<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 March 31, 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 $1.00 par value common stock outstanding
on March 31, 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 March
31, 1997, March 31, 1996 and December 31, 1996 1
Consolidated Statements of Income - Three Months Ended
March 31, 1997 and March 31, 1996 2
Consolidated Statements of Cash Flows - Three Months Ended
March 31, 1997 and March 31, 1996 3
Consolidated Statement of Changes in Stockholders'
Equity - Three Months Ended March 31, 1997 4
Notes to Consolidated Financial Statements 5
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS 17
ITEM 2 CHANGE IN SECURITIES 17
ITEM 3 DEFAULTS ON SENIOR SECURITIES 17
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS 17
ITEM 5 OTHER INFORMATION 17
ITEM 6 EXHIBITS 17
REPORTS ON FORM 8-K 17
SIGNATURES 18
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) March 31, December 31,
1997 1996 1996
ASSETS -------- -------- ------------
Cash and cash equivalents:
Cash and amounts due from banks $ 569 $ 648 $ 921
Interest-earning deposits with banks 2,275 3,270 2,013
-------- -------- --------
2,844 3,918 2,934
Investments:
Securities held-to-maturity 39,780 36,446 35,828
Securities available-for-sale 25,067 30,033 25,185
-------- -------- --------
64,847 66,479 61,013
Loans receivable, net 35,613 29,491 35,176
Premises and equipment, net 1,380 1,476 1,407
Real estate owned 416 481 425
Accrued interest receivable 921 970 817
Federal Home Loan Bank stock, at cost 505 485 379
Other assets 1,197 1,274 1,686
-------- -------- --------
$107,723 $104,574 $103,837
LIABILITIES AND STOCKHOLDERS' EQUITY ======== ======== ========
Deposits:
NOW and money market accounts $ 8,442 $ 8,374 $ 8,669
Savings deposits 28,845 31,299 29,918
Time deposits 39,744 39,181 40,110
-------- -------- --------
77,031 78,854 78,697
Federal Home Loan Bank advances 5,000
Accrued interest payable 151 148 66
Advance payments by borrowers for
taxes and insurance 458 482 211
Income taxes payable 478 279 259
Other liabilities 207 202 188
-------- -------- --------
83,325 79,965 79,421
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 7,626
Retained earnings-partially restricted 16,135 16,098 16,060
Unrealized loss on securities
available-for-sale (586) (375) (493)
-------- -------- --------
24,398 24,609 24,416
-------- -------- --------
$107,723 $104,574 $103,837
======== ======== ========
Equity/Assets 22.6% 23.5% 23.5%
Book Value/Share $19.94 $20.12 $19.96
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UNITED FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
------------------
1997 1996
-------- --------
Interest Income:
Loans $ 815 $ 694
Mortgage-backed securities 422 567
Investment securities 549 533
Interest-earning deposits 39 35
------ ------
1,825 1,829
Interest Expense:
Deposits 846 869
Federal Home Loan Bank advances 5 58
------ ------
851 927
------ ------
Net interest income 974 902
Provision for losses on loans
------ ------
Net interest income after
provision for losses on loans 974 902
Noninterest Income:
Fees and discounts 85 91
FHLB stock dividends 8 9
Other income 48 49
------ ------
141 149
Noninterest Expense:
Salaries and employee benefits 301 285
Net occupancy and equipment expense 67 61
Data processing expense 23 22
FDIC/SAIF deposit insurance premium 13 45
Other expenses 131 136
------ ------
535 549
------ ------
Income before income taxes 580 502
Provision for income taxes 218 187
------ ------
Net income $ 362 $ 315
====== ======
Net income per share $.30 $.26
2
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UNITED FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended
(Dollars in thousands) March 31,
(Unaudited) ------------------
1997 1996
Operating Activities: -------- --------
Net income $ 362 $ 315
Adjustments to reconcile net cash
provided by operating activities:
Depreciation and amortization of bank
premises and equipment 28 29
Depreciation of real estate held for investment 9 9
Investment securities net accretion (23) (78)
Loans originated for the secondary market (2,316) (3,250)
Proceeds from secondary market loan sales 2,897 3,073
Federal Home Loan Bank stock dividends (8) (9)
Net change in income taxes payable 219 18
Net change in accrued interest receivable (104) (54)
Net change in accrued interest payable 85 81
Net change in other assets (67) 106
Net change in other liabilities 19 (207)
------- -------
Net cash provided by operating activities 1,101 33
------- -------
Investing Activities:
Purchases of held-to-maturity securities (12,350) (2,092)
Proceeds from matured and called held-to-maturity securities 6,000 1,000
Mortgage-backed securities principal collections 2,421 7,849
Proceeds from matured and called available-for-sale
securities 5,000
Loans originated for portfolio (2,863) (1,925)
Loan principal collections 3,232 2,280
Proceeds from sales of portfolio loans 226 1,123
All other changes in loans, net (1,032) (617)
Purchases of premises and equipment (1) (11)
Federal Home Loan Bank stock purchase (118)
------- -------
Net cash (used) provided by investing activities (4,485) 12,607
------- -------
Financing Activities:
Net (decrease) increase in deposits (1,666) 563
Net increase (decrease) in Federal Home Loan Bank advances 5,000 (10,500)
Net increase in advance escrow payments by borrowers 247 257
Cash dividends paid (287) (263)
------- -------
Net cash provided (used) by financing activities 3,294 (9,943)
------- -------
(Decrease) increase in cash and cash equivalents (90) 2,697
Cash and cash equivalents at beginning of year 2,934 1,221
------- -------
Cash and cash equivalents at end of period $ 2,844 $ 3,918
======= =======
Supplemental Cash Flow Disclosure:
- ----------------------------------
Cash payments for interest $ 766 $ 846
3
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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)
Three Months Ended March 31, 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) $24,416
Net income 362 362
Cash dividends paid
($.235 per share) (287) (287)
Increase in unrealized loss
on investment securities
available-for-sale (93) (93)
------ ------- ------- ----- -------
Balance-March 31, 1997 $1,223 $7,626 $16,135 $(586) $24,398
====== ======= ======= ===== =======
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.
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 three
months ended March 31, 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.
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 per share is based on the
weighted average number of shares outstanding during the period. The weighted
average number of shares outstanding for the quarters ended March 31, 1997,
and March 31, 1996, were 1,223,312 shares.
Dividends Declared -- On January 27, 1997, the Board of Directors of the
Holding Company declared a first-quarter 1997 cash dividend of $.235 per
share, paid February 24, 1997, to shareholders of record on February 10, 1997.
On April 23, 1997, the Board of Directors of the Holding Company declared a
second-quarter 1997 cash dividend of $.24 per share, payable May 26, 1997, to
shareholders of record on May 12, 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.
5
<PAGE>
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
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. 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. The
Treasury Department did not meet a required March 31, 1997, deadline for
submitting its recommendations to Congress on creating a common charter and
common depository insurance fund for banks and savings institutions. While
this Treasury report is pending, a U.S. Senate and several House committees
are preparing several "financial modernization" bills that will soon be
debated in Congress. 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 -- The Financial Accounting Standards
Board 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.
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.
<PAGE>
A comparison of the amortized cost and estimated fair value of investment
securities at the dates indicated is as follows:
(Dollars in thousands)
(Unaudited, except December 31) March 31, 1997
----------------------------------------
Gross Gross Estimated
Amortized Unreal. Unreal. Fair
Cost Gains Losses Value
Held-to-Maturity: --------- ------- -------- -------
U.S. Government agencies $11,450 $ 1 $ (52) $11,399
FHLB certificates of deposit 3,500 3,500
------- ------- ------- -------
U.S. Government agencies and other 14,950 1 (52) 14,899
GNMA fixed and adjustable rate 2,025 39 2,064
FNMA and FHLMC adjustable rate 5,725 27 (105) 5,647
FNMA and FHLMC 7 yr and
FHLMC 5 yr balloons 14,481 17 (76) 14,422
FNMA and FHLMC REMIC certificates 2,599 (12) 2,587
------- ------- ------ -------
Mortgage-backed securities 24,830 83 (193) 24,720
------- ------- ------ -------
$39,780 $ 84 $(245) $39,619
======= ======= ====== =======
Available-for-Sale:
U.S. Treasuries and U.S.
Government agencies $20,024 $ 28 $(101) $19,951
Kemper U.S. Government bond
mutual fund 5,996 (880) 5,116
------- ------- ------ -------
$26,020 $ 28 $(981) $25,067
======= ======= ====== =======
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
======= ==== ===== =======
7
<PAGE>
A comparison of the amortized cost and estimated fair values of held-to-
maturity and available-for-sale investment securities by contractual
maturities at March 31, 1997, is shown below. Estimated maturities may
differ from contractual maturities as some securities have call or prepayment
options.
(Dollars in thousands)
(Unaudited) March 31, 1997
---------------------------
Amortized Estimated
Cost Fair Value
--------- ----------
Held-to-Maturity:
Due in 1 year or less $ 3,500 $ 3,500
Due after 1 year through 2 years 600 601
Due after 2 years through 5 years 6,850 6,823
Due after 5 years through 7 years 4,000 3,975
Mortgage-backed securities 24,830 24,720
------- -------
$39,780 $39,619
======= =======
Available-for-Sale:
Due in 1 year or less $14,062 $13,983
Due after 1 year through 2 years 1,968 1,970
Due after 2 years through 5 years 3,994 3,998
Kemper U.S. Government bond mutual fund 5,996 5,116
------- -------
$26,020 $25,067
======= =======
During the three months ended March 31, 1997 and March 31, 1996, no investment
securities were sold.
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 March 31, 1997 were approximately
$37,021,000.
8
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The following table demonstrates as of March 31, 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 $14,911 $1,473 $13,438
% of tangible assets 15.2% 1.5% 13.7%
Core capital:
$ Amount $14,911 $2,946 $11,965
% of tangible assets 15.2% 3.0% 12.2%
Risk-based capital:
$ Amount $14,946 $2,962 $11,984
% of risk-weighted assets 40.4% 8.0% 32.4%
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)
March 31, 1997
--------------
Consolidated stockholders' equity $24,398
Parent holding company stockholders' equity (9,158)
-------
Bank stockholders' equity 15,240
Non-includable investments and notes
of Bank subsidiary (379)
Unrealized loss on debt investment securities
available-for-sale 50
-------
Tangible and core Bank capital 14,911
Reserve for possible loan losses 75
Other assets required to be deducted (40)
-------
Risk-based capital $14,946
=======
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.
9
<PAGE>
The following table sets forth for the first 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-unaudited) Average Interest Average
Balance Earned/Pd Yield/Cost
ASSETS --------- --------- ----------
Mortgage loans (net of LIP) $ 31,421 $ 733 9.33%
Non-mortgage loans 3,700 82 8.87%
-------- ------ -----
Loans receivable 35,121 815 9.28%
Mortgage-backed securities 25,985 422 6.50%
Investments-other 36,571 549 6.01%
Interest-earning deposits 3,015 39 5.17%
-------- ------ -----
Total interest-earning assets 100,692 $1,825 7.25%
====== =====
Non-earning assets 3,650
--------
Total assets $104,342
========
DEPOSITS & BORROWINGS
NOW and money market accounts $ 8,754 $ 64 2.92%
Savings deposits 29,190 253 3.47%
Time deposits 39,672 529 5.33%
-------- ------ -----
Total deposits 77,616 846 4.36%
FHLB advances 341 5 5.87%
-------- ------ -----
Total interest-bearing liabilities $ 77,957 $ 851 4.37%
======== ====== =====
STOCKHOLDERS' EQUITY $ 24,931
Unrealized loss on securities
available-for-sale (501)
--------
Total stockholders' equity $ 24,430
========
Net interest-earning assets $ 22,735
Net interest income $ 974
Net interest spread (1) ====== 2.88%
Net interest margin (2) 3.87% =====
Net income $ 362
Return on average assets (3) 1.39% ======
Return on average equity (4) 5.93%
Equity to average assets ratio (5) 23.41%
Dividend payout ratio (6) 79%
Interest-earning assets to
interest-bearing liabilities ratio 1.29
Net income per share $ .30
Cash dividends paid $ 287
(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
10
<PAGE>
The following table sets forth for the first 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 --------- --------- ----------
Mortgage loans (net of LIP) $ 28,433 $ 655 9.22%
Non-mortgage loans 1,670 39 9.34%
-------- ------ -----
Loan receivable 30,103 694 9.22%
Mortgage-backed securities 36,378 567 6.24%
Investments-other 35,539 533 6.00%
Interest-earning deposits 2,642 35 5.30%
-------- ------ -----
Total interest-earning assets 104,662 $1,829 6.99%
====== =====
Non-earning assets 4,284
--------
Total assets $108,946
========
DEPOSITS & BORROWINGS
NOW and money market accounts $ 8,427 $ 63 2.99%
Savings deposits 31,939 280 3.51%
Time deposits 38,426 526 5.48%
-------- ------ -----
Total deposits 78,792 869 4.41%
FHLB advances 4,017 58 5.78%
-------- ------ -----
Total interest-bearing liabilities $ 82,809 $ 927 4.48%
======== ====== =====
STOCKHOLDERS' EQUITY $ 24,991
Unrealized loss on securities
available-for-sale (224)
--------
Total stockholders' equity $ 24,767
========
Net interest-earning assets $ 21,853
Net interest income $ 902
Net interest spread (1) ====== 2.51%
Net interest margin (2) 3.45% =====
Net income $ 315
Return on average assets (3) 1.16% ======
Return on average equity (4) 5.09%
Equity to average assets ratio (5) 22.73%
Dividend payout ratio (6) 83%
Interest-earning assets to
interest-bearing liabilities ratio 1.26
Net income per share $ .26
Cash dividends paid $ 263
(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>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
(1) MATERIAL CHANGES IN FINANCIAL CONDITION. COMPARISON OF THE
THREE-MONTH PERIOD FROM DECEMBER 31, 1996, TO MARCH 31, 1997.
(Dollars in thousands)
(Unaudited, except December 31)
Selected Financial Condition Recap
---------------------------------------
March 31, December 31,
1997 1996 Change
----------- ------------ ---------
Total assets $107,723 $103,837 $ 3,886
Cash and cash equivalents 2,844 2,934 (90)
Investments (held-to-maturity) 39,780 35,828 3,952
Investments (available-for-sale) 25,067 25,185 (118)
Loans receivable, net 35,613 35,176 437
Real estate owned 416 425 (9)
FHLB stock 505 379 126
Other assets 3,498 3,910 (412)
Deposits 77,031 78,697 (1,666)
FHLB advances 5,000 5,000
Other liabilities 1,294 724 570
Total liabilities 83,325 79,421 3,904
Stockholders' equity, net 24,398 24,416 (18)
General -- Assets increased $3.9 million, or 4%, to $107.7 million. The
primary reason for this change was $5.0 million of new FHLB advances, the cash
flows from which were utilized to purchase investment securities. In
addition, deposits decreased $1.6 million, or 2%, to $77.0 million.
Investments -- During the first quarter of 1997, securities held-to-maturity
increased $4.0 million, or 11%, to $39.8 million. Six million dollars of FHLB
certificates of deposits matured and $2.4 million of mortgage-backed
securities principal was received. During the first quarter of 1997, a $3.5
million FHLB certificate of deposit and $8.9 million of medium-term (4 to 7
year) callable FHLB notes were purchased.
Loans Receivable -- For the three months ended March 31, 1997, net loans
receivable increased $.4 million, or 1%, as follows: (Unaudited)
Loans originated for portfolio $ 2.8 million
Sales of portfolio loans (.2) "
Payments and payoffs (3.2) "
Other changes 1.0 "
-----
Net increase $ .4 million
=====
During the three months ended March 31, 1997, $2.3 million of loans were
originated for sale and $2.9 million of loans were sold to the secondary
market.
12
<PAGE>
Loans receivable at the dates indicated consisted of the following:
(Dollars in thousands)
(Unaudited, except December 31, 1996) March 31, December 31,
1997 1996 1996
Conventional: -------- -------- --------
1-4 family residential units $15,755 $13,375 $15,445
5 or more family residential units 5,797 3,905 4,497
Construction 2,866 2,392 4,620
Commercial and other 2,976 2,540 3,077
FHA insured or VA guaranteed loans 5,409 6,963 5,530
Home equity loans 889 914 1,132
Loans to depositors, savings secured 73 104 92
Recreational vehicle and auto loans 1,256 170 1,239
Other non-mortgage loans 1,268 194 1,251
------- ------- -------
36,289 30,557 36,883
Less:
Discounts on loans 4 7 4
Reserve for possible loan losses 75 75 75
Loans in process 597 984 1,628
------- ------- -------
$35,613 $29,491 $35,176
======= ======= =======
Real Estate Owned -- The $9,000, or 2%, decrease was due to additional
depreciation for properties held for investment. At March 31, 1997,
approximately $376,000, or 90%, 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. In addition, the Bank held
$40,000 of real estate held for sale consisting of two Great Falls commercial
lots.
FHLB Stock -- FHLB stock increased $126,000, or 33%, to $505,000. An
additional minimum stock purchase was required due to the increase in the
Bank's loans receivable during 1996.
Other Assets -- This category decreased $.4 million, or 10%, to $3.5 million.
During the the first quarter of 1997 loans receivable contracted for sale to
the secondary market decreased $.6 million from $1.2 million to $.6 million.
Deposits -- Deposits decreased $1.6 million, or 2%, to $77.0 million. The
Bank's average cost of deposits for the first three months of 1997 was 4.36%,
compared to an average cost of 4.41% for the same three months in 1996. The
Bank's cost of deposits was 4.46% at March 31, 1997, 4.45% at December 31,
1996, and 4.46% at March 31, 1996.
The following table indicates the amounts and maturities of time certificates
of deposit of $100,000 or more outstanding as of March 31, 1997:
(Dollars in thousands) (Unaudited)
Maturity Amount
-------- ------
3 months or less $ 816
>3 months through 6 months 746
>6 months through 1 year 864
>1 year 1,632
------
$4,058
======
13
<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.
Other liabilities -- This category totalled $1.3 million on March 31, 1997,
compared to $.7 million at December 31, 1996. The $.7 million, or 79%, change
was primarily due to increases in income taxes payable and advance payments by
borrowers for taxes and insurance.
Stockholders' Equity -- The $18,000 decrease in stockholders' equity was
comprised of $.4 million of net income, less $.3 million of cash dividends
paid and a $.1 million increase in the unrealized loss adjustment for
available-for-sale securities. Book value per share was $19.94 at March 31,
1997, and $19.96 per share at December 31, 1996. Stockholders' equity ratio
(stockholders' equity divided by assets) was 22.6% at March 31, 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 1.26 for the first three
months of 1997 and 1996, respectively.
Asset Quality and Loss Reserves -- Nonperforming assets consisting of non-
accrual uninsured loans, accruing uninsured loans past due over 90 days,
restructured loans, and all real estate owned-held for sale (REO/HFS) were
approximately: $41,000 at March 31, 1997, and $58,000 at December 31, 1996,
representing .04% and .06% of total assets, respectively.
At March 31, 1997 and December 31, 1996, total loan loss reserves were
approximately $75,000. Loan loss reserves as a percentage of nonperforming
assets at March 31, 1997 and December 31, 1996, were 186% and 130%,
respectively. Loan loss reserves as a percentage of all uninsured loans and
REO/HFS at March 31, 1997 and December 31, 1996, were approximately .25%.
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 March 31, 1997 and December
31, 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 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 quarter ended
March 31, 1997. 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.
14
<PAGE>
(2) MATERIAL CHANGES IN RESULTS OF OPERATIONS. COMPARISON OF THE
THREE MONTHS ENDED MARCH 31, 1997, AND MARCH 31, 1996.
(Dollars in thousands)
(Unaudited)
INCOME RECAP
Three Months Ended March 31,
------------------------------
1997 1996 Change
------ ------ ------
Interest income $1,825 $1,829 $ (4)
Interest expense 851 927 (76)
------ ------ ----
Net interest income 974 902 72
Noninterest income 141 149 (8)
Noninterest expense 535 549 (14)
------ ------ ----
Income before income taxes 580 502 78
Provision for income taxes 218 187 31
------ ------ ----
Net income $ 362 $ 315 $ 47
====== ====== ====
General -- Net income for the first quarter of 1997 was $362,000, a $47,000,
or 15%, increase over the same period in 1996. This improvement resulted from
higher net interest income due to lower interest expense and a reduction in
noninterest expense due to lower FDIC/SAIF deposit insurance rates.
The first quarter 1997 return on average assets was 1.39%, compared to 1.16%
for the same 1996 quarter. Based on weighted average shares outstanding,
first quarter 1997 net income was $.30 per share, compared to $.26 per share
for the same 1996 quarter.
Interest Income and Expense -- Compared to the same 1996 quarter, average
first quarter 1997 interest-earning assets decreased $4.0 million, or 4%.
However, due to higher yields on loans and mortgage-backed securities, the
first quarter 1997 average yield for all interest-earning assets increased to
7.25%, compared to 6.99% for the same 1996 quarter. As a result, first
quarter 1997 interest income decreased only $4,000.
Compared to the same 1996 quarter, first quarter 1997 average deposits
decreased $1.2 million, or 2%. The decrease in average balances, together
with a decrease in deposit costs resulted in a $23,000, or 3%, reduction in
deposit interest expense. The average cost of deposits was 4.36% for the
first quarter of 1997, compared to 4.41% for the same 1996 quarter. First
quarter 1997 average FHLB advances were $341,000, average cost was 5.87%, and
interest expense was $5,000. This compares with $4.0 million of average FHLB
advances, a 5.78% average cost, and $58,000 of interest expense in the same
1996 quarter. The first quarter 1997 cost of all interest-bearing liabilities
was 4.37%, compared to 4.48% for the same quarter in 1996.
Net Interest Income -- This category increased $72,000, or 8%, 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 2.88% for the first quarter of 1997, compared to 2.51% for the same 1996
quarter. Net interest margin (net interest income divided by average
interest-earning assets) improved to 3.87% for the first quarter of 1997,
compared to 3.45% for the same 1996 quarter.
15
<PAGE>
Noninterest Income -- During the first quarter of 1997, noninterest income
decreased $8,000, or 6% to $141,000. The primary reason for this change was a
$6,000, or 7%, decrease in loan origination fees and discounts income.
Noninterest Expense -- This category decreased $14,000, or 3%, due primarily
to a $33,000, or 72%, reduction in FDIC/SAIF deposit insurance premium
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 $16,000,
or 5%, increase in salaries and employee benefits, and a $5,000, or 9%,
increase in net occupancy and equipment expense.
Income Taxes -- First quarter 1997 income before taxes was $580,000, a
$78,000, or 16%, increase from the $502,000 earned for the same 1996 quarter.
Income taxes increased $31,000, or 17%, to $218,000.
16
<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.
None.
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.
None.
17
<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 May 2, 1997 /s/ Bruce K. Weldele
------------------------- ----------------------------
Bruce K. Weldele
President, CEO and
Chairman of the Board
of Directors
Date May 2, 1997 /s/ G. Brent Marvosh
-------------------------- -----------------------------
G. Brent Marvosh, CPA
Vice President-Finance
and Treasurer
(Principal Finance and
Accounting Officer)
18
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1.00
<CASH> 569
<INT-BEARING-DEPOSITS> 2,275
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 25,067
<INVESTMENTS-CARRYING> 39,780
<INVESTMENTS-MARKET> 39,619
<LOANS> 35,613
<ALLOWANCE> 75
<TOTAL-ASSETS> 107,723
<DEPOSITS> 77,031
<SHORT-TERM> 5,000
<LIABILITIES-OTHER> 1,294
<LONG-TERM> 0
0
0
<COMMON> 1,223
<OTHER-SE> 23,175
<TOTAL-LIABILITIES-AND-EQUITY> 107,723
<INTEREST-LOAN> 815
<INTEREST-INVEST> 971
<INTEREST-OTHER> 39
<INTEREST-TOTAL> 1,825
<INTEREST-DEPOSIT> 846
<INTEREST-EXPENSE> 851
<INTEREST-INCOME-NET> 974
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 535
<INCOME-PRETAX> 580
<INCOME-PRE-EXTRAORDINARY> 580
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 362
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
<YIELD-ACTUAL> 7.25
<LOANS-NON> 0
<LOANS-PAST> 58
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 442
<ALLOWANCE-OPEN> 75
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 75
<ALLOWANCE-DOMESTIC> 75
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 75
</TABLE>
