and other 8,600 9 8,609
------- ---- ----- -------
GNMA fixed and adjustable rate 2,092 31 $ (1) 2,122
FNMA and FHLMC adjustable rate 5,787 28 (79) 5,736
FNMA and FHLMC 7 yr and FHLMC
5 yr balloons 14,965 143 (3) 15,105
FNMA and FHLMC REMIC certificates 4,384 (13) 4,371
------- ---- ----- -------
Mortgage-backed securities 27,228 202 (96) 27,334
------- ---- ----- -------
$35,828 $211 $ (96) $35,943
Available-for-Sale: ======= ==== ===== =======
U.S. Treasuries and U.S.
Government agencies $20,024 $ 94 $(115) $20,003
Kemper U.S. Government bond
mutual fund 5,996 (814) 5,182
------- ---- ----- -------
$26,020 $ 94 $(929) $25,185
======= ==== ===== =======
8
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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, 1997, is shown below. Estimated maturities may differ
from contractual maturities as some securities have call or prepayment
options.
(Dollars in thousands)
(Unaudited) June 30, 1997
---------------------------
Amortized Estimated
Cost Fair Value
--------- ----------
Held-to-Maturity:
Due after 2 years through 5 years $11,850 $11,911
Due after 5 years through 7 years 4,000 4,018
Mortgage-backed securities 23,007 23,090
------- -------
$38,857 $39,019
======= =======
Available-for-Sale:
Due in 1 year or less $14,057 $14,030
Due after 1 year through 2 years 1,973 1,984
Due after 2 years through 5 years 3,994 4,028
Kemper U.S. Government bond mutual fund 5,996 5,206
------- -------
$26,020 $25,248
======= =======
During the six months ended June 30, 1997, no investment securities were sold.
During the six months ended June 30, 1996, one available-for-sale investment
security with a book value of $3,007,100 was sold realizing a gain of
$132,400.
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, 1997 were approximately $36.4
million.
9
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The following table demonstrates as of June 30, 1997, the extent to which
the Bank exceeds in dollars and in percent, the three minimum regulatory
capital requirements:
(Dollars in thousands)
(Unaudited) Regulatory Capital
----------------------------------------
Actual Requirement Excess
-------- ----------- --------
Tangible capital:
$ Amount $14,977 $1,440 $13,537
% of tangible assets 15.6% 1.5% 14.1%
Core capital:
$ Amount $14,977 $2,879 $12,098
% of tangible assets 15.6% 3.0% 12.6%
Risk-based capital:
$ Amount $15,052 $2,914 $12,138
% of risk-weighted assets 41.3% 8.0% 33.3%
Stockholders' equity as shown on the Company's consolidated financial
statements differs from tangible, core and risk-based regulatory capital at
the date indicated as follows:
(Dollars in thousands)
(Unaudited)
June 30, 1997
--------------
Consolidated stockholders' equity $24,592
Parent holding company stockholders' equity (9,258)
-------
Bank stockholders' equity 15,334
Non-includable investments and notes
of Bank subsidiary (366)
Unrealized loss on debt investment securities
available-for-sale 9
-------
Tangible and core Bank capital 14,977
Reserve for possible loan losses 75
-------
Risk-based capital $15,052
=======
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 the 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.
10
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The following table sets forth for the second quarter 1997, 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, except per share data-unaudited)
Average Interest Average
Balance Earned/Pd Yield/Cost
ASSETS --------- --------- ----------
Mortgage loans (net of LIP) $ 31,440 $ 726 9.24%
Non-mortgage loans 3,675 80 8.72%
-------- ------ -----
Loans receivable 35,115 806 9.18%
Mortgage-backed securities 24,047 392 6.53%
Investments-other 42,048 663 6.30%
Interest-earning deposits 2,207 29 5.31%
-------- ------ -----
Total interest-earning assets 103,417 $1,890 7.31%
====== =====
Non-earning assets 3,629
--------
$107,046
LIABILITIES AND STOCKHOLDERS' EQUITY ========
NOW and money market accounts $ 8,262 $ 62 2.99%
Savings deposits 27,776 243 3.50%
Time deposits 39,266 529 5.38%
-------- ------ -----
Total deposits 75,304 834 4.43%
FHLB advances 5,102 75 5.90%
-------- ------ -----
Total interest-bearing liabilities $ 80,406 $ 909 4.52%
======== ====== =====
Stockholders' Equity $ 25,011
Unrealized loss on securities
available-for-sale (552)
--------
Stockholders' equity, net $ 24,459
========
Net interest-earning assets $ 23,011
Net interest income $ 981
Net interest spread (1) ====== 2.79%
Net interest margin (2) 3.80% =====
Net income $ 376
Return on average assets (3) 1.41% ======
Return on average equity (4) 6.15%
Equity to average assets ratio (5) 22.85%
Dividend payout ratio (6) 78.07%
Interest-earning assets to
interest-bearing liabilities ratio 1.29
Net income per share $ .31
Cash dividends paid $ 294
(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
11
<PAGE>
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, except per share data-unaudited)
Average Interest Average
Balance Earned/Pd Yield/Cost
ASSETS --------- --------- ----------
Mortgage loans (net of LIP) $ 28,031 $ 651 9.29%
Non-mortgage loans 2,195 49 8.96%
-------- ------ -----
Loans receivable 30,226 700 9.26%
Mortgage-backed securities 32,335 475 5.88%
Investments-other 33,403 501 6.00%
Interest-earning deposits 5,824 76 5.21%
-------- ------ -----
Total interest-earning assets 101,788 1,752 6.89%
====== =====
Non-earning assets 3,689
--------
$105,477
LIABILITIES AND STOCKHOLDERS' EQUITY ========
NOW and money market accounts $ 8,613 $ 65 3.02%
Savings deposits 30,585 268 3.50%
Time deposits 39,712 534 5.39%
-------- ------ -----
Total deposits 78,910 867 4.40%
FHLB advances 34 1 5.56%
-------- ------ -----
Total interest-bearing liabilities $ 78,944 $ 868 4.40%
======== ====== =====
Stockholders' equity $ 25,014
Unrealized loss on securities
available-for-sale (496)
--------
Stockholders' equity, net $ 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 liabilities ratio 1.29
Net income per share $ .33
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
12
<PAGE>
The following table sets forth for the six month period ended June 30, 1997,
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, except per share data-unaudited)
Average Interest Average
Balance Earned/Pd Yield/Cost
ASSETS --------- --------- ----------
Mortgage loans (net of LIP) $ 31,430 $1,459 9.28%
Non-mortgage loans 3,688 162 8.79%
-------- ------ -----
Loans receivable 35,118 1,621 9.23%
Mortgage-backed securities 25,016 815 6.52%
Investments-other 39,309 1,211 6.16%
Interest-earning deposits 2,611 68 5.20%
-------- ------ -----
Total interest-earning assets 102,054 $3,715 7.28%
====== =====
Non-earning assets 3,648
--------
$105,702
LIABILITIES AND STOCKHOLDERS' EQUITY ========
NOW and money market demand accounts $ 8,508 $ 127 2.97%
Savings deposits 28,483 496 3.48%
Time deposits 39,469 1,057 5.36%
-------- ------ -----
Total deposits 76,460 1,680 4.39%
FHLB advances 2,721 80 5.90%
-------- ------ -----
Total interest-bearing liabilities $ 79,181 $1,760 4.44%
======== ====== =====
Stockholders' Equity $ 24,971
Unrealized loss on securities
available-for-sale (526)
--------
Stockholders' equity, net $ 24,445
========
Net interest-earning assets $ 22,873
Net interest income $1,955
Net interest spread (1) ====== 2.84%
Net interest margin (2) 3.83% =====
Net income $ 738
Return on average assets (3) 1.40% ======
Return on average equity (4) 6.04%
Equity to average assets ratio (5) 23.13%
Dividend payout ratio (6) 78.69%
Interest-earning assets to
interest-bearing liabilities ratio 1.29
Net income per share $ .60
Cash dividends paid $ 581
(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
13
<PAGE>
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, except per share data-unaudited)
Average Interest Average
Balance Earned/Pd Yield/Cost
ASSETS --------- --------- ----------
Mortgage loans (net of LIP) $ 28,233 $1,306 9.25%
Non-mortgage loans 1,932 88 9.11%
-------- ------ -----
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%
====== =====
Non-earning assets 3,984
--------
Total assets $107,209
LIABILITIES AND STOCKHOLDERS' EQUITY ========
NOW and money market accounts $ 8,508 $ 128 3.01%
Savings deposits 31,262 548 3.50%
Time deposits 39,069 1,060 5.43%
-------- ------ -----
Total deposits 78,839 1,736 4.40%
FHLB advances 2,026 59 5.80%
-------- ------ -----
Total interest-bearing liabilities $ 80,865 $1,795 4.44%
======== ====== =====
Stockholders' equity $ 24,987
Unrealized loss on securities
available-for-sale (370)
--------
Stockholder's equity, net $ 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 liabilities ratio 1.28
Net income per share $ .59
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
14
<PAGE>
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, 1996, TO JUNE 30, 1997.
(Dollars in thousands)
(Unaudited, except December 31)
Selected Financial Condition Recap
---------------------------------------
June 30, December 31,
1997 1996 Change
----------- ------------ ---------
Total assets $105,600 $103,837 $ 1,763
Cash and cash equivalents 2,417 2,934 (517)
Investments (held-to-maturity) 38,857 35,828 3,029
Investments (available-for-sale) 25,248 25,185 63
Loans receivable, net 34,335 35,176 (841)
Real estate owned 367 425 (58)
FHLB stock 514 379 135
Other assets 3,862 3,910 (48)
Deposits 74,059 78,697 (4,638)
FHLB advances 5,950 5,950
Other liabilities 999 724 275
Total liabilities 81,008 79,421 1,587
Stockholders' equity, net 24,592 24,416 176
General -- Assets increased $1.8 million, or 1.7%, to $105.6 million. The
primary reason for this change was a $5.0 million short-term 5.90% fixed rate
FHLB advance. Proceeds from this borrowing were utilized to purchase
investment securities. Other cash flows, primarily from mortgage-backed
securities repayments, were utilized to fund a net $4.6 million, or 5.9%,
decrease in deposits.
Investments -- During the first six months of 1997, securities held-to-
maturity increased $3.0 million, or 8.5%, to $38.9 million. Held-to-maturity
securities totalling $17.4 million were purchased, while called and matured
held-to-maturity securities totalled $10.1 million. The majority of the
purchases were medium-term five-seven year callable FHLB notes. In addition,
$4.3 million of mortgage-backed securities principal repayments were received.
Available-for-sale investment securities remained at $25.2 million as a $2.0
million FHLB note was called and replaced by a $2.0 million 4-year callable
step-up FHLB note.
Loans Receivable -- For the six months ended June 30, 1997, net loans
receivable decreased $.8 million, or 2.4%, as follows: (Unaudited)
Loans originated for portfolio $ 7.3 million
Sales of portfolio loans (1.1) "
Payments and payoffs (7.3) "
Other changes .3 "
-----
Net decrease $ (.8)million
=====
During the six months ended June 30, 1997, $4.2 million of loans were
originated for sale and $4.5 million of loans were sold to the secondary
market.
15
<PAGE>
Loans receivable at the dates indicated consisted of the following:
(Dollars in thousands)
(Unaudited, except December 31, 1996) June 30, December 31,
1997 1996 1996
Conventional: -------- -------- --------
1-4 family residential units $15,513 $13,308 $15,445
5 or more family residential units 5,865 4,120 4,497
Construction 3,248 3,781 4,620
Commercial and other 2,872 2,334 3,077
FHA insured or VA guaranteed loans 4,779 6,258 5,530
Home equity loans 1,076 1,256 1,132
Loans to depositors, savings secured 77 101 92
Recreational vehicle and auto loans 1,167 874 1,239
Other non-mortgage loans 1,194 253 1,251
------- ------- -------
35,791 32,285 36,883
Less:
Discounts on loans 3 6 4
Reserve for possible loan losses 75 75 75
Loans in process 1,378 1,227 1,628
------- ------- -------
$34,335 $30,977 $35,176
======= ======= =======
Real Estate Owned -- The $58,200, or 13.6%, decrease was due to additional
depreciation for properties held for investment and the sale at no loss of a
$40,100 held-for-sale Great Falls commercial lot. At June 30, 1997 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.
FHLB Stock -- FHLB stock increased $135,100, or 35.6%, to $514,100. In
addition to dividends, an additional $118,000 stock purchase was required by
the FHLB due to the increase in the Bank's loans during 1996.
Other Assets -- This category remained at $3.9 million. Loans receivable
contracted for sale to the secondary market decreased $.3 million from $1.2
million to $.9 million.
Deposits -- Deposits decreased $4.6 million, or 5.9%, to $74.1 million. The
Bank's average cost of deposits for the first six months of 1997 was 4.39%,
compared to an average cost of 4.40% for the same six months in 1996. The
Bank's cost of deposits was 4.48% at June 30, 1997, 4.45% at December 31,
1996, and 4.46% at June 30, 1996.
The following table indicates the amounts and maturities of time certificates
of deposit of $100,000 or more outstanding as of June 30, 1997:
(Dollars in thousands)
(Unaudited)
Maturity Amount
-------- ------
3 months or less $ 751
>3 months through 6 months 520
>6 months through 1 year 1,149
>1 year 1,521
------
$3,941
======
16
<PAGE>
FHLB Advances -- At the end of the first quarter of 1997, the Bank incurred a
$5.0 million, 5.90% fixed rate advance due in mid-October 1997. At June 30,
1997, the Bank incurred a $.9 million overnight Cash Management Advance from
the FHLB.
Other liabilities -- This category totalled $1.0 million on June 30, 1997,
compared to $.7 million at December 31, 1996. The $.3 million, or 38.0%,
change was primarily due to increases in deposit interest payable and advance
payments by borrowers for taxes and insurance.
Stockholders' Equity -- The $176,600 increase in stockholders' equity was
comprised of $.7 million of net income, less $.6 million of cash dividends
paid and a small decrease in the unrealized loss adjustment for
available-for-sale securities. Book value per share was $20.10 at June 30,
1997, and $19.96 per share at December 31, 1996. Stockholders' equity ratio
(stockholders' equity divided by assets) was 23.3% at June 30, 1997, compared
to 23.5% at December 31, 1996. The ratio of average interest-earning assets
to average interest-bearing liabilities was 1.29 and 1.28 for the first six
months of 1997 and 1996, respectively.
Asset Quality and Loss Reserves -- At June 30, 1997 and December 31, 1996,
total loan loss reserves were $75,200. Non-performing assets consisting of
non-accrual uninsured loans, accruing loans past due over 90 days,
restructured loans and real estate owned held-for-sale (REO/HFS) were less
than $400 at June 30, 1997 and $57,700 at December 31, 1996. Loan loss
reserves as a percentage of all uninsured loans and REO/HFS at June 30, 1997
and December 31, 1996 were .26% and .25%, respectively.
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, 1997, the Bank's
substandard assets were $10,400 and no asset was classified as doubtful or
loss. At December 31, 1996, the Bank's substandard assets were $40,100 and no
asset was classified as doubtful or loss.
Given the continuing low level of nonperforming and classified assets and the
sale of a large percentage of new loan production, no loss provision expense
was deemed necessary (i.e. both probable and estimable) for the six months
ended June 30, 1997 and June 30, 1996. In 1996, loans receivable increased
approximately $1.2 million as a result of new recreational vehicle consumer
loans. Future loan loss provision may be necessary for these loans.
17
<PAGE>
(2) MATERIAL CHANGES IN RESULTS OF OPERATIONS. COMPARISON OF THE
THREE MONTHS ENDED JUNE 30, 1997, AND JUNE 30, 1996.
(Dollars in thousands)
(Unaudited) INCOME RECAP
Three Months Ended June 30,
------------------------------
1997 1996 Change
------ ------ ------
Interest income $1,890 $1,752 $138
Interest expense 909 868 41
------ ------ ----
Net interest income 981 884 97
Noninterest income 149 302 (153)
Noninterest expense 528 547 (19)
------ ------ ----
Income before income taxes 602 639 (37)
Provision for income taxes 226 239 (13)
------ ------ ----
Net income $ 376 $ 400 $(24)
====== ====== ====
General -- Net income for the second quarter of 1997 was $376,000, a $23,900,
or 6.0%, decrease when compared to the same 1996 quarter. Included in last
year's second quarter was a $132,400 gain on the sale of an available-for-sale
investment. Without the after tax $81,500 net income benefit from this sale,
net income for the second quarter of 1997 was up $57,600, or 18.1%. The
primary reason for this improvement was increased 1997 net interest income.
The cash flows from mortgage-backed securities repayments and a FHLB advance
were utilized to fund higher yielding portfolio loans and investment
purchases. In addition, 1997 noninterest expense was lower due primarily to
reduced FDIC/SAIF deposit insurance rates.
The second quarter 1997 return on average assets was 1.41%, compared to 1.52%
for the same 1996 quarter. Based on weighted average shares outstanding,
second quarter 1997 net income was $.31 per share, compared to $.33 per share
for the same 1996 quarter.
Interest Income -- Compared to the same 1996 quarter, average second quarter
1997 interest-earning assets increased $1.6 million, or 1.6%. The mix of
interest-earning assets changed with loans receivable average balances
increasing $4.9 million, or 16.2%, mortgage-backed securities average balances
declining $8.3 million, or 25.6% and other investment average balances
increasing $8.6 million, or 25.9%. The second quarter 1997 average yield for
all interest-earning assets increased to 7.31%, compared to 6.89% for the same
1996 quarter. As a result second quarter 1997 interest income increased
$138,400, or 7.9%.
Interest Expense -- Compared to the same 1996 quarter, second quarter 1997
average deposits decreased $3.6 million, or 4.6%. The decrease in average
balances, partially offset by an increase in deposit costs resulted in a
$34,300, or 3.9%, reduction in deposit interest expense. The average cost of
deposits was 4.43% for the second quarter of 1997, compared to 4.40% for the
same 1996 quarter. Second quarter 1997 average FHLB advances were $5.1
million, average cost was 5.90%, and interest expense was $75,300. This
compares with $33,900 of average FHLB advances, a 5.56% average cost, and less
than $1,000 of interest expense in the same 1996 quarter. The second quarter
1997 cost of all interest-bearing liabilities was 4.52%, compared to 4.40% for
the same quarter in 1996.
18
<PAGE>
Net Interest Income -- This category increased $97,900, or 11.1%, 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 2.79% for the second quarter of 1997, compared to 2.49% for
the same 1996 quarter. Net interest margin (net interest income divided by
average interest-earning assets) increased to 3.80% for the second quarter of
1997, compared to 3.47% for the same 1996 quarter.
Noninterest Income -- Second quarter 1997 noninterest income was $148,600, a
$153,800, or 50.8%, decrease compared to the same 1996 quarter. The primary
reason for this decline was a 1996 sale of an available-for-sale investment
which resulted in a pre-tax gain of $132,400. In addition, 1997 fees and
discounts income was down $6,300, or 6.5%, FHLB stock dividend income was up
$2,200, or 30.9%, and other income was down $17,300, or 26.6%.
Noninterest Expense -- This category decreased $18,300, or 3.4%, due primarily
to a $32,000, or 71.6%, reduction in FDIC/SAIF deposit insurance expense.
This change was the result of a decrease in assessment rates from 23 to 6.5
basis points per $100 of insured deposits. Offsetting was a $20,100, or 7.1%,
increase in salaries and employee benefits and a $5,800, or 9.7%, increase in
net occupancy and equipment expenses. In addition, all other expenses were
$11,400, or 8.4%, lower in 1997.
Income Taxes -- Second quarter 1997 income before taxes was $601,600, a
$37,500, or 5.9%, decrease from the $639,200 earned for the same 1996 quarter.
Income taxes decreased $13,700, or 5.7%, to $225,600.
(2) MATERIAL CHANGES IN RESULTS OF OPERATIONS. COMPARISON OF THE
SIX MONTHS ENDED JUNE 30, 1997, AND JUNE 30, 1996.
(Dollars in thousands)
(Unaudited)
INCOME RECAP
Six Months Ended June 30,
------------------------------
1997 1996 Change
------ ------ ------
Interest income $3,715 $3,581 $134
Interest expense 1,760 1,795 (35)
------ ------ ----
Net interest income 1,955 1,786 169
Noninterest income 290 451 (161)
Noninterest expense 1,063 1,096 (33)
------ ------ ----
Income before income taxes 1,182 1,141 41
Provision for income taxes 444 426 18
------ ------ ----
Net income $ 738 $ 715 $ 23
====== ====== ====
General -- Net income for the first six months of 1997 was $738,400, a
$23,300, or 3.3%, improvement compared to the same six months in 1996.
Included in last year's earnings was a $132,400 gain on the sale of an
available-for-sale investment. Without the after tax $81,500 net income
benefit from this sale, net income for the first six months of 1997 was up
$104,800, or 16.5%. The primary reason for this improvement was increased
1997 net interest income. The cash flows from mortgage-backed securities
19
<PAGE>
repayments and an FHLB advance were utilized to fund higher yielding portfolio
loans and investment purchases. In addition, noninterest expense was lower
due primarily to reduced FDIC/SAIF deposit insurance rates.
The first half of 1997 return on average assets was 1.40%, compared to 1.33%
for the same 1996 period. Based on weighted average shares outstanding, year-
to-date 1997 net income was $.60 per share, compared to $.59 per share for the
same 1996 period.
Interest Income -- Compared to the same six month period in 1996, average
year-to-date 1997 interest-earning assets decreased $1.2 million, or 1.1%.
The mix of interest-earning assets changed with loans receivable average
balances increasing $5.0 million, or 16.4%, mortgage-backed securities average
balances declining $9.3 million, or 27.2% and other investment average
balances increasing $4.8 million, or 14.0%. The year-to-date 1997 average
yield for all interest-earning assets increased to 7.28%, compared to 6.94%
for the same 1996 period. As a result, 1997 year-to-date interest income
increased $134,400, or 3.8%.
Interest Expense -- Compared to the first half of 1996, year-to-date 1997
average deposits decreased $2.4 million, or 3.0%. The average cost of
deposits was 4.39% for the first half of 1997, compared to 4.40% for the same
1996 period. As a result, deposits interest expense declined $56,500, or
3.3%. First half 1997 average FHLB advances were $2.7 million, average cost
was 5.90%, and borrowing expense was $80,300. For the same 1996 period,
average FHLB advances were $2.0 million, average cost was 5.80%, and borrowing
expense was $58,700. The first half 1997 and 1996 cost of all interest-
bearing liabilities were both 4.44%.
Net Interest Income -- This category increased $169,300, or 9.5%, 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) increased to 2.84% for the first half of 1997, compared to 2.50%
for the same 1996 period. Net interest margin (net interest income divided by
average interest-earning assets) increased to 3.83% for the first half of
1997, compared to 3.46% for the same 1996 period.
Noninterest Income -- Year-to-date 1997 noninterest income was $289,600, a
$161,000, or 35.9%, decrease compared to the same six month period in 1996.
The primary reason for this decline was the 1996 sale of an available-for-sale
investment which resulted in a pre-tax gain of $132,400. In addition, fees
and discounts income was down $12,600, or 6.7%, FHLB stock dividend income was
up $1,100, or 6.9%, and other income was down $18,100, or 15.8%.
Noninterest Expense -- This category decreased $33,200, or 3.0%, due primarily
to a $64,600, or 71.8%, reduction in FDIC/SAIF deposit insurance expense.
This change was the result of a decrease in assessment rates from 23 to 6.5
basis points per $100 of insured deposits. Offsetting was a $35,700, or 6.3%,
increase in salaries and employee benefits and an $11,300, or 9.3%, increase
in net occupancy and equipment expenses. In addition, other expenses were
$16,200, or 6.0% lower.
Income Taxes -- First half 1997 income before taxes was $1,182,000, a $40,600,
or 3.6%, increase from the $1,141,400 earned for the same 1996 period. Taxes
increased $17,300, or 4.1%, to $443,600.
20
<PAGE>
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.
On April 23, 1997, the registrant's shareholders approved a resolution which
amended the registrant's Articles of Incorporation and changed the par value
of its common and preferred stock from $1.00 par value to no par value.
ITEM 3 DEFAULTS ON SENIOR SECURITIES.
None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
None.
ITEM 5 OTHER INFORMATION.
None.
ITEM 6 EXHIBITS.
None.
REPORTS ON FORM 8-K.
On July 1, 1997 a Form 8-K was filed reporting the signing of a letter of
intent to merge the registrant with Heritage Bancorporation, the parent
company of Heritage Bank, FSB, a Great Falls, Montana federally chartered
savings bank with $69 million in assets. Filed as an exhibit was the June 24,
1997 press release announcing the planned merger.
21
<PAGE>
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 7, 1997 /s/ Bruce K. Weldele
------------------------- ----------------------------
Bruce K. Weldele
President, CEO and
Chairman of the Board
of Directors
Date August 7, 1997 /s/ G. Brent Marvosh
-------------------------- -----------------------------
G. Brent Marvosh, CPA
Vice President-Finance
and Treasurer
(Principal Finance and
Accounting Officer)
22
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1.00
<CASH> 749
<INT-BEARING-DEPOSITS> 1,668
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 25,248
<INVESTMENTS-CARRYING> 38,857
<INVESTMENTS-MARKET> 39,019
<LOANS> 34,335
<ALLOWANCE> 75
<TOTAL-ASSETS> 105,600
<DEPOSITS> 74,059
<SHORT-TERM> 5,950
<LIABILITIES-OTHER> 999
<LONG-TERM> 0
0
0
<COMMON> 8,849
<OTHER-SE> 15,743
<TOTAL-LIABILITIES-AND-EQUITY> 105,600
<INTEREST-LOAN> 1,621
<INTEREST-INVEST> 2,026
<INTEREST-OTHER> 68
<INTEREST-TOTAL> 3,715
<INTEREST-DEPOSIT> 1,680
<INTEREST-EXPENSE> 80
<INTEREST-INCOME-NET> 1,955
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,063
<INCOME-PRETAX> 1,063
<INCOME-PRE-EXTRAORDINARY> 1,063
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 738
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
<YIELD-ACTUAL> 3.83
<LOANS-NON> 0
<LOANS-PAST> 144
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 347
<ALLOWANCE-OPEN> 75
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 75
<ALLOWANCE-DOMESTIC> 75
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 75
</TABLE>
