UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
__X__ QUARTERLY REPORT PERSUANT TO SECTION 13 OR 15 (d) OF
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission file number: 0-28080
UNITED FINANCIAL CORP.
----------------------
(Exact name of registrant as specified in its charter)
MINNESOTA 81-0507591
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 2779; 120 1st Ave. North, Great Falls, Montana 59403
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(Address of principal executive offices) (Zip Code)
(406) 727-6106
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Registrant's telephone number, including area code:
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 month (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of each of the Issuer's
Classes of Common Stock, as of the latest date is:
Class: Common Stock, No par value; Outstanding at May 10, 1999
-- 1,698,312 shares
<PAGE>
UNITED FINANCIAL CORP.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS............................................... 1
Consolidated Condensed Statements of Financial Condition at
March 31, 1999 (unaudited) and December 31, 1998..................... 1
Consolidated Condensed Statements of Income - Three Months Ended
March 31, 1999 and March 31, 1998 (unaudited)........................ 2
Consolidated Condensed Statements of Cash Flows - Three Months Ended
March 31, 1999 and March 31, 1998 (unaudited)........................ 3
Notes to Consolidated Condensed Financial Statements.................... 4
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................11
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........16
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 AND REPORTS ON FORM 8-K...................................17
SIGNATURES....................................................................18
ii
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PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
UNITED FINANCIAL CORP.
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
(Unaudited, except December 31)
<TABLE>
<CAPTION>
MARCH 31, December 31,
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1999 1998
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<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and amounts due from banks $ 4,960 $ 9,055
Interest-earning deposits with banks 3,875 10,200
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8,835 19,255
Time deposits in banks 113 --
Investment securities available-for-sale, net 54,242 51,900
Loans receivable, net 150,762 143,359
Loans held for sale 2,379 5,717
Premises and equipment, net 3,949 3,483
Real estate owned, net 643 304
Accrued interest receivable 1,804 1,918
Federal Home Loan Bank of Seattle stock, at cost 1,256 1,232
Investment in Valley Bancorp, Inc. 2,715 2,684
Goodwill, net of accumulated amortization of $253 and
$225 at March 31, 1999, and December 31, 1998,
respectively 1,372 1,400
Identifiable intangibles, net of accumulated
amortization of $48 and $30 at March 31, 1999, and
December 31, 1998, respectively 589 607
Deferred income taxes 50 102
Other assets 724 600
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$ 229,433 $ 232,561
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LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
NOW and money market demand accounts $ 36,835 $ 41,802
Savings deposits 46,292 46,811
Time deposits 78,509 79,007
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161,636 167,620
FHLB of Seattle advances 24,175 22,175
Securities sold under agreements to repurchase 10,005 9,450
Accrued interest payable 1,405 1,267
Advance payments by borrowers for taxes and insurance 747 343
Income taxes payable 386 116
Other liabilities 465 1,062
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198,819 202,033
Stockholders' equity:
Preferred stock, no par value (2,000,000 shares
authorized); -- --
Common stock, no par value (8,000,000 shares
authorized); 28,002 28,002
Retained earnings-substantially restricted 2,665 2,533
Accumulated comprehensive income (53) (7)
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30,614 30,528
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$ 229,433 $ 232,561
============ ============
Equity/Assets 13.3% 13.1%
Book Value/Share $ 18.03 $ 17.98
</TABLE>
See Notes to Consolidated Condensed Financial Statements
1
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UNITED FINANCIAL CORP.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
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INTEREST INCOME:
Loans receivable $ 3,090 $ 1,953
Mortgage-backed securities 551 433
Investment securities 193 214
FHLB of Seattle stock dividends 23 15
Other interest earning assets 86 215
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Total interest income 3,943 2,830
INTEREST EXPENSE:
Deposits 1,661 1,240
Short-term borrowings 440 191
Long-term debt -- 12
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Total interest expense 2,101 1,443
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Net interest income 1,842 1,387
Provision for loan losses 40 45
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Net interest income after provision for
losses on loans 1,802 1,342
NON-INTEREST INCOME:
Fees and discounts 717 450
Prorata share, Valley Bancorp, Inc. income 32 --
Investment securities sales, net gain (loss) 15 (6)
Other income 53 53
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Total non-interest income 817 497
NON-INTEREST EXPENSE:
Salaries and employee benefits 902 559
Net occupancy and equipment expense 177 114
Data processing expense 114 71
Other expenses 488 305
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Total non-interest expense 1,681 1,049
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Income before income taxes 938 790
Provision for income tax expense 365 295
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Net income $ 573 $ 495
========== ==========
Net income per share $ .34 $ .40
========== ==========
Weighed average shares outstanding 1,698 1,250
========== ==========
See Notes to Consolidated Condensed Financial Statements
2
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UNITED FINANCIAL CORP.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------
MARCH 31, 1999 March 31, 1998
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<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 573 $ 495
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Provision for loan losses 40 45
Amortization of goodwill and identifiable intangibles 46 18
Depreciation and amortization of bank premises and
equipment and real estate held for investment 59 63
Equity in income of Valley Bancorp Inc. (31) --
Amortization of discounts and premiums on investments
securities 97 9
Net change in loans held for sale 3,338 (60)
FHLB of Seattle stock dividends (24) (18)
Net change in accrued interest receivable 114 (123)
Net change in other assets (124) (104)
Net change in income taxes 349 109
Net change in accrued interest payable 138 (29)
Net change in other liabilities (597) (1,401)
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Net cash provided by (used in) operating activities 3,978 (996)
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INVESTING ACTIVITIES
Net increase in time deposits in banks (113) --
Purchases of securities available-for-sale (17,850) (12,384)
Proceeds from maturities, pay downs and sales of securities
available-for-sale 15,338 15,037
Purchases of FHLB of Seattle stock -- (67)
Acquisition of real estate owned, net (345) --
Net change in loans receivable (7,443) (10,524)
Purchases of premises and equipment (519) (68)
Purchase of loan production offices -- (225)
Acquired United Financial Corp.'s cash and cash equivalents -- 8,113
------------ ------------
Net cash used in investing activities (10,932) (118)
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FINANCING ACTIVITIES
Net increase (decrease) in deposits (5,984) 6,874
Net increase in FHLB of Seattle advances 2,000 3,000
Net increase (decrease) in securities sold under repurchase
agreements 555 3,727
Net increase in advance by borrowers for taxes and insurance 404 310
Payments on long-term debt -- (2,350)
Dividends paid to stockholders (441) --
Capital contribution -- 2,275
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Net cash provided by (used in) financing activities (3,466) 13,836
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Increase (decrease) in cash and cash equivalents (10,420) 12,722
Cash and cash equivalents at beginning of year 19,255 9,869
------------ ------------
Cash and cash equivalents at end of period $ 8,835 $ 22,591
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURE
- -------------------------------------------------------------------
Cash payments for interest $ 1,963 $ 1,471
Cash payments for income taxes $ 25 $ 180
</TABLE>
See Notes to Consolidated Condensed Financial Statements
3
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UNITED FINANCIAL CORP.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
United Financial Corp. ("United") is a bank holding company
headquartered in Great Falls, Montana, with operations in 12 other Montana
communities. Substantially all of United's banking business is currently
conducted through its wholly-owned subsidiaries Heritage Bank F.S.B.
("Heritage Bank") and Heritage State Bank ("State Bank"), a recently
formed banking subsidiary (collectively, "the Banks"). United is the
result of the merger on February 3, 1998 (the "Heritage Merger") of two
Montana-based savings and loan holding companies of relatively comparable
size: United Financial Corp. (as it existed prior to the merger, "Old
United") and Heritage Bancorporation ("Heritage"). Heritage Bank is the
result of the subsequent merger in May 1998 of the savings bank
subsidiaries of these two holding companies: United Savings Bank, F.A.,
the savings bank subsidiary of Old United ("United Bank"), and Heritage
Bank, the savings bank subsidiary of Heritage. After the Heritage Merger,
the new management of United significantly changed United's business
strategy to a more growth-oriented expansion strategy. See "Heritage
Merger."
Heritage Bank is a federally-chartered stock savings bank with full
service banking offices in Chester, Glendive, Great Falls, Havre and
Shelby, Montana, and loan production offices in Bozeman, Hamilton,
Kalispell, Libby, Missoula and Polson, Montana. State Bank is a
state-chartered bank with full service banking operations in Fort Benton
and Geraldine, Montana. The Banks are engaged in the community banking
business of attracting deposits from the general public through its
offices and using those deposits, together with other available funds, to
originate commercial (including lease financing), commercial real estate,
residential, agricultural and consumer loans primarily in its market areas
in Montana. A majority of United's banking business is conducted in the
Great Falls area. The Banks also invest in mortgage-backed securities,
U.S. Treasury obligations, other U.S. Government agency obligations and
other interest-earning assets.
The Banks' financial condition and results of operations, and
therefore the financial condition and results of operations of United, are
dependent primarily on net interest income and fee income. The Banks'
financial condition and results of operations are also significantly
influenced by local and national economic conditions, changes in market
interest rates, governmental policies, tax laws and the actions of various
regulatory agencies.
On August 7, 1998, United, through its newly formed Montana
state-chartered commercial banking subsidiary, State Bank, acquired
certain assets and assumed insured deposits of approximately $12.7 million
of Q Bank, which was declared a failed bank by federal and state banking
regulatory authorities on August 7, 1998. Q Bank's Fort Benton, Montana
and Geraldine, Montana branches were reopened on August 10, 1998 as
branches of State Bank. State Bank paid a $454,000 premium for the right
to acquire such assets and assume Q Bank's insured deposits.
As a result of the formation of State Bank, United, which was
formerly regulated by the Office of Thrift Supervision ("OTS") as a
savings and loan holding company, became a bank holding company subject to
supervision by the Federal Reserve Board. Heritage Bank, as a
federally-chartered savings bank, remains subject to supervision by the
OTS as its principal regulator and both Heritage Bank and State Bank, as
financial institutions with deposits insured by the Federal Deposit
Insurance Corporation ("FDIC"), remain subject to regulation by the FDIC.
4
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On August 26, 1998, United announced that it had signed agreements
to acquire approximately 24.2% of Valley Bancorp, Inc. ("Valley"). Valley
is a bank holding company located in Phoenix, Arizona and is the parent
company of Valley Bank of Arizona, a state-chartered commercial bank. In
December 1998, United purchased, for $6.25 per share, 280,718 shares from
various shareholders and 150,000 shares from the Chairman and Chief
Executive Officer of United. Since United previously owned 13,000 shares
of Valley, the December purchase brought United's total ownership to 25%.
United's principal offices are located at 120 First Avenue North,
Great Falls, Montana, and its telephone number is (406) 727-6106. Heritage
Bank has a wholly owned subsidiary, Community Service Corporation ("CSC"),
which owns and manages real estate held for investment, and Heritage Bank
holds an 11% ownership interest in Bankers' Resource Center, a computer
data center. United, Heritage Bank, State Bank and CSC are collectively
referred to herein as "United."
2. HERITAGE MERGER
On February 3, 1998, Heritage merged into United, and an aggregate
of 475,000 shares (or 28%) of United Common Stock was issued to the former
shareholders of Heritage (the "Former Heritage Shareholders").
The new management of United has changed United's business strategy
as it existed prior to the Heritage Merger and is engaging in a
growth-oriented expansion strategy by pursuing internal and external
growth opportunities, when available. United is in the process of
expanding the customer base of Heritage Bank and State Bank by emphasizing
commercial, agricultural and consumer loans as well as the mortgage
business previously emphasized by United Bank. Management continues to
pursue external growth through opening new branches, possible acquisitions
of other financial institutions, and expansion of the geographic area
currently served. This strategy is consistent with the growth-oriented
expansion of Heritage prior to the Heritage Merger.
United's new business strategy may subject United to a greater
degree of risk. Historically, Old United had concentrated on residential
lending, as home loans were believed to present the least amount of risk.
Commercial real estate loans, commercial loans and consumer loans, which
constituted a larger portion of Heritage's portfolio and lending
activities, had been made by Old United only on a limited basis. Risks
associated with this new business strategy include increased risk of
losses on loans, provision for loan losses which exceed historical levels,
difficulties in integrating or managing new branches or acquired
institutions, and problems relating to the management of growth. There can
be no assurance that United will be successful in instituting this new
business strategy or in managing growth.
The Heritage Merger was treated as a reverse acquisition and
accounted for as a purchase in accordance with generally accepted
accounting principles. Because the shareholders and management of Heritage
controlled the operations of United after the Heritage Merger, Heritage
was considered the acquirer for accounting purposes. Accordingly, the
historical statements of operations of United now are the historical
financial statements of Heritage and do not include the results of Old
United for periods prior to the Heritage Merger.
At the time of the Heritage Merger, Old United had approximately $96
million of assets, $71 million of deposits and $40 million of loans, and
Heritage had approximately $90 million of assets, $69 million of deposits
and $60 million of loans.
3. OTHER ACTIVITIES
United has no direct subsidiaries other than Heritage Bank and State
Bank. Heritage Bank has a wholly owned service corporation, CSC, which
owns and manages a limited amount of real estate held for investment. As a
result of United recently becoming a bank holding company, United will be
required to divest CSC within two years of the date United became a bank
holding company. Heritage Bank also holds an 11% ownership interest
5
<PAGE>
in Bankers' Resource Center, a computer data center, which provides
certain data processing services to Heritage Bank and other financial
institutions in Montana.
4. BASIS OF PRESENTATION
United's consolidated financial statements, included herein, have
been prepared in accordance with generally accepted accounting principles
("GAAP") for interim financial information and the instructions to Form
10-Q and Rule 10-01 of Regulation S-X of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. In the
opinion of management, the information contained herein reflects all
postings and disclosures (consisting only of normal recurring adjustments)
necessary for a fair presentation of the consolidated financial condition,
results of operations, and cash flows for the periods disclosed. Operating
results for the three months ended March 31, 1999, are not necessarily
indicative of the results anticipated for the year ending December 31,
1999. For additional information, refer to the consolidated audited
financial statements and footnotes thereto included in United's Annual
Report to Shareholders and Annual Report on Form 10-K for the year ended
December 31, 1998.
Consistent with Heritage being the acquiring corporation for
accounting purposes, the historical financial statements of United, for
periods prior to the Heritage Merger, are those of Heritage, and not Old
United as it existed prior to the Heritage Merger. Accordingly, the
historical statements of operations of United reflect only the operations
of Old United commencing with the closing date of the Merger. Under the
purchase method of accounting, the assets and liabilities of Old United
and its subsidiary were adjusted to their estimated fair values and
combined with the historical book values of the assets and liabilities of
Heritage.
5. COMPREHENSIVE INCOME
The Company's only significant element of comprehensive income is
unrealized gains and losses on available-for-sale securities.
<TABLE>
<CAPTION>
(In thousands)
(Unaudited)
MARCH 31, 1999 March 31, 1998
----------------------------------- ------------------------------------
BEFORE TAX TAX EXPENSE AFTER TAX Before Tax Tax Expense After Tax
---------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 938 $ 365 $ 573 $ 790 $ 295 $ 495
Holding gains arising during
period (57) (20) (37) (72) (27) (45)
Less: reclassification
adjustment for gains (losses)
included in net income 15 6 9 (6) 2 (4)
-------- -------- -------- -------- -------- --------
Net unrealized gains (losses)
on securities (72) (26) (46) (78) (29) (49)
-------- -------- -------- -------- -------- --------
Total comprehensive income $ 866 $ 339 $ 527 $ 712 $ 266 $ 446
======== ======== ======== ======== ======== ========
</TABLE>
6. RECLASSIFICATIONS
Certain reclassifications have been made to the March 31, 1998 and
December 31, 1998 financial statements to conform to the March 31, 1999
presentation.
7. CASH EQUIVALENTS
For purposes of the Consolidated Condensed Statements of Cash Flows,
United considers all cash, daily interest and non-interest bearing demand
deposits with banks with original maturities of three months or less to be
cash equivalents.
6
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8. LENDING ACTIVITIES
Lending activities are United's primary source of both interest
income and fee income. United's interest income from loans receivable was
approximately $3.1 million and $2.0 million, or approximately 64.9% and
58.7% of total income for the three months ended March 31, 1999 and 1998
respectively. To date, United's principal lending activity has been the
origination of real estate loans, including conventional residential real
estate loans (loans which are neither insured nor partially guaranteed by
government agencies) and residential real estate loans insured by the
Federal Housing Administration ("FHA") or partially guaranteed by the
Veterans Administration ("VA"), agricultural loans and commercial loans.
In the first three months of 1999, United has used increased Federal Home
Loan Bank ("FHLB") of Seattle borrowings, repurchase agreements and
certain maturing assets that were formerly invested by Old United in
investment securities, as well as cash equivalents and deposits, to
continue to expand its loan portfolio. Accordingly, its interest income
from loans receivable, as well as the percentage of total income
represented by interest from loans receivable, has increased.
Although Old United and Heritage were of comparable size at the time
of the Heritage Merger, the composition of their assets and loan
portfolios, and their lending policies, differed substantially.
Approximately 85% of the loan portfolio of Old United at December 31, 1997
consisted of first mortgage loans (including over 55% of the total
portfolio in 1-4 residential loans), while only 7%, 7% and 1% represented
consumer, commercial and agricultural non-mortgage loans, respectively. In
contrast, only approximately 65% of the loan portfolio of Heritage at
December 31, 1997 consisted of first mortgage loans (including less than
39% in residential mortgage loans), while 9%, 20% and 4% consisted of
consumer, commercial and agricultural non-mortgage loans, respectively. In
general, the lending operations of Heritage more closely paralleled the
lending activities of a commercial bank than a savings bank. As a result
of the Heritage Merger, United now uses the lending policies, guidelines
and procedures of Heritage and, accordingly, is placing more emphasis on
commercial and consumer lending and effective use of its capital.
9. INVESTMENT PORTFOLIO
The investment activities of United are designed to provide an
investment alternative for funds not presently required to meet loan
demand, assist Heritage Bank and State Bank in meeting potential
regulatory liquidity requirements, assist in maximizing income consistent
with quality and liquidity requirements, supply collateral to secure
public funds and retail repurchase agreements, provide a means for
balancing market and credit risks, and provide consistent income and
market value throughout changing economic times.
United's portfolio consists primarily of obligations of U.S.
government and its agencies and mortgage-backed securities, state and
local governments, and agency collateralized obligation securities.
United's investment portfolio does not contain concentration of
investments in any one issuer in excess of 10% of United's total
investment portfolio, except for securities of the U.S. government and
U.S. government agencies.
10. DEPOSIT ACTIVITIES
Deposits are attracted from within United's market area through the
offering of a broad selection of deposit instruments, including NOW
accounts, money market accounts, regular savings accounts, certificates of
deposit and retirement savings plans. Deposit account terms vary,
according to the minimum balance required, the time period the funds must
remain on deposit and the interest rate, among other factors. In
determining the terms of its deposit accounts, United considers current
market interest rates, profitability to United, matching deposit and loan
products offered by its competition and its customer preferences and
concerns. United reviews its deposit mix and pricing weekly.
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As a matter of policy, United does not accept, place or solicit
brokered deposits. Although deposits are not solicited outside of Montana,
traditionally, a small number of United's depositors have resided outside
Montana. As market demand generally dictates deposit maturities and rates,
United intends to continue to offer those types of accounts that have
broad market appeal.
11. BORROWINGS
United utilizes borrowings from the FHLB of Seattle to finance its
short-term, and increasingly its longer term, financing needs. The FHLB of
Seattle functions as the central reserve bank providing credit for savings
institutions and certain other member financial institutions. In recent
periods, borrowings from the FHLB of Seattle have been available at rates
that are as favorable, or more favorable, than the rates that United would
be required to pay on deposits. Further, borrowings from the FHLB are
available at various maturities, facilitating the accurate matching of
asset and liability maturity dates. United has used these available
borrowings during the past three months in part to fund expansion of its
lending activities.
As a member of the FHLB of Seattle, Heritage Bank is required to own
capital stock in the FHLB of Seattle and is authorized to apply for
advances on the security of specified collateral. Advances are made
pursuant to several different credit programs. Each credit program has its
own interest rate and range of maturities. Heritage Bank's currently
established available FHLB advance credit line is 25% of assets. The FHLB
of Seattle is required to review its credit limitations and standards at
least annually.
United also generates funds through the sale of investment
securities under agreements requiring their repurchase at a premium that
represents interest. The securities underlying agreements to repurchase
are for the same securities originally sold and are held in a custody
account by a third party.
12. STOCKHOLDERS' EQUITY
On February 3, 1998, United issued a warrant (the Warrant) to
purchase 10,000 shares of its common stock to D.A. Davidson & Co.,
exercisable at the price of $26.25 per share, in exchange for investment
banking services provided to United.
13. COMPUTATION OF NET INCOME PER SHARE
Basic earnings per share ("EPS") is computed by dividing net income
by the weighted average number of common shares outstanding for the
period. Diluted EPS is calculated by dividing net income by the weighted
average number of common shares used to compute basic EPS plus the
incremental amount of potential common stock determined by the treasury
stock method. The only potential common shares are the warrants issued to
D.A. Davidson. Basic and diluted EPS are the same, as the potential common
shares do not have a material impact.
14. DIVIDENDS DECLARED
On April 26, 1999, the Board of Directors of United declared a
first-quarter cash dividend of $.26 per share, payable May 24, 1999, to
shareholders of record on May 10, 1999.
15. YEAR 2000
Many currently installed computer systems and software are coded to
accept only two-digit entries in the date code fields. These date code
fields will need to accept four-digit entries to distinguish 21st century
dates from 20th century dates. This problem could result in system
failures or miscalculations causing disruptions of business operations,
including production of erroneous data, inability to process transactions,
and other operational problems. As a result, many companies' computer
systems and software will need to be upgraded or replaced in order to
comply with Year
8
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2000 requirements. The potential global impact of the Year 2000 problem is
not known, and, if not corrected in a timely manner, could affect United
as well as the U.S. and world economy generally.
United has undertaken efforts to address Year 2000 issues. United
has formed a project team, including the President and Operations Officer
of Heritage Bank, a contracted Year 2000 compliance person and a
contracted computer consulting firm, to evaluate the Year 2000 impact on
United's mission-critical computer hardware and software and embedded
technologies in its physical plant and automated equipment (such as ATMs,
proof machines, vaults and security systems). Heritage Bank and State Bank
are also in the process of ascertaining the Year 2000 readiness of their
customers. As a result of the May 1998 merger of United Bank into Heritage
Bank, and the August 1998 acquisition of State Bank, the project team is
in the process of reevaluating its Year 2000 readiness. In addition to
evaluating the scope of Year 2000 issues, the project team is in the
process of prioritizing tasks, developing implementation plans and
establishing completion and testing schedules. United is replacing,
modifying or reprogramming certain systems, is requiring that new
purchased hardware and software be Year 2000 compliant, and continuing to
test its systems.
The majority of United's information processing is performed by
Banker's Resource Center, of which Heritage Bank is an 11% owner. Banker's
Resource Center is regulated by banking regulators, has had various exams
by banking regulators, and is currently in the process of conducting Year
2000 certification testing. Banker's Resource Center provides periodic
reports to United on the status of its Year 2000 project readiness. During
the past two years, and also in conjunction with merging the operations of
Heritage Bank and United Bank in May 1998, United has upgraded the
majority of its internal computer hardware and software to Year 2000
compliant systems. Additionally, all of United's personal computers are
being tested by its computer consulting firm. United has a budget of
$105,000 for replacement of teller equipment, its telephone system and
other Year 2000 costs. To date, approximately $60,000 has been spent on
the Year 2000 project.
Apart from United's Year 2000 efforts, federal banking regulators
conduct special examinations of FDIC insured banks and savings
associations to determine whether they are taking necessary steps to
prepare for the Year 2000 issue. These agencies are closely monitoring the
progress made by these institutions in completing key steps required by
their individual Year 2000 plans. The OTS, which regulates Heritage Bank,
conducted an onsite Year 2000 examination in May 1998 and a follow-up
examination in November 1998. The FDIC conducted a Year 2000 Phase II
Readiness Assessment of State Bank in February 1999.
The replacement, renovation and testing of its critical internal
computer hardware and software and embedded technologies have progressed
as scheduled as of March 31, 1999, which is expected to allow time for
necessary refinements and additional testing before December 31, 1999.
Ultimately, the potential impact of Year 2000 issues will depend not
only on the success of the corrective measures that United undertakes, but
also on the way in which the Year 2000 issue is addressed by customers,
vendors, service providers, counterparts, utilities, governmental agencies
and other entities with which United does business. United is
communicating with certain of these parties to heighten their awareness of
Year 2000 issues, to learn how they are addressing them and to evaluate
any likely impact on United. United also is asking important vendors for
commitment dates for their Year 2000 readiness and delivery of compliant
software and other products. In addition, United is monitoring the Year
2000 preparations of entities such as the Federal Reserve Bank, which
provides services for processing and settling payments and securities
transactions between banks. Year 2000 efforts of third parties are not
within United's control, however, and their failure to remediate Year 2000
issues successfully could result in business disruption, increased
operating cost and increased credit risk for United. At the present time,
it is not possible to determine whether any such events are likely to
occur, or to quantify any potential negative impact they may have on
United's future results of operations and financial condition. The United
Board evaluated the possible
9
<PAGE>
allocation of a portion of its loan loss reserve specifically to potential
losses from Year 2000 complications, particularly with its commercial loan
customers. Although this risk will be closely monitored in 1999 by both
senior management and the United Board, no allocation of the loan loss
reserve has been deemed necessary at this time. United is developing a
contingency plan to mitigate potential delays or other problems, in the
event of various problem scenarios and intends to assess such a plan based
on the outcome of its validation phase of its Year 2000 compliance program
and the results of surveying its major suppliers and customers.
The foregoing discussion regarding Year 2000, including the
discussion of the timing and effectiveness of implementation and cost of
United's Year 2000 project, contains forward-looking statements, which are
based on management's best estimates derived using various assumptions.
These forward-looking statements involve inherent risks and uncertainties,
and actual results could differ materially from those contemplated by such
statements. Factors that might cause material differences include, but are
not limited to, the availability to locate and correct all relevant
computer codes, and its ability to respond to unforeseen Year 2000
complications. Such material differences could result in, among other
things, business disruption, operating problems, financial loss, legal
liability and similar risks.
16. RELATED PARTIES
Central Financial Services, Inc. ("CFS") provides various management
services to United, including accounting and tax services, investment
consulting, personnel consulting, insurance advisory services and
regulatory consulting. CFS is owned by United's Chairman of the Board of
Directors and largest shareholder. CFS fees were $55,000, and $48,000 for
the three months ended March 31, 1999 and 1998, respectively.
17. COMMITMENTS AND CONTINGENCIES
Heritage Bank has sold loans to various investors in the secondary
market under sales agreements which contain repurchase provisions. Under
the repurchase provisions, Heritage Bank may be required to repurchase a
loan if a borrower becomes 90 days delinquent any time during the first
seven months, or at any time during the life of the loan if it is
determined that appropriate underwriting guide lines were not followed at
the inception of the loan. The balance of loans sold with repurchase
provisions remaining at March 31, 1999 is approximately $27.2 million. No
loans were repurchased by Heritage Bank during the first three months of
1999 or 1998. Total loans sold during the first three months of 1999 were
approximately $27.2 million.
In June 1997, Heritage Bank entered into a five-year service
contract for data processing services with Banker's Resource Center. In
the event of early termination of the service contract by Heritage Bank,
the bank has agreed to pay an amount equal to fifty percent of the average
monthly fee paid for services multiplied by the number of months remaining
under the term of the contract.
Heritage Bank has a Salary Continuation Agreement with its
President, Kevin P. Clark. The agreement contains a lifetime retirement
benefit, a disability benefit, a change of control benefit and a death
benefit. The benefits are based on Mr. Clark's years of service. Heritage
Bank owns two single premium insurance policies in connection with this
agreement. The policies have a cash value at March 31, 1999 of $271,000.
At the July 1998 board meeting of United, the United Financial Corp.
Stock Appreciation Rights Plan was adopted. The plan is essentially a cash
bonus program tied to the price movement of United's common stock. During
July 1998, awards totaling 26,500 shares were made and approved by the
Board, at a strike price of $28.06 per share. At December 31, 1998, 800
shares had been forfeited. United awarded an additional 2,400 shares in
January 1999, at a strike price of $23.03 per share. The cash award
payable under the plan will equal the number of shares awarded to an
employee multiplied by the employees vesting percentage, multiplied by the
excess of the stock price over the strike
10
<PAGE>
price. Each employee has a three year vesting period. As of March 31,
1999, no accrual for liabilities under the plan was necessary.
18. SUBSEQUENT EVENT
In April 1999, United purchased an additional 15,000 shares of
Valley common stock at $6.25 per share. This acquisition brings United's
total ownership of Valley to approximately 25.9%.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
1. MATERIAL CHANGES IN FINANCIAL CONDITION. COMPARISON OF THE THREE MONTHS
ENDED MARCH 31, 1999 TO THE YEAR ENDED DECEMBER 31, 1998.
(In thousands) SELECTED FINANCIAL CONDITION RECAP
(Unaudited, except December 31)
MARCH 30, Dec. 31,
1999 1998 Change
-------- -------- --------
Cash and cash equivalents $ 8,835 $ 19,255 $(10,420)
Investment securities,
available-for-sale, net 54,242 51,900 2,342
Loans receivable, net 150,762 143,359 7,403
Loans held for sale 2,379 5,717 (3,338)
Premises and equipment, net 3,949 3,483 466
Real estate owned, net 643 304 339
FHLB of Seattle stock 1,256 1,232 24
Investment in Valley 2,715 2,684 31
Goodwill, net 1,372 1,400 (28)
Identifiable intangibles,
net 589 607 (18)
All other assets 2,691 2,620 71
Total assets 229,433 232,561 (3,128)
Deposits 161,636 167,620 (5,984)
FHLB of Seattle advances 24,175 22,175 2,000
Securities sold under
agreements to repurchase 10,005 9,450 555
All other liabilities 3,003 2,788 215
Total liabilities 198,819 202,033 (3,214)
Stockholders' equity, net 30,614 30,528 86
GENERAL - The consolidated financial statements for the three months
ended March 31, 1998 contained herein, reflect the historical financial
position and results of operations of Heritage Bank and thus do not
reflect or include the financial position and results of operations of Old
United prior to February 3, 1998.
Total assets decreased $3.1 million to $229.4 million at March 31,
1999 from $232.5 million at December 31, 1998. The decrease in assets was
primarily the result of a decrease in loans held for sale. The $10.4
million decrease in cash and cash equivalents was offset by a $2.3 million
increase in investment securities and a $7.4 million increase in loans
receivable, net. In addition, deposits decreased $6.0 million.
INVESTMENT SECURITIES - Investment securities available-for-sale
increased $2.3 million to $54.2 million at March 31, 1999 from $51.9
million at December 31, 1998. The increase was the result of $17.8 million
of purchases, partially offset by $15.3 million of maturities, sales, and
principal repayments.
11
<PAGE>
A comparison of the amortized cost and estimated fair value of
United's available for sale investment portfolio at the dates indicated is
as follows:
<TABLE>
<CAPTION>
(In thousands)
(Unaudited, except for December 31)
MARCH 31, 1999
-------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND FEDERAL
AGENCIES $ 9,465 $ 2 $ (46) $ 9,421
MORTGAGE-BACKED SECURITIES 43,210 12 (42) 43,180
MUNICIPAL BONDS 1,605 2 -- 1,607
OTHER INVESTMENTS 45 -- (11) 34
-------- -------- -------- --------
$ 54,325 $ 16 $ (99) $ 54,242
======== ======== ======== ========
December 31, 1998
-------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- -------- --------
U.S. Government and Federal
agencies $ 13,643 $ 26 $ (33) $ 13,636
Mortgage-backed securities 36,370 77 (94) 36,353
Municipal bonds 859 31 (5) 885
Other investments 1,039 -- (13) 1,026
-------- -------- -------- --------
$ 51,911 $ 134 $ (145) $ 51,900
======== ======== ======== ========
</TABLE>
LOANS RECEIVABLE AND LOANS HELD FOR SALE - Net loans receivable
increased $7.4 million to $150.7 million at March 31, 1999 from $143.3
million at December 31, 1998. The loans receivable increase is a direct
result of strong loan demand generated through officer call programs,
increased market area, continued purchase of participation loans and lease
financing loans, and a favorable interest rate environment in the past
three months. Heritage Bank recently established two additional loan
production offices in the western Montana cities of Kalispell and Polson
and the formation of State Bank added two branches in Fort Benton and
Geraldine, Montana. The Heritage Bank diverse loan portfolio includes:
real estate residential mortgages, commercial and agricultural mortgages,
agricultural and commercial non-mortgage, consumer loans secured by real
estate, and various consumer installment loans. Heritage Bank also
purchases and participates in commercial and lease financing loans.
Heritage Bank had $ 30.9 million of participation and purchased loans as
of March 31, 1999. Heritage Bank sells and retains servicing for a portion
of its residential real estate loans to agencies of Montana such as the
Montana Board of Investments and the Montana Board of Housing.
During the three months ended March 31, 1999, loans held for sale
decreased $3.3 million to $2.4 million at March 31, 1999 from
approximately $5.7 million at December 31, 1998. Approximately $23.9
million of loans were originated for sale and $27.2 million of loans were
sold to the secondary market during the three month period ending March
31, 1999.
ALLOWANCE FOR LOAN LOSSES - The loan loss reserve at March 31, 1999
was $1,496,300 compared to $1,514,000 at December 31, 1998. During the
three months ended March 31, 1999 loans in the amount of $29,000 were
determined by management to be uncollectable and subsequently charged-off.
However, management aggressively pursues recoveries. The loan loss reserve
at March 31, 1999 is an amount which management believes is adequate given
the low level of non-performing assets and management's assessment of loan
risk. The allowance for loan losses to total loans at March 31, 1999 was
.99%.
NON-PERFORMING ASSETS - When a borrower fails to make a scheduled
payment on a loan and does not cure the delinquency within 15 days,
United's policy is to contact the borrower between the 15th and 30th day
of delinquency to establish a repayment schedule.
12
<PAGE>
If a loan is not current, or a realistic repayment schedule is not being
followed by the 90th day of delinquency, United will generally proceed
with legal action to foreclose the property after the loan has become
contractually delinquent 90 days. Loans contractually past due 90 days are
classified as non-performing. However, not all loans past due 90 days
automatically result in the non-accrual of interest income. If a 90 day
past due loan has adequate collateral, or is FHA insured or VA guaranteed,
leading to the conclusion that loss of principal and interest would likely
not be realized, then interest income will continue to be accrued.
Heritage Bank follows regulatory guidelines with respect to placing
loans on non-accrual status. When a loan is placed on non-accrual status,
all previously accrued and uncollected interest is reversed. At March 31,
1999 Heritage Bank had two non-accrual loans totaling $531,000 and loans
totaling $330,000 past due 90 days and still accruing.
United is required to review, classify and report to its Board of
Directors its assets on a regular basis and classify them as "substandard"
(distinct possibility that some loss will be sustained), "doubtful" (high
likelihood of loss), or "loss" (uncollectible). Adequate valuation
allowances are required to be established for assets classified as
substandard or doubtful in accordance with generally accepted accounting
principles. If an asset is classified as a loss, the institution must
either establish a specific valuation allowance equal to the amount
classified as loss or charge off such amount. At March 31, 1999 and
December 31, 1998, United had no assets classified as loss. At March 31,
1999 and December 31, 1998, United has $531,000 and $553,000 of reported
doubtful assets, respectively. The doubtful balance includes a loan of
$485,000 to a company which originates and securitizes home equity loans.
A subsidiary of the borrower filed for Chapter 11 bankruptcy protection in
March 1999. United had placed the loan on non-accrual in December 1998,
and has allocated loss reserves for any potential loss on the loan. As of
March 31, 1999, the loan was current with regard to principal and interest
payments, and the second quarter's payment was made on a timely basis. At
March 31, 1999 and December 31, 1998, United had $363,000 and $405,000 of
reported substandard assets, respectively. As a percent of total assets,
substandard assets were approximately .16%, and .17% at March 31, 1999 and
December 31, 1998, respectively.
REAL ESTATE HELD FOR INVESTMENT - The $339,000 increase was the
result of real estate acquired by Heritage Bank through a foreclosure. A
foreclosure sale had been completed pending approval of an IRS lien
release. Other real estate owned also includes a twenty-four unit
apartment complex in Glendive, Montana, owned as a depreciating investment
by Heritage Bank's wholly owned subsidiary, Community Service Corporation.
FHLB OF SEATTLE STOCK - FHLB of Seattle stock increased
approximately $24,000 to $1,256,000 at March 31, 1999 from $1,232,000 at
December 31, 1998. This increase was the result of $24,000 of reinvested
stock dividends. FHLB stock purchases are made as required to support the
increased scope of operations.
PREMISES AND EQUIPMENT - This category increased $466,000 to
$3,949,000 at March 31, 1999 from $3,483,000 at December 31, 1998. This
increase was primarily due to the acquisition of $430,000 of land in
Missoula. Heritage Bank invested approximately $90,000 in fixed assets
during the first three months of 1999. This increase was primarily due to
(1) the purchase of computer and office equipment for the branches and
additional staff members, and (2) remodeling of the main banking facility
in Great Falls to accommodate added staff members. The purchases of
premises and equipment were offset by approximately $52,000 of
depreciation.
GOODWILL - Goodwill decreased $28,000 to $1,372,000 at March 31,
1999 from $1,400,000 at December 31, 1998, due to $28,000 of amortization
during the three months ending March 31, 1999. The goodwill is currently
being amortized over 15 years.
DEPOSITS - Deposits decreased $6.0 million to $161.6 million at
March 31, 1999 from $167.6 million at December 31, 1998. This decrease
includes a $5.0 million decrease in NOW and money market demand accounts
which was the result of normal business fluctuations in a selected number
of United's larger customer accounts.
13
<PAGE>
BORROWED FUNDS - FHLB advances increased $2.0 million to $24.2
million at March 31, 1999 from $22.2 million at December 31, 1998.
Securities sold under agreements to repurchase increased $555,000 to $10.0
million at March 31, 1999 from $9.5 million at December 31, 1998. The
additional borrowings in the first three months of 1999 were used to fund
increases in United's loan portfolio.
STOCKHOLDERS' EQUITY - Stockholders' equity increased $86,000 to
$30.6 million at March 31, 1999 from $30.5 million at December 31, 1998.
This increase is due to $573,000 of net income for the three months ended
March 31, 1999 less cash dividends declared of $441,000 and a $46,000
increase in unrealized losses associated with assets classified as
available-for-sale being adjusted to market value.
2. MATERIAL CHANGES IN RESULTS OF OPERATIONS.
On February 3, 1998, Heritage merged into Old United in a
transaction accounted for as a purchase and a reverse merger. The
following charts compare the unaudited statements of income for the three
months ended March 31, 1999, to the unaudited statements of income for the
three months ended March 31, 1998 and, to the unaudited pro forma combined
statements of income for the three months ended March 31, 1998. The
unaudited pro forma combined statements of income for the three month
period ending March 31, 1998 is based upon the unaudited quarterly
consolidated statements of income of Heritage and Old United. The
unaudited pro forma combined statements of income combines the historical
consolidated statements of income of Heritage and Old United as if the
Heritage Merger had become effective as of the beginning of the period
presented. The selected pro forma combined financial data is unaudited and
is not necessarily indicative of the results of operations that would have
been achieved had the Heritage Merger occurred on such dates or of the
results of operation that may be achieved in the future.
<TABLE>
<CAPTION>
(In thousands)
(Unaudited) INCOME RECAP
-------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------------------
HISTORICAL HISTORICAL Pro Forma
--------------------------------- ---------- --------- -------
1999 1998 Change 1999 1998 Change
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest income $ 3,943 $ 2,830 $ 1,113 $ 3,943 $ 3,359 $ 584
Interest expense 2,101 1,443 658 2,101 1,699 402
------- ------- ------- ------- ------- -------
Net interest income 1,842 1,387 455 1,842 1,660 182
Provision for losses on loans 40 45 (5) 40 50 (10)
------- ------- ------- ------- ------- -------
Net interest income after
provision for losses on loans 1,802 1,342 460 1,802 1,610 192
Non-interest income 817 497 320 817 600 217
Non-interest expense 1,681 1,049 632 1,681 1,338 343
------- ------- ------- ------- ------- -------
Income before income taxes 938 790 148 938 872 66
Provision for income tax expense 365 295 70 365 331 34
------- ------- ------- ------- ------- -------
Net income $ 573 $ 495 $ 78 $ 573 $ 541 $ 32
======= ======= ======= ======= ======= =======
</TABLE>
GENERAL - Consistent with the purchase method of accounting, the
statement of operations for the three months ended March 31, 1998 includes
the results of operations of Heritage combined with the results of
operations of Old United commencing after the Heritage Merger on February
3, 1998.
NET INTEREST INCOME - Like most financial institutions, the most
significant component of United's earnings is net interest income, which
is the difference between the interest earned on interest-earning assets
(loans, investment securities, mortgage-backed securities and other
interest-earning assets), and the interest paid on deposits and
borrowings. This amount, when divided by average interest-earning assets,
is referred to as the net interest margin, expressed as a percentage. Net
interest income and net interest margins are affected by changes in
interest rates, the volume and the mix of interest-earning assets and
interest-bearing liabilities, and the level of non-
14
<PAGE>
performing assets. The difference between the yield on interest-earning
assets and the cost of interest-bearing liabilities expressed as a
percentage is referred to as the net interest-rate spread. United's net
interest income increased $470,000 from $1.4 million for the three months
ended March 31, 1998 to $1.8 million for the three months ended March 31,
1999. United's net interest margin increased .34% to 3.53% for the three
month period ended March 31, 1999 from 3.19% for the same period last
year. In addition to the interest-earning assets and liabilities acquired
in the Heritage Merger, United has used the funds from additional deposits
and borrowings to fund growth in its loan portfolio. United's pro forma
combined income statement illustrates the effect of United's growth from
increases in its loan portfolio, deposit base and short-term borrowings
since the Heritage Merger.
INTEREST INCOME - The principal reason for the increase in United's
net interest income from the three month period ended March 31, 1998
compared to the three month period ended March 31, 1999 was an increase in
United's interest-earning assets. Interest income increased $1.1 million
from $2.8 million for the three month period ended March 31, 1998 to $3.9
million for the three month period ended March 31, 1999. The average
balance of interest-earning assets increased $35 million to $208 million
for the three month period ended March 31, 1999 from $173 million for the
same period last year. In addition, the average yield on interest-earning
assets increased 1.06% to 7.56% during the three month period ended March
31, 1999 from 6.50% during the same period last year. The primary reason
for this increase was the acquisition of Old United's interest-earning
assets including its $40 million loan portfolio, $44 million investment
portfolio, and $8 million of interest-earning deposits.
For the three month period ended March 31, 1999, compared to the
three month period ended March 31, 1998, interest on loans receivable
increased $1.1 million, interest on mortgage-backed securities and
investments increased $97,000 and interest on other interest-earning
assets decreased $129,000.
INTEREST EXPENSE - The principal reason for the increase in United's
net interest expense from the three month period ended March 31, 1998 to
the three month period ended March 31, 1999 was an increase in United's
interest-bearing liabilities. Interest expense increased $.7 million from
$1.4 million for the three month period ended March 31, 1998 to $2.1
million for the three month period ended March 31, 1999.
For the three month period ended March 31, 1999, compared to the
three month period ended March 31, 1998, interest on deposits increased
$.4 million, interest on short-term borrowings increased $.2 million.
PROVISION FOR LOAN LOSSES - United provided $40,000 for loan losses
in the first three months of 1999, as compared to $45,000 in the first
three months of 1998.
The provision for loan losses is determined by management as the
amount to be added to the allowance for loan losses after net charge-offs
have been deducted to bring the allowance to a level which is considered
adequate to absorb losses inherent in the loan portfolio in accordance
with GAAP. Future additions to United's allowance for loan losses and any
change in the related ratio of the allowance for loan losses to
non-performing assets are dependent upon the performance and composition
of United's loan portfolio, the economy, inflation, changes in real estate
values and interest rates and the view of the regulatory authorities
toward adequate reserve levels.
NON-INTEREST INCOME - In addition to net interest income, United
generates significant non-interest income from a wide range of retail
banking services, including mortgage banking activities and service
charges for deposit services. Non-interest income increased $.3 million,
to $.8 million for the three month period ending March 31, 1999 compared
to $.5 million the same period in 1998. The principal reason for the
increase was the continued strength of the home lending market, and
particularly the refinancing market during the first three months of 1999,
as interest rates were relatively low and stable. The active refinancing
market during this period resulted in increases in loan origination fees
and discounts on the sale of mortgage loans of $.3 million for the three
15
<PAGE>
month period ending March 31, 1999. United believes that any increase in
interest rates is likely to result in a decreased refinancing market and
would negatively affect United's fee income.
Other non-interest income, including servicing fees on mortgage
loans, service charges and FHLB stock dividends, remained relatively
constant and are expected to remain relatively constant in future periods.
NON-INTEREST EXPENSE - Non-interest expense increased $.7 million,
to $1.7 million during the three month period ending March 31, 1999
compared to $1.0 million for the same period in 1998.
Salary and employee benefit expense, which increased $.3 million to
$.9 million in the three month period ending March 31, 1999 from $.6
million in the same period in 1998, accounted for most of the increase in
1998. This increase was due primarily to increased salary and commission
expense associated with the refinancing activity and growth in the size of
United's overall operations.
INCOME TAXES - Income tax expense increased $70,000 to $365,000 for
the three month period ending March 31, 1999 from $295,000 for the same
period of 1998. The principal reason for the increase in both periods was
increased net income, after adjustment for non-deductible goodwill
amortization and tax-free interest on municipal bonds and loans.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management believes there has been no material change in interest
rate risk since December 31, 1998. For additional information, see
Management's Discussion and Analysis of Financial Condition and Results of
Operations included herein in Item 2 and refer to the Interest Rate Risk
Management discussion included in United Financial's Annual Report loan
Form 10-K for the year ended December 31, 1998.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS.
The Company is involved from time to time in litigation normal for its
type of business.
ITEM 2 CHANGE IN SECURITIES.
None
ITEM 3 DEFAULTS ON SENIOR SECURITIES.
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
None
ITEM 5 OTHER INFORMATION.
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.
A. The following exhibits are included herein:
Exhibit
Number Description of Exhibit
- ------- ---------------------------------------------------------------------
27.1 Financial Data Schedule
B. Reports on Form 8-K
The Company did not file a current Report on Form 8-K in the quarter ended
March 31, 1999.
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 15, 1999 /s/ John M. Morrison
---------------- ---------------------------
John M. Morrison
Chairman and Chief
Executive Officer
(Duly Authorized
Representative)
Date May 15, 1999 /s/ Kurt R. Weise
---------------- ---------------------------
Kurt R. Weise
President and Chief
Operating Officer
(Duly Authorized
Representative)
18
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CURRENT
REPORT ON FORM 10Q FOR THE THREE MONTHS ENDED MARCH 31, 1999 IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1.00
<CASH> 4,960
<INT-BEARING-DEPOSITS> 3,875
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 54,242
<INVESTMENTS-CARRYING> 54,326
<INVESTMENTS-MARKET> 54,242
<LOANS> 150,762
<ALLOWANCE> 1,496
<TOTAL-ASSETS> 229,433
<DEPOSITS> 161,636
<SHORT-TERM> 34,180
<LIABILITIES-OTHER> 3,003
<LONG-TERM> 0
0
0
<COMMON> 28,002
<OTHER-SE> 2,612
<TOTAL-LIABILITIES-AND-EQUITY> 229,433
<INTEREST-LOAN> 3,090
<INTEREST-INVEST> 744
<INTEREST-OTHER> 109
<INTEREST-TOTAL> 3,943
<INTEREST-DEPOSIT> 1,661
<INTEREST-EXPENSE> 2,101
<INTEREST-INCOME-NET> 1,842
<LOAN-LOSSES> 40
<SECURITIES-GAINS> 15
<EXPENSE-OTHER> 1,681
<INCOME-PRETAX> 938
<INCOME-PRE-EXTRAORDINARY> 938
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 573
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
<YIELD-ACTUAL> 7.56
<LOANS-NON> 531
<LOANS-PAST> 330
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,485
<CHARGE-OFFS> 29
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,496
<ALLOWANCE-DOMESTIC> 1,496
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
