---

---

UNITED
STATES

SECURITIES
AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM
10-K

(Mark One)xAnnual Report Pursuant to Section 13 or 15 (d) of theSecurities
Exchange Act of 1934

For the Fiscal
Year Ended December 31, 2005oroTransition Report Pursuant to Section 13 or
15 (d) of
the Securities Exchange Act of 1934

For the transition period from ____________ to ____________

Commission file
number: 0-28080

UNITED
FINANCIAL CORP.(Exact Name of Registrant as Specified in its Charter)

|                                                                   |  |                                          
|------------------------------------------------------------------ |  | -----------------------------------------
|MINNESOTA                                                          |  | 81-0507591                               
|(State or Other
  Jurisdiction of
  Incorporation or Organization) |  | (I.R.S. Employer
  Identification Number)

P.O. Box 2779, 120
1st Avenue North, Great Falls, Montana 59403
(Address of Principal Executive Offices)

(406) 727-6106
(Registrants telephone number, including area code)

Securities
registered pursuant to Section 12(b) of the Act: None

Securities
registered pursuant to Section 12(g) of the Act:

Common Stock, no
par value
(Title of Class)

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.

YES o     NO x


Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Act.

YES o     NO x


Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 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 requirements
for the past 90 days.   YES x
    NO o

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the Registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. o

Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of accelerated
filer and large accelerated file in Rule12b-2 of the Exchange Act. (Check
one):

|                          |                     |                        
|------------------------- | ------------------- | -----------------------
|Large accelerated filer o | Accelerated filer o | Non-accelerated filer x

---

---



Indicate
by check mark whether the registrant is a shell company (as defined in
Rule12b-2 of the Act).   YES o
    NO x

The
aggregate market value of the voting common stock held by non-affiliates of the
Registrant, as of June 30, 2005 (the last day of the Registrants most recently
completed second fiscal quarter), was $33,645,542 (based on the last sale price
of such stock as quoted on the Nasdaq National Market ($18.69) on such date).

The
number of shares of Registrants common stock outstanding on March 27, 2006 was
3,072,129. Registrants common stock is traded on the Nasdaq National Market,
under the symbol UBMT.

DOCUMENTS
INCORPORATED BY REFERENCE

Portions
of the Proxy Statement for the 2006 Annual Meeting of Stockholders to be held
on May 23, 2006 at 1:00 p.m., Mountain Time, in Great Falls, Montana, are
incorporated by reference into Part III of this Form 10-K.

---



UNITED
FINANCIAL CORP.
2005 FORM 10-K ANNUAL REPORT

TABLE
OF CONTENTS

|                                                                                                                         |  |   
|------------------------------------------------------------------------------------------------------------------------ |  | --
|Part I                                                                                                                   |  |   
|                                                                                                                         |  |   
|Cautionary
  Statement                                                                                                   |  | 1 
|                                                                                                                         |  |   
|Item
  1. Business                                                                                                       |  | 2 
|                                                                                                                         |  |   
|Item
  1A. Risk Factors                                                                                                  |  | 16
|                                                                                                                         |  |   
|Item
  1B. Unresolved Staff Comments                                                                                     |  | 19
|                                                                                                                         |  |   
|Item
  2. Properties                                                                                                     |  | 19
|                                                                                                                         |  |   
|Item
  3. Legal Proceedings                                                                                              |  | 19
|                                                                                                                         |  |   
|Item
  4. Submission of Matters to a Vote of Security Holders                                                            |  | 19
|                                                                                                                         |  |   
|PART II                                                                                                                  |  |   
|                                                                                                                         |  |   
|Item
  5. Market for Registrants Common Equity, Related Stockholder Matters and
  Issuer Purchases of Equity Securities |  | 20
|                                                                                                                         |  |   
|Item
  6. Selected Financial Data                                                                                        |  | 21
|                                                                                                                         |  |   
|Item
  7. Managements Discussion and Analysis of Financial Condition and Results of
  Operations                        |  | 22
|                                                                                                                         |  |   
|Item
  7A. Quantitative and Qualitative Disclosures about Market Risk                                                    |  | 42
|                                                                                                                         |  |   
|Item
  8. Financial Statements and Supplementary Data                                                                    |  | 43
|                                                                                                                         |  |   
|Item
  9. Changes in and Disagreements with Accountants on Accounting and Financial
  Disclosure                         |  | 43
|                                                                                                                         |  |   
|Item
  9A. Controls and Procedures                                                                                       |  | 43
|                                                                                                                         |  |   
|Item
  9B. Other Information                                                                                             |  | 44
|                                                                                                                         |  |   
|PART III                                                                                                                 |  |   
|                                                                                                                         |  |   
|Item
  10. Directors and Executive Officers of the Registrant                                                            |  | 44
|                                                                                                                         |  |   
|Item
  11. Executive Compensation                                                                                        |  | 44
|                                                                                                                         |  |   
|Item
  12. Security Ownership of Certain Beneficial Owners and Management and
  Related Stockholder Matters              |  | 44
|                                                                                                                         |  |   
|Item
  13. Certain Relationships and Related Transactions                                                                |  | 44
|                                                                                                                         |  |   
|Item
  14. Principal Accountant Fees and Services                                                                        |  | 44
|                                                                                                                         |  |   
|PART IV                                                                                                                  |  |   
|                                                                                                                         |  |   
|Item
  15. Exhibits and Financial Statement Schedules                                                                    |  | 45
|                                                                                                                         |  |   
|Signatures                                                                                                               |  | 46
|                                                                                                                         |  |   
|Exhibit
  Index                                                                                                          |  | 47

i

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CAUTIONARY STATEMENT

All
statements included or incorporated by reference in this report, other than
statements or characterizations of historical fact, are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These forward-looking statements are based on Uniteds current
expectations, estimates and projections about Uniteds industry, managements
beliefs, and certain assumptions made by us, all of which are subject to
change. Forward-looking statements can often be identified by words such as
anticipates, expects, intends, plans, predicts,
believes, seeks,
estimates, may, will, should, would,
could, potential,
continue, ongoing, similar expressions, and variations or negatives of
these words, and include, but are not limited to, statements regarding
projected results of operations, market acceptance and performance of Uniteds
products and services, the competitive nature of and anticipated growth in
Uniteds markets, its accounting estimates, assumptions and judgments, the
impact of tax accounting elections, and managements future strategic plans.
These forward-looking statements are not guarantees of future results and are
subject to risks, uncertainties and assumptions that are difficult to predict
and that could cause Uniteds actual results to differ materially and adversely
from those expressed in any forward-looking statement. The risks and
uncertainties referred to above include, but are not limited to: (i) general
economic or industry conditions could deteriorate or be less favorable than
expected, resulting in a deterioration in credit quality, a change in the
allowance for loan losses, or a reduced demand for Uniteds products and
services; (ii) changes in the domestic interest rate environment could reduce
net interest income and could increase loan losses; (iii) changes in the
extensive laws, regulations and policies governing financial services companies
could alter Uniteds business environment or affect operations; (iv) the
potential need to adapt to industry changes in information technology systems,
on which United is highly dependent, could present operational issues or
require significant capital spending; (v) competitive pressures could intensify
and affect Uniteds profitability, including as a result of continued industry
consolidation, the increased availability of financial services from non-banks,
technological developments, or bank regulatory reform; (vi) the impact of
weather conditions in the geographic markets and business areas in which United
conducts it business; and (vii) capital investments in Uniteds businesses may
not produce expected growth in earnings anticipated at the time of the
expenditure. These forward-looking statements speak only as of the date of this
report. United undertakes no obligation to revise or update publicly any
forward-looking statement for any reason.

1

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PART I

Item 1. BUSINESS

General.United Financial Corp. (United) is a bank holding company
headquartered in Great Falls, Montana, with operations in 15 locations in 13
Montana communities. United was organized as a Minnesota corporation in 1996.
Uniteds banking business in Montana is conducted through its wholly-owned
subsidiary, Heritage Bank, a Montana corporation established in 1923. United
had assets of approximately $389.5 million, deposits of approximately $303.7
million and stockholders equity of approximately $32.0 million at December 31,
2005.

Heritage
Bank is a state-chartered commercial bank with locations in Billings, Bozeman,
Chester, Fort Benton, Geraldine, Glendive, Great Falls (three locations),
Hamilton, Havre, Kalispell, Missoula, Libby and Shelby, Montana. Heritage Bank
is engaged in the community banking business of attracting deposits from the
general public through its branches 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. Heritage Banks banking business is
concentrated in the Great Falls area through its two full service branches and
one separate drive up location. Based on total assets, 41% of Uniteds assets
are located at Heritage Banks Great Falls locations. Heritage Bank also
invests in mortgage-backed securities, U.S. Treasury obligations, other U.S.
Government agency obligations and other interest-earning assets.

Heritage
Banks 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. Heritage Banks financial
condition and results of operations are also significantly influenced by local
and national economic conditions, changes in market interest rates,
governmental policies, tax laws and the actions of various regulatory agencies.

In
January 2006, Heritage Bank sold its 17% ownership interest in Bankers
Resource Center (BRC), a computer data center, located in Helena, Montana.
The data center was owned and operated by a number of Montana banks, including
Heritage Bank. BRC provided data processing services to its bank owners. In
2005, the owners collectively decided to sell the assets of BRC to a
non-related third party and to liquidate the corporation. Heritage Bank will
purchase these data processing services from this third party in 2006. While
this transaction has eliminated Heritage Banks ownership in BRC, and Uniteds
data processing services will now be provided by a third party operator, United
does not expect this transaction to have a material effect on Uniteds
operations, financial condition or financial results.

Uniteds
principal offices are located at 120 First Avenue North, Great Falls, Montana
59401, and its telephone number is (406) 727-6106.

United
makes available all periodic and current reports, free of charge, on its
website as soon as reasonably practicable after such material is electronically
filed with or furnished to the Securities and Exchange Commission (SEC).
Uniteds website address is www.ufcmontana.com. The contents of our website are
not incorporated into this report or into our other filings with the SEC.

Lending Activities

General.
Lending activities are Uniteds primary source of both interest income and fee
income. Uniteds interest income from loans receivable was approximately $19.7
million, $16.4 million and $15.9 million, or approximately 92%, 90% and 89% of
total interest income, for the years ended December 31, 2005, 2004 and 2003,
respectively. 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). United

2

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also originates commercial and agricultural loans
secured by real estate. In addition to loans secured by real estate, Uniteds
lending activity includes the origination of non-mortgage commercial,
agricultural and consumer loans.

The
following table sets forth the composition of Uniteds loans receivable at
December 31, 2005, 2004, 2003, 2002 and 2001:

(Dollars in thousands)

|                                   |  |              |         |              |  |              |   |         |         |        |  |         |   |   |         |  |  |       |  
|---------------------------------- |  | ------------ | ------- | ------------ |  | ------------ | - | ------- | ------- | ------ |  | ------- | - | - | ------- |  |  | ----- | -
|                                   |  | December 31, |         | December 31, |  | December 31, |  
|                                   |  |              |         |              |  |              |  
|                                   |  | 2005         |         | 2004         |  | 2003         |  
|                                   |  |              |         |              |  |              |  
|                                   |  | Amount       |         | Percent      |  | Amount       |   | Percent |         | Amount |  | Percent |  
|                                   |  |              |         |              |  |              |   |         |         |        |  |         |  
|Loans secured by real estate:      |  |              |         |              |  |              |   |         |         |        |  |         |   |   |         |  |  |       |  
|1 - 4
  residential                |  | $            | 42,541  |              |  | 13.5         | % | $       | 43,391  |        |  | 16.2    | % | $ | 37,401  |  |  | 16.2  | %
|5 or more
  residential            |  |              | 3,108   |              |  | 1.0          |   |         | 3,012   |        |  | 1.1     |   |   | 3,150   |  |  | 1.4   |  
|Commercial                         |  |              | 79,036  |              |  | 25.0         |   |         | 51,017  |        |  | 19.0    |   |   | 48,235  |  |  | 20.9  |  
|Construction                       |  |              | 41,154  |              |  | 13.0         |   |         | 29,083  |        |  | 10.8    |   |   | 17,175  |  |  | 7.4   |  
|Agricultural                       |  |              | 27,501  |              |  | 8.7          |   |         | 24,837  |        |  | 9.2     |   |   | 20,216  |  |  | 8.7   |  
|                                   |  |              |         |              |  |              |   |         |         |        |  |         |   |   |         |  |  |       |  
|Total loans secured by real estate |  |              | 193,340 |              |  | 61.2         |   |         | 151,340 |        |  | 56.3    |   |   | 126,177 |  |  | 54.6  |  
|Commercial loans                   |  |              | 65,576  |              |  | 20.8         |   |         | 65,108  |        |  | 24.2    |   |   | 56,416  |  |  | 24.5  |  
|Agricultural
  loans               |  |              | 16,577  |              |  | 5.3          |   |         | 15,108  |        |  | 5.6     |   |   | 14,511  |  |  | 6.3   |  
|Consumer loans                     |  |              | 40,255  |              |  | 12.7         |   |         | 37,163  |        |  | 13.9    |   |   | 33,830  |  |  | 14.6  |  
|                                   |  |              |         |              |  |              |   |         |         |        |  |         |   |   |         |  |  |       |  
|Total loans receivable             |  |              | 315,748 |              |  | 100.0        | % |         | 268,719 |        |  | 100.0   | % |   | 230,934 |  |  | 100.0 | %
|                                   |  |              |         |              |  |              |   |         |         |        |  |         |   |   |         |  |  |       |  
|Less:                              |  |              |         |              |  |              |   |         |         |        |  |         |   |   |         |  |  |       |  
|Allowance for
  loan losses        |  |              | 3,751   |              |  |              |   |         | 3,708   |        |  |         |   |   | 3,755   |  |  |       |  
|                                   |  |              |         |              |  |              |   |         |         |        |  |         |   |   |         |  |  |       |  
|Net loans receivable               |  | $            | 311,997 |              |  |              |   | $       | 265,011 |        |  |         |   | $ | 227,179 |  |  |       |  
|                                   |  |              |         |              |  |              |   |         |         |        |  |         |   |   |         |  |  |       |  

|                                   |  |                |         |                |  |        |   |         |         |  |  |       |  
|---------------------------------- |  | -------------- | ------- | -------------- |  | ------ | - | ------- | ------- |  |  | ----- | -
|                                   |  | December
  31, |         | December
  31, | 
|                                   |  |                |         |                | 
|(Dollars in thousands)             |  | 2002           |         | 2001           | 
|                                   |  |                |         |                | 
|                                   |  | Amount         |         | Percent        |  | Amount |   | Percent |        
|                                   |  |                |         |                |  |        |   |         |        
|Loans secured by real estate:      |  |                |         |                |  |        |   |         |         |  |  |       |  
|1 - 4
  residential                |  | $              | 34,288  |                |  | 16.0   | % | $       | 35,863  |  |  | 16.5  | %
|5 or more
  residential            |  |                | 4,693   |                |  | 2.2    |   |         | 5,010   |  |  | 2.3   |  
|Commercial                         |  |                | 45,355  |                |  | 21.1   |   |         | 45,820  |  |  | 21.1  |  
|Construction                       |  |                | 15,259  |                |  | 7.1    |   |         | 19,384  |  |  | 8.9   |  
|Agricultural                       |  |                | 19,039  |                |  | 8.9    |   |         | 18,994  |  |  | 8.7   |  
|                                   |  |                |         |                |  |        |   |         |         |  |  |       |  
|Total loans secured by real estate |  |                | 118,634 |                |  | 55.3   |   |         | 125,071 |  |  | 57.5  |  
|Commercial loans                   |  |                | 51,461  |                |  | 24.0   |   |         | 52,363  |  |  | 24.1  |  
|Agricultural
  loans               |  |                | 14,548  |                |  | 6.8    |   |         | 11,607  |  |  | 5.3   |  
|Consumer loans                     |  |                | 29,820  |                |  | 13.9   |   |         | 28,442  |  |  | 13.1  |  
|                                   |  |                |         |                |  |        |   |         |         |  |  |       |  
|Total loans receivable             |  |                | 214,463 |                |  | 100.0  | % |         | 217,483 |  |  | 100.0 | %
|                                   |  |                |         |                |  |        |   |         |         |  |  |       |  
|Less:                              |  |                |         |                |  |        |   |         |         |  |  |       |  
|Allowance for
  loan losses        |  |                | 3,113   |                |  |        |   |         | 2,794   |  |  |       |  
|                                   |  |                |         |                |  |        |   |         |         |  |  |       |  
|Net loans receivable               |  | $              | 211,350 |                |  |        |   | $       | 214,689 |  |  |       |  
|                                   |  |                |         |                |  |        |   |         |         |  |  |       |  

Residential
(Non-Construction) Real Estate Lending. Residential mortgage
lending constitutes a significant portion of Uniteds lending activities.
Uniteds residential loan originations are conducted by residential loan
production officers in Heritage Banks twelve banking offices and its two loan
production offices. The majority of Heritage Banks residential loan production
is secured by properties located in Montana and are fixed-rate, long-term
mortgage loans which are sold to the secondary market.

3

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Under
Heritage Banks residential lending policies, most loans originated conform to
Government National Mortgage Association/Federal National Mortgage Association
(GNMA/FNMA) secondary mortgage market standards and are secured by
residential property with an appraised value of not more than 80% (or 95% if
private mortgage insurance is obtained) of the principal amount of the loan. In
accordance with federal guidelines, an appraisal by an independent licensed or
certified appraiser is required for residential loans in excess of
$250,000.  United generally also obtains
appraisals or valuations on most residential loans under $250,000.  The terms of Heritage Banks conventional
real estate loans provide that the loan can be prepaid without penalty and
typically include a due-on-sale clause that provides for acceleration of
indebtedness upon the sale or other disposition of secured property.  Evidence of fire, casualty and hazard
insurance with a mortgagee clause in favor of United is required prior to
settlement of residential and commercial real estate loans.  Title insurance is generally required on
properties securing such loans.

Most
of Heritage Banks residential loans are originated through personal contacts
of loan officers, including contacts with local realtors, and through referrals
from deposit customers.  Although the
majority of Heritage Banks loans are fixed rate loan products that are
subsequently sold on the secondary market, Heritage Bank does offer a variety
of adjustable rate residential loans, some of which are sold on the secondary
market and some of which are retained in its own portfolio.  The interest rates on variable loans vary
with the movement of the index upon which the interest rates are based.  If the interest rates change, loan payments,
balances or terms may be adjusted.
Heritage Banks primary indexes are the 1, 3 and 5-year constant
maturity Treasury indexes.  Most of the
ARMs currently originated by Heritage Bank have loan terms of 15 to 30 years
with rate adjustments generally every 1, 3 or 5 years during the term of the
loan.  Generally, interest rate
adjustments on Heritage Banks ARMs are limited to changes of 2.5% - 3.25% per
year and 6% - 10% for the life of the loan.
The average lives of these loans were 9.5 years at December 31, 2005.

The
majority of Heritage Banks total production of long-term (15 to 30-year
maturity) fixed rate residential loans is originated according to pre-arranged
underwriting standards that result in immediate sale to the secondary market,
primarily to mortgage bankers and pension funds. Heritage Bank sold long-term
fixed-rate residential mortgage loans to the secondary market in aggregate
amounts of approximately $170.9 million in 2005, $143.3 million in 2004 and $325.9
million in 2003.  Heritage Bank also
sells long-term fixed-rate loans that are refinances of existing portfolio
loans or permanent financing of completed construction loans.  These are sold to the secondary market or
State of Montana housing agencies.  The
combination of both of these types of secondary market sales resulted in a gain
on sale of loans totaling $3.2 million, $2.8 million and $5.0 million in 2005,
2004 and 2003, respectively.  Components
of the recognized gain include origination fees, service release fees or an
amount capitalized for retained servicing rights, and premiums or discounts
related to the sale.  Heritage Bank
retains a limited number of adjustable rate mortgages and fixed rate mortgage
loans up to 15-year maturities for its own portfolio.

Real
Estate Construction Loans. In addition to permanent
real estate mortgage loans, Heritage Bank also provides interim financing for
the construction of single-family and multi-unit dwellings, commercial real
estate and improvements of real estate.
Construction loans are generally made for periods of approximately nine
months, with interest paid at periodic intervals.  Such loans may be extended for several months due to adverse
weather conditions or other justifiable delays in construction.  Heritage Bank provides financing primarily
for a limited number of registered contractors who have demonstrated an ability
to complete projects in residential development and construction, have operated
in Heritage Banks lending area for a number of years and are deemed to be
financially responsible.  Heritage Bank
also provides construction loans for customers who have made the decision to
construct a new home for their personal use and in that case the Heritage Bank
customer will choose their own contractor who is then approved by Heritage
Bank.  Heritage Bank requires that
permanent financing is in place prior to entering into a construction loan for
an individual customer.

4

---



Commercial
and Agricultural Real Estate Loans. Heritage Bank engages in
commercial real estate lending secured by both commercial and agricultural
properties.  Occasionally when making
such loans, Heritage Bank participates in the U.S. Small Business
Administrations program for guaranteed commercial real estate loans.  Heritage Banks loans on commercial and
agricultural real estate are primarily first lien loans with 10 to 15-year
maturities and adjustable interest rates based on U.S. Treasury indexes for 1,
3 and 5 years.

Non-Mortgage
Commercial and Agricultural Lending.  In addition to real estate lending, Heritage
Bank offers commercial and agricultural non-mortgage loans. Heritage Bank
offers commercial lines of credit, equipment term loans, working capital loans
and loans guaranteed by the Small Business Administration to its business
customers.  It also offers seasonal
lines of credit and term equipment loans to its agricultural borrowers.
Heritage Bank purchases, on a participation basis, loans originated outside its
normal market areas.  Participation
loans are generally purchased from commercial banks and third party loan
production offices.  Generally, these
purchased participations allow Heritage Bank to diversify its geographic risk
and are purchased with a higher level of underwriting standards since a direct
customer relationship does not exist.
At December 31, 2005, Heritage Bank had $65.6 million of non-mortgage
commercial loans in its loan portfolio, which included approximately $32.6
million of purchased participation loans located outside of Montana.

Consumer
Lending. Heritage Banks consumer loan portfolio
includes home equity, home improvement, line of credit, auto, deposit account,
dealer loans and credit card receivables.
Heritage Bank has entered into agreements with certain local merchants
to purchase qualifying conditional sales contracts.  Heritage Bank requires fire, hazard and casualty insurance for
loans secured by home equity and casualty insurance for loans secured by autos
and recreational vehicles.  Heritage
Bank also maintains an underlying vendors single interest insurance policy to
protect it in the event a loss is incurred to a non-insured customer vehicle.

Investment Activities

The
investment activities of United are designed to provide an investment
alternative for funds not presently required to meet loan demand, assist in
maximizing income, 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.

Interest
income from investment activities was approximately $1.5 million, $1.6 million
and $1.7 million, or approximately 6.9%, 8.8% and 9.6% of Uniteds total
interest income, for the years ended December 31, 2005, 2004 and 2003,
respectively.

Uniteds
portfolio consists primarily of obligations of the U.S. government and its
agencies, mortgage-backed securities, municipal bonds and corporate bonds and
equity securities.  Uniteds investment
portfolio does not contain a concentration of investments in any one issuer in
excess of 10% of its total investment portfolio, except for securities of the
U.S. government and U.S. government agencies.
All of Uniteds investments are classified as available-for-sale.

5

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The
following table sets forth the carrying values of Uniteds investments at
December 31, 2005, 2004 and 2003:

(Dollars in thousands)

|                                        |  |                       |        |                       |   |                       |  |   |        | 
|--------------------------------------- |  | --------------------- | ------ | --------------------- | - | --------------------- |  | - | ------ | 
|                                        |  | December
  31,
  2005 |        | December
  31,
  2004 |   | December
  31,
  2003 | 
|                                        |  |                       |        |                       |   |                       | 
|U.S.
  government and federal agencies  |  | $                     | 6,423  |                       | $ | 4,029                 |  | $ | 8,106  | 
|Mortgage-backed
  securities            |  |                       | 27,856 |                       |   | 34,446                |  |   | 31,574 | 
|Municipal
  bonds                       |  |                       | 587    |                       |   | 474                   |  |   | 1,899  | 
|Corporate
  bonds and equity securities |  |                       | 493    |                       |   |                      |  |   | 1,700  | 
|                                        |  |                       |        |                       |   |                       |  |   |        | 
|                                        |  | $                     | 35,359 |                       | $ | 38,949                |  | $ | 43,279 | 
|                                        |  |                       |        |                       |   |                       |  |   |        | 

During
2005, United received $11.4 million in mortgage-backed security principal
payments and had $1.0 million of calls and maturities of investment
securities.   United sold $1.8 million
of investment securities and mortgagebacked securities while purchasing $11.2
million in investment securities and mortgage-backed securities.  United recorded an unrealized loss in market
values of its investment portfolio of $.5 million, and amortization of purchase
premium of $.1 million during the year.
The unrealized loss is the result of the normal market fluctuations on
bonds and mortgage-backed securities due to recent increases in interest rates.

During
2004, United received $11.9 million in mortgage-backed security principal
payments and had $7.1 million of calls and maturities of investment securities.
Sales of investment securities and mortgage-backed securities were $3.5 million
in 2004 and purchases totaled $18.5 million.
United experienced a decrease in unrealized gain in market values of its
investment portfolio of $.4 million, from $.5 million in 2003 to $.1 million in
2004, before taxes.

Sources of Funds

The
primary sources of funds for Uniteds lending and investment activities are
deposits, repurchase agreements, Federal Home Loan Bank (FHLB) borrowings,
loan and mortgage-backed securities repayments, proceeds from loan sales,
investment securities, interest payments and maturities, and net operating
revenues.

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 periods 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 on a regular basis.

6

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The
following table sets forth the composition of Uniteds deposits at December 31,
2005, 2004 and 2003:

|                            |  |              |         |              |       |              |  |         |         |        |       |         |  |   |         |  |       |   | 
|--------------------------- |  | ------------ | ------- | ------------ | ----- | ------------ |  | ------- | ------- | ------ | ----- | ------- |  | - | ------- |  | ----- | - | 
|                            |  | December 31, |         | December 31, |       | December 31, | 
|                            |  |              |         |              |       |              | 
|(Dollars in thousands)      |  | 2005         |         | 2004         |       | 2003         | 
|                            |  |              |         |              |       |              | 
|                            |  | Amount       |         | Percent      |       | Amount       |  | Percent |         | Amount |       | Percent | 
|                            |  |              |         |              |       |              |  |         |         |        |       |         | 
|Type:                       | 
|Non-interest bearing        |  | $            | 56,642  |              | 18.7  | %            |  | $       | 47,490  |        | 18.4  | %       |  | $ | 36,551  |  | 16.1  | % | 
|Interest
  bearing:         |  |              |         |              |       |              |  |         |         |        |       |         |  |   |         |  |       |   | 
|NOW & money market accounts |  |              | 33,914  |              | 11.2  |              |  |         | 35,974  |        | 13.9  |         |  |   | 33,300  |  | 14.6  |   | 
|Savings accounts            |  |              | 51,472  |              | 16.9  |              |  |         | 54,427  |        | 21.1  |         |  |   | 54,897  |  | 24.1  |   | 
|Time deposits               |  |              | 161,663 |              | 53.2  |              |  |         | 120,444 |        | 46.6  |         |  |   | 102,766 |  | 45.2  |   | 
|                            |  |              |         |              |       |              |  |         |         |        |       |         |  |   |         |  |       |   | 
|Total                       |  | $            | 303,691 |              | 100.0 | %            |  | $       | 258,335 |        | 100.0 | %       |  | $ | 227,514 |  | 100.0 | % | 
|                            |  |              |         |              |       |              |  |         |         |        |       |         |  |   |         |  |       |   | 

Scheduled
maturities of certificates of deposit at December 31, 2005 are as follows:

|                                |  |   |         | 
|------------------------------- |  | - | ------- | 
|(Dollars in thousands)          |  |   |         | 
|                                |  |   |         | 
|Due within
  one year           |  | $ | 112,778 | 
|Due within
  two to three years |  |   | 39,519  | 
|Due within
  four to five years |  |   | 9,072   | 
|Thereafter                      |  |   | 294     | 
|                                |  |   |         | 
|Totals                          |  | $ | 161,663 | 
|                                |  |   |         | 

Time
deposits of $100,000 or more were approximately $40.4 million, $29.1 million
and $24.0 million at December 31, 2005, 2004 and 2003, respectively.  Amounts in excess of $100,000 are not
insured by a federal agency.

The maturity
of time deposits of $100,000 or more at December 31, 2005 was as follows:

|                             |  |   |        | 
|---------------------------- |  | - | ------ | 
|(Dollars in thousands)       |  |   |        | 
|                             |  |   |        | 
|Less than
  three months     |  | $ | 8,869  | 
|Three to six
  months        |  |   | 4,556  | 
|Six to
  twelve months       |  |   | 15,113 | 
|Greater than
  twelve months |  |   | 11,892 | 
|                             |  |   |        | 
|Total                        |  | $ | 40,430 | 
|                             |  |   |        | 

Early
withdrawal from time deposits subjects the depositor to an early withdrawal
penalty which is currently equal to six months of simple, nominal interest when
the original maturity is longer than one year, three months of simple, nominal
interest when original maturity is 92 days to one year, and all interest earned
when original maturity is 91 days or less.

Beginning
in 2004, United began issuing brokered deposits.  Brokered deposits are deposits obtained through a broker who
engages in facilitating the placement of deposits with insured depository
institutions for a third party.
Heritage Banks correspondent bank acts as custodian for these deposits.  At December 31, 2005, such brokered deposits
totaled $18.3 million.

Although
deposits are not solicited outside of Montana, historically, a small number of
the Heritage Bank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 it believes have broad market appeal.

7

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Borrowings.
Heritage Bank relies to a significant extent on borrowings from the FHLB to
finance its short-term, and increasingly its longer term, financing needs.  The FHLB functions as the central reserve
bank providing credit for commercial banks and certain other member financial
institutions.  Borrowings from the FHLB
are available at various maturities, which facilitates the matching of asset
and liability maturity dates.

As
a member of the FHLB, Heritage Bank is required to own capital stock in the
FHLB 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 established available FHLB advance credit line for 2005
was 25% of assets. The FHLB is required to review its credit limitations and
standards at least annually.

For
the years ended December 31, 2005, 2004 and 2003, FHLB borrowing information
was as follows:

|                                 |  |      |      |      |   |      |   |   |      |  
|-------------------------------- |  | ---- | ---- | ---- | - | ---- | - | - | ---- | -
|(Dollars
  in thousands)         |  | 2005 |      | 2004 |   | 2003 |  
|                                 |  |      |      |      |   |      |  
|                                 |  |      |      |      |   |      |   |   |      |  
|Average FHLB
  advances          |  | $    | 45.8 |      | $ | 42.5 |   | $ | 31.6 |  
|Maximum
  advances outstanding   |  |      | 59.7 |      |   | 60.6 |   |   | 36.0 |  
|Year end
  advances outstanding  |  |      | 42.0 |      |   | 44.8 |   |   | 31.0 |  
|Weighted
  average interest rate |  |      | 4.01 | %    |   | 3.41 | % |   | 4.05 | %

Securities
Sold Under Agreements To Repurchase.  Heritage Bank 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.

For
the years ended December 31, 2005, 2004 and 2003, securities sold under
agreements to repurchase information was as follows:

|                                 |  |      |      |      |   |      |   |   |      |  
|-------------------------------- |  | ---- | ---- | ---- | - | ---- | - | - | ---- | -
|(Dollars in thousands)           |  | 2005 |      | 2004 |   | 2003 |  
|                                 |  |      |      |      |   |      |  
|                                 |  |      |      |      |   |      |   |   |      |  
|Average
  balances               |  | $    | 6.1  |      | $ | 8.2  |   | $ | 9.2  |  
|Maximum
  balances outstanding   |  |      | 10.0 |      |   | 13.7 |   |   | 9.9  |  
|Year end
  balances              |  |      | 4.2  |      |   | 7.5  |   |   | 7.9  |  
|Weighted
  average interest rate |  |      | 2.68 | %    |   | 1.30 | % |   | 1.54 | %

Subordinated
Debentures.  In
July 2001, United issued junior subordinated debentures, aggregating $3.1
million to United Financial-Montana Capital Trust I (the Trust).  The Trust issued preferred securities, as
part of a pooled issue, with an aggregate liquidation amount of $3.0 million
($1,000 per capital security) to third-party investors. The junior subordinated
debentures and cash are the sole assets of the Trust. The preferred securities
are includable as Tier I capital for regulatory capital purposes. The junior
subordinated debentures and the preferred securities pay interest and dividends,
respectively, on a semi-annual basis, which are included in interest
expense.  The variable interest rate
resets on January 25 and July 25 of each year, based upon six month LIBOR plus
3.75%.  The interest rate reset on
January 25, 2006 was 8.56%.  The junior
subordinated debentures and preferred securities will mature on July 25,
2031.  The junior subordinated
debentures and preferred securities can be redeemed contemporaneously, in whole
or in part, after five years at decreasing premiums with the permission of the
Board of Governors of the Federal Reserve System (the Federal Reserve).  United has provided a full and unconditional
guarantee of the obligations of the Trust in the event of the occurrence of an event
of default, as defined.

8

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Market Area

Great
Falls, the county seat of Cascade County and a regional trade center, is among
the largest cities in Montana.  The
estimated 2005 Great Falls and Cascade County populations were approximately
57,000 and 80,000, respectively. The economy of Great Falls is largely based on
agriculture, health care and Department of Defense activities.  Malmstrom Air Force Base (MAFB), which
employs approximately 4,000 people, is the largest employer in Great Falls and
Cascade County.  Any significant reduction
in size or closure of MAFB would likely adversely affect United and its results
of operations and financial condition.
MAFB is home to 200 of the nations 500 land based intercontinental
ballistic missiles.

The
economies of Chester, Fort Benton, Geraldine, Glendive, Havre and Shelby,
Montana are dependent to a large extent on agricultural, livestock and railroad
activities. Areas such as Bozeman, Great Falls, Hamilton, Kalispell, Libby and
Missoula are supported in part by tourism, higher education and natural
resources.  Agriculture and natural
resources are among the predominant activities in the State of Montana, and any
adverse trends in either of these two industries could adversely affect United
and its results of operations and financial condition.

Competition

Heritage
Bank, like other depository institutions, is operating in a rapidly changing
environment and, therefore, faces considerable competition in the attraction of
deposits and the origination of loans.
Historically, the most direct competition for deposits has come from
savings banks, credit unions and commercial banks.  According to a recent market share report prepared by the FHLB,
there are approximately 155 commercial bank branch locations, 38 credit union branch
locations and 8 savings bank branch locations in Heritage Banks Montana market
areas.  In addition to these entities,
United estimates there are approximately 35 mortgage companies directly
competing with its real estate originators in the Montana market area.  Non-depository financial service
organizations, primarily in the securities and insurance industries, have also
become competitors for retail savings and investment funds.  Heritage Banks deposit programs compete
with money market mutual funds, government securities and other investment
alternatives.  Heritage Bank competes
for deposits by offering a variety of deposit accounts at interest rates based
upon market conditions, convenient business hours, quality service and
convenient branch locations.

Employees

At
February 29, 2006, Heritage Bank employed 126 full-time employees and 24
part-time employees.  Heritage Bank
maintains a comprehensive employee benefit program providing, among other
benefits, hospitalization and major medical insurance, paid sick leave,
disability, life insurance and 401K retirement plans.  Heritage Banks employees are not represented by any collective
bargaining group.  See Part IV, Item 15.
 Notes to Consolidated Financial Statements  Employee Benefit Plans.
United, as a parent company, has no paid employees.

Executive Officers of
the Registrant

The
following table sets forth information with respect to the executive officers
of United.  All executive officers are
elected annually by the Board of Directors.
There are no arrangements or understandings between individual officers
and any other person pursuant to which he or she was elected as an officer.

9

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|                   |  |     |  |                                                                                                                     
|------------------ |  | --- |  | --------------------------------------------------------------------------------------------------------------------
|Name               |  | Age |  | Position
  Held                                                                                                     
|                   |  |     |  |                                                                                                                     
|                   |  |     |  |                                                                                                                     
|Kurt R.
  Weise    |  | 49  |  | Chairman of
  United; Director and Vice President of Heritage Bank                                                  
|Kevin P.
  Clark   |  | 50  |  | Chief
  Executive Officer and Director of United; Director, President and Chief
  Executive Officer of Heritage Bank
|Steve L.
  Feurt   |  | 50  |  | President of
  United; Director, Executive Vice President and Senior Lending Officer of
  Heritage Bank             
|Paula J.
  Delaney |  | 45  |  | Chief
  Financial Officer of United; Director and Vice President of Heritage Bank                                   

Mr.
Weise has served as Chairman of United since
2003.  Mr. Weise has served as director
of United since 1998, and director and Vice President of Heritage Bank since
1994.  Mr. Weises term of office as a
director of United expires at Uniteds annual shareholder meeting in 2006.  Mr. Weise also serves as President of
Central Financial Services (CFS), a bank-consulting firm and President of
Central Bancshares, Inc. (Central Bancshares). Central Bancshares is the
parent company of Central Bank, located in Stillwater, Minnesota.  Central Bancshares and CFS are both
wholly-owned by Uniteds largest shareholder.
CFS provides various management services to United, including certain
accounting and tax services, investment consulting, personnel consulting, asset
liability management and regulatory consulting.

Mr.
Clark has served as Chief Executive Officer of United
since June of 2005 and as director of United since 1998. Mr. Clark has served
as director, President and Chief Executive Officer of Heritage Bank, since
1994. Mr. Clarks term of office as a director of United expires at Uniteds
annual shareholder meeting in 2006.

Mr.
Feurt has served as President of United since June of
2005, and has served as Senior Vice President and Chief Credit Officer of
United, and director and Executive Vice President and Senior Lending Officer of
Heritage Bank, since 1998.

Ms.
Delaney has served as Chief Financial Officer of
United since 2001, and as Vice President of Heritage Bank since 1998.  Ms. Delaney has served on the Heritage Bank
board since 2000.  Previously, Ms.
Delaney was employed in public accounting from 1984 to 1998, with Hamilton
Misfeldt & Co. P.C., a Great Falls, Montana based public accounting firm.

Supervision and
Regulation

United
is a bank holding company which owns Heritage Bank, a Montana-state chartered
commercial bank.

Bank
holding companies are subject to the general supervision and regulation by the
Federal Reserve Bank (FRB).  Under the
Bank Holding Company Act of 1956, as amended (BHCA), and FRB regulations, a
bank holding company may engage in banking, managing or controlling banks,
furnishing or performing services for banks it controls and conducting
activities that the FRB has determined to be closely related to banking.  Bank holding companies must also obtain the
prior approval of the FRB before acquiring 5% or more of the outstanding shares
of another bank or bank holding company and must provide notice to, and in some
situations obtain the prior approval of, the FRB in connection with the
acquisition of 5% or more of the outstanding shares of a company engaged in a
bank related business.

Under
FRB regulations, a bank holding company is required to serve as a source of
financial and managerial strength to its subsidiary banks and may not conduct
its operations in an unsafe or unsound manner.
In addition, it is the FRBs policy that in serving as a source of
strength to its subsidiary banks, a bank holding company should stand ready to
use available resources to provide adequate capital to its subsidiary banks
during periods of financial stress or adversity. A bank holding companys
failure to

10

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meet its
obligations to serve as a source of strength to its subsidiary banks will
generally be considered by the FRB to be an unsafe and unsound practice or a
violation of FRB regulations, or both.

Bank
holding companies are subject to certain limitations on redemption of common
stock or other equity securities.  In
addition, the FRB has issued regulations setting minimum capital standards for
bank holding companies.  Depending on
the capital classification of a bank holding company, it may be restricted from
engaging in certain non-bank activities or from acquiring interests in
additional banks or other depository institutions.  As of December 31, 2005, United met the limitations on redemption
of common stock and the minimum capital requirements issued by the FRB.  See also discussion below under Capital
Adequacy regarding recent amendments to the FRB Boards Small Bank Holding Company
Policy Statement.

Under
the BHCA, as amended by the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the Interstate Act), a bank holding company may
acquire banks throughout the United States subject only to state or federal
deposit caps and state minimum age requirements.  Effective June 1, 1997, the Interstate Act authorized interstate
branching by acquisition and consolidation in those states that had not opted
out by that date.  Montana had opted out
of the interstate branching by acquisition and consolidation until October 1,
2001.

The
Gramm-Leach-Bliley Act of 1999 (the Financial Services Modernization Act) came
into effect on March 11, 2000.  The
Financial Services Modernization Act repeals the two affiliation provisions of
the Glass-Steagall Act: Section 20, which restricted the affiliation of Federal
Reserve member banks with firms engaged principally in specified securities
activities; and Section 32, which restricts officer, director, or employee
interlocks between a member bank and any company or person primarily engaged
in specified securities activities.  In
addition, the Financial Services Modernization Act contains provisions that
expressly preempt any state law restricting the establishment of financial
affiliation, primarily related to insurance.
The general effect of the law is to establish a comprehensive framework
to permit affiliation among commercial banks, insurance companies, securities
firms, and other financial service providers by revising and expanding the bank
holding company framework to permit a holding company system to engage in a
full range of financial activities through a new entity known as a financial
holding company.  To date, United has
not elected to become a financial holding company.

Bank
holding companies that elect to become a financial holding company may
affiliate with securities firms and insurance companies and engage in other
activities that are financial in nature or are incidental or complementary to
activities that are financial in nature.
Financial in nature activities include securities underwriting,
dealing, and market making, sponsoring mutual funds and investment companies,
insurance underwriting and agency, merchant banking, and activities that the
Federal Reserve, in consultation with the Secretary of the Treasury, determines
from time to time to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto.

To
the extent that the Financial Services Modernization Act permits banks,
securities firms, and insurance companies to affiliate, the financial services
industry may experience further consolidation.
The Financial Services Modernization Act is intended to grant to
community banks certain powers as a matter of right that larger institutions
have accumulated on an ad hoc basis.
Nevertheless, this legislation may increase the amount of competition
from larger institutions and other types of companies with substantially
greater resources and a wider variety of financial products than United
currently offers.

Under
the Financial Services Modernization Act, federal banking regulators have
adopted rules that limit the ability of banks and other financial institutions
to disclose non-public information about consumers to nonaffiliated third
parties.  These limitations require
disclosure of privacy policies to consumers and, in some circumstances, allow
consumers to prevent disclosure of certain personal information to a
nonaffiliated third party.  United has
implemented procedures to comply with these rules and believes that compliance
has not adversely affected its operations.

11

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United
and its subsidiaries are deemed affiliates within the meaning of the Federal
Reserve Act, and transactions between the affiliates are subject to certain
restrictions.  Accordingly, United and
its respective subsidiaries must comply with Sections 23A and 23B of the
Federal Reserve Act (the FRA).  Generally,
these sections restrict covered transactions (i.e., loans, purchases of assets,
guaranties and similar transactions) to a percentage of the depository
institutions capital and surplus, require that such transactions be
appropriately collateralized and require that such transactions be on terms as
favorable to the depository institution as transactions with
non-affiliates.  Loans to insiders
(officers, directors and 10% shareholders) of a depository institution are
subject to Sections 22(g) and (h) of the FRA and regulations thereunder.  Among other things, such loans must be made
on terms substantially the same as loans to non-insiders.

On
October 26, 2001, President Bush signed the Uniting and Strengthening America
by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
(USA Patriot Act) of 2001.  Among
other things, the USA Patriot Act (1) prohibits banks from providing
correspondent accounts directly to foreign shell banks; (2) imposes due
diligence requirements on banks opening or holding accounts for foreign
financial institutions or wealthy foreign individuals; (3) required financial
institutions to establish an anti-money-laundering compliance program; and (4)
generally eliminates civil liability for persons who file suspicious activity
reports.  The Act also increased
governmental powers to investigate terrorism, including expanded government
access to account records.  The
Department of the Treasury is empowered to administer and make rules to
implement the Act.  While the USA
Patriot Act may, to some degree, affect Uniteds record-keeping and reporting
expenses, United does not believe that the Act will have a material adverse
effect on its business and operation.
Management believes United is in compliance with the USA Patriot Act.

Depository
Institution SubsidiaryHeritage Bank.As
a Montana-chartered commercial bank, Heritage Bank is subject to regulation and
supervision by the Montana Department of Commerce, Division of Banking and
Financial Institutions (the Montana Division) and the FDIC.  Heritage Banks deposits are insured by the
FDIC up to $100,000.

The
Montana statutes and regulations place limitations on the business and other
activities of Heritage Bank which may be more restrictive than limitations
applicable to depository institutions that are not state-chartered commercial
banks.  In particular, and among other
limitations, the establishment and operation of new branch offices, is limited
by, and subject to approval by, the Montana Division.  In addition, state-chartered commercial banks are generally not
authorized to make investments in the capital stock of any corporation, or to
make other investments in equity securities or to engage in securities or
insurance activities.  A Montana bank
may acquire shares of stock in an affiliate or subsidiary, the business
activities of which are limited to those allowed by law for a bank.  Some federally chartered depository
institutions located in Montana may engage in such activities without regard to
state law.

By
reason of FDIC insurance, Heritage Bank is an insured depository institution
for purposes of certain federal laws and regulations.  The federal laws that apply to depository institutions regulate,
among other things, the scope of their businesses, their investments, the
reserves against deposits, the timing and availability of deposited funds and
certain aspects of their lending activities.
These laws and regulations governing the depository institution
activities have generally been promulgated to protect depositors and not to
protect stockholders of such institutions or their holding companies.  These laws and regulations are designed to
ensure that appropriate action is taken to address concerns regarding the safe
and sound operation of insured depository institutions and generally relate to internal
control and information systems, loan documentation and credit underwriting,
asset growth, management performance and earnings.  If an insured depository institution fails to meet the applicable
standards and regulatory requirements, an appropriate banking agency may
require that the institution prepare and submit to the agency an acceptable
plan for addressing the regulatory concern.
If the plan submitted is deemed inadequate, or if the institution fails
to submit or comply with the required plan, a banking agency

12

---



may take
further action with respect to the regulatory concerns, including institution
of an enforcement action with respect to the institution.

The
Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
required federal banking regulators to adopt regulations in a number of
specific areas to insure depository institution safety and soundness, including
internal controls, credit underwriting, asset growth, management compensation,
asset quality and earnings performance.
FDICIA also contains provisions intended to change independent auditing
requirements, to restrict the activities of certain insured depository
institutions, to change various consumer banking laws and to limit the ability
of under-capitalized banks to borrow from the FRBs discount window or to
acquire brokered deposits.  Heritage
Bank is in compliance with applicable FDICIA regulations as of December 31,
2005.

The
Financial Institution Reform, Recovery and Enforcement Act of 1989 (FIRREA)
significantly changed existing federal banking legislation and regulation,
including significant increases in FDIC insurance premiums, separation of the
FDIC insurance into two deposit insurance funds, authorizing bank holding
companies to own savings associations, increasing the federal banking agencies
enforcement powers and increasing the civil and criminal penalties for
violations of federal banking laws and regulations.

Heritage
Bank is subject to certain federal consumer laws, including the Community
Reinvestment Act of 1977, as amended (CRA), and other fair lending laws and
regulations which impose nondiscriminatory lending requirements on insured
depository institutions.  In recent periods,
federal regulatory agencies have sought a more rigorous enforcement of the CRA
and other fair lending laws and regulations.
A successful challenge to a depository institutions performance under
the CRA and related fair lending laws and regulations could result in a variety
of sanctions, including the required payment of damages and civil money
penalties, prospective and retrospective injunctive relief and the imposition
of restrictions on mergers and acquisitions or other activities of the
depository institution or the holding companies controlling such depository
institutions.  Private parties may also
have the ability to challenge an institutions performance under the fair
lending laws in private class action litigation.  Heritage Banks most recent CRA exam in May of 2005 earned the Bank
a satisfactory rating.

Federal
regulatory banking agencies have also established uniform capital requirements
for all insured depository institutions.
An insured depository institution that does not achieve and maintain
required capital levels may be subject to supervisory action through the
issuance of capital directives, cease and desist orders or other written orders
or agreements with the appropriate federal banking agency.  Failure of an insured depository institution
to meet the required capital levels may also prohibit or limit the ability of a
bank holding company controlling such institution to engage in merger and
acquisition activities or other expansion activities.  As of December 31, 2005, Heritage Bank met the well capitalized
requirements issued by the applicable federal banking agency.

Depository
institutions generally depend upon the difference between the interest rate
paid by them on deposits and other borrowings and the interest rate received on
loans extended to customers and on investment securities.  The interest rates are highly sensitive to
many factors beyond the control of depository institutions, including general
economic conditions in their primary market area and the broader economy.  In addition to general economic conditions
affecting business generally, depository institutions such as Heritage Bank is
affected by federal government policies and actions of regulatory
agencies.  In particular, the FRB
through its various operations and powers may affect interest rates charged on
loans or paid on deposits.  Such changes
in interest rates affect the growth and quality of depository institution
loans, investments and deposits.

Federal
banking regulatory agencies may institute enforcement actions against
depository institutions, their parent holding companies and other
institution-affiliated parties with respect to violations of any federal law or
regulation.  Enforcement actions may
include the appointment of a conservator or receiver, the issuance of cease and
desist orders or other formal action, termination of

13

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insurance of
deposits and the imposition of civil money penalties.  Heritage Bank is currently not subject to any such enforcement
actions.

From
time to time, various types of federal and state legislation have been proposed
that would result in additional regulation of, or restrictions on, the business
of depository institutions.  It cannot
be predicted whether such legislation will be adopted or how such legislation
would affect the business of Heritage Bank.

Deposit
Insurance and FDIC Regulation. Heritage Bank is a
member of the Savings Association Insurance Fund (SAIF), and the Bank
Insurance Fund (BIF), both administered by the FDIC.  Section 5(d) of the Federal Deposit
Insurance Act (FDI Act), known as the Oakar Amendment, permits merger
transactions between SAIF- and BIF-member institutions resulting in an
institution with deposits that are proportionally insured by both SAIF and BIF.

Savings
deposits are insured up to the applicable limits (generally $100,000 per
insured depositor) by the FDIC.  The
FDIC is empowered to impose deposit insurance premiums, conduct examinations
and require reporting by Heritage Bank.
The FDIC may also prohibit Heritage Bank from engaging in any activity
the FDIC determines by regulation or order to pose a serious risk to the
FDIC.  The FDIC can also initiate
enforcement actions against Heritage Bank and may terminate the deposit
insurance of Heritage Bank if it determines that Heritage Bank has engaged or
is engaging in any unsafe or unsound practice, or are in an unsafe or unsound
condition.

For
2005, the FDIC assessment rate for Heritage Bank decreased each quarter from
1.44 basis points per $100 of insured deposits during the first quarter, to
1.34 basis points for the fourth quarter.
As a result, Heritage Banks 2005 FDIC deposit insurance premium was
approximately $.1 million.  FDIC has
published assessment rates for the first quarter of 2006, per $100 of insured
deposits, of 1.32 basis points.

State
Lending Limits. Heritage Bank is subject to a State of
Montana lending limit of 20% of capital.
The maximum aggregate amount of loans outstanding to a single borrower
at Heritage Bank at December 31, 2005 and 2004 was approximately $2.1 million
and $2.2 million, respectively.  At
December 31, 2005 and 2004 Heritage Bank was in compliance with the State of
Montana lending limit.

Capital
Adequacy. FDIC emphasizes capital as a measure of
performance and establishes a rigid regulatory scheme based almost entirely on
capital levels.   Banks are assigned to
one of five capital categories depending on their total risk-based capital
ratio, Tier I risk-based capital ratio, and leverage ratio, together with
certain subjective factors.  Banks which
are deemed to be undercapitalized are subject to certain mandatory
supervisory corrective actions.  The
five statutory capital categories established by FDIC are well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized
and critically undercapitalized.
Heritage Banks capital position exceeded the minimum requirement for
the well capitalized category as of December 31, 2005.  FDIC also mandates that regulations be
promulgated adding other risk-based capital requirements covering (a)
concentrations of credit risk, (b) risks from nontraditional activities and (c)
the capital impact of fair value adjustments associated with FASB Statement No.
115, Accounting for Certain Investments in Debt and Equity Securities.  See Part IV, Item 15  Notes to
Consolidated Financial Statements  Regulatory Matters.

Federal
bank regulatory agencies use capital adequacy guidelines in the examination and
regulation of bank holding companies and banks.  If capital falls below minimum guideline levels, the holding
company or bank may be denied approval to acquire or establish additional banks
or nonbank businesses, to open new facilities, or to accept brokered deposits.

The
FDIC and Federal Reserve use risk-based capital guidelines for banks and bank
holding companies.  These are designed
to make such capital requirements more sensitive to differences in risk
profiles among banks and bank holding companies, to account for off-balance
sheet exposure, and to

14

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minimize
disincentives for holding liquid assets.
Assets and off-balance sheet items are assigned to broad risk
categories, each with appropriate weights.
The resulting capital ratios represent capital as a percentage of total
risk-weighted assets and off-balance sheet items.  The guidelines are minimums, and the Federal Reserve has noted
that bank holding companies contemplating significant expansion programs should
not allow expansion to diminish their capital ratios and should maintain ratios
well in excess of the minimum.

The
Board of Governors of the Federal Reserve System (Board) is amending the
asset size threshold and other criteria for determining whether a bank holding
company (BHC) qualifies for the Boards Small Bank Holding Company Policy
Statement and an exemption from the Boards consolidated risk-based and
leverage capital adequacy guidelines for BHCs.  The Board is adopting this final rule to address the effects of
inflation, industry consolidation, and normal asset growth of BHCs since the
Board introduced its previous policy statement in 1980.  The final rule increases the asset size
threshold from $150 million to $500 million in consolidated assets for
determining whether a BHC may qualify for the policy statement and an exemption
from the capital guidelines; modifies the qualitative criteria used in
determining whether a BHC that is under the asset size threshold nevertheless
would not qualify for the policy statement or the exemption from the capital
guidelines; and clarifies the treatment under the policy statement of
subordinated debt associated with trust preferred securities.

The
risk-based guidelines apply on a consolidated basis to any BHC with consolidated
assets of $500 million or more.  The
risk-based guidelines also apply on a consolidated basis to any BHC with
consolidated assets of less than $500 million if the holding company (i) is
engaged in significant nonbanking activities either directly or through a
nonbank subsidiary; (ii) conducts significant off-balance sheet activities
(including securitization and asset management or administration) either
directly or through a nonbank subsidiary; or (iii) has a material amount of
debt or equity securities outstanding (other than trust preferred securities)
that are registered with the Securities and Exchange Commission.  The Federal Reserve may apply the risk-based
guidelines at its discretion to any BHC, regardless of asset size, if such
action is warranted for supervisory purposes.

With
current consolidated assets of approximately $390 million, it does not appear
that United will be subject to the new risk-based guidelines as described
above.  United would, however, be
subject to the small bank holding company rules in Part 225, Regulation Y of
title 12 of the Code of Federal Regulations.

Federal
Home Loan Bank System.  Heritage Bank is a member of the FHLB of Seattle, Washington.
Each FHLB serves as a reserve or central bank for its members within its
assigned region, is funded primarily from proceeds derived from the sale of
consolidated obligations of the FHLB system and makes loans (advances) to its
members in accordance with the policies and the procedures established by the
FHLB board of directors.  All advances
from the FHLB are required to be fully secured by sufficient collateral as is
determined by the FHLB.  Member banks
are required to purchase and maintain FHLB stock in an amount equal to the
greater of 1% of the unpaid principal of residential mortgage loans, or 5% of
FHLB advances outstanding.

Corporate
Governance.United
regularly monitors developments in the area of corporate governance.  The Sarbanes-Oxley Act of 2002 (the
Sarbanes-Oxley Act) established a number of new corporate governance
standards and disclosure requirements.
The Securities and Exchange Commission (the SEC) has issued additional
rules to implement the Sarbanes-Oxley Act.
In addition, Nasdaq adopted changes to its corporate governance and
listing standards.  United has reviewed
its governance policies and practices against the requirements of the
Sarbanes-Oxley Act, related SEC rules and Nasdaqs listing standards.  As a result, United has taken steps to
implement those rules and listing standards.
In particular, United continues to maintain the following:

15

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|  |                                                                                                                               
|- | ------------------------------------------------------------------------------------------------------------------------------
| | A Nominating
  Committee and a Nominating Committee Charter;                                                                  
| 
| | A Code of
  Ethics and Business Conduct applicable to directors, officers and employees
  of the Company and of Heritage Bank;
| 
| | An Audit
  Committee Charter;                                                                                                 
| 
| | A
  Compensation Committee Charter; and                                                                                       
| 
| | A policy of
  holding regularly scheduled meetings of Uniteds non-management directors,
  separate from management.          

United
will be subject to the new Sarbanes-Oxley Act Section 404 requirements
regarding internal control evaluation and reporting for the year ended December
31, 2007.

Uniteds
Audit, Compensation and Nominating Committee charters can be obtained by
visiting Uniteds website and clicking on the Corporate Governancelink on
the home page www.ufcmontana.com, or by writing to: United financial Corp., c/o
Investor Relations, P.O. Box 2779, Great Falls, MT 59403.

Taxation

General. United files consolidated Federal
and State
of Montana income tax returns pursuant to a tax sharing agreement. Generally,
with some exceptions, including Heritage Banks reserve for bad debts discussed
below, United is subject to Federal and state income taxes in the same manner
as other corporations.

The
following discussion of tax matters is intended solely as a summary and does
not purport to be a comprehensive description of all the tax rules applicable
to United.

Tax
Bad Debt Reserves.
For taxable years beginning prior to January 1, 1996, savings
institutions, which met certain definitional tests primarily relating to their
assets and the nature of their business (qualifying thrifts), were permitted
to establish a reserve for bad debts and to make annual additions thereto,
which additions may, within specified formula limits, were deducted in arriving
at their taxable income.

Federal
legislation repealed the reserve method of accounting for bad debt reserves for
tax years beginning after December 31, 1995.
As a result, savings associations could no longer calculate their
deduction for bad debts using the percentage-of-taxable-income method.  Instead, savings associations were required
to compute their deduction based on actual charge-offs during the taxable year
or, if the savings association or its controlled group had assets of less than
$500 million, based on actual loss experience over a period of years.  This legislation also required savings
associations to recapture into income over a six-year period their post-1987 additions
to their bad debt tax reserves, thereby generating additional current tax
liability.  For additional information
regarding federal and state income taxes, see Part IV, Item 15  Notes to
Consolidated Financial Statements  Income Taxes.

Item
1A. RISK FACTORS

Operating
in the banking industry exposes United to certain risks.  The following are comments regarding the
most significant risks and uncertainties that could affect Uniteds business.

Changing
Interest Rates.
The most significant component in Uniteds net income is net interest
income, which is the difference between the interest earned on loans,
securities and other interest-earning assets and interest paid on deposits,
borrowings, and other interest-bearing liabilities.  This difference is referred to as interest rate spread.  Because of the
differences in maturities and
repricing characteristics of interest-earning assets and interest-bearing
liabilities, changes in interest rates do not produce equivalent

16

---



changes in
interest income earned on interest-earning assets and interest paid on
interest-bearing liabilities.
Accordingly, changes in interest rates can adversely affect interest
rate spread, and, in turn, profitability.
United cannot guarantee that interest rate risk can be minimized.  In addition, interest rates also affect the
amount of money available to lend.  When
interest rates rise, the cost of borrowing also increases.  Accordingly, changes in levels of market
interest rates can materially and adversely affect net interest spread, asset
quality, loan origination volume, customer retention and business
development.  See discussion concerning
Net Interest Income in Item 7-Management Discussion & Analysis.

The
Allowance For Loan Losses May Not Be Adequate To Cover Actual Loan Losses,
Which Could Adversely Affect Net Income.Heritage Bank maintains an allowance for loan
losses in an amount that management believes is adequate to provide for losses
inherent in the portfolio.  While
management strives to carefully monitor credit quality and to identify loans
that may become nonperforming, at any time there are loans included in the
portfolio that will result in losses, but that have not been identified as
nonperforming or potential problem loans.
Heritage Bank cannot be sure that deteriorating loans will be identified
before they become nonperforming assets, or that management will be able to
limit losses on those loans that are identified.  As a result, future additions to the allowance may be necessary.  Future additions
to the allowance may be
required based on changes in the composition of the loans comprising the
portfolio and changes in the financial condition of borrowers, resulting from
changes in economic conditions, or as a result of incorrect assumptions by
management in determining the allowance requirements.  Additionally, state banking regulators periodically review the
allowance for loan losses.  These regulatory
agencies may require Heritage Bank to increase the allowance for loan losses
which could have a negative effect on Uniteds financial condition and results
of operation.

Loan
Portfolio Credit Risk.  Heritage Banks loan portfolio contains a high percentage of
commercial, commercial real estate, real estate acquisition and development
loans in relation to our total loans and total assets.  These types of loans generally are viewed as
having a higher risk of default than residential real estate loans or certain
other types of loans or investments.
The Federal Deposit Insurance Corporation recently issued a
pronouncement alerting banks to their concern about banks with a heavy
concentration of commercial real estate loans.
These types of loans also typically are larger than residential real
estate loans and other commercial loans.
Because the loan portfolio contains a significant number of commercial
and commercial real estate loans with relatively large balances, the
deterioration of one or a few of these loans may cause a significant increase
in nonperforming loans.  An increase in
nonperforming loans could result in a loss of earnings from these loans, an
increase in the provision for loan losses, or an increase in loan charge-offs,
which could have an adverse impact on financial results.

United
Relies On Dividends From Heritage Bank For Revenue, And Federal And State Law
Can Limit Dividends That The Bank Pays To The Holding Company.  As a bank holding company, United is
dependent on dividends from Heritage Bank. United uses these dividends to pay
dividends on United common stock and to pay interest and principal on debt.
Federal and state laws limit the amount of dividends that Heritage Bank may pay
to United. Also, Uniteds right to participate in a distribution of assets upon
Heritage Banks liquidation or reorganization is subject to the prior claims of
the subsidiarys creditors.

Federal
And State Regulations Can Restrict Our Business, And Non-Compliance Could
Result Materially Adversely Affect Our Financial Condition And Results Of
Operations.United
and its subsidiary bank Heritage Bank are heavily regulated at the federal and
state levels. This regulation is to protect depositors, federal deposit
insurance funds, consumers and the banking system as a whole.  This regulation is not designed to protect
the holding companys shareholders. Federal and state regulatory authorities
could put restrictions on our operations, and United could be fined or
otherwise penalized if United is found to be out of compliance with regulations
that apply to our business.

The
Sarbanes-Oxley Act also requires that Uniteds management evaluate its
disclosure controls and procedures and its internal control over financial
reporting.  Uniteds auditors may in the
future be required to express an opinion on our internal controls over
financial reporting.  United is also
required to

17

---



disclose, in
its annual report on Form 10-K filed with the SEC, the existence of any
material weaknesses in its internal control.
The management of United cannot assure that one or more material
weaknesses will not be found as of the end of any given year.

The
Patriot Act, which was enacted in the wake of the September 2001 terrorist
attacks, requires Heritage Bank to implement new or revised policies and
procedures relating to anti-money laundering, compliance, suspicious
activities, and currency transaction reporting and due diligence on customers.
The Patriot Act also requires federal bank regulators to evaluate the
effectiveness of an applicant in combating money laundering in determining
whether to approve a proposed bank acquisition.

A
Downturn In The Montana Real Estate Market Or Economy Could Hurt Heritage
Banks Business.A
downturn in real estate or the general economy in Montana could hurt Heritage
Banks business because many of our loans are secured by real estate in
Montana. Real estate values and real estate markets are generally affected by
changes in national, regional or local economic conditions, fluctuations in
interest rates and the availability of loans to potential purchasers, changes
in tax laws and other governmental statutes, regulations and policies and acts
of nature.  If real estate prices decline, the value of real estate
collateral securing loans could be reduced.  Our ability to recover on
defaulted loans by foreclosing and selling the real estate collateral would
then be diminished and Heritage Bank would be more likely to suffer losses on
defaulted loans. As of December 31, 2005, approximately 62% of Heritage Banks
net loans receivable consisted of loans collateralized by various types of real
estate.  A significant portion  of Heritage Banks real property collateral
is located in Montana.  Any such
downturn could have a material adverse effect on our business, financial condition,
results of operations and cash flows.

United
Continually Encounters Technological Change, And May Have Fewer Resources Than
Its Competitors To Continue To Invest In Technological Improvements.The financial
services industry is undergoing rapid technological changes, with frequent
introductions of new technology-driven products and services. In addition to
better serving customers, the effective use of technology increases efficiency
and enables financial institutions to reduce costs. Our future success will
depend, in part, upon our ability to address the needs of our customers by
using technology to provide products and services that will satisfy customer
demands for convenience, as well as to create additional efficiencies in our operations.
Many of Uniteds competitors have substantially greater resources to invest in
technological improvements.  United
cannot assure that it will be able to effectively implement new
technology-driven products and services or be successful in marketing these
products and services to its customers.

Our
Business And Financial Condition May Be Adversely Affected By An Increase In
Competition.The
banking business in Montana is highly competitive and is currently dominated by
a number of large regional financial institutions. In addition to these
regional banks, there are a number of smaller commercial banks that operate in
these areas. Heritage Bank competes for loans and deposits with banks, savings
and loan associations, finance companies, credit unions, and mortgage bankers.
In addition to traditional financial institutions, we also compete for loans
with brokerage and investment banking companies, and governmental agencies that
make available low-cost or guaranteed loans to certain borrowers. Particularly
in times of high interest rates, we also face significant competition for
deposits from sellers of short-term money market securities as well as other
corporate and government securities.

By virtue of their larger
capital bases or affiliation with larger multibank holding companies, many of
our competitors have substantially greater capital resources and lending limits
than Heritage Bank has and perform other functions that we offer only through
correspondents. We have experienced, and expect to continue to experience,
greater competition in our primary service areas. Our business, financial
condition, results of operations and cash flows may be adversely affected by an
increase in competition. Moreover, recently enacted and proposed legislation
has focused on expanding the ability of participants in the banking and thrift
industries to engage in other lines of business. The enactment of such
legislation could put us at a competitive disadvantage because we may not have
the capital to participate in other lines of business to the same extent as
more highly capitalized financial service holding companies.

18

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United
Relies Heavily On Our Management, And The Loss Of Any Of Our Senior Officers
May Adversely Affect Our Operations. United is dependent on
the continued services of a small number of executive officers and key
employees. The loss of the services of any of these individuals could adversely
affect Uniteds business, financial condition, results of operations and cash
flows. The failure to recruit and retain key personnel could have a material
adverse effect on Uniteds business, financial condition, results of operations
and cash flows.

Item
1B. UNRESOLVED STAFF COMMENTS

None.

Item
2. PROPERTIES

At
December 31, 2005, United owned 13 of its 15 offices, including its
headquarters and other property having an aggregated book value including land
of approximately $7.1 million, and leased the remaining branches. Three
locations are leased, including two building leases and one land lease. The
following schedule provides property information for the Uniteds locations as
of December 31, 2005.

|                             |  |                     |  |                    |    |                                |  |                        |   |    |  |  |  |   |       |  | 
|---------------------------- |  | ------------------- |  | ------------------ | -- | ------------------------------ |  | ---------------------- | - | -- |  |  |  | - | ----- |  | 
|(Dollars in thousands)       |  | Properties
  Leased |  | Properties
  Owned |    | Net
  Leasehold
  Improvements |  | Net Book
  Value Owned |  
|                             |  |                     |  |                    |    |                                |  |                        |  
|Heritage Bank:               |  |                     |  |                    |    |                                |  |                        |   |    |  |  |  |   |       |  | 
|Great Falls (25,125 sq. ft.) |  |                    |  |                    | 3  |                                |  |                        | $ |   |  |  |  | $ | 2,821 |  | 
|Billings (4,900 sq. ft.)     |  | 1                   |  |                    | 1  |                                |  |                        |   |   |  |  |  |   | 1,379 |  | 
|Bozeman (4,000 sq. ft.)      |  |                    |  |                    | 1  |                                |  |                        |   |   |  |  |  |   | 1,193 |  | 
|Missoula (3,600 sq. ft.)     |  |                    |  |                    | 1  |                                |  |                        |   |   |  |  |  |   | 762   |  | 
|Havre (2,400 sq. ft.)        |  |                    |  |                    | 1  |                                |  |                        |   |   |  |  |  |   | 246   |  | 
|Libby (1,250 sq. ft.)        |  |                    |  |                    | 1  |                                |  |                        |   |   |  |  |  |   | 149   |  | 
|Chester (1,800 sq. ft.)      |  |                    |  |                    | 1  |                                |  |                        |   |   |  |  |  |   | 142   |  | 
|Shelby (2,800 sq. ft.)       |  |                    |  |                    | 1  |                                |  |                        |   |   |  |  |  |   | 101   |  | 
|Fort Benton (5,000 sq. ft.)  |  |                    |  |                    | 1  |                                |  |                        |   |   |  |  |  |   | 99    |  | 
|Glendive (4,000 sq. ft.)     |  |                    |  |                    | 1  |                                |  |                        |   |   |  |  |  |   | 99    |  | 
|Geraldine (4,350 sq. ft.)    |  |                    |  |                    | 1  |                                |  |                        |   |   |  |  |  |   | 61    |  | 
|Kalispell (2,500 sq. ft.)    |  | 1                   |  |                    |   |                                |  |                        |   | 65 |  |  |  |   |      |  | 
|Hamilton (1,200 sq. ft.)     |  | 1                   |  |                    |   |                                |  |                        |   |   |  |  |  |   |      |  | 
|                             |  |                     |  |                    |    |                                |  |                        |   |    |  |  |  |   |       |  | 
|Total Montana locations      |  | 3                   |  |                    | 13 |                                |  |                        | $ | 65 |  |  |  | $ | 7,052 |  | 
|                             |  |                     |  |                    |    |                                |  |                        |   |    |  |  |  |   |       |  | 

Item
3. LEGAL PROCEEDINGS

Although
United was not involved in any material pending litigation as of February 28,
2006, it is from time to time named in various legal proceedings arising in the
normal course of business. In the opinion of management, the disposition of
current litigation will not have a material effect on Uniteds consolidated
financial position, results of operations, or liquidity.

Item
4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS

No
matter was submitted to a vote of security holders through the solicitation of
proxies or otherwise during the quarter ended December 31, 2005.

19

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PART II

Item
5. MARKET FOR UNITEDS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES

Market
Information

United
common stock is quoted on the Nasdaq National Market under the symbol UBMT.
The closing sale price per share of UFC common stock on February 24, 2006 was
$22.47.

Shareholder
Data

As
of February 15, 2006, there were approximately 200 owners of record of United
common stock and an estimated 1,000 additional beneficial holders whose shares
of United common stock were held in street name by brokerage houses.

Common
Stock Market Prices

The
quarterly (high and low) sale prices for Uniteds common stock on the Nasdaq
National Market during the past two years were as follows. All prices have been
adjusted for the effect of the June 2002 10% stock dividend, the June 2003 50%
stock dividend, and the December 2005 25% stock dividend.

|               |  |                      |       |                      |   |       |  |     |       |  |   |       | 
|-------------- |  | -------------------- | ----- | -------------------- | - | ----- |  | --- | ----- |  | - | ----- | 
|               |  | 2005                 |       | 2004                 |  
|               |  |                      |       |                      |  
|               |  | United
  Stock Price |       | United
  Stock Price |  
|               |  |                      |       |                      |  
|               |  | High                 |       | Low                  |   | High  |  | Low |      
|               |  |                      |       |                      |   |       |  |     |      
|               |  |                      |       |                      |   |       |  |     |       |  |   |       | 
|First Quarter  |  | $                    | 19.75 |                      | $ | 18.88 |  | $   | 23.02 |  | $ | 19.84 | 
|Second Quarter |  |                      | 20.20 |                      |   | 18.88 |  |     | 20.73 |  |   | 18.34 | 
|Third Quarter  |  |                      | 20.16 |                      |   | 19.12 |  |     | 19.54 |  |   | 17.94 | 
|Fourth quarter |  |                      | 21.56 |                      |   | 20.75 |  |     | 19.77 |  |   | 18.59 | 

Dividend
Payment History on United Common Stock

United
paid the following cash dividends for each of the four quarters of 2005 and
2004, adjusted for the 10% stock dividend in June 2002, the 50% stock dividend
in June 2003 and the 25% stock dividend in December 2005:

|               |  |      |     |      |   |      | 
|-------------- |  | ---- | --- | ---- | - | ---- | 
|               |  | 2005 |     | 2004 |  
|               |  |      |     |      |  
|               |  |      |     |      |   |      | 
|First Quarter  |  | $    | .22 |      | $ | .21  | 
|Second Quarter |  |      | .22 |      |   | 1.01 | 
|Third Quarter  |  |      | .23 |      |   | .22  | 
|Fourth quarter |  |      | .23 |      |   | .22  | 
|               |  |      |     |      |   |      | 
|               |  | $    | .90 |      | $ | 1.66 | 
|               |  |      |     |      |   |      | 

The
declaration and payment of future dividends by the United Board is dependent
upon Uniteds net income, financial condition, economic and market conditions,
industry standards, certain regulatory and tax considerations and limitations
and other conditions. See Supervision and Regulation. No assurance can be
given, or should be assumed, as to the amount, timing or frequency of future
dividend payments.

20

---



Item
6. SELECTED FINANCIAL DATA

Five
Year Summary of Operations and Selected Financial Data

|                                                                      |  |                                              |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|--------------------------------------------------------------------- |  | -------------------------------------------- | ------- | ---- | - | ------- | - | ---- | ------- | ---- | - | ------- | - | - | ------- | -
|                                                                      |  | As Of And
  For The Years Ended December 31, |        
|                                                                      |  |                                              |        
|(Dollars in thousands,
  Except per share data)                       |  | 2005                                         |         | 2004 |   | 2003    |   | 2002 |         | 2001 |  
|                                                                      |  |                                              |         |      |   |         |   |      |         |      |  
|Operating
  Data:                                                     |  |                                              |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Interest income                                                       |  | $                                            | 21,309  |      | $ | 18,165  |   | $    | 17,808  |      | $ | 19,513  |   | $ | 22,022  |  
|Interest expense                                                      |  |                                              | 7,177   |      |   | 5,153   |   |      | 5,955   |      |   | 9,182   |   |   | 12,424  |  
|                                                                      |  |                                              |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Net interest
  income                                                 |  |                                              | 14,132  |      |   | 13,012  |   |      | 11,853  |      |   | 10,331  |   |   | 9,598   |  
|Provision for
  loan losses                                           |  |                                              | 230     |      |   | 70      |   |      | 778     |      |   | 1,115   |   |   | 1,387   |  
|                                                                      |  |                                              |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Net interest
  income after provision for loan losses                 |  |                                              | 13,902  |      |   | 12,942  |   |      | 11,075  |      |   | 9,216   |   |   | 8,211   |  
|Non-interest
  income                                                 |  |                                              | 4,550   |      |   | 4,427   |   |      | 6,184   |      |   | 4,648   |   |   | 4,142   |  
|Non-interest
  expense                                                |  |                                              | 11,787  |      |   | 11,089  |   |      | 11,492  |      |   | 9,747   |   |   | 8,795   |  
|                                                                      |  |                                              |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Income from
  continuing operations Before income taxes               |  |                                              | 6,665   |      |   | 6,280   |   |      | 5,767   |      |   | 4,117   |   |   | 3,558   |  
|Provision for
  income taxes                                          |  |                                              | 2,525   |      |   | 2,362   |   |      | 1,938   |      |   | 1,562   |   |   | 1,411   |  
|                                                                      |  |                                              |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Income from
  continuing operations                                   |  |                                              | 4,140   |      |   | 3,918   |   |      | 3,829   |      |   | 2,555   |   |   | 2,147   |  
|Income from
  discontinued operations                                 |  |                                              |        |      |   |        |   |      | 891     |      |   | 400     |   |   | 228     |  
|                                                                      |  |                                              |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Net income                                                            |  | $                                            | 4,140   |      | $ | 3,918   |   | $    | 4,720   |      | $ | 2,955   |   | $ | 2,375   |  
|                                                                      |  |                                              |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Per
  Share Data (1):                                                 |  |                                              |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Basic earnings
  per share                                            |  | $                                            | 1.35    |      | $ | 1.29    |   | $    | 1.55    |      | $ | .97     |   | $ | .75     |  
|Diluted earnings
  per share                                          |  |                                              | 1.32    |      |   | 1.25    |   |      | 1.50    |      |   | .96     |   |   | .75     |  
|Book value per
  share                                                |  |                                              | 10.41   |      |   | 10.06   |   |      | 10.63   |      |   | 10.00   |   |   | 9.38    |  
|Dividends per
  common share                                          |  |                                              | .90     |      |   | 1.66    |   |      | .72     |      |   | .53     |   |   | .51     |  
|Shares used to
  calculate per share Data (Book value)                |  |                                              | 3,071   |      |   | 3,046   |   |      | 3,046   |      |   | 3,048   |   |   | 3,048   |  
|Shares used to
  calculate per share Data (Earnings - basic)          |  |                                              | 3,061   |      |   | 3,043   |   |      | 3,050   |      |   | 3,048   |   |   | 3,145   |  
|Shares used to
  calculate per share Data (Earnings - diluted)        |  |                                              | 3,147   |      |   | 3,143   |   |      | 3,139   |      |   | 3,085   |   |   | 3,155   |  
|Financial
  Condition Data (2):                                       |  |                                              |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Assets from
  continuing operations                                   |  | $                                            | 389,547 |      | $ | 347,140 |   | $    | 304,817 |      | $ | 303,590 |   | $ | 317,826 |  
|Assets from
  discontinued operations                                 |  |                                              |        |      |   |        |   |      |        |      |   | 74,483  |   |   | 64,997  |  
|Net loans and
  loans held for sale                                   |  |                                              | 315,899 |      |   | 270,797 |   |      | 231,062 |      |   | 224,164 |   |   | 222,402 |  
|Securities
  available for-sale                                       |  |                                              | 35,359  |      |   | 38,949  |   |      | 43,279  |      |   | 43,526  |   |   | 53,484  |  
|Deposits                                                              |  |                                              | 303,691 |      |   | 258,334 |   |      | 227,514 |      |   | 225,230 |   |   | 223,703 |  
|FHLB advances                                                         |  |                                              | 42,044  |      |   | 44,794  |   |      | 31,000  |      |   | 34,000  |   |   | 48,500  |  
|Other borrowings
  and securities sold Under agreements to repurchase |  |                                              | 4,248   |      |   | 7,498   |   |      | 7,889   |      |   | 13,487  |   |   | 11,604  |  
|Stockholders
  equity                                                |  |                                              | 31,978  |      |   | 30,628  |   |      | 32,381  |      |   | 30,476  |   |   | 28,597  |  
|Selected
  Financial Ratios and Other Data:                           |  |                                              |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Return on
  average assets                                            |  |                                              | 1.13    | %    |   | 1.18    | % |      | 1.51    | %    |   | .95     | % |   | .78     | %
|Return on
  average stockholders Equity                              |  |                                              | 13.35   |      |   | 12.73   |   |      | 14.96   |      |   | 10.06   |   |   | 8.21    |  
|Net interest
  margin                                                 |  |                                              | 4.16    |      |   | 4.22    |   |      | 4.03    |      |   | 3.57    |   |   | 3.36    |  
|Efficiency ratio
  (3)                                                |  |                                              | 63.09   |      |   | 63.59   |   |      | 63.71   |      |   | 65.07   |   |   | 64.01   |  
|Net charge-offs
  to average loans                                    |  |                                              | .06     |      |   | .05     |   |      | .06     |      |   | .36     |   |   | .27     |  
|Nonperforming
  loans to total loans                                  |  |                                              | .01     |      |   | .15     |   |      | .36     |      |   | .30     |   |   | .46     |  
|Allowance for
  loan losses to total Loans                            |  |                                              | 1.19    |      |   | 1.38    |   |      | 1.63    |      |   | 1.45    |   |   | 1.28    |  
|Nonperforming
  loans to allowance for Loan losses                    |  |                                              | .80     |      |   | 10.85   |   |      | 21.89   |      |   | 20.51   |   |   | 35.96   |  
|Average equity
  to average assets                                    |  |                                              | 8.43    |      |   | 9.29    |   |      | 10.09   |      |   | 9.46    |   |   | 9.50    |  
|Dividend payout
  ratio                                               |  |                                              | 66.37   |      |   | 128.99  |   |      | 46.23   |      |   | 54.30   |   |   | 66.40   |  

|    |                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | All years have been restated for the effect of the
  June 2002 10% stock dividend, the June 2003 50% stock dividend and the
  December 2005 25% stock dividend.
|    |                                                                                                                                                                
|(2) | At year end.                                                                                                                                                   
|    |                                                                                                                                                                
|(3) | Non-interest expense  ̧(net
  interest income + non-interest income).                                                                                           

21

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Item
7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The
following discussion and analysis of Uniteds financial condition and results
of operations should be read in conjunction with Selected Financial Data and
its financial statements and related notes appearing elsewhere in this report.
This discussion contains forward-looking statements that involve risks and
uncertainties. Uniteds actual results could differ significantly from those
projected in the forward-looking statements as a result of certain factors,
including those discussed in Cautionary Statement and elsewhere in this
report. United assumes no obligation to update the forward-looking statements
or such factors.

Selected
United Financial Data

The
following results of operations is derived from the audited consolidated
financial statements.

|                                                        |  |                            |        |      |   |        |  |   |        | 
|------------------------------------------------------- |  | -------------------------- | ------ | ---- | - | ------ |  | - | ------ | 
|                                                        |  | Years
  ended December 31, |       
|                                                        |  |                            |       
|(In thousands, except per share data)                   |  | 2005                       |        | 2004 |   | 2003   | 
|                                                        |  |                            |        |      |   |        | 
|Interest income                                         |  | $                          | 21,309 |      | $ | 18,165 |  | $ | 17,808 | 
|Interest expense                                        |  |                            | 7,177  |      |   | 5,153  |  |   | 5,955  | 
|                                                        |  |                            |        |      |   |        |  |   |        | 
|Net interest income                                     |  |                            | 14,132 |      |   | 13,012 |  |   | 11,853 | 
|Provision for loan losses                               |  |                            | 230    |      |   | 70     |  |   | 778    | 
|                                                        |  |                            |        |      |   |        |  |   |        | 
|Net interest income after provision for loan losses     |  |                            | 13,902 |      |   | 12,942 |  |   | 11,075 | 
|Non-interest income                                     |  |                            | 4,550  |      |   | 4,427  |  |   | 6,184  | 
|Non-interest expense                                    |  |                            | 11,787 |      |   | 11,089 |  |   | 11,492 | 
|                                                        |  |                            |        |      |   |        |  |   |        | 
|Income from continuing operations before income
  taxes |  |                            | 6,665  |      |   | 6,280  |  |   | 5,767  | 
|Provision for income taxes                              |  |                            | 2,525  |      |   | 2,362  |  |   | 1,938  | 
|                                                        |  |                            |        |      |   |        |  |   |        | 
|Income from continuing operations                       |  |                            | 4,140  |      |   | 3,918  |  |   | 3,829  | 
|Income from discontinued operations                     |  |                            |       |      |   |       |  |   | 891    | 
|                                                        |  |                            |        |      |   |        |  |   |        | 
|Net income                                              |  | $                          | 4,140  |      | $ | 3,918  |  | $ | 4,720  | 
|                                                        |  |                            |        |      |   |        |  |   |        | 
|Basic earnings per share                                |  |                            |        |      |   |        |  |   |        | 
|Continuing
  operations                                 |  | $                          | 1.35   |      | $ | 1.29   |  | $ | 1.26   | 
|Discontinued
  operations                               |  |                            |       |      |   |       |  |   | .29    | 
|                                                        |  |                            |        |      |   |        |  |   |        | 
|Net income                                              |  | $                          | 1.35   |      | $ | 1.29   |  | $ | 1.55   | 
|                                                        |  |                            |        |      |   |        |  |   |        | 
|Weighted average shares outstanding  basic             |  |                            | 3,061  |      |   | 3,043  |  |   | 3,050  | 
|                                                        |  |                            |        |      |   |        |  |   |        | 
|Diluted earnings per share                              |  |                            |        |      |   |        |  |   |        | 
|Continuing
  operations                                 |  | $                          | 1.32   |      | $ | 1.25   |  | $ | 1.22   | 
|Discontinued
  operations                               |  |                            |       |      |   |       |  |   | .28    | 
|                                                        |  |                            |        |      |   |        |  |   |        | 
|Net income                                              |  | $                          | 1.32   |      | $ | 1.25   |  | $ | 1.50   | 
|                                                        |  |                            |        |      |   |        |  |   |        | 
|Weighted average shares outstanding  diluted           |  |                            | 3,147  |      |   | 3,143  |  |   | 3,139  | 
|                                                        |  |                            |        |      |   |        |  |   |        | 

Results
of Operations - Three Years Ended December 31, 2005

Uniteds
net income for the year ended December 31, 2005 was $4.1 million, or basic and
diluted earnings per share of $1.35 and $1.32, respectively. This compares to
net income of $3.9 million, or basic and diluted earnings per share of $1.29
and $1.25, respectively, in 2004 and to net income of $4.7 million, or basic
and diluted earnings per share of $1.55 and $1.50, respectively, in 2003.

22

---



During
2005, Uniteds continuing operations contributed $4.1 million in net income or
$1.32 per diluted share, compared to $1.25 per diluted share in 2004 and $1.22
per diluted share in 2003.

Summary Results for 2005 Compared to 2004.
Strong loan growth in 2005 and increases in interest rates were the driving
factors behind the $3.1 million increase in interest income during 2005.
Interest bearing deposits increased $36.2 million or 17.2% in 2005 over 2004.
This growth along with increased interest rates paid on deposits represented
87.2% of the total increase in interest expense in 2005.

Net
interest income increased $1.1 million or 8.6% to $14.1 million in 2005, and
the provision for loan losses increased $.1 million, resulting in a total
increase of $1.0 million, or 7.4%, in net interest income after provision for
loan losses. Non-interest income increased $.2 million, or 2.8%, in 2005 to
$4.6 million over 2004, including a $.4 million increase in gain on sale of
loans and a $.2 million decrease in gain on sale of securities. The $.7 million
increase in non-interest expense in 2005 includes a $.5 million increase in
salaries and commissions and a $.1 million increase in legal and accounting
costs.

Uniteds
results of operations for the year ended December 31, 2005 were impacted
favorably by consistent mortgage lending volumes and growth in net interest
income. Interest rates increased steadily in 2005, with a gradual 1.90%
increase of the federal funds rate by the Federal Reserve Board for the twelve
months ended December 31, 2005.

Interest
rate margins at Heritage Bank declined .06% to 4.16% in 2005 from 4.22% in
2004. Average yields on interest-earning assets rose .38% in 2005 as compared
to 2004, while average rates on interest-bearing liabilities increased .49%.
This resulted in a drop in interest rate spread of .11% from 3.86% in 2004 to
3.75% in 2005.

Summary Results for 2004 Compared to 2003.
Net interest income increased $1.1 million to $13.0 million in 2004, or 9.8%,
and the provision for loan losses decreased $.7 million, resulting in a total
increase of $1.9 million, or 16.9%, in net interest income after provision for
loan losses. Non-interest income decreased $1.8 million, or 29.0%, in 2004 to
$4.4 million over 2003, due to a record gain on sale of loans by Uniteds
mortgage lending activities in 2003.

Uniteds
subsidiary, Heritage Bank, experienced a significant increase in net loan
volumes in 2004 of $37.8 million, a 16.6% increase in net loans over 2003. In
the 2004 lower rate environment, Heritage Bank focused on its strengths as a
community service bank to remain competitive and retain favorable client
relationships. Total loans secured by real estate were up $25.1 million in 2004
over 2003. Commercial loans were also up $8.4 million and consumer loans have
increased $2.7 million for the same time period.

Interest
rate margins at Heritage Bank rose 19% to 4.22% in 2004 from 4.03% in 2003.
Average yields on interest-earning assets declined 17% in 2004 as compared to
2003, while average rates on interest-bearing liabilities decreased .45%. This
resulted in a change in interest rate spread of .28% from 3.58% in 2003 to
3.86% in 2004.

The
$.8 million decrease in income from discontinued operations in 2004 was the
result of the sale of Uniteds majority owned subsidiary Valley Bancorp Inc. in
July 2003. For more details on this transaction, see Discontinued Operations
in this report.

Critical Accounting Policies. United has
identified its most critical accounting policies to be that related to the
allowance for loan losses, stock based compensation and accounting for
securities available-for-sale.

23

---



Uniteds allowance for loan
losses methodology incorporates a variety of risk considerations in
establishing an allowance for loan losses that management believes is
appropriate. Risk factors include historical loss experience, delinquency and
charge-off trends, collateral values, an analysis of the current loan
portfolio, and the level of non-performing and impaired loans. An internal loan
risk grading system is also used to evaluate potential losses of individual
loans. Other factors include the future economic trends in Uniteds markets
and, in particular, the state of certain industries. Changes in any of the
above factors could have a significant affect on the calculation of the
allowance for loan losses in any given period. Therefore, a full analysis is
performed by management on a quarterly basis to ensure that changes in
estimated loan loss levels are adjusted on a timely basis.

SFAS No. 123,
Accounting for Stock-Based Compensation, requires disclosure about
stock-based compensation arrangements regardless of the method used to account
for them. As permitted by SFAS No. 123, United applies the accounting
provisions of Accounting Principles Board (APB) Opinion No. 25, and therefore
discloses the difference between compensation cost included in net income and
the related cost measured by the fair value-based method defined by SFAS No.
123, including tax effects, that would have been recognized in the statement of
operations if the fair value method had been used. Under APB Opinion No. 25, no
compensation cost has been recognized for Uniteds stock option plan. Had
compensation cost for this plan been determined consistent with SFAS No. 123
and recognized over the vesting period, Uniteds net income and earnings per
share would have been reduced to the following pro forma amounts:

|                                                     |  |               |       |             |   |               |  |             |       |               |   |             |  |   |       |  |   |       | 
|---------------------------------------------------- |  | ------------- | ----- | ----------- | - | ------------- |  | ----------- | ----- | ------------- | - | ----------- |  | - | ----- |  | - | ----- | 
|                                                     |  | 2005          |       | 2004        |   | 2003          | 
|                                                     |  |               |       |             |   |               | 
|(Dollars in thousands,
  except for share
  amounts) |  | As
  Reported |       | Pro
  Forma |   | As
  Reported |  | Pro
  Forma |       | As
  Reported |   | Pro
  Forma | 
|                                                     |  |               |       |             |   |               |  |             |       |               |   |             | 
|                                                     |  |               |       |             |   |               |  |             |       |               |   |             |  |   |       |  |   |       | 
|Net income                                           |  | $             | 4,140 |             | $ | 4,120         |  | $           | 3,918 |               | $ | 3,865       |  | $ | 4,720 |  | $ | 4,661 | 
|                                                     |  |               |       |             |   |               |  |             |       |               |   |             |  |   |       |  |   |       | 
|Basic earnings
  per Share:                          |  |               |       |             |   |               |  |             |       |               |   |             |  |   |       |  |   |       | 
|Continuing
  operations                              |  | $             | 1.35  |             | $ | 1.35          |  | $           | 1.29  |               | $ | 1.27        |  | $ | 1.26  |  | $ | 1.24  | 
|Discontinued
  operations                            |  |               |      |             |   |              |  |             |      |               |   |            |  |   | .29   |  |   | .29   | 
|                                                     |  |               |       |             |   |               |  |             |       |               |   |             |  |   |       |  |   |       | 
|                                                     |  | $             | 1.35  |             | $ | 1.35          |  | $           | 1.29  |               | $ | 1.27        |  | $ | 1.55  |  | $ | 1.53  | 
|                                                     |  |               |       |             |   |               |  |             |       |               |   |             |  |   |       |  |   |       | 
|Diluted earnings
  Per share:                        |  |               |       |             |   |               |  |             |       |               |   |             |  |   |       |  |   |       | 
|Continuing
  Operations                              |  | $             | 1.32  |             | $ | 1.31          |  | $           | 1.25  |               | $ | 1.23        |  | $ | 1.22  |  | $ | 1.21  | 
|Discontinued
  Operations                            |  |               |      |             |   |              |  |             |      |               |   |            |  |   | .28   |  |   | .28   | 
|                                                     |  |               |       |             |   |               |  |             |       |               |   |             |  |   |       |  |   |       | 
|                                                     |  | $             | 1.32  |             | $ | 1.31          |  | $           | 1.25  |               | $ | 1.23        |  | $ | 1.50  |  | $ | 1.49  | 
|                                                     |  |               |       |             |   |               |  |             |       |               |   |             |  |   |       |  |   |       | 

In
December 2004, FASB issued SFAS No 123 (revised 2004), Share-Based Payment.
This Statement requires a public entity to measure the cost of employee
services received in exchange for an award of equity instruments based on the
grant-date fair value of the award. That cost will be recognized over the
period during which an employee is required to provide service in exchange for
the award.

A
public entity will initially measure the cost of employee services received in
exchange for an award of liability instruments based on its current fair value;
the fair value of that award will be remeasured subsequently at each reporting
date through the settlement date. Changes in fair value during the requisite
service period will be recognized as compensation cost over that period.

24

---



The
grant-date fair value of employee share options and similar instruments will be
estimated using option-pricing models adjusted for the unique characteristics
of those instruments (unless observable market prices for the same or similar
instruments are available). If an equity award is modified after the grant
date, the incremental value of compensation cost will be recognized.

As
a public company, this Statement becomes effective for United as of January 1,
2006. United will continue to use the same fair value based method to compute stock-based
employee compensation as was used in prior years for disclosure purposes under
SFAS No. 123. As of December 31, 2005, management estimates the total
stock-based employee compensation expense that United will report during 2006
will be approximately $.01 to $.02 per share. This amount is subject revisions
as assumptions are finalized.

United
has also identified its accounting method for securities available-for-sale to
be a critical accounting policy. Securities available-for-sale are carried at
fair value and unrealized gains and losses (net of related tax effects) are
excluded from earnings and reported as a separate component of stockholders
equity. Declines in the fair value of available-for-sale securities below
carrying value that are other than temporary are changed to expense as realized
losses and the related carrying value is reduced to fair value. In estimating
other-than-temporary losses, management considers (1) the length of time and
extent to which the fair value has been less than cost, (2) the financial
condition and near-term prospects of the issuer, and (3) the intent and ability
of United to retain its investment in the issuer for a period of time
sufficient to allow for any anticipated recovery in fair value. (See Part IV,
Item 15- Notes to Consolidated Financial Statements- Securities
Available-For-Sale).

Discontinued
Operations. On July 31, 2003, United sold its majority-owned
subsidiary, Valley Bancorp Inc. (Valley), to Marquette Financial Companies.
An after-tax gain of $714,129 was recorded on the sale, and along with the
results of operations of Valley, is recorded within the consolidated income
statement as net income from discontinued operations. All previously issued
consolidated financial statements have been restated to also disclose the
assets, liabilities, and operations of Valley as discontinued operations.
Valleys discontinued operations resulted in income net of tax of $890,716, or
$.28 per diluted share, during 2003.

Unless
noted otherwise, the results of operation of the discontinued segment are
excluded from the following presentation and discussions. The footnotes to the
accompanying consolidated financial statements include additional presentation
and discussions regarding the discontinued operations of Valley.

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 and expressed as a percentage. Net interest income and net interest
margin 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-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.

The following table illustrates the changes in
Uniteds net interest income due to changes in volume and changes in net
interest income due to changes in rates:

25

---



|                                             |  |                                           |       |                                           |   |                |   |       |     |        |   |       |   |                |       |       |   |        |   |   |      |   |   |       |  
|-------------------------------------------- |  | ----------------------------------------- | ----- | ----------------------------------------- | - | -------------- | - | ----- | --- | ------ | - | ----- | - | -------------- | ----- | ----- | - | ------ | - | - | ---- | - | - | ----- | -
|(Dollars in thousands)                       |  | Year Ended
  December 31,
  2005 vs. 2004 |       | Year Ended
  December 31,
  2004 vs. 2003 |  
|                                             |  |                                           |       |                                           |  
|                                             |  |                                           |       |                                           |  
|                                             |  | Increase
  (decrease) due to              |       | Increase
  (decrease) due to              |  
|                                             |  |                                           |       |                                           |  
|                                             |  | Volume                                    |       | Rate                                      |   | Rate/
  Volume |   | Total |     | Volume |   | Rate  |   | Rate/
  Volume |       | Total |  
|                                             |  |                                           |       |                                           |   |                |   |       |     |        |   |       |   |                |       |       |  
|Interest-earning
  assets:                   |  |                                           |       |                                           |   |                |   |       |     |        |   |       |   |                |       |       |   |        |   |   |      |   |   |       |  
|Loans                                        |  | $                                         | 2,411 |                                           | $ | 751            |   | $     | 110 |        | $ | 3,272 |   | $              | 1,731 |       | $ | (1,030 | ) | $ | (113 | ) | $ | (588  | )
|Investment and
  mortgage  Backed securities |  |                                           | (169  | )                                         |   | 32             |   |       | (3  | )      |   | (140  | ) |                | (38   | )     |   | (32    | ) |   | 1    |   |   | (69   | )
|Other
  interest-earning Assets              |  |                                           | (25   | )                                         |   | 46             |   |       | (9  | )      |   | 12    |   |                | (134  | )     |   | (52    | ) |   | 24   |   |   | (162  | )
|                                             |  |                                           |       |                                           |   |                |   |       |     |        |   |       |   |                |       |       |   |        |   |   |      |   |   |       |  
|Total interest-earning
  Assets              |  | $                                         | 2,217 |                                           | $ | 829            |   | $     | 98  |        | $ | 3,144 |   | $              | 1,559 |       | $ | (1,114 | ) | $ | (88  | ) | $ | 357   |  
|Interest-bearing
  Liabilities:              |  |                                           |       |                                           |   |                |   |       |     |        |   |       |   |                |       |       |   |        |   |   |      |   |   |       |  
|Interest-bearing
  Demand                    |  |                                           | (6    | )                                         |   | 25             |   |       | (1  | )      |   | 18    |   |                | 27    |       |   | (59    | ) |   | (7   | ) |   | (39   | )
|Savings deposits                             |  |                                           | (42   | )                                         |   | 79             |   |       | (7  | )      |   | 30    |   |                | 24    |       |   | (195   | ) |   | (8   | ) |   | (179  | )
|Time deposits                                |  |                                           | 951   |                                           |   | 572            |   |       | 195 |        |   | 1718  |   |                | (44   | )     |   | (590   | ) |   | 8    |   |   | (626  | )
|Borrowings                                   |  |                                           | 78    |                                           |   | 182            |   |       | (1  | )      |   | 259   |   |                | 426   |       |   | (313   | ) |   | (71  | ) |   | 42    |  
|                                             |  |                                           |       |                                           |   |                |   |       |     |        |   |       |   |                |       |       |   |        |   |   |      |   |   |       |  
|Total
  interest-bearing Liabilities         |  | $                                         | 981   |                                           | $ | 858            |   | $     | 186 |        | $ | 2,025 |   | $              | 433   |       | $ | (1 157 | ) | $ | (78  | ) |   | (802  | )
|                                             |  |                                           |       |                                           |   |                |   |       |     |        |   |       |   |                |       |       |   |        |   |   |      |   |   |       |  
|Net interest
  income                        |  | $                                         | 1,236 |                                           | $ | (29            | ) | $     | (88 | )      | $ | 1,119 |   | $              | 1,126 |       | $ | 43     |   | $ | (10  | ) | $ | 1,159 |  
|                                             |  |                                           |       |                                           |   |                |   |       |     |        |   |       |   |                |       |       |   |        |   |   |      |   |   |       |  

26

---



The
following tables set forth average balances for interest-earning assets and
interest-bearing liabilities, the interest and yield on interest-earning
assets, the interest and rate paid on interest-bearing liabilities, the net
interest income and net interest spread, and the net interest margin for the
years indicated:

|                                               |  |                                |         |          |   |                      |  |  |      |  
|---------------------------------------------- |  | ------------------------------ | ------- | -------- | - | -------------------- |  |  | ---- | -
|Average Balance Sheet
  (Dollars in thousands) |  |                                |         |          |   |                      |  |  |      |  
|                                               |  | Year Ended
  December 31, 2005 |        
|                                               |  |                                |        
|                                               |  | Average
  Balance              |         | Interest |   | Average
  Yield/Rate | 
|                                               |  |                                |         |          |   |                      | 
|Interest-earning assets:                       |  |                                |         |          |   |                      |  |  |      |  
|Loans (1)                                      |  | $                              | 294,112 |          | $ | 19,717               |  |  | 6.70 | %
|Investment and
  mortgage-backed securities    |  |                                | 35,858  |          |   | 1,446                |  |  | 4.03 | %
|Other
  interest-earning assets                |  |                                | 9,666   |          |   | 146                  |  |  | 1.52 | %
|                                               |  |                                |         |          |   |                      |  |  |      |  
|Total
  interest-earning assets                |  | $                              | 339,636 |          | $ | 21,309               |  |  | 6.27 | %
|Non-interest-earning
  assets                  |  |                                | 27,981  |          |   |                      |  |  |      |  
|                                               |  |                                |         |          |   |                      |  |  |      |  
|Total assets                                   |  | $                              | 367,617 |          |   |                      |  |  |      |  
|                                               |  |                                |         |          |   |                      |  |  |      |  
|Interest-bearing liabilities:                  |  |                                |         |          |   |                      |  |  |      |  
|Interest-bearing
  demand                      |  | $                              | 31,390  |          | $ | 212                  |  |  | .68  | %
|Savings deposits                               |  |                                | 54,298  |          |   | 478                  |  |  | .88  | %
|Time deposits                                  |  |                                | 144,276 |          |   | 4,509                |  |  | 3.12 | %
|Borrowings                                     |  |                                | 54,810  |          |   | 1,978                |  |  | 3.61 | %
|                                               |  |                                |         |          |   |                      |  |  |      |  
|Total interest-bearing liabilities             |  | $                              | 284,774 |          | $ | 7,177                |  |  | 2.52 | %
|                                               |  |                                |         |          |   |                      |  |  |      |  
|                                               |  |                                |         |          |   |                      |  |  |      |  
|Stockholders equity                           |  | $                              | 31,002  |          |   |                      |  |  |      |  
|                                               |  |                                |         |          |   |                      |  |  |      |  
|                                               |  |                                |         |          |   |                      |  |  |      |  
|                                               |  |                                |         |          |   |                      |  |  |      |  
|Net interest income                            |  |                                |         |          | $ | 14,132               |  |  |      |  
|                                               |  |                                |         |          |   |                      |  |  |      |  
|Net interest spread                            |  |                                |         |          |   |                      |  |  | 3.75 | %
|Net interest margin(2)                         |  |                                |         |          |   |                      |  |  | 4.16 | %

|    |                                                                              
|--- | -----------------------------------------------------------------------------
|(1) | Includes nonaccrual loans.                                                   
|    |                                                                              
|(2) | Computed on a fully taxable basis, without regard to
  tax equivalent yields.

27

---



|                                               |  |                                |         |          |   |                      |  |  |      |  
|---------------------------------------------- |  | ------------------------------ | ------- | -------- | - | -------------------- |  |  | ---- | -
|Average Balance Sheet
  (Dollars in thousands) |  |                                |         |          |   |                      |  |  |      |  
|                                               |  | Year Ended
  December 31, 2004 |        
|                                               |  |                                |        
|                                               |  | Average
  Balance              |         | Interest |   | Average
  Yield/Rate | 
|                                               |  |                                |         |          |   |                      | 
|Interest earning
  assets:                     |  |                                |         |          |   |                      |  |  |      |  
|Loans (1)                                      |  | $                              | 256,512 |          | $ | 16,445               |  |  | 6.41 | %
|Investment and
  mortgage-backed  securities   |  |                                | 40,133  |          |   | 1,586                |  |  | 3.95 | %
|Other
  interest-earning assets                |  |                                | 11,860  |          |   | 134                  |  |  | 1.13 | %
|                                               |  |                                |         |          |   |                      |  |  |      |  
|Total
  interest-earning assets                |  | $                              | 308,505 |          | $ | 18,165               |  |  | 5.89 | %
|Non-interest-earning
  assets                  |  |                                | 22,686  |          |   |                      |  |  |      |  
|                                               |  |                                |         |          |   |                      |  |  |      |  
|Total assets                                   |  | $                              | 331,191 |          |   |                      |  |  |      |  
|                                               |  |                                |         |          |   |                      |  |  |      |  
|Interest-bearing
  liabilities:                |  |                                |         |          |   |                      |  |  |      |  
|Interest-bearing
  demand                      |  | $                              | 32,351  |          | $ | 194                  |  |  | .60  | %
|Savings deposits                               |  |                                | 59,925  |          |   | 448                  |  |  | .75  | %
|Time deposits                                  |  |                                | 107,603 |          |   | 2,791                |  |  | 2.59 | %
|Borrowings                                     |  |                                | 54,105  |          |   | 1,720                |  |  | 3.18 | %
|                                               |  |                                |         |          |   |                      |  |  |      |  
|Total interest-bearing
  liabilities           |  | $                              | 253,984 |          | $ | 5,153                |  |  | 2.03 | %
|                                               |  |                                |         |          |   |                      |  |  |      |  
|                                               |  |                                |         |          |   |                      |  |  |      |  
|Stockholders
  equity                         |  | $                              | 30,773  |          |   |                      |  |  |      |  
|                                               |  |                                |         |          |   |                      |  |  |      |  
|                                               |  |                                |         |          |   |                      |  |  |      |  
|                                               |  |                                |         |          |   |                      |  |  |      |  
|Net interest
  income                          |  |                                |         |          | $ | 13,012               |  |  |      |  
|                                               |  |                                |         |          |   |                      |  |  |      |  
|Net interest
  spread                          |  |                                |         |          |   |                      |  |  | 3.86 | %
|Net interest
  margin(2)                       |  |                                |         |          |   |                      |  |  | 4.22 | %

|    |                                                                              
|--- | -----------------------------------------------------------------------------
|(1) | Includes nonaccrual loans.                                                   
|    |                                                                              
|(2) | Computed on a fully taxable basis, without regard to
  tax equivalent yields.

28

---



|                                               |  |                                |         |          |   |                      |  |  |      |  
|---------------------------------------------- |  | ------------------------------ | ------- | -------- | - | -------------------- |  |  | ---- | -
|Average Balance Sheet
  (Dollars in thousands) |  |                                |         |          |   |                      |  |  |      |  
|                                               |  | Year Ended
  December 31, 2003 |        
|                                               |  |                                |        
|                                               |  | Average
  Balance              |         | Interest |   | Average
  Yield/Rate | 
|                                               |  |                                |         |          |   |                      | 
|Interest-earning
  assets:                     |  |                                |         |          |   |                      |  |  |      |  
|Loans (1)                                      |  | $                              | 231,260 |          | $ | 15,857               |  |  | 6.86 | %
|Investment and
  mortgage-backed securities    |  |                                | 41,083  |          |   | 1,655                |  |  | 4.03 | %
|Other
  interest-earning assets                |  |                                | 21,631  |          |   | 296                  |  |  | 1.37 | %
|                                               |  |                                |         |          |   |                      |  |  |      |  
|Total
  interest-earning assets                |  | $                              | 293,974 |          | $ | 17,808               |  |  | 6.06 | %
|Non-interest-earning
  assets                  |  |                                | 18,896  |          |   |                      |  |  |      |  
|                                               |  |                                |         |          |   |                      |  |  |      |  
|Total assets                                   |  | $                              | 312,870 |          |   |                      |  |  |      |  
|                                               |  |                                |         |          |   |                      |  |  |      |  
|Interest-bearing
  liabilities:                |  |                                |         |          |   |                      |  |  |      |  
|Interest-bearing
  demand                      |  | $                              | 29,039  |          |   | 233                  |  |  | .80  | %
|Savings deposits                               |  |                                | 57,671  |          |   | 627                  |  |  | 1.09 | %
|Time deposits                                  |  |                                | 109,018 |          |   | 3,416                |  |  | 3.13 | %
|Borrowings                                     |  |                                | 44,678  |          |   | 1,679                |  |  | 3.76 | %
|                                               |  |                                |         |          |   |                      |  |  |      |  
|Total
  interest-bearing liabilities           |  | $                              | 240,406 |          | $ | 5,955                |  |  | 2.48 | %
|                                               |  |                                |         |          |   |                      |  |  |      |  
|                                               |  |                                |         |          |   |                      |  |  |      |  
|Stockholders
  equity                         |  | $                              | 31,557  |          |   |                      |  |  |      |  
|                                               |  |                                |         |          |   |                      |  |  |      |  
|                                               |  |                                |         |          |   |                      |  |  |      |  
|                                               |  |                                |         |          |   |                      |  |  |      |  
|Net interest
  income                          |  |                                |         |          | $ | 11,853               |  |  |      |  
|                                               |  |                                |         |          |   |                      |  |  |      |  
|Net interest
  spread                          |  |                                |         |          |   |                      |  |  | 3.58 | %
|Net interest
  margin(2)                       |  |                                |         |          |   |                      |  |  | 4.03 | %

|    |                                                                              
|--- | -----------------------------------------------------------------------------
|(1) | Includes nonaccrual loans.                                                   
|    |                                                                              
|(2) | Computed on a fully taxable basis, without regard to
  tax equivalent yields.

Interest-Earning
Assets. The yield earned on loans outstanding (including
residential mortgage loans held-for-sale) during 2005 was 6.70% compared to
6.41% in 2004 and 6.86% in 2003. Increased volume of loans and increased rates
on loans from 2004 to 2005, resulted in total interest income on loans of $19.7
million for 2005 compared to $16.4 million for 2004 and $15.9 million for 2003.
The yield earned on taxable securities increased to 4.03% in 2005 from 3.95% in
2004 as longer term securities matured and were replaced at current, higher
rates. The average other interest-earning assets balances decreased $2.2
million during 2005 to $9.7 million compared to 2004, and the yield earned on
these assets increased .39% to 1.52%. The total yield earned on all
interest-earning assets increased to 6.27% in 2005 from 5.89% and 6.06% for the
years 2004 and 2003, respectively. As discussed above, the increase in interest
income is due to continued increases in interest rates and increases in
interest-earning assets.

Interest-Bearing
Liabilities. The rate paid for each category of
interest-bearing liabilities began to increase during 2005. The yield on
interest-bearing demand deposit accounts increased to .68% in 2005 compared to
..60% and .80% in 2004 and 2003, respectively. The yield on savings deposits
increased to .88% in 2005 compared to .75% and 1.09% in 2004 and 2003,
respectively. Average rates on certificates of deposit also increased to 3.12%
during 2005 from 2.59% in 2004 and 3.13% in 2003. As certificates of deposit
matured during 2005, they were generally renewed or replaced at higher rates.
Borrowings had increases in rate and in volume and interest expense in 2005
compared to 2004. For all interest-bearing liabilities, the average rate paid
increased to 2.52% in 2005 from 2.03% in 2004 and 2.48% in 2003.

29

---



Net
interest income for the year ended December 31, 2005 was $14.1 million, an
increase of $1.1 million from $13.0 million in 2004, which was $1.1 million
higher than 2003. The net interest margins for the periods ended December 31,
2005, 2004 and 2003 were 4.16%, 4.22% and 4.03%, respectively.

The
following factors affected Uniteds interest yields, margins, and spread when
comparing the year ending December 31, 2005, to 2004. During 2004, the national
federal funds interest rate and Uniteds prime rate remained constant the first
six months of the year at 4.00% and increased by .25% in July 2004. Starting in
August of 2004, the rate increased monthly for a total increase of .90% for the
remainder of the year. By comparison, in 2005, these rates increased on a
monthly basis, from 5.25% in January 2005 to 7.15% in December 2005, an
increase of 1.90%. In addition, both interest-earning assets and
interest-bearing liabilities have seen a change in the mix of their respective
components. Interest spread and interest margins decreased in 2005 compared to
2004, while yields and costs increased under the same comparison.

Loan
volumes increased in 2005 with a decrease in volumes of investment securities
and other assets, which was also consistent with the results in 2004. Borrowing
volumes were up in both 2005 and 2004, with rates increasing in 2005 and 2004.
In 2005, volumes of time deposits were up significantly with respective
increases in rates paid on time deposits.

Provision
for Loan Loss.United provided $.2 million for loan losses in
2005 compared to $.1 million in 2004 and $.8 million in 2003. The increase in
the loan loss provision in 2005 was the result of loan growth in 2005. The
decreases in loan loss provisions in both 2005 and 2004 as compared to 2003
reflect managements view on future loan loss and overall condition of the loan
portfolio, past due loans and loan growth.

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 probable
losses in the loan portfolio in accordance with accounting principles generally
accepted in the United States of America (GAAP) as of the reporting date.
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 range of retail banking services,
including mortgage banking activities and service charges for deposit services.
Non-interest income increased by $.2 million, or 4.5%, in 2005 to $4.6 million
compared to $4.4 million in 2004 and $6.2 million in 2003, principally due to
the level of fees from the real estate production activity at Heritage Bank.
Uniteds loan demand continued to be strong in the residential mortgage market,
and particularly the purchase origination market, during 2005, as interest
rates continued to be at levels which were attractive to customers in the
residential mortgage market.

Gain
on sale of loans totaled $3.2 million in 2005, an increase of $.4 million over
2004 and a decrease of $1.8 million over the record 2003 total of $5.0 million.
The increase in gain on sale of loans was offset in 2005 by an equal decrease
in gain on sale of securities and other income. The decrease in other income
was the result of lost rental income in 2005 from the sale of a building in
2004, which was previously leased. Customer service charges increased $.1
million in 2005 as a result of the growth in deposit accounts.

Non-Interest
Expense.Non-interest expense increased $.7 million, or 6.3%,
to $11.8 million from 2004 to 2005, and decreased $.4 million, or 3.5%, to
$11.1 million from 2003 to 2004. Salary and employee benefit expense increased
$.5 million to $7.1 million from 2004 to 2005 and decreased $.3 million to $6.6
million from 2003 to 2004 in part due to commissions paid to loan originators
in Heritage

30

---



Banks mortgage banking department. Commissions
increased $.2 million in 2005 to $1.4 million, compared to $1.2 million in
2004. The decrease in 2004 was $.7 million, down from $1.9 million in 2003.

The
remaining 2005 increase of $.2 million was split equally between occupancy and
equipment expense and legal and accounting. Occupancy and equipment expense
increased $.1 million due to utility and maintenance contract increases. Legal
and accounting increased $.1 million due to higher accounting costs from
Sarbanes Oxley Act compliance.

31

---



Financial Condition

The
following balance sheet information as of December 31, 2005 and 2004 is derived
from the audited consolidated financial statements.

|                                             |  |                     |         |                     |   |         | 
|-------------------------------------------- |  | ------------------- | ------- | ------------------- | - | ------- | 
|                                             |  | December
  31, 2005 |         | December
  31, 2004 |  
|                                             |  |                     |         |                     |  
|Assets                                       |  |                     |         |                     |   |         | 
|Cash and cash equivalents                    |  | $                   | 19,127  |                     | $ | 19,187  | 
|Securities
  available-for-sale              |  |                     | 35,359  |                     |   | 38,949  | 
|Loans held for
  sale                        |  |                     | 3,902   |                     |   | 5,786   | 
|Loans
  receivable, net                      |  |                     | 311,997 |                     |   | 265,011 | 
|Other assets                                 |  |                     | 19,162  |                     |   | 18,207  | 
|                                             |  |                     |         |                     |   |         | 
|Total assets                                 |  | $                   | 389,547 |                     | $ | 347,140 | 
|                                             |  |                     |         |                     |   |         | 
|Liabilities and Stockholders Equity         |  |                     |         |                     |   |         | 
|Non-interest-bearing
  deposits              |  | $                   | 56,641  |                     | $ | 47,490  | 
|Interest-bearing
  deposits                  |  |                     | 247,050 |                     |   | 210,845 | 
|                                             |  |                     |         |                     |   |         | 
|Total deposits                               |  |                     | 303,691 |                     |   | 258,335 | 
|Federal Home
  Loan Bank advances            |  |                     | 42,044  |                     |   | 44,794  | 
|Subordinated
  debt                          |  |                     | 3,093   |                     |   | 3,093   | 
|Accrued expenses
  and other liabilities     |  |                     | 8,741   |                     |   | 10,290  | 
|                                             |  |                     |         |                     |   |         | 
|Total
  liabilities                          |  |                     | 357,569 |                     |   | 316,512 | 
|                                             |  |                     |         |                     |   |         | 
|Stockholders Equity                         |  |                     | 31,978  |                     |   | 30,628  | 
|                                             |  |                     |         |                     |   |         | 
|Total
  liabilities and stockholders equity |  | $                   | 389,547 |                     | $ | 347,140 | 
|                                             |  |                     |         |                     |   |         | 

Loans
Receivable and Loans Held for Sale. Net loans receivable
increased $47.0 million during 2005 to $312.0 million from $265.0 million at
December 31, 2004.  Commercial real
estate loans increased $28.0 million to $79.0 million in 2005.  Construction loans increased $12.1 million
to $41.2 million in 2005.  Agricultural
loans increased $2.7 million to $27.5 million 2005.  Total loans secured by real estate increased $42.0 million to
$193.3 million in 2005.  Consumer loans
increased $3.0 million to $40.3 million in 2005 and agricultural non-mortgage
loans increased $1.5 million.

Approximately
60% of the increase in net loans receivable was generated in Heritage Banks
Billings and Great Falls branches.  Billings
was a new market for Heritage Bank in 2004 and continued to increase its market
share in 2005.  Bozeman and Missoula
continued to be robust markets representing approximately 18% and 15% of the
total increase, respectively.  Heritage
Banks Great Falls main branch continued to be successful on several larger
credits for new customers, and on loans for existing customers who have
expanded their operations.  Construction
loans in the Great Falls main branch have also increased as a function of low
interest rates and a stable economy.
The remaining increase of approximately 7% was spread proportionately
between the remaining branches of Heritage Bank.

The
diverse loan portfolio includes: real estate residential mortgages, commercial
and agricultural mortgages, agricultural and commercial non-mortgages, 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 $32.6 million and $25.7 million of
participation and purchased loans as of December 31, 2005 and 2004,
respectively.  Nearly all of these loans
are secured by properties outside the Montana market area.

32

---



Heritage
Bank sells and retains the servicing rights 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.
Heritage Bank recognizes mortgage servicing rights as an asset
regardless of whether the servicing rights are acquired or retained on loans
originated and subsequently sold.  The
mortgage servicing rights are assessed for impairment based on the fair value
of the mortgage servicing rights. As of December 31, 2005 and 2004, the
carrying value of originated servicing rights was approximately $.7 million and
$.5 million, respectively.  Heritage
Banks servicing portfolio as of December 31, 2005 was $81.2 million and as of
December 31, 2004 was $69.3 million.

During
2005, loans held for sale by Heritage Bank decreased $1.9 million to $3.9
million at December 31, 2005 from $5.8 million at December 31, 2004.  Approximately $165.8 and $142.4 million of
loans were originated for sale and $170.9 and $143.3 million of loans were sold
to the secondary market during 2005 and 2004, respectively.

Allowance For Loan Losses.  The following schedule details changes in
Uniteds allowance for loan losses at December 31 for each of the five
years indicated:

(Dollars in thousands)

|                                                       |  |                                  |       |                                  |   |                                  |   |                                  |       |                                |   |       |   |   |       |  
|------------------------------------------------------ |  | -------------------------------- | ----- | -------------------------------- | - | -------------------------------- | - | -------------------------------- | ----- | ------------------------------ | - | ----- | - | - | ----- | -
|                                                       |  | Year Ended
  December
  31, 2005 |       | Year Ended
  December
  31, 2004 |   | Year Ended
  December
  31, 2003 |   | Year Ended
  December
  31, 2002 |       | Year Ended
  December 31, 2001 |  
|                                                       |  |                                  |       |                                  |   |                                  |   |                                  |       |                                |  
|Balance beginning of year                              |  | $                                | 3,708 |                                  | $ | 3,755                            |   | $                                | 3,113 |                                | $ | 2,794 |   | $ | 2,011 |  
|Provision for loan losses                              |  |                                  | 230   |                                  |   | 70                               |   |                                  | 778   |                                |   | 1,115 |   |   | 1,387 |  
|Charge-offs:                                           |  |                                  |       |                                  |   |                                  |   |                                  |       |                                |   |       |   |   |       |  
|Residential                                            |  |                                  | (14   | )                                |   | (45                              | ) |                                  |      |                                |   | (15   | ) |   | (5    | )
|Commercial                                             |  |                                  | (152  | )                                |   | (90                              | ) |                                  | (76   | )                              |   | (697  | ) |   | (422  | )
|Consumer                                               |  |                                  | (51   | )                                |   | (50                              | ) |                                  | (72   | )                              |   | (173  | ) |   | (215  | )
|                                                       |  |                                  |       |                                  |   |                                  |   |                                  |       |                                |   |       |   |   |       |  
|Total charge-offs                                      |  |                                  | (217  | )                                |   | (185                             | ) |                                  | (148  | )                              |   | (885  | ) |   | (642  | )
|Recoveries                                             |  |                                  | 30    |                                  |   | 68                               |   |                                  | 12    |                                |   | 89    |   |   | 38    |  
|                                                       |  |                                  |       |                                  |   |                                  |   |                                  |       |                                |   |       |   |   |       |  
|Net charge-offs                                        |  |                                  | (187  | )                                |   | (117                             | ) |                                  | (136  | )                              |   | (796  | ) |   | (604  | )
|                                                       |  |                                  |       |                                  |   |                                  |   |                                  |       |                                |   |       |   |   |       |  
|Balance end of year end                                |  | $                                | 3,751 |                                  | $ | 3,708                            |   | $                                | 3,755 |                                | $ | 3,113 |   | $ | 2,794 |  
|                                                       |  |                                  |       |                                  |   |                                  |   |                                  |       |                                |   |       |   |   |       |  
|Allowance for
  loan losses to total loans at year end |  |                                  | 1.19  | %                                |   | 1.38                             | % |                                  | 1.63  | %                              |   | 1.45  | % |   | 1.28  | %
|                                                       |  |                                  |       |                                  |   |                                  |   |                                  |       |                                |   |       |   |   |       |  
|Net charge-offs to average Loans                       |  |                                  | .06   | %                                |   | .05                              | % |                                  | .06   | %                              |   | .36   | % |   | .27   | %
|                                                       |  |                                  |       |                                  |   |                                  |   |                                  |       |                                |   |       |   |   |       |  

33

---



The
following schedule allocates the loan loss reserve based on managements
judgment of potential losses in the respective areas.  While management has allocated the reserve to various portfolio
segments for purposes of this table, the reserve is general in nature and is
available for the portfolio in its entirety.

(Dollars in thousands)

|                              |  |                   |       |                                                   |  |                   |   |                                                  |       |           |  |                                                  |   |   |       |  |  |       |  
|----------------------------- |  | ----------------- | ----- | ------------------------------------------------- |  | ----------------- | - | ------------------------------------------------ | ----- | --------- |  | ------------------------------------------------ | - | - | ----- |  |  | ----- | -
|                              |  | December 31, 2005 |       | December 31, 2004                                 |  | December 31, 2003 |  
|                              |  |                   |       |                                                   |  |                   |  
|                              |  | Allowance         |       | % of loans 
  in each
  category to
  total loans |  | Allowance         |   | % of loans
  in each
  category to
  total loans |       | Allowance |  | % of loans
  in each
  category to
  total loans |  
|                              |  |                   |       |                                                   |  |                   |   |                                                  |       |           |  |                                                  |  
|Real estate loans:            |  |                   |       |                                                   |  |                   |   |                                                  |       |           |  |                                                  |   |   |       |  |  |       |  
|1 - 4
  residential           |  |                   | 216   |                                                   |  | 13.5              | % | $                                                | 278   |           |  | 16.2                                             | % | $ | 193   |  |  | 16.2  | %
|5 or more
  residential       |  |                   | 29    |                                                   |  | 1.0               |   |                                                  | 28    |           |  | 1.1                                              |   |   | 51    |  |  | 1.4   |  
|Construction                  |  |                   | 388   |                                                   |  | 13.0              |   |                                                  | 272   |           |  | 10.8                                             |   |   | 279   |  |  | 7.4   |  
|Commercial and
  agricultural |  |                   | 1,397 |                                                   |  | 33.7              |   |                                                  | 1,160 |           |  | 28.2                                             |   |   | 1,285 |  |  | 29.6  |  
|Non-real estate
  loans:      |  |                   |       |                                                   |  |                   |   |                                                  |       |           |  |                                                  |   |   |       |  |  |       |  
|Commercial and
  agricultural |  |                   | 1,249 |                                                   |  | 26.1              |   |                                                  | 1,508 |           |  | 29.8                                             |   |   | 1,357 |  |  | 30.8  |  
|Consumer                      |  |                   | 380   |                                                   |  | 12.7              |   |                                                  | 347   |           |  | 13.9                                             |   |   | 590   |  |  | 14.6  |  
|Unallocated                   |  |                   | 92    |                                                   |  |                  |   |                                                  | 115   |           |  |                                                 |   |   |      |  |  |      |  
|                              |  |                   |       |                                                   |  |                   |   |                                                  |       |           |  |                                                  |   |   |       |  |  |       |  
|Total                         |  | $                 | 3,751 |                                                   |  | 100.0             | % | $                                                | 3,708 |           |  | 100.0                                            | % | $ | 3,755 |  |  | 100.0 | %
|                              |  |                   |       |                                                   |  |                   |   |                                                  |       |           |  |                                                  |   |   |       |  |  |       |  

(Dollars in thousands)

|                              |  |                   |       |                                                   |  |           |   |                                                  |      
|----------------------------- |  | ----------------- | ----- | ------------------------------------------------- |  | --------- | - | ------------------------------------------------ | -----
|                              |  | December 31, 2002 |       | December 31, 2001                                 | 
|                              |  |                   |       |                                                   | 
|                              |  | Allowance         |       | % of loans 
  in each
  category to
  total loans |  | Allowance |   | % of loans
  in each
  category to
  total loans |      
|                              |  |                   |       |                                                   |  |           |   |                                                  |      
|Real estate loans:            |  |                   |       |                                                   |  |           |   |                                                  |      
|1 - 4 residential             |  | $                 | 97    |                                                   |  | 16.0      | % | $                                                | 106  
|5 or more
  residential       |  |                   | 68    |                                                   |  | 2.2       |   |                                                  | 64   
|Construction                  |  |                   | 221   |                                                   |  | 7.1       |   |                                                  | 249  
|Commercial and
  agricultural |  |                   | 1,040 |                                                   |  | 30.0      |   |                                                  | 906  
|Non-real estate loans:        |  |                   |       |                                                   |  |           |   |                                                  |      
|Commercial and
  agricultural |  |                   | 1,233 |                                                   |  | 30.8      |   |                                                  | 1,082
|Consumer                      |  |                   | 454   |                                                   |  | 13.9      |   |                                                  | 387  
|Unallocated                   |  |                   |      |                                                   |  |          |   |                                                  |     
|                              |  |                   |       |                                                   |  |           |   |                                                  |      
|Total                         |  | $                 | 3,113 |                                                   |  | 100.0     | % | $                                                | 2,794
|                              |  |                   |       |                                                   |  |           |   |                                                  |      

34

---



Real
Estate and Other Personal Property Owned.  Total real estate and other personal
property owned (REO) of United was $.1 million, $.3 million and $.7 million
at December 31, 2005, 2004 and 2003, respectively.  The schedule below details properties both
held for sale and investment by United as of the dates indicated.

(Dollars in thousands)

|                                      |  |                       |     |                       |   |                       |   |   |     |  
|------------------------------------- |  | --------------------- | --- | --------------------- | - | --------------------- | - | - | --- | -
|                                      |  | December
  31,
  2005 |     | December
  31,
  2004 |   | December
  31,
  2003 |  
|                                      |  |                       |     |                       |   |                       |  
|REO held for sale                     |  | $                     |    |                       | $ | 195                   |   | $ | 40  |  
|                                      |  |                       |     |                       |   |                       |   |   |     |  
|                                      |  |                       |     |                       |   |                       |   |   |     |  
|REO held for investment               |  | $                     |    |                       | $ |                      |   | $ | 567 |  
|Accumulated depreciation              |  |                       |    |                       |   |                      |   |   | (77 | )
|                                      |  |                       |     |                       |   |                       |   |   |     |  
|REO held for investment               |  | $                     |    |                       | $ |                      |   | $ | 490 |  
|                                      |  |                       |     |                       |   |                       |   |   |     |  
|Total REO                             |  | $                     |    |                       | $ | 195                   |   | $ | 530 |  
|                                      |  |                       |     |                       |   |                       |   |   |     |  
|As a percent of total assets          |  |                       |    | %                     |   | .05                   | % |   | 17  | %
|                                      |  |                       |     |                       |   |                       |   |   |     |  
|Other personal property held for sale |  | $                     | 71  |                       | $ | 98                    |   | $ | 148 |  
|                                      |  |                       |     |                       |   |                       |   |   |     |  
|As a percent of total assets          |  |                       | .02 | %                     |   | .03                   | % |   | .05 | %
|                                      |  |                       |     |                       |   |                       |   |   |     |  

Securities
Available-for-Sale.Uniteds
securities available-for-sale decreased $3.6 million to $35.3 million at
December 31, 2005 compared to $38.9 million at December 31, 2004.  In 2005, Uniteds purchases of securities
available-for-sale were approximately $11.2 million while proceeds from sales,
maturities and paydowns totaled approximately $14.2 million.  United also recorded an unrealized loss in
market values of approximately $.5 million in 2005 and amortization of purchase
premium of $.1 million during 2005.
During 2005, Heritage Bank utilized cash to fund loan growth rather than
to purchase securities.  The unrealized
loss in market values was due to normal fluctuations in security prices caused
by higher interest rates.

Cash
and Cash Equivalents.Cash
and cash equivalents from continuing operations decreased $.1 million during
2005 to $19.1 million at December 31, 2005 from $19.2 million at December 31,
2004.  Net cash from operating
activities, or net income adjusted for non-cash items, was $7.8 million in
2005.  Net cash from investing activities
such as the net increase in loans receivable and the net decrease in securities
available-for-sale was $(44.7) million in 2005.  Net cash from financing activities such as increases in deposits,
net changes in borrowings and dividends paid to stockholders was $36.8 million,
for a net decrease in cash and cash equivalents for 2005 of $(.1) million.

Nonperforming
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.  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
nonperforming.  However, not all loans
past due 90 days automatically result in the non-accrual of interest
income.  If a 90 days past due loan has
adequate collateral, or is FHA insured or VA guaranteed, and management
concludes that loss of principal and interest would likely not be realized,
then interest income will continue to be accrued.

35

---



The
following schedule details the amounts of Uniteds nonperforming assets,
consisting of nonaccrual loans and accruing loans past due over 90 days.  There have been no restructured loans during
this time period.

(Dollars in thousands)

|                                          |  |                       |      |                        |   |                        |  |                        |      |                        |   |      |  |   |       | 
|----------------------------------------- |  | --------------------- | ---- | ---------------------- | - | ---------------------- |  | ---------------------- | ---- | ---------------------- | - | ---- |  | - | ----- | 
|                                          |  | December
  31,
  2005 |      | December 31,
  
  2004 |   | December 31,
  
  2003 |  | December 31,
  
  2002 |      | December 31,
  
  2001 |  
|                                          |  |                       |      |                        |   |                        |  |                        |      |                        |  
|Principal Balances:                       |  |                       |      |                        |   |                        |  |                        |      |                        |   |      |  |   |       | 
|Accruing loans
  past due 
  Over 90 days |  | $                     | 30   |                        | $ | 75                     |  | $                      | 324  |                        | $ | 553  |  | $ | 294   | 
|Non-accrual
  loans                       |  |                       |     |                        |   | 327                    |  |                        | 498  |                        |   | 86   |  |   | 708   | 
|                                          |  |                       |      |                        |   |                        |  |                        |      |                        |   |      |  |   |       | 
|Total                                     |  | $                     | 30   |                        | $ | 402                    |  | $                      | 822  |                        | $ | 639  |  | $ | 1,002 | 
|                                          |  |                       |      |                        |   |                        |  |                        |      |                        |   |      |  |   |       | 
|Interest:                                 |  |                       |      |                        |   |                        |  |                        |      |                        |   |      |  |   |       | 
|Due on
  non-accrual loans                |  | $                     | none |                        | $ | 40                     |  | $                      | 128  |                        | $ | 67   |  | $ | 83    | 
|Included in
  income                      |  |                       | none |                        |   | none                   |  |                        | none |                        |   | none |  |   | none  | 

Heritage
Bank 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 GAAP.  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 December
31, 2005, United had no assets reported as doubtful and no assets classified as
loss.  At December 31, 2004, United had
$ .3 million assets reported doubtful assets and no assets classified as
loss.  At December 31, 2005, 2004 and 2003,
United had $.3 million, $.1 million and $.6 million, respectively, of reported
substandard assets.  As a percent of
total assets, substandard assets were approximately .07%, .01% and .20% at
December 31, 2005, 2004 and 2003, respectively.

Deposits
and Borrowings.
United experienced a net increase in deposits of $45.4 million or    17.6% in 2005 as deposits grew to $303.7
million at Heritage Bank in 2005 from $258.3 million in 2004.  This included an increase in brokered funds
by $9.9 million to $18.3 million in 2005 and from $8.4 million in 2004.  The increase in deposits resulted from a
combination of competitive rates on all deposit offerings, and Heritage Banks
commitment to community banking, both of which have attracted depositors.

FHLB
advances decreased $2.8 million in 2005 to $42.0 million from $44.8 million in
2004.  Heritage Bank was able to repay
$19.2 million in FHLB long term note advances in 2005 and received proceeds of
$20.0 million on new FHLB long term note advances, for a net decrease of $2.8
million.  At December 31, 2005, the
current established available FHLB advance credit line for Heritage Bank was
25% of its assets.  The weighted average
interest rate on FHLB advances was 4.01% and 3.41% at December 31, 2005 and
2004, respectively.  Advances from the
FHLB are secured by pledges of FHLB stock and a blanket assignment of Heritage
Banks unpledged, qualifying mortgage loans, mortgage-backed securities and
U.S. Government and federal agency securities.

During
2005, Heritage Bank had a FHLB Cash Management Advance (CMA) credit facility
with a maximum allowable advance of $94.3 million, subject to available
collateral limits.  The credit facility
expires on February 23, 2007.  During
2005, there were advances of $56.1 million and repayments of $59.6 million made
on the CMA credit facility.  The
outstanding balance due as of December 31, 2005 was $3.0 million, which is
included in the balance disclosed in the preceding paragraph.

36

---



United,
at the parent company level, has a line of credit of $1.0 million with a
correspondent bank at an interest rate of 1.75% over the federal funds rate,
which totaled 5.69% and 3.69% at December 31, 2005 and 2004, respectively.  This line is secured by Uniteds Heritage
Bank stock and expires November 1, 2006.
Interest is payable quarterly.
Principal is payable at maturity.
There was no principal balance outstanding at December 31, 2005 and
2004, respectively.

Asset/Liability
Management.  Uniteds
earnings depend to a large extent on the level of its net interest
income.  Net interest income depends
upon the difference (referred to as interest rate spread) between the yield
on Uniteds loan and investment portfolios and interest-earning cash balances
(interest-earning assets), and the rates paid on its deposits and borrowings
(interest-bearing liabilities). Net interest income is further affected by
the relative amounts of Uniteds interest-earning assets and interest-bearing
liabilities.  In recent years, Uniteds
interest-earning assets have exceeded interest-bearing liabilities.  However, when interest-earning assets
decrease as a result of non-accrual loans and investments in non-interest
earning assets, net interest income and interest rate spread also decrease and
any continued decrease in the level of interest-earning assets would generally
result in a negative impact on earnings.

One
of the primary objectives of Uniteds management has been to restructure
Uniteds balance sheet to reduce its vulnerability to changes in interest rates
(Interest Rate Risk). Depository institutions historically have suffered from a
mismatch in the term to maturity of their assets and liabilities, with mortgage
loan assets tending to be of a much longer term than deposits, the primary
liabilities of depository institutions. In periods of rising interest rates,
this mismatch can render depository institutions vulnerable to increases in
costs of funds (deposits and borrowings) that can outstrip increases in returns
on longer-term fixed rate loans and investments, resulting in a decrease in
positive interest rate spread and lower earnings.

Several
strategies have been employed by United to minimize the mismatch of asset and
liability maturities. For the past several years, Heritage Bank has maintained
a policy of selling the majority of newly-originated long-term (15 to 30-year
maturity) fixed-rate mortgage loans to the secondary market. These loans are
sold at their outstanding principal balance, which is the prearranged contract
purchase price, and therefore, no gain or loss is realized at sale. United
promotes the origination and retention of loans providing for periodic interest
rate adjustments, shorter terms to maturity or balloon provisions. United also
emphasizes investment in adjustable rate or shorter-term mortgage-backed
securities and other interest-earning investments.  When maturities of loans increase, United offsets the increased
interest rate risk with matching funds and maturities with FHLB borrowings.

37

---



The
following table shows the contractual maturities of Uniteds loans as of
December 31, 2005. The amounts reflected in the following table give no effect
to assumptions regarding loan prepayments or payoffs. Loans with variable rates
of interest are classified as due when the loan principal balances are
contractually due, not when the interest rate reprices.

|                                  |  |                   |         |             |   |                     |  |       |        |  |   |         | 
|--------------------------------- |  | ----------------- | ------- | ----------- | - | ------------------- |  | ----- | ------ |  | - | ------- | 
|(Dollars in
  thousands)          |  |                   |        
|                                  |  | December 31, 2005 |        
|                                  |  |                   |        
|                                  |  | 1 Year or 
Less   |         | 1 - 5
Years |   | 5 Years
and 
Beyond |  | Total |       
|                                  |  |                   |         |             |   |                     |  |       |       
|Fixed rate loans:                 |  |                   |         |             |   |                     |  |       |        |  |   |         | 
|1-4 residential                   |  | $                 | 5,737   |             | $ | 11,639              |  | $     | 19,617 |  | $ | 36,993  | 
|Multi-family and commercial       |  |                   | 3,456   |             |   | 10,384              |  |       | 12,551 |  |   | 26,391  | 
|Construction and undeveloped land |  |                   | 28,773  |             |   | 21,809              |  |       | 342    |  |   | 50,924  | 
|Commercial non-real estate(1)     |  |                   | 5,746   |             |   | 23,198              |  |       | 6,893  |  |   | 35,837  | 
|Agriculture non-real estate       |  |                   | 6,013   |             |   | 5,193               |  |       | 642    |  |   | 11,848  | 
|Consumer(2)                       |  |                   | 1,610   |             |   | 16,958              |  |       | 4,071  |  |   | 22,639  | 
|                                  |  |                   |         |             |   |                     |  |       |        |  |   |         | 
|                                  |  |                   | 51,335  |             |   | 89,181              |  |       | 44,116 |  |   | 184,632 | 
|Variable rate loans:              |  |                   |         |             |   |                     |  |       |        |  |   |         | 
|1-4 residential                   |  |                   | 5,490   |             |   | 9,259               |  |       | 950    |  |   | 15,699  | 
|Multi-family and commercial       |  |                   | 7,695   |             |   | 42,352              |  |       | 6,821  |  |   | 56,868  | 
|Construction and undeveloped land |  |                   | 13,307  |             |   | 3,952               |  |       | 59     |  |   | 17,318  | 
|Commercial non-real estate(1)     |  |                   | 19,009  |             |   | 9,121               |  |       | 439    |  |   | 28,569  | 
|Agriculture non-real estate       |  |                   | 3,287   |             |   | 738                 |  |       |       |  |   | 4,025   | 
|Consumer(2)                       |  |                   | 8,419   |             |   | 218                 |  |       |       |  |   | 8,637   | 
|                                  |  |                   |         |             |   |                     |  |       |        |  |   |         | 
|                                  |  |                   | 57,207  |             |   | 65,640              |  |       | 8,269  |  |   | 131,116 | 
|                                  |  |                   |         |             |   |                     |  |       |        |  |   |         | 
|                                  |  |                   |         |             |   |                     |  |       |        |  |   |         | 
|Gross loans                       |  | $                 | 108,542 |             | $ | 154,821             |  | $     | 52,385 |  | $ | 315,748 | 
|                                  |  |                   |         |             |   |                     |  |       |        |  |   |         | 

|                                                   |  |                                         |         | 
|-------------------------------------------------- |  | --------------------------------------- | ------- | 
|                                                   |  | Gross loans due
after
December 31, 2006 |        
|                                                   |  |                                         |        
|Fixed
  interest rates                             |  | $                                       | 133,297 | 
|Floating or
  adjustable rates or balloon payments |  |                                         | 73,909  | 
|                                                   |  |                                         |         | 
|                                                   |  | $                                       | 207,206 | 
|                                                   |  |                                         |         | 

|    |                                                 
|--- | ------------------------------------------------
|(1) | Includes
  loans on commercial savings accounts 
|   
|(2) | Includes
  consumer loans secured by real estate

38

---



The
following table sets forth the book value, maturities and weighted average
yield of Uniteds investment portfolio at the dates indicated:

|                             |  |                   |      |             |   |              |   |                       |       |       |   |        |   |   |        |   | 
|---------------------------- |  | ----------------- | ---- | ----------- | - | ------------ | - | --------------------- | ----- | ----- | - | ------ | - | - | ------ | - | 
|(Dollars in thousands)       |  |                   |     
|                             |  | December 31, 2005 |     
|                             |  |                   |     
|                             |  | 1 Year or Less    |      | 1 - 5
years |   | 5 - 10 years |   | 10 years  and  beyond |       | Total |   |       
|                             |  |                   |      |             |   |              |   |                       |       |       |   |       
|U.S. government and agencies |  | $                 |     |             | $ | 2,457        |   | $                     | 992   |       | $ | 2,974  |   | $ | 6,423  |   | 
|Mortgage-backed securities   |  |                   | 26   |             |   | 6,750        |   |                       | 2,260 |       |   | 18,820 |   |   | 27,856 |   | 
|Municipal bonds              |  |                   |     |             |   | 467          |   |                       |      |       |   | 120    |   |   | 587    |   | 
|Other                        |  |                   |     |             |   | 493          |   |                       |      |       |   |       |   |   | 493    |   | 
|                             |  |                   |      |             |   |              |   |                       |       |       |   |        |   |   |        |   | 
|Total securities             |  | $                 | 26   |             | $ | 10,167       |   | $                     | 3,252 |       | $ | 21,914 |   | $ | 35,359 |   | 
|                             |  |                   |      |             |   |              |   |                       |       |       |   |        |   |   |        |   | 
|Weighted average yield       |  |                   | 6.00 | %           |   | 4.04         | % |                       | 5.77  | %     |   | 4.65   | % |   | 4.57   | % | 

|                             |  |                   |      |             |   |              |   |                       |       |       |   |        |   |   |        |   | 
|---------------------------- |  | ----------------- | ---- | ----------- | - | ------------ | - | --------------------- | ----- | ----- | - | ------ | - | - | ------ | - | 
|                             |  | December 31, 2004 |      |            
|                             |  |                   |      |            
|                             |  | 1 Year or 
Less   |      | 1 - 5
years |   | 5 - 10
years |   | 10 years 
and 
beyond |       | Total |   |       
|                             |  |                   |      |             |   |              |   |                       |       |       |   |       
|U.S. government and agencies |  | $                 |     |             | $ |             |   | $                     | 2,007 |       | $ | 2,022  |   | $ | 4,029  |   | 
|Mortgage-backed securities   |  |                   | 2    |             |   | 5,075        |   |                       | 6,383 |       |   | 22,986 |   |   | 34,446 |   | 
|Municipal bonds              |  |                   |     |             |   |             |   |                       | 474   |       |   |       |   |   | 474    |   | 
|                             |  |                   |      |             |   |              |   |                       |       |       |   |        |   |   |        |   | 
|Total securities             |  | $                 | 2    |             | $ | 5,075        |   | $                     | 8,864 |       | $ | 25,008 |   | $ | 38,949 |   | 
|                             |  |                   |      |             |   |              |   |                       |       |       |   |        |   |   |        |   | 
|Weighted average yield       |  |                   | 9.50 | %           |   | 4.29         | % |                       | 4.57  | %     |   | 4.01   | % |   | 4.18   | % | 
|                             |  |                   |      |             |   |              |   |                       |       |       |   |        |   |   |        |   | 

|                             |  |                   |      |             |   |              |   |                       |       |       |   |        |   |   |        |   | 
|---------------------------- |  | ----------------- | ---- | ----------- | - | ------------ | - | --------------------- | ----- | ----- | - | ------ | - | - | ------ | - | 
|                             |  | December 31, 2003 |     
|                             |  |                   |     
|                             |  | 1 Year or 
Less   |      | 1 - 5
years |   | 5 - 10
years |   | 10 years 
and 
beyond |       | Total |   |       
|                             |  |                   |      |             |   |              |   |                       |       |       |   |       
|U.S. government and agencies |  | $                 |     |             | $ |             |   | $                     | 2,516 |       | $ | 5,590  |   | $ | 8,106  |   | 
|Mortgage-backed securities   |  |                   | 6    |             |   | 6,528        |   |                       | 5,780 |       |   | 19,260 |   |   | 31,574 |   | 
|Municipal bonds              |  |                   | 51   |             |   | 430          |   |                       | 524   |       |   | 894    |   |   | 1,899  |   | 
|Other                        |  |                   |     |             |   | 1,105        |   |                       | 548   |       |   | 47     |   |   | 1,700  |   | 
|                             |  |                   |      |             |   |              |   |                       |       |       |   |        |   |   |        |   | 
|Total securities             |  | $                 | 57   |             | $ | 8,063        |   | $                     | 9,368 |       | $ | 25,791 |   | $ | 43,279 |   | 
|                             |  |                   |      |             |   |              |   |                       |       |       |   |        |   |   |        |   | 
|Weighted average yield       |  |                   | 5.31 | %           |   | 4.47         | % |                       | 4.58  | %     |   | 4.86   | % |   | 4.73   | % | 

Stockholders
Equity. Stockholders equity at December 31, 2005 was
$32.0 million, or 8.21% of total assets, an increase of $1.4 million from $30.6
million, or 8.82% of total assets, at December 31, 2004. At December 31, 2005,
book value was $10.41 per share. Increases included net income of $4.1 million
for 2005 and the issuance of employee stock options of $.3 million. Other
decreases included the payment of $2.7 million in cash dividends on Uniteds
common stock and a increase in unrealized loss on securities available-for-sale
of $.3 million, after tax.

39

---



Liquidity and Capital Resources

Uniteds
primary sources of funds are deposits, repurchase agreements, FHLB borrowings,
proceeds from loan sales, and loan and mortgage-backed securities repayments.
While maturities and scheduled amortization of loans and mortgage-backed
securities are a predictable source of funds, deposit flows and mortgage
prepayments are greatly influenced by market interest rates, economic
conditions and competition. In a period of rising interest rates, it is
anticipated that mortgage prepayments would decrease and the proceeds from such
prepayments generally would be invested in higher yielding loans or investment
which would have the effect of increasing interest income. In a period of
declining interest rates, it is anticipated that mortgage prepayments would
increase. As a result, these proceeds from mortgage prepayments generally would
be invested in lower yielding loans or other investments which have the effect
of reducing interest income.

Uniteds
liquidity, represented by cash and cash equivalents, is a result of its
operations, investing and financing activities. These activities are summarized
below for the years ended December 31, 2005, 2004 and 2003.

|                                                                                                        |  |                                 |         |      |   |         |   |   |         |   | 
|------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | ---- | - | ------- | - | - | ------- | - | 
|(Dollars in
  thousands)                                                                                |  |                                 |        
|                                                                                                        |  | For the Year Ended December 31, |        
|                                                                                                        |  | 2005                            |         | 2004 |   | 2003    |   |  
|                                                                                                        |  |                                 |         |      |   |         |   |  
|Net income from continuing operations                                                                   |  | $                               | 4,140   |      | $ | 3,917   |   | $ | 3,829   |   | 
|Adjustments to reconcile net income from continuing
  operations to net cash from continuing operations |  |                                 | 3,700   |      |   | (1,909  | ) |   | 10,551  |   | 
|                                                                                                        |  |                                 |         |      |   |         |   |   |         |   | 
|Net cash from continuing operations                                                                     |  |                                 | 7,840   |      |   | 2,008   |   |   | 14,380  |   | 
|Net cash from discontinued operations                                                                   |  |                                 |        |      |   |        |   |   | (732    | ) | 
|                                                                                                        |  |                                 |         |      |   |         |   |   |         |   | 
|Net cash from operating activities                                                                      |  |                                 | 7,840   |      |   | 2,008   |   |   | 13,648  |   | 
|Net cash from investing activities                                                                      |  |                                 | (44,725 | )    |   | (35,121 | ) |   | (5,909  | ) | 
|Net cash from financing activities                                                                      |  |                                 | 36,825  |      |   | 38,786  |   |   | (15,260 | ) | 
|                                                                                                        |  |                                 |         |      |   |         |   |   |         |   | 
|Net increase in cash and cash equivalents                                                               |  |                                 | (60     | )    |   | 5,673   |   |   | (7,521  | ) | 
|Change in cash from discontinued operations                                                             |  |                                 |        |      |   |        |   |   | 3,043   |   | 
|Cash and cash equivalents at beginning of
  year                                                        |  |                                 | 19,187  |      |   | 13,514  |   |   | 17,992  |   | 
|                                                                                                        |  |                                 |         |      |   |         |   |   |         |   | 
|Cash and cash equivalents at end of year                                                                |  | $                               | 19,127  |      | $ | 19,187  |   | $ | 13,514  |   | 
|                                                                                                        |  |                                 |         |      |   |         |   |   |         |   | 

The
primary investing activities of United are the origination of loans receivable
and the purchase of investment securities, offset by the proceeds from
maturities, calls, paydowns and sales of investment securities. During 2005,
2004 and 2003, loans receivable increased $47.3 million and $38.3 million and
$15.1 million, respectively, which was a use of cash. Purchases of securities
available-for-sale totaled $11.2 million, $18.5 million and $38.6 million in
2005, 2004 and 2003, respectively. During 2003 a net $8.3 million of cash was
realized from the sale of Valley.

During
2005, 2004 and 2003, investing activities were funded primarily by principal
repayments on securities available-for-sale, the maturity of securities
available-for-sale, and the sales of securities available-for-sale totaling
$14.2 million, $22.5 million and $40.7 million, respectively.

The
major sources of cash flows from financing activities are increases in deposit
accounts and additional borrowings. The major uses of cash flows from financing
activities are withdrawals from deposit accounts, payments on borrowings,
purchases of common stock, and payment of dividends to stockholders. For 2005,
2004, and 2003 the net increase (decrease) in cash flows from financing
activities was $36.8 million, $38.8 million and $(15.3) million, respectively.

Heritage
Banks most liquid assets are cash and cash in banks and highly liquid,
short-term investments. The levels of these assets are dependent Heritage
Banks operating, financing, lending, and investing activities during any given
period.

40

---



Liquidity
management of Heritage Bank is both a daily and long-term function of Uniteds
management strategy.  Excess funds are
generally invested in FHLB overnight funds.
If Heritage Bank should require funds beyond its ability to generate
them internally, additional sources of funds are available through the use of
FHLB advances.  At December 31, 2005
Heritage Bank had outstanding borrowings of $46.2 million which included $42.0
million of FHLB advances and $4.2 million of securities sold under agreements
to repurchase.  (See Part IV, Item
15-Notes to Consolidated Financial Statements-Federal Home Loan Bank Advances
and Securities Sold Under Agreements to Repurchase).  United has issued and outstanding $3.1 million of
subordinated
debt owed to trust.  Management
continues to monitor the interest rate repricing with respect to its ability to
refinance this obligation, the first opportunity of which comes about in July
2006.  (See Part IV, Item 15-Notes to
Consolidated Financial Statements-Subordinated Debentures).

United
is subject to various regulatory capital requirements administered by the
federal banking agencies.  Failure to
meet minimum capital requirements can initiate certain mandatoryand possibly
additional discretionaryactions by regulators that, if undertaken, could have
a direct material effect on Uniteds operations.  Under capital adequacy guidelines and the regulatory
framework
for prompt corrective action, United must meet specific capital guidelines that
involve quantitative measures of the assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting
guidelines.  Capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.

At
the parent company level, in addition to the $1.0 million line of credit,
another source of liquidity is the payment of dividends to the parent company
from Heritage Bank.  State banks, such
as Heritage Bank, may pay dividends up to the total of the prior two years
earnings without permission of State regulators.  This restriction on the payment of dividends has not had, and is
not expected in the future to have, an impact on the ability of the parent
company to meet its cash obligations.

Quantitative
measures established by regulation to ensure capital adequacy require United to
maintain minimum amounts and ratios (set forth in the table below).  As of December 31, 2005 United met all
capital adequacy requirements to which it is subject.

|                       |  |        |        |       |                                      |        |  |       |        |  |  |      | 
|---------------------- |  | ------ | ------ | ----- | ------------------------------------ | ------ |  | ----- | ------ |  |  | ---- | 
|                       |  |        | Actual |       | Minimum for capitalAdequacy purposes |       
|                       |  |        |        |       |                                      |       
|(Dollars in
thousands) |  | Amount |        | Ratio |                                      | Amount |  | Ratio |       
|                       |  |        |        |       |                                      |        |  |       |       
|December 31, 2005:     |  |        |        |       |                                      |        |  |       |        |  |  |      | 
|Total capital          |  | $      | 37,491 |       |                                      | 11.26% |  | $     | 26,647 |  |  | 8.0% | 
|Tier I capital         |  |        | 33,740 |       |                                      | 10.18  |  |       | 13,323 |  |  | 4.0  | 
|Tier I leverage        |  |        | 33,740 |       |                                      | 8.71   |  |       | 15,494 |  |  | 4.0  | 

Off-Balance Sheet Arrangements

Heritage
Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers.  These financial instruments include
commitments to extend credit and letters of credit and involve, to varying
degrees, elements of credit risk.
Heritage Banks exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to extend credit
is represented by the contractual amount of those instruments.  Heritage Bank uses the same credit policies
in making commitments and conditional obligations as it does for
on-balance-sheet instruments.

41

---



Financial
instruments outstanding at December 31 whose contract amounts represent credit
risk include:

|                                                    |  |   |        |  |   |        | 
|--------------------------------------------------- |  | - | ------ |  | - | ------ | 
|(Dollars in thousands)                              |  |   | 2005   |  |   | 2004   | 
|                                                    |  |   |        |  |   |        | 
|Unused lines of credit                              |  | $ | 49,252 |  | $ | 52,887 | 
|Commitments outstanding- variable rate              |  |   | 10,461 |  |   | 5,775  | 
|Unfunded commitments under credit card arrangements |  |   | 2,418  |  |   | 2,373  | 
|Letters of credit                                   |  |   | 1,891  |  |   | 970    | 

The
majority of Heritage Banks loans, commitments, and standby letters of credit
have been granted to customers in Heritage Banks market area, primarily
central and western Montana.
Substantially all such customers are also depositors of Heritage Bank.  The concentrations of credit by type of
loan
are set forth above.  The distribution
of commitments to extend credit approximates the distribution of loans
outstanding.  Outstanding commitments
and standby letters of credit were granted primarily to commercial borrowers.

At
December 31, 2005, Heritage Bank had outstanding commitments to originate loans
of $12.6 million, on 1-4 family mortgages at fixed and adjustable interest
rates.  These loans are to be secured by
properties located in Heritage Banks primary market areas. Heritage Bank
anticipates that it will have sufficient funds available to meet current loan
commitments.

Table of Contractual Obligations

The
following table presents Uniteds contractual obligations as of December 31,
2005.

|                                                 |  |   |                     |  |   |               |  |   |               |  |   |                     |  |   |        | 
|------------------------------------------------ |  | - | ------------------- |  | - | ------------- |  | - | ------------- |  | - | ------------------- |  | - | ------ | 
|(Dollars in thousands)                           |  |   | December
  31, 2005 | 
|                                                 |  |   |                     | 
|                                                 |  |   | 1 Year orLess       |  |   | 1 - 3
  Years |  |   | 4 - 5
  Years |  |   | 5
  Yearsand Beyond |  |   | Total  | 
|                                                 |  |   |                     |  |   |               |  |   |               |  |   |                     |  |   |        | 
|FHLB advances                                    |  | $ | 23,000              |  | $ | 19,044        |  | $ |              |  | $ |                    |  | $ | 42,044 | 
|Securities sold
  under agreements to repurchase |  |   | 4,167               |  |   | 71            |  |   | 10            |  |   |                    |  |   | 4,248  | 
|Purchase
  obligations                           |  |   | 686                 |  |   | 1,373         |  |   | 1,373         |  |   | 686                 |  |   | 4,118  | 
|Operating leases                                 |  |   | 141                 |  |   | 209           |  |   | 205           |  |   | 1,609               |  |   | 2,164  | 
|Subordinated
  debentures                        |  |   |                    |  |   |              |  |   |              |  |   | 3,093               |  |   | 3,093  | 
|                                                 |  |   |                     |  |   |               |  |   |               |  |   |                     |  |   |        | 
|Total                                            |  | $ | 27,994              |  | $ | 20,697        |  | $ | 1,588         |  | $ | 5,388               |  | $ | 55,667 | 
|                                                 |  |   |                     |  |   |               |  |   |               |  |   |                     |  |   |        | 

ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market
Risk. Market risk is
the risk of loss in a financial instrument arising from adverse changes in
market rates/prices such as interest rates, foreign currency exchange rates,
commodity prices and equity prices.
Since Uniteds earnings depend on its level of interest rate spread, its
primary market risk exposure is interest rate risk (IRR).

Interest
Rate Risk. United has established
a formal IRR policy, and Heritage Bank has an Asset/Liability Management
Committee (ALCO) and an Investment Committee, which meet at least quarterly
to review and report on managements efforts to minimize IRR.  Members of the ALCO Committee are Kurt
Weise, Kevin Clark, Paula Delaney, Steve Feurt and Renae Johnson.  Several asset/liability management
strategies have been employed by United to minimize its exposure to IRR.  These include selling most
newly-originated
long-term fixed-rate mortgages, promoting the origination and retention of
loans providing for periodic interest rate adjustments, shorter terms to
maturity or balloon provisions, and investing in adjustable rate or
shorter-term mortgage-backed securities and other interest-earning investments.

42

---



The
ALCO Committee utilizes an institutional funds management service detailed
simulation model to quantify the estimated exposure of net interest income
(NII) to sustained interest rate changes.
The model predicts the impact of changing interest rates on the interest
income received and interest expense paid on assets and liabilities.  This sensitivity analysis is compared to
ALCO policy limits which specify a maximum tolerance level for NII given a 200
basis point (bp) rise or decline in interest rates.

The
following summarizes the sensitivity analysis for Heritage Bank as of December
31, 2005, the most recent information available.  Management believes there has been no material change in
interest
rate risk since December 31, 2005.  For
additional information, see Managements Discussion and Analysis of Financial
Condition and Results of Operations included herein in Item 7.

|                                                             |             |  |                                    |            |   |                                    |          |  
|------------------------------------------------------------ | ----------- |  | ---------------------------------- | ---------- | - | ---------------------------------- | -------- | -
|Heritage Bank
  Estimated decrease
  in net interest income: |             |  | Interest
  Rate
  Change
  +200 bp |            |   | Interest
  Rate
  Change
  -200 bp |         
|                                                             |             |  |                                    |            |   |                                    |         
|                                                             | 0-90 days   |  | $                                  | (29,449    | ) | $                                  | (59,658  | )
|                                                             | 91-360 days |  |                                    | (403,054   | ) |                                    | (41,307  | )
|                                                             | 2 years     |  |                                    | (774,828   | ) |                                    | (120,879 | )
|                                                             | 3 years     |  |                                    | (1,032,906 | ) |                                    | (296,807 | )

The
preceding sensitivity analysis does not represent a forecast and should not be
relied upon as being indicative of expected operating results.  These hypothetical estimates are based upon
numerous assumptions, including the nature and timing of interest rate levels
including yield curve shape, prepayments on loans and securities, deposit decay
rates, pricing decisions on loans and deposits, reinvestment/replacement of
assets and liability cash flows and others.
Sensitivity analysis does not reflect actions that United might take in
responding to or anticipating changes in interest rates.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The
management of United has prepared and is responsible for the consolidated
financial statements of United.  These
statements have been prepared in accordance with accounting principles
generally accepted in the United States of America applied on a consistent
basis, and are included in this report starting on page F-1 after the Exhibit
Index.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

ITEM 9A.  CONTROLS AND PROCEDURES

Under
the supervision and with the participation of Uniteds management, including
Uniteds Chief Executive Officer and Chief Financial Officer, we evaluated the
effectiveness of the design and operation of Uniteds disclosure controls and
procedures as defined in Rule 13a-15(e) under the Securities and Exchange Act
of 1934 (the Exchange Act)).  Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
have concluded that as of the end of the period covered by this report,
Uniteds disclosure controls and procedures were effective.  There were no changes in Uniteds internal
control over financial reporting (as defined in section 13a-15(f) of the
Exchange Act during Uniteds fourth quarter that have materially affected, or
is reasonably likely to materially affect, Uniteds internal control over
financial reporting.

43

---



ITEM 9B.  OTHER INFORMATION

None

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT

The
information set forth under the captions Board Meetings and Committees and
Section 16(a) Beneficial Ownership Reporting Compliance in Uniteds
definitive Proxy Statement for its 2006 Annual Meeting of Shareholders (the
Proxy Statement) is incorporated herein by reference.  Information regarding executive officers is
set forth in Part I of this Report.

Code
of Ethics and Business Conduct.The Boards of Directors of
United and Heritage Bank have adopted a Code of Ethics and Business Conduct
(the Code) that applies to all members of their respective Boards of
Directors and to all of their employees, including their principal executive
officers, principal financial officers and principal accounting officers or
controllers. The Code is available,
free of charge, on either Uniteds website www.ufcmontana.com or Heritage
Banks website www.heritagemontana.com.
 The Code is also available, without charge, from Investor Relations,
P.O. Box 2779, Great Falls, MT 59403 or
by calling (406) 727-6106. Any
amendment to, or waiver from, the provisions of the Code that applies to any of
those officers will be posted to the same location on Uniteds or Heritage
Banks website, respectively.

The
information set forth under the caption Information Concerning the Board of
Directors of the Proxy Statement is incorporated by reference.

ITEM 11.
EXECUTIVE COMPENSATION

The
information set forth under the captions Executive Compensation and Other
Information and Compensation of Directors in the Proxy Statement is
incorporated by reference.  The Report
of the Compensation Committee is not incorporated by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS

The
information set forth under the captions Equity Compensation Plan Information
and Securities Ownership of Management and Certain Beneficial Owners in the
Proxy Statement is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The
information set forth under the caption Certain Relationships and Related
Transactions between Management and the Company in the Proxy Statement is
incorporated herein by reference.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

The
information set forth under the caption Additional Information About our
Independent Auditor of the Proxy Statement is incorporated by reference.

44

---



PART IV

ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) (1) Financial Statements:

| |                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                         
| | The following consolidated financial statements of United
Financial Corp. are included in this Annual Report as follows:

Pages in Annual Report

|                                                                                                                                                                                  |    
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---
|Reports
  of Independent Registered Public Accounting Firms                                                                                                                       | F-1
|                                                                                                                                                                                  |    
|Consolidated
  Statements of Financial Condition                                                                                                                                  | F-3
|December 31, 2005 and 2004                                                                                                                                                        |    
|                                                                                                                                                                                  |    
|Consolidated
  Statements of Income - Years Ended                                                                                                                                 | F-4
|December 31, 2005, 2004, and
  2003                                                                                                                                               |    
|                                                                                                                                                                                  |    
|Consolidated
  Statements of Stockholders Equity andComprehensive
  Income - Years Ended                                                                                         | F-5
|December 31, 2005, 2004, and
  2003                                                                                                                                               |    
|                                                                                                                                                                                  |    
|Consolidated
  Statements of Cash Flows - Years Ended                                                                                                                             | F-6
|December 31, 2005, 2004, and
  2003                                                                                                                                               |    
|                                                                                                                                                                                  |    
|Notes
  to Consolidated Financial Statements                                                                                                                                      | F-8
|                                                                                                                                                                                  |    
|(2) Financial
  Statement Schedules:                                                                                                                                              |    
|                                                                                                                                                                                  |    
|Financial statement schedules
  have been omitted because they are inapplicable or the required information
  is shown in the Consolidated Financial Statements or Notes thereto. |    
|                                                                                                                                                                                  |    
|(3) Exhibits.                                                                                                                                                                     |    
|                                                                                                                                                                                  |    
|Exhibits are
  listed in the Exhibit Index beginning on page 47 of this report.                                                                                                   |    
|                                                                                                                                                                                  |    
|(b) See Item
  15(a)(3) above.                                                                                                                                                    |    
|                                                                                                                                                                                  |    
|(c) See Item
  15(a)(2) above.                                                                                                                                                    |    

45

---



SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) 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.

|                                                             | 
|------------------------------------------------------------ | 
|By: /s/ Kevin P. Clark                                       | 
|                                                             | 
|Kevin P. Clark                                               | 
|Chief Executive Officer                                      | 
|(Principal Executive
  Officer 
             and
  Director) | 
|                                                             | 
|Date:  March 29, 2006                                        | 

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

|                                                         |                                                       |                           
|-------------------------------------------------------- | ----------------------------------------------------- | --------------------------
|By: /s/ Kevin P. Clark                                   |                                                       |                           
|                                                         |                                                       |                           
|Kevin P. Clark                                           |                                                       | Paula J. Delaney          
|Chief Executive Officer                                  |                                                       | Chief Financial Officer   
|(Principal Executive
  Officer
            and Director) | (Principal Financial and
  Accounting        Officer)
|Date: March 29, 2006                                     |                                                       | Date: March 29, 2006      
|                                                         |                                                       |                           
|By: /s/ Kurt R. Weise                                    |                                                       |                           
|                                                         |                                                       |                           
|Kurt R. Weise                                            |                                                       | Dr. J. William Bloemendaal
|Chairman                                                 |                                                       | Director                  
|Date: March 29, 2006                                     |                                                       | Date: March 29, 2006      
|                                                         |                                                       |                           
|By: /s/ William L. Madison                               |                                                       |                           
|                                                         |                                                       |                           
|William L. Madison                                       |                                                       | Kenneth
  R. Murray       
|Director                                                 |                                                       | Director                  
|Date: March 29, 2006                                     |                                                       | Date: March 29, 2006      
|                                                         |                                                       |                           

46

---



INDEX TO EXHIBITS

|            |                                                                                                                                                                                                                                                                                                                        
|----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. | Exhibit                                                                                                                                                                                                                                                                                                                
|           
|3.1         | Articles of
  Incorporation of United Financial Corp., as amended (incorporated by reference
  to Exhibit 3.1 of Uniteds Annual Report on Form 10-K dated March 31, 1998).                                                                                                                                            
|3.2         | Bylaws of
  United Financial Corp., as amended (incorporated by reference to Exhibit 3.1
  of Uniteds Annual Report on Form 10-K dated March 31, 1998).                                                                                                                                                               
|10.1        | Promissory Note issued by United Financial Corp. to Wells Fargo Bank Minnesota National Association, dated November 16, 2001
(incorporated by reference to Exhibit 10.1 of Uniteds Quarterly Report on Form 10-Q dated June 30, 2002).                                                                                
|10.2        | Second
  Amendment to Letter Agreement between Wells Fargo Bank Minnesota National
  Association and United Financial Corp., dated November 16, 2001 (incorporated
  by reference to Exhibit 10.2 of Uniteds Quarterly Report on Form 10-Q dated
  June 30, 2002).                                                    
|10.3        | Service
  Agreement between United Financial Corp. and Central Financial Services,
  Inc., dated January 1, 2002 (incorporated by reference to Exhibit 10.3 of
  Uniteds Quarterly Report on Form 10-Q dated June 30, 2002).                                                                                          
|10.4        | Service
  Agreement between Heritage Bank and Central Financial Services, Inc., dated
  January 1, 2002 (incorporated by reference to Exhibit 10.4 of Uniteds
  Quarterly Report on Form 10-Q dated June 30, 2002).                                                                                                   
|10.5*       | Management
  Retention Supplemental Retirement Income Salary Continuation Plan between Kevin
  Clark and Heritage Bank, revised January 10, 1996 (incorporated by reference
  to Exhibit 10.5 of Uniteds Quarterly Report on Form 10-Q dated June 30,
  2002).                                                        
|10.6*       | Heritage
  Bank Supplemental Retirement Agreement between Heritage Bank and Steve L. Feurt,
  dated October 25, 1999 (incorporated by reference to Exhibit 10.6 of Uniteds
  Quarterly Report on Form 10-Q dated June 30, 2002).                                                                                      
|10.7        | Indenture
  between United Financial Corp. and The Bank of New York, as trustee, dated
  July 16, 2001 (incorporated by reference to Exhibit 10.7 of Uniteds
  Quarterly Report on Form 10-Q dated June 30, 2002).                                                                                                    
|10.8        | Amended and
  Restated Declaration of Trust of United Financial - Montana Capital Trust I
  among United Financial Corp. and the trustees, administrators and holders
  named therein, dated July 16, 2001 (incorporated by reference to Exhibit 10.8
  of Uniteds Quarterly Report on Form 10-Q dated June 30, 2002).
|10.9        | Guarantee
  Agreement between United Financial Corp. and The Bank of New York, as
  trustee, dated July 16, 2001 (incorporated by reference to Exhibit 10.9 of
  Uniteds Quarterly Report on Form 10-Q dated June 30, 2002).                                                                                          
|10.10       | United
  Financial Corp. 2000 Long-Term Incentive and Stock Option Plan (incorporated
  by reference to Exhibit 10.10 of Uniteds Quarterly Report on Form 10-Q dated
  June 30, 2002).                                                                                                                                
|10.11       | Letter
  Agreement between Wells Fargo Bank Minnesota National Association and United
  Financial Corp., dated November 17, 1999 (incorporated by reference to Exhibit
  10.11 of Uniteds Quarterly Report on Form 10-Q dated September 30, 2002).                                                                    
|10.12       | First
  Amendment to Letter Agreement between Wells Fargo Bank Minnesota National
  Association and United Financial Corp., dated September 29, 2000 (incorporated
  by reference to Exhibit 10.12 of Uniteds Quarterly Report on Form 10-Q dated
  September 30, 2002).                                              
|10.13       | Credit
  Agreement between Wells Fargo Bank Minnesota National Association and United
  Financial Corp. dated October 30, 2002 (incorporated by reference to Exhibit
  10.14 of Uniteds Annual Report on Form 10-K dated March 28, 2003).                                                                             
|10.14       | General
  Pledge Agreement between Wells Fargo Bank Minnesota National Association and
  United Financial Corp. dated October 30, 2002 (incorporated by reference to
  Exhibit 10.15 of Uniteds Annual Report on Form 10-K dated March 28, 2003).                                                                     
|10.15       | Revolving
  Line of Credit note between Wells Fargo Bank Minnesota National Association
  and United Financial Corp. dated October 1, 2005.                                                                                                                                                                            

47

---



|       |                                                                                                                                                                                                            
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.16* | Heritage
  Bank Supplemental Retirement Agreement between Heritage Bank and Jeffrey C. Mortensen,
  dated January 1, 2006                                                                                  
|16.1   | Letter
  regarding change in certifying accountant received from Moss Adams LLP dated
  January 30, 2004 (incorporated by reference to Exhibit 16 of Uniteds Report
  on Form 8-K dated January 27, 2004).
|21.1   | Subsidiaries
  List.                                                                                                                                                                                       
|23.1   | Consent of
  Moss Adams LLP.                                                                                                                                                                               
|23.2   | Consent of
  McGladrey & Pullen, LLP.                                                                                                                                                                      
|31.1   | Certification
  of chief executive officer pursuant to Section 302 of the Sarbanes-Oxley Act
  of 2002.                                                                                                    
|31.2   | Certification
  of chief financial officer pursuant to Section 302 of the Sarbanes-Oxley Act
  of 2002.                                                                                                    
|32.1   | Certification
  of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley
  Act of 2002.                                                                                                
|32.2   | Certification
  of principal financial officer pursuant to Section 906 of the Sarbanes-Oxley
  Act of 2002.                                                                                                

* Management
contract or compensation plan or arrangement required to be filed as an exhibit
to Form 10-K pursuant to Item 15(a)-3 of the Annual Report.

48

---



UNITED FINANCIAL CORP. AND SUBSIDIARIES

Consolidated
Financial Statements

December 31, 2005

---



Report of Independent Registered Public Accounting Firm

To the Board of Directors
United Financial Corp. and Subsidiaries
Great Falls, Montana

We have audited the consolidated statements of financial condition of United Financial Corp. and Subsidiaries as
of December 31, 2005 and 2004, and the related consolidated statements of income, stockholders equity and comprehensive
income, and cash flows for the years then ended. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of United Financial Corp. and Subsidiaries as of December 31, 2005 and 2004 and the results of their
operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting
principles.

(SIGNATURE)

Sioux Falls, South Dakota
March 3, 2006

F-1

---



# INDEPENDENT AUDITORS REPORT

Board of Directors and Stockholders
United Financial Corp. and Subsidiaries
Great Falls, Montana

We have audited the accompanying consolidated statements of financial
condition of United Financial Corp. and subsidiaries as of December 31, 2003 and 2002, and the related consolidated
statements of income, stockholders equity and comprehensive income, and cash flows for the years ended December 31, 2003,
2002, and 2001. These consolidated financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of United Financial Corp. and subsidiaries as of
December 31, 2003 and 2002, and the results of their operations and their cash flows for the years ended December 31, 2003,
2002, and 2001, in conformity with accounting principles generally accepted in the United States of America.

/s/   Moss Adams LLP

Spokane, Washington
February 20, 2004

F-2

---



UNITED FINANCIAL CORP. AND SUBSIDIARIES

Consolidated Statements of Financial Condition

|                                              |  |              |             |      |  |             | 
|--------------------------------------------- |  | ------------ | ----------- | ---- |  | ----------- | 
|                                              |  | December 31, |             |     
|                                              |  |              |             |     
|                                              |  | 2005         |             | 2004 | 
|                                              |  |              |             |      | 
|Assets                                        |  |              |             |      |  |             | 
|                                              |  |              |             |      |  |             | 
|Cash and cash equivalents                     |  | $            | 19,126,528  |      |  | 19,187,177  | 
|Securities available-for-sale                 |  |              | 35,358,861  |      |  | 38,949,170  | 
|Restricted stock, at cost                     |  |              | 4,228,300   |      |  | 4,211,400   | 
|Loans held for sale                           |  |              | 3,902,478   |      |  | 5,785,521   | 
|Loans receivable, net                         |  |              | 311,996,555 |      |  | 265,010,993 | 
|Accrued interest receivable                   |  |              | 2,536,867   |      |  | 1,937,338   | 
|Premises and equipment, net                   |  |              | 8,518,570   |      |  | 8,471,062   | 
|Real estate and other personal property
owned |  |              | 70,774      |      |  | 293,125     | 
|Deferred tax asset, net                       |  |              | 738,281     |      |  | 279,392     | 
|Goodwill                                      |  |              | 1,421,912   |      |  | 1,421,912   | 
|Other assets                                  |  |              | 1,648,022   |      |  | 1,592,702   | 
|                                              |  |              |             |      |  |             | 
|                                              |  | $            | 389,547,148 |      |  | 347,139,792 | 
|                                              |  |              |             |      |  |             | 

|                                                                                                                                                |  |   |             |   |  |             | 
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ----------- | - |  | ----------- | 
|Liabilities
  and Stockholders Equity                                                                                                          |  |   |             |   |  |             | 
|                                                                                                                                                |  |   |             |   |  |             | 
|Liabilities:                                                                                                                                    |  |   |             |   |  |             | 
|Non-interest bearing
deposits                                                                                                                   |  | $ | 56,641,508  |   |  | 47,489,541  | 
|Interest bearing
deposits                                                                                                                       |  |   | 247,049,557 |   |  | 210,844,643 | 
|                                                                                                                                                |  |   |             |   |  |             | 
|Total deposits                                                                                                                                  |  |   | 303,691,065 |   |  | 258,334,184 | 
|Federal Home Loan Bank
advances                                                                                                                 |  |   | 42,044,355  |   |  | 44,794,355  | 
|Securities sold under
agreements to repurchase                                                                                                  |  |   | 4,248,120   |   |  | 7,497,859   | 
|Income taxes
payable                                                                                                                            |  |   | 307,793     |   |  | 13,643      | 
|Accrued interest
payable                                                                                                                        |  |   | 2,042,888   |   |  | 1,189,449   | 
|Subordinated debt owed to
trust                                                                                                                 |  |   | 3,093,000   |   |  | 3,093,000   | 
|Accrued expenses and other
liabilities                                                                                                          |  |   | 2,141,793   |   |  | 1,589,184   | 
|                                                                                                                                                |  |   |             |   |  |             | 
|Total liabilities                                                                                                                               |  |   | 357,569,014 |   |  | 316,511,674 | 
|                                                                                                                                                |  |   |             |   |  |             | 
|Commitments and contingencies
  (Notes 4, 13 and 21)                                                                                            |  |   |             |   |  |             | 
|                                                                                                                                                |  |   |             |   |  |             | 
|Stockholders equity:                                                                                                                           |  |   |             |   |  |             | 
|Preferred stock, no par value; authorized
2,000,000 shares; no shares
  issued and outstanding                                                  |  |   |            |   |  |            | 
|Common stock, no par value; authorized
8,000,000 shares; 3,071,158
  and 3,045,748  shares issued at
  December 31, 2005 and 2004, respectively |  |   | 26,901,546  |   |  | 26,649,795  | 
|Paid in capital                                                                                                                                 |  |   | 63,864      |   |  | 29,341      | 
|Retained earnings                                                                                                                               |  |   | 5,263,346   |   |  | 3,871,256   | 
|Accumulated other
comprehensive income (loss), net of taxes                                                                                     |  |   | (250,622    | ) |  | 77,726      | 
|                                                                                                                                                |  |   |             |   |  |             | 
|Total stockholders
equity                                                                                                                      |  |   | 31,978,134  |   |  | 30,628,118  | 
|                                                                                                                                                |  |   |             |   |  |             | 
|                                                                                                                                                |  | $ | 389,547,148 |   |  | 347,139,792 | 
|                                                                                                                                                |  |   |             |   |  |             | 

See accompanying notes to consolidated financial statements.

F-3

---



UNITED FINANCIAL CORP. AND SUBSIDIARIES

Consolidated Statements of Income

|                                                      |  |                          |            |      |  |            |  |  |            | 
|----------------------------------------------------- |  | ------------------------ | ---------- | ---- |  | ---------- |  |  | ---------- | 
|                                                      |  | Years ended December 31, |           
|                                                      |  |                          |           
|                                                      |  | 2005                     |            | 2004 |  | 2003       | 
|                                                      |  |                          |            |      |  |            | 
|Interest income:                                      |  |                          |            |      |  |            |  |  |            | 
|Loans receivable                                      |  | $                        | 19,716,705 |      |  | 16,445,196 |  |  | 15,856,651 | 
|Taxable investments                                   |  |                          | 1,427,837  |      |  | 1,551,514  |  |  | 1,574,538  | 
|Nontaxable
investments                                |  |                          | 17,937     |      |  | 34,142     |  |  | 80,579     | 
|Other interest-earning
assets                         |  |                          | 146,461    |      |  | 133,888    |  |  | 295,940    | 
|                                                      |  |                          |            |      |  |            |  |  |            | 
|Total interest income                                 |  |                          | 21,308,940 |      |  | 18,164,740 |  |  | 17,807,708 | 
|                                                      |  |                          |            |      |  |            |  |  |            | 
|Interest expense:                                     |  |                          |            |      |  |            |  |  |            | 
|Deposits                                              |  |                          | 5,198,749  |      |  | 3,432,324  |  |  | 4,275,965  | 
|Federal Home Loan Bank
advances                       |  |                          | 1,663,822  |      |  | 1,446,962  |  |  | 1,327,754  | 
|Securities sold under
agreements to repurchase        |  |                          | 99,435     |      |  | 112,032    |  |  | 189,260    | 
|Other borrowings                                      |  |                          |           |      |  |           |  |  | 7,837      | 
|Subordinated debt owed to
trust                       |  |                          | 215,207    |      |  | 161,166    |  |  | 153,541    | 
|                                                      |  |                          |            |      |  |            |  |  |            | 
|Total interest
expense                                |  |                          | 7,177,213  |      |  | 5,152,484  |  |  | 5,954,357  | 
|                                                      |  |                          |            |      |  |            |  |  |            | 
|Net interest income                                   |  |                          | 14,131,727 |      |  | 13,012,256 |  |  | 11,853,351 | 
|Provision for loan losses                             |  |                          | 230,000    |      |  | 70,000     |  |  | 778,300    | 
|                                                      |  |                          |            |      |  |            |  |  |            | 
|Net interest income after
provision for loan losses   |  |                          | 13,901,727 |      |  | 12,942,256 |  |  | 11,075,051 | 
|                                                      |  |                          |            |      |  |            |  |  |            | 
|Non-interest
  income:                                |  |                          |            |      |  |            |  |  |            | 
|Gain on sale of loans                                 |  |                          | 3,163,310  |      |  | 2,803,889  |  |  | 4,970,369  | 
|Customer service
charges                              |  |                          | 1,164,648  |      |  | 1,072,315  |  |  | 911,938    | 
|Loan servicing fees                                   |  |                          | 110,250    |      |  | 101,977    |  |  | 93,197     | 
|Gain on sale of
securities                            |  |                          | 989        |      |  | 242,007    |  |  | 17,587     | 
|Other                                                 |  |                          | 110,776    |      |  | 206,934    |  |  | 191,445    | 
|                                                      |  |                          |            |      |  |            |  |  |            | 
|Total non-interest
income                             |  |                          | 4,549,973  |      |  | 4,427,122  |  |  | 6,184,536  | 
|                                                      |  |                          |            |      |  |            |  |  |            | 
|Non-interest expense:                                 |  |                          |            |      |  |            |  |  |            | 
|Compensation and
benefits                             |  |                          | 7,094,978  |      |  | 6,575,253  |  |  | 6,895,696  | 
|Occupancy and
equipment                               |  |                          | 1,470,181  |      |  | 1,426,718  |  |  | 1,306,579  | 
|Data processing fees                                  |  |                          | 785,546    |      |  | 753,169    |  |  | 708,518    | 
|Management fees                                       |  |                          | 452,096    |      |  | 472,183    |  |  | 459,000    | 
|Marketing and business
development                    |  |                          | 192,424    |      |  | 170,246    |  |  | 326,689    | 
|Telephone and postage                                 |  |                          | 303,694    |      |  | 298,585    |  |  | 298,995    | 
|Legal and accounting                                  |  |                          | 218,069    |      |  | 116,798    |  |  | 148,067    | 
|Other                                                 |  |                          | 1,269,959  |      |  | 1,275,970  |  |  | 1,348,254  | 
|                                                      |  |                          |            |      |  |            |  |  |            | 
|Total non-interest expense                            |  |                          | 11,786,947 |      |  | 11,088,922 |  |  | 11,491,798 | 
|                                                      |  |                          |            |      |  |            |  |  |            | 
|Income from continuing
operations before income taxes |  |                          | 6,664,753  |      |  | 6,280,456  |  |  | 5,767,789  | 
|Income taxes                                          |  |                          | 2,525,242  |      |  | 2,362,497  |  |  | 1,938,504  | 
|                                                      |  |                          |            |      |  |            |  |  |            | 
|Income from continuing
operations                     |  |                          | 4,139,511  |      |  | 3,917,959  |  |  | 3,829,285  | 
|Discontinued operations:                              |  |                          |            |      |  |            |  |  |            | 
|Income from operations, net of
tax                    |  |                          |           |      |  |           |  |  | 176,587    | 
|Gain on disposal, net of
tax                          |  |                          |           |      |  |           |  |  | 714,129    | 
|                                                      |  |                          |            |      |  |            |  |  |            | 
|Income from discontinued
operations                   |  |                          |           |      |  |           |  |  | 890,716    | 
|Net income                                            |  | $                        | 4,139,511  |      |  | 3,917,959  |  |  | 4,720,001  | 
|                                                      |  |                          |            |      |  |            |  |  |            | 
|Basic earnings per share                              |  |                          |            |      |  |            |  |  |            | 
|Continuing operations                                 |  | $                        | 1.35       |      |  | 1.29       |  |  | 1.26       | 
|Discontinued
operations                               |  |                          |           |      |  |           |  |  | 0.29       | 
|                                                      |  |                          |            |      |  |            |  |  |            | 
|Net income                                            |  | $                        | 1.35       |      |  | 1.29       |  |  | 1.55       | 
|                                                      |  |                          |            |      |  |            |  |  |            | 
|Diluted earnings per share                            |  |                          |            |      |  |            |  |  |            | 
|Continuing operations                                 |  | $                        | 1.32       |      |  | 1.25       |  |  | 1.22       | 
|Discontinued
operations                               |  |                          |           |      |  |           |  |  | 0.28       | 
|                                                      |  |                          |            |      |  |            |  |  |            | 
|Net income                                            |  | $                        | 1.32       |      |  | 1.25       |  |  | 1.50       | 
|                                                      |  |                          |            |      |  |            |  |  |            | 

See accompanying notes to consolidated
financial statements.

F-4

---



UNITED FINANCIAL CORP. AND SUBSIDIARIESConsolidated Statements of
Stockholders Equity and Comprehensive Income 
Years ended December 31, 2005, 2004 and 2003

|                                                                                                       |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|------------------------------------------------------------------------------------------------------ |  | ------------------ | --------- | -------------- | - | ----------------- | - | ------------------- | ------ | --------------------------------------------------- |  | ------------------------------ | - |  | -------- | - |  | ---------- | -
|                                                                                                       |  | Number of
  shares |           | Common
  stock |   | Paid in
  capital |   | Retained
  earnings |        | Accumulated
  other
  comprehensive
  income (loss) |  | Total
  stockholders
  equity |  
|                                                                                                       |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |  
|Balances at December 31, 2002                                                                          |  |                    | 3,048,961 |                | $ | 27,166,756        |   |                     |       |                                                     |  | 2,476,481                      |   |  | 832,491  |   |  | 30,475,728 |  
|                                                                                                       |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|Comprehensive income:                                                                                  |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|Net income                                                                                             |  |                    |           |                |   |                  |   |                     |       |                                                     |  | 4,720,001                      |   |  |         |   |  | 4,720,001  |  
|Decrease in net unrealized gain on
  securities available-for-sale, net of reclassification adjustment |  |                    |           |                |   |                  |   |                     |       |                                                     |  |                               |   |  | (491,605 | ) |  | (491,605   | )
|                                                                                                       |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|                                                                                                       |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|Total comprehensive income                                                                             |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  | 4,228,396  |  
|                                                                                                       |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|                                                                                                       |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|Issuance of 8,341 shares; employee stock
  options and stock awards                                    |  |                    | 8,341     |                |   | 78,501            |   |                     |       |                                                     |  |                               |   |  |         |   |  | 78,501     |  
|                                                                                                       |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|Dividends declared ($.72 per share)                                                                    |  |                    |           |                |   |                  |   |                     |       |                                                     |  | (2,181,826                     | ) |  |         |   |  | (2,181,826 | )
|                                                                                                       |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|Redemption of common stock (11,000 shares)                                                             |  |                    | (11,000   | )              |   | (220,110          | ) |                     |       |                                                     |  |                               |   |  |         |   |  | (220,110   | )
|                                                                                                       |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|                                                                                                       |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|Balances at December 31, 2003                                                                          |  |                    | 3,046,302 |                |   | 27,025,147        |   |                     |       |                                                     |  | 5,014,656                      |   |  | 340,886  |   |  | 32,380,689 |  
|                                                                                                       |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|Comprehensive income:                                                                                  |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|Net income                                                                                             |  |                    |           |                |   |                  |   |                     |       |                                                     |  | 3,917,959                      |   |  |         |   |  | 3,917,959  |  
|Decrease in net unrealized gain on
  securities available-for-sale, net of reclassification adjustment |  |                    |           |                |   |                  |   |                     |       |                                                     |  |                               |   |  | (263,160 | ) |  | (263,160   | )
|                                                                                                       |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|                                                                                                       |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|Total comprehensive income                                                                             |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  | 3,654,799  |  
|                                                                                                       |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|                                                                                                       |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|Tax benefit on exercise of stock options                                                               |  |                    |           |                |   |                  |   |                     | 29,341 |                                                     |  |                               |   |  |         |   |  | 29,341     |  
|                                                                                                       |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|Issuance of 30,071 shares; employee stock
  options                                                    |  |                    | 30,071    |                |   | 248,363           |   |                     |       |                                                     |  |                               |   |  |         |   |  | 248,363    |  
|                                                                                                       |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|Dividends declared ($1.66 per share)                                                                   |  |                    |           |                |   |                  |   |                     |       |                                                     |  | (5,061,359                     | ) |  |         |   |  | (5,061,359 | )
|                                                                                                       |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|Redemption of common stock (30,625 shares)                                                             |  |                    | (30,625   | )              |   | (623,715          | ) |                     |       |                                                     |  |                               |   |  |         |   |  | (623,715   | )
|                                                                                                       |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|                                                                                                       |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|Balances at December 31, 2004                                                                          |  |                    | 3,045,748 |                | $ | 26,649,795        |   |                     | 29,341 |                                                     |  | 3,871,256                      |   |  | 77,726   |   |  | 30,628,118 |  
|                                                                                                       |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|Comprehensive income:                                                                                  |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|Net income                                                                                             |  |                    |           |                |   |                   |   |                     |        |                                                     |  | 4,139,511                      |   |  |         |   |  | 4,139,511  |  
|Decrease in net unrealized gain on
  securities available-for-sale, net of reclassification adjustment |  |                    |           |                |   |                  |   |                     |       |                                                     |  |                               |   |  | (328,348 | ) |  | (328,348   | )
|                                                                                                       |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|                                                                                                       |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|Total comprehensive income                                                                             |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  | 3,811,163  |  
|                                                                                                       |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|Tax benefit on exercise of stock options                                                               |  |                    |           |                |   |                  |   |                     | 34,523 |                                                     |  |                               |   |  |         |   |  | 34,523     |  
|                                                                                                       |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|Issuance of 25,410 shares; employee stock
  options and stock awards                                   |  |                    | 25,410    |                |   | 251,751           |   |                     |       |                                                     |  |                               |   |  |         |   |  | 251,751    |  
|                                                                                                       |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|Dividends declared ($.90 per share)                                                                    |  |                    |           |                |   |                  |   |                     |       |                                                     |  | (2,747,421                     | ) |  |         |   |  | (2,747,421 | )
|                                                                                                       |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  
|Balances at December 31, 2005                                                                          |  |                    | 3,071,158 |                | $ | 26,901,546        |   |                     | 63,864 |                                                     |  | 5,263,346                      |   |  | (250,622 | ) |  | 31,978,134 |  
|                                                                                                       |  |                    |           |                |   |                   |   |                     |        |                                                     |  |                                |   |  |          |   |  |            |  

|                                                                         |  |      |          |      |  |          |   |  |          |  
|------------------------------------------------------------------------ |  | ---- | -------- | ---- |  | -------- | - |  | -------- | -
|                                                                         |  |      |          |      |  |          |  
|Disclosure of reclassification amount:                                   |  | 2005 |          | 2004 |  | 2003     |  
|                                                                         |  |      |          |      |  |          |   |  |          |  
|Unrealized holding gains
  (losses) arising during the period            |  | $    | (532,520 | )    |  | (185,583 | ) |  | (529,464 | )
|Tax (expense) benefit                                                    |  |      | 204,785  |      |  | 72,467   |   |  | 203,685  |  
|                                                                         |  |      |          |      |  |          |   |  |          |  
|Net after tax                                                            |  |      | (327,735 | )    |  | (113,116 | ) |  | (325,779 | )
|                                                                         |  |      |          |      |  |          |   |  |          |  
|Realized gain from discontinued operations                               |  |      |         |      |  |         |   |  | (376,461 | )
|Tax expense from discontinued operations                                 |  |      |         |      |  |         |   |  | 139,286  |  
|Less realized gain allocated to minority
  interest                      |  |      |         |      |  |         |   |  | 82,253   |  
|                                                                         |  |      |          |      |  |          |   |  |          |  
|                                                                         |  |      |         |      |  |         |   |  | (154,922 | )
|                                                                         |  |      |          |      |  |          |   |  |          |  
|Reclassification adjustment for gains
  included in net income           |  |      | (989     | )    |  | (242,007 | ) |  | (17,587  | )
|Tax expense                                                              |  |      | 376      |      |  | 91,963   |   |  | 6,683    |  
|                                                                         |  |      |          |      |  |          |   |  |          |  
|Net after tax                                                            |  |      | (613     | )    |  | (150,044 | ) |  | (10,904  | )
|Portion of unrealized gain allocated to
  minority interest              |  |      |         |      |  |         |   |  |         |  
|                                                                         |  |      |          |      |  |          |   |  |          |  
|                                                                         |  |      |          |      |  |          |   |  |          |  
|Net change in unrealized gain (loss) on
  availiable-for-sale securities |  | $    | (328,348 | )    |  | (263,160 | ) |  | (491,605 | )
|                                                                         |  |      |          |      |  |          |   |  |          |  

See
accompanying notes to consolidated financial statements.

F-5

---



UNITED FINANCIAL CORP. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

|                                                                                                          |  |                            |              |      |  |              |   |  |              |  
|--------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------------ | ---- |  | ------------ | - |  | ------------ | -
|                                                                                                          |  | Years
  ended December 31, |             
|                                                                                                          |  |                            |             
|                                                                                                          |  | 2005                       |              | 2004 |  | 2003         |  
|                                                                                                          |  |                            |              |      |  |              |  
|Cash flows from operating activities:                                                                     |  |                            |              |      |  |              |   |  |              |  
|Net income from continuing operations                                                                     |  | $                          | 4,139,511    |      |  | 3,917,959    |   |  | 3,829,285    |  
|Adjustments to reconcile net income from
  continuing operations to net cash from operating activities:   |  |                            |              |      |  |              |   |  |              |  
|                                                                                                          |  |                            |              |      |  |              |   |  |              |  
|Provision for loan losses                                                                                 |  |                            | 230,000      |      |  | 70,000       |   |  | 778,300      |  
|Depreciation                                                                                              |  |                            | 634,449      |      |  | 633,224      |   |  | 545,059      |  
|Net (gain) loss on sale of premises and
  equipment                                                       |  |                            |             |      |  | (4,019       | ) |  | 4,269        |  
|Deferred income tax expense (benefit)                                                                     |  |                            | (253,728     | )    |  | 157,249      |   |  | (5,887       | )
|Amortization/accretion of premiums and
  discounts on securities and loans, net                           |  |                            | 84,779       |      |  | 115,898      |   |  | 173,589      |  
|Gain on sale of investment securities                                                                     |  |                            | (989         | )    |  | (242,007     | ) |  | (17,587      | )
|Non cash compensation expense                                                                             |  |                            | 36,600       |      |  |             |   |  |             |  
|Loss on sale of real estate owned, net                                                                    |  |                            | 22,964       |      |  | 44,540       |   |  |             |  
|Writedown of loan premium                                                                                 |  |                            |             |      |  |             |   |  | 17,251       |  
|Mortgage loans originated and held for sale                                                               |  |                            | (165,835,508 | )    |  | (142,395,826 | ) |  | (312,030,881 | )
|Proceeds from sales of mortgage loans held
  for sale                                                     |  |                            | 170,881,861  |      |  | 143,297,079  |   |  | 325,931,522  |  
|Gain on sale of loans                                                                                     |  |                            | (3,163,310   | )    |  | (2,803,889   | ) |  | (4,970,369   | )
|FHLB stock dividends                                                                                      |  |                            | (16,900      | )    |  | (102,500     | ) |  | (200,100     | )
|(Increase) decrease in accrued interest
  receivable                                                      |  |                            | (599,529     | )    |  | (153,709     | ) |  | 383,642      |  
|Decrease in other assets                                                                                  |  |                            | (55,320      | )    |  | (428,038     | ) |  | (88,228      | )
|Increase (decrease) in income taxes                                                                       |  |                            | 328,673      |      |  | 63,564       |   |  | (315,265     | )
|Increase (decrease) in accrued interest
  payable                                                         |  |                            | 853,439      |      |  | 174,757      |   |  | (304,495     | )
|Increase (decrease) in accrued expenses and
  other liabilities                                           |  |                            | 552,609      |      |  | (335,805     | ) |  | 649,927      |  
|                                                                                                          |  |                            |              |      |  |              |   |  |              |  
|Net cash from continuing operations                                                                       |  |                            | 7,839,601    |      |  | 2,008,477    |   |  | 14,380,032   |  
|                                                                                                          |  |                            |              |      |  |              |   |  |              |  
|                                                                                                          |  |                            |              |      |  |              |   |  |              |  
|Net income from discontinued operations                                                                   |  |                            |             |      |  |             |   |  | 890,716      |  
|Adjustments to reconcile net income from
  discontinued operations to net cash from operating activities: |  |                            |              |      |  |              |   |  |              |  
|                                                                                                          |  |                            |              |      |  |              |   |  |              |  
|Provision for loan losses                                                                                 |  |                            |             |      |  |             |   |  | 50,000       |  
|Depreciation                                                                                              |  |                            |             |      |  |             |   |  | 85,566       |  
|Deferred income tax expense                                                                               |  |                            |             |      |  |             |   |  | 12,844       |  
|Amortization/accretion of premiums and
  discounts on securities and loans, net                           |  |                            |             |      |  |             |   |  | 4,515        |  
|Mortgage loans originated and held for sale                                                               |  |                            |             |      |  |             |   |  | (1,593,426   | )
|Proceeds from sales of mortgage loans held
  for sale                                                     |  |                            |             |      |  |             |   |  | 288,046      |  
|Gain on sale of discontinued operations                                                                   |  |                            |             |      |  |             |   |  | (714,129     | )
|FHLB stock dividends                                                                                      |  |                            |             |      |  |             |   |  | (4,800       | )
|Increase in accrued interest receivable and
  other assets                                                |  |                            |             |      |  |             |   |  | (343,212     | )
|Increase in accrued interest payable and
  other liabilities                                              |  |                            |             |      |  |             |   |  | 70,327       |  
|Net change in minority interest                                                                           |  |                            |             |      |  |             |   |  | 521,372      |  
|                                                                                                          |  |                            |              |      |  |              |   |  |              |  
|Net cash from discontinued operations                                                                     |  |                            |             |      |  |             |   |  | (732,181     | )
|                                                                                                          |  |                            |              |      |  |              |   |  |              |  
|Net cash from operating activies                                                                          |  |                            | 7,839,601    |      |  | 2,008,477    |   |  | 13,647,851   |  
|                                                                                                          |  |                            |              |      |  |              |   |  |              |  

F-6

---



UNITED FINANCIAL CORP. AND SUBSIDIARIES

Consolidated Statements of Cash Flows
(Continued)

|                                                                                       |  |                            |             |      |  |             |   |  |             |  
|-------------------------------------------------------------------------------------- |  | -------------------------- | ----------- | ---- |  | ----------- | - |  | ----------- | -
|                                                                                       |  | Years
  ended December 31, |            
|                                                                                       |  |                            |            
|                                                                                       |  | 2005                       |             | 2004 |  | 2003        |  
|                                                                                       |  |                            |             |      |  |             |  
|Cash flows from investing activities:                                                  |  |                            |             |      |  |             |   |  |             |  
|Net increase in loans receivable                                                       |  |                            | (47,341,410 | )    |  | (38,318,904 | ) |  | (15,065,216 | )
|Purchases of securities available-for-sale                                             |  |                            | (11,213,717 | )    |  | (18,505,363 | ) |  | (38,652,712 | )
|Proceeds from maturities, calls, paydowns
  and sales of securities available-for-sale |  |                            | 14,199,513  |      |  | 22,546,487  |   |  | 40,724,741  |  
|Purchases of premises and equipment                                                    |  |                            | (681,957    | )    |  | (1,598,302  | ) |  | (1,345,124  | )
|Proceeds from sale of premises and
  equipment                                         |  |                            |            |      |  | 28,750      |   |  | 13,000      |  
|Proceeds from sale of real estate and other
  personal property owned                  |  |                            | 312,449     |      |  | 726,017     |   |  | 117,073     |  
|Net proceeds from the sale of discontinued
  operations                                |  |                            |            |      |  |            |   |  | 8,299,630   |  
|                                                                                       |  |                            |             |      |  |             |   |  |             |  
|Net cash from investing activities                                                     |  |                            | (44,725,122 | )    |  | (35,121,315 | ) |  | (5,908,608  | )
|                                                                                       |  |                            |             |      |  |             |   |  |             |  
|Cash flows from financing activities:                                                  |  |                            |             |      |  |             |   |  |             |  
|Net increase (decrease) in deposits                                                    |  |                            | 45,356,881  |      |  | 30,820,036  |   |  | (3,339,205  | )
|Proceeds from FHLB advances                                                            |  |                            | 76,100,000  |      |  | 70,250,000  |   |  | 35,000,000  |  
|Payments on FHLB advances                                                              |  |                            | (78,850,000 | )    |  | (56,455,645 | ) |  | (39,000,000 | )
|Payments on line of credit                                                             |  |                            |            |      |  |            |   |  | (700,000    | )
|Net decrease in securities sold under
  repurchase agreements                          |  |                            | (3,249,739  | )    |  | (391,558    | ) |  | (4,897,823  | )
|Proceeds from issuance of common stock                                                 |  |                            | 215,151     |      |  | 248,363     |   |  | 78,501      |  
|Redemption of common stock                                                             |  |                            |            |      |  | (623,715    | ) |  | (220,110    | )
|Dividends paid to stockholders                                                         |  |                            | (2,747,421  | )    |  | (5,061,359  | ) |  | (2,181,826  | )
|                                                                                       |  |                            |             |      |  |             |   |  |             |  
|Net cash from financing activities                                                     |  |                            | 36,824,872  |      |  | 38,786,122  |   |  | (15,260,463 | )
|                                                                                       |  |                            |             |      |  |             |   |  |             |  
|Net increase (decrease) in cash and cash
  equivalents                                 |  |                            | (60,649     | )    |  | 5,673,284   |   |  | (7,521,220  | )
|Less net decrease in cash from discontinued
  operations                               |  |                            |            |      |  |            |   |  | 3,043,194   |  
|                                                                                       |  |                            |             |      |  |             |   |  |             |  
|Net increase (decrease) in cash from
  continuing operations                           |  |                            | (60,649     | )    |  | 5,673,284   |   |  | (4,478,026  | )
|                                                                                       |  |                            |             |      |  |             |   |  |             |  
|Cash and cash equivalents at beginning of
  year                                       |  |                            | 19,187,177  |      |  | 13,513,893  |   |  | 17,991,919  |  
|                                                                                       |  |                            |             |      |  |             |   |  |             |  
|Cash and cash equivalents at end of year                                               |  | $                          | 19,126,528  |      |  | 19,187,177  |   |  | 13,513,893  |  
|                                                                                       |  |                            |             |      |  |             |   |  |             |  
|Supplemental disclosure of cash flow
  information                                     |  |                            |             |      |  |             |   |  |             |  
|                                                                                       |  |                            |             |      |  |             |   |  |             |  
|Cash paid during the year for:                                                         |  |                            |             |      |  |             |   |  |             |  
|Interest, approximately                                                                |  | $                          | 6,324,000   |      |  | 4,978,000   |   |  | 6,259,000   |  
|Income taxes, approximately                                                            |  | $                          | 2,447,000   |      |  | 2,142,000   |   |  | 2,955,000   |  
|                                                                                       |  |                            |             |      |  |             |   |  |             |  
|Supplemental schedule of noncash investing
  and financing activities                  |  |                            |             |      |  |             |   |  |             |  
|                                                                                       |  |                            |             |      |  |             |   |  |             |  
|Loans transferred to other real estate
  owned                                         |  | $                          | 113,062     |      |  | 404,325     |   |  | 287,493     |  

See
accompanying notes to consolidated financial statements.

F-7

---



UNITED FINANCIAL CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

|    |                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Organization and Summary of Significant
  Accounting Policies
|    | (a)                                                           | General                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                               | The
  accompanying consolidated financial statements include the accounts of United
  Financial Corp. (United), a bank holding company headquartered in Great
  Falls, Montana and Uniteds wholly-owned subsidiary, Heritage Bank. Uniteds
  banking business is conducted through its wholly-owned subsidiary, Heritage
  Bank. United, through Heritage Bank, provides a full range of banking
  services to individual and corporate customers in thirteen Montana
  communities. Heritage Bank is a state-chartered commercial bank with
  locations in Billings, Bozeman, Chester, Fort Benton, Geraldine, Glendive,
  Great Falls (three locations), Hamilton, Havre, Kalispell, Libby, Missoula
  and Shelby, Montana. Heritage Bank is engaged in the community banking
  business of attracting deposits from the general public through its branches
  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.
  Heritage Banks banking business is concentrated in the Great Falls area.
  Based on total assets, 41% of Uniteds assets are located at Heritage Banks
  Great Falls locations.
|    |                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                               | In December
  2004, Heritage Bank incorporated a wholly-owned subsidiary, HPM, Inc. to
  acquire land and a building for a new Great Falls drive-up location, which it
  then leased it back to Heritage Bank. All significant intercompany balances
  and transactions have been eliminated in consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                               | In January
  2006, Heritage Bank sold its 17% ownership interest in Bankers Resource
  Center (BRC), a computer data center, located in Helena, Montana. The data
  center was owned and operated by a number of Montana banks, including
  Heritage Bank. BRC provided data processing services to its bank owners. In
  2005, the owners collectively decided to sell the assets of BRC to a
  non-related third party and to liquidate the corporation. Heritage Bank will
  purchase these data processing services from this third party in 2006. While
  this transaction has eliminated Heritage Banks ownership in BRC, and
  Uniteds data processing services will now be provided by a third party
  operator, United does not expect this transaction to have a material effect
  on Uniteds operations, financial condition or financial results.                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | (b)                                                           | Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                               | The
  consolidated financial statements have been prepared in conformity with
  accounting principles generally accepted in the United States of America. In
  preparing the consolidated financial statements, management is required to
  make estimates and assumptions that affect the reported amounts of assets and
  liabilities as of the date of the statement of financial condition and income
  and expenses for the period. Actual results could differ significantly from
  those estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                               | A material
  estimate that is particularly susceptible to significant change in the
  near-term relates to the determination of the allowance for loan losses.
  Management believes the allowance for loan losses is adequate, however,
  future additions to the allowance may be necessary based on changes in factors
  affecting the borrowers ability to repay. In addition, various regulatory
  agencies, as an integral part of their examination process, periodically
  review the allowance for loan losses. Such agencies may require United to
  recognize changes to the allowance based on their judgments about information
  available to them at the time of their examination.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

F-8

---



UNITED FINANCIAL CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(c) | Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | For purposes
  of the consolidated statements of cash flows, United considers all cash,
  daily interest demand deposits, amounts due from banks and interest-bearing
  deposits with banks with original maturities of three months or less to be
  cash equivalents. Cash flows from customers for loans, deposits and
  securities sold under agreements to repurchase are reported net.                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(d) | Securities Available-for-Sale                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Securities
  available-for-sale include all investment securities that management intends
  to use as part of its overall asset/liability management strategy and that
  may be sold in response to changes in interest rates and resultant prepayment
  risk and other related factors. Securities available-for-sale are carried at
  fair value and unrealized gains and losses (net of related tax effects) are excluded
  from earnings and reported as a separate component of stockholders equity.                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Declines in
  the fair value of available-for-sale securities below carrying value that are
  other than temporary are charged to expense as realized losses and the related
  carrying value is reduced to fair value. The cost of any investment, if sold,
  is determined by the specific identification method.                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Premiums and
  discounts on investment securities are amortized or accreted into income
  using a method which approximates the level-yield interest method.                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(e) | Loans Receivable and Loan Fees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Loans
  receivable are stated at unpaid principal balances, less unearned discounts
  and net of deferred loan origination fees. Interest on loans is credited to
  income as earned. Interest receivable is accrued only if deemed collectible.
  Discounts on purchased loans are amortized into interest income using the
  level-yield method over the remaining period to contractual maturity,
  adjusted for anticipated prepayments.                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Loans are
  placed on nonaccrual status when collection of principal or interest is
  considered doubtful. Interest income previously accrued on these loans, but
  not yet received, is reversed in the current period. Interest subsequently
  recovered is credited to income in the period collected.                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Material
  loan origination fees and related direct origination costs are deferred and
  the net fee or cost is recognized as interest income using the level-yield
  method over the contractual life of the loans, adjusted for prepayments.
  Origination fees on loans sold to the secondary market are recognized when
  the loan is sold. Amortization of deferred loan origination fees and costs
  and the accretion of unearned discounts are suspended during periods in which
  the related loan is on nonaccrual status.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(f) | Allowance for Loan Losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | The
  allowance for loan losses is based on managements evaluation of the adequacy
  of the allowance, including an assessment of Uniteds past loan loss
  experience, known and inherent risks in the portfolio, adverse situations
  that may affect the borrowers ability to repay, the estimated value                                                                                                                                                                                                                       

F-9

---



UNITED FINANCIAL CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | of any
  underlying collateral, current economic conditions and independent
  appraisals. Past-due status is determined based upon the loans contractual
  terms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Additions to
  the allowance arise from charges to operations through the provision for loan
  losses or from the recovery of amounts previously charged off. The allowance
  is reduced by loans charged off. Loans are charged off when management
  believes the loans principal balance, or a portion thereof, is no longer
  collectable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | United also
  provides an allowance for losses on specific loans which are deemed to be
  impaired. Groups of small balance homogeneous loans (generally consumer
  loans) are evaluated for impairment collectively. A loan is considered
  impaired when, based upon current information and events, it is probable that
  United will be unable to collect, on a timely basis, all principal and
  interest according to the contractual terms of the loans original agreement.
  When a specific loan is determined to be impaired, the allowance for loan
  losses is increased through a charge to expense for the amount of the
  impairment. The amount of the impairment is measured using cash flows
  discounted at the loans effective interest rate, except when it is
  determined that the sole source of repayment for the loan is the operation or
  liquidation of the underlying collateral. In such cases, the current value of
  the collateral, reduced by anticipated selling costs, is used in place of
  discounted cash flows. Generally, when a loan is deemed impaired, current
  period interest previously accrued but not collected is reversed against
  current period interest income. Income on such impaired loans is then
  recognized only to the extent that cash in excess of any amounts charged off
  to the allowance for loan losses is received and where the future collection
  of principal is probable. Interest accruals are resumed on such loans only
  when they are brought fully current with respect to interest and principal
  and when, in the judgment of management, the loans are estimated to be fully
  collectible as to both principal and interest.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(g) | Loans Held for Sale                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Mortgage
  loans originated and intended for sale in the secondary market are carried at
  the lower of cost or fair value. United expects the loans to be sold in the
  short-term. The value of derivative instruments related to commitments to
  fund loans originated for sale and forward loan sale agreements are
  recognized in the balance sheet at fair value, if material, and changes in
  fair value thereof are recognized in the statement of income. As of December
  31, 2005 and 2004, no such amounts have been recognized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(h) | Goodwill                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Goodwill
  represents the excess of cost over the fair value of the net assets at the
  date of acquisition. Goodwill is not amortized but is reviewed for impairment
  annually, or more frequently if certain indicators arise. United did not
  incur any goodwill impairment in 2005, 2004 or 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(i) | Restricted Stock Investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Federal Home
  Loan Bank (FHLB) stock is a required investment for institutions that are
  members of the FHLB system. The required investment in the common stock is
  based on a predetermined formula and is carried at cost on the statement of
  financial condition. The stock is pledged as security for advances from the
  FHLB. Class B(1) stock can be sold back to the FHLB of Seattle at                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

F-10

---



UNITED FINANCIAL CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | cost, but is
  restricted as to purchase, sale, and redemption. Class B(2) is not a required
  investment for institutions and is not restricted as to purchase and sale, but
  has the same redemption restrictions as class B(1) stock. Included in
  restricted stock on the statement of financial condition, Heritage Bank has
  $3,477,500 and $3,463,400 of class B(1) stock, respectively, at December 31,
  2005 and 2004. Heritage Bank held $750,800 and $748,000 of class B(2) stock,
  respectively, at December 31, 2005 and 2004. During the second quarter of
  2005, the FHLB of Seattle announced that it was projecting very low net
  income over the next few years, possibly even losses. The FHLB of Seattle
  disclosed in a press release that it anticipates minimal to no dividends
  during the next few years. While the FHLB of Seattle has ruled that members
  are no longer required to purchase additional stock to support borrowing
  levels, it also is not redeeming member stock. Total annual dividend income
  United received on this stock was $.1 million and $.2 million, respectively,
  for the years ended December 31, 2004 and 2003. United did not record any
  accruals of dividend income in 2005. United accounts for the restricted stock
  at cost, with periodic evaluation for impairment. No impairment has been
  recognized on this stock.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(j) | Premises and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | Premises and
  equipment are stated at cost less accumulated depreciation. Depreciation is
  computed by straight-line and accelerated methods over the estimated useful
  lives of 39 years for buildings, 5 to 40 years for improvements, and 3 to 10
  years for furniture, fixtures and equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(k) | Real Estate and Other Personal Property
  Owned                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | Real estate
  owned represents real estate assets acquired through foreclosure or deed in
  lieu of foreclosure and is comprised of properties held for sale and held for
  investment. Foreclosed assets held for sale are carried at the lower of fair
  value less estimated costs to sell, or cost. Fair value is determined as the
  amount that could be reasonably expected in a current sale (other than a
  forced or liquidation sale) between a willing buyer and a willing seller.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(l) | Stock Repurchase Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | In October
  2003, a stock repurchase plan was approved by the Board for a period of one
  year to repurchase up to 187,500 shares, or up to $3,900,000 of Uniteds
  common stock. Total shares repurchased under this plan in 2003 and 2004
  totaled 41,625 for $843,825, an average price of $20.27 per share. The
  program was extended on September 22, 2004 for twelve months, and was further
  extended on September 22, 2005 for an additional twelve months. The number of
  shares United may purchase was reduced to 125,000, with an aggregate purchase
  price not to exceed $2.4 million. At December 31, 2005, total shares
  authorized to be repurchased under the plan remained at 125,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(m) | Stock-Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | At December
  31, 2005, United has a stock-based employee compensation plan, which is
  described more fully in Note 16. United accounts for the plan under the
  recognition and measurement principles of APB Opinion No. 25, Accounting
  for Stock Issued to Employees, and related Interpretations. No
  stock-based employee compensation cost is reflected in net income, for stock
  options, as all options granted under the plan had an exercise price equal to
  the market value of the                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

F-11

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UNITED FINANCIAL CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

| |                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | underlying
  common stock on the date of grant. The following table illustrates the effect
  on net income and earnings per share if United had applied the fair value
  recognition provisions of FASB Statement No. 123, Accounting for Stock-Based
  Compensation, to stock-based employee compensation.

|                                                                                                                                                |  |                           |           |      |  |           |   |  |           |  
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | --------- | ---- |  | --------- | - |  | --------- | -
|                                                                                                                                                |  | Year Ended
  December 31, |          
|                                                                                                                                                |  |                           |          
|                                                                                                                                                |  | 2005                      |           | 2004 |  | 2003      |  
|                                                                                                                                                |  |                           |           |      |  |           |  
|Net income: As reported                                                                                                                         |  | $                         | 4,139,511 |      |  | 3,917,959 |   |  | 4,720,001 |  
|Add: Stock-based employee compensation
  expense included in reported net income, net of related tax effects                                    |  |                           | 22,692    |      |  | -         |   |  | -         |  
|Deduct: Total stock-based employee
  compensation expense determined under fair value based method for all awards,
  net of related tax effects |  |                           | (41,754   | )    |  | (52,725   | ) |  | (61,107   | )
|                                                                                                                                                |  |                           |           |      |  |           |   |  |           |  
|Pro forma net income                                                                                                                            |  | $                         | 4,120,449 |      |  | 3,865,234 |   |  | 4,660,917 |  
|                                                                                                                                                |  |                           |           |      |  |           |   |  |           |  
|Earnings per share:                                                                                                                             |  |                           |           |      |  |           |   |  |           |  
|Basic - as reported                                                                                                                             |  | $                         | 1.35      |      |  | 1.29      |   |  | 1.55      |  
|Basic - pro forma                                                                                                                               |  | $                         | 1.35      |      |  | 1.27      |   |  | 1.53      |  
|Diluted - as reported                                                                                                                           |  | $                         | 1.32      |      |  | 1.25      |   |  | 1.50      |  
|Diluted - pro forma                                                                                                                             |  | $                         | 1.31      |      |  | 1.23      |   |  | 1.48      |  
|                                                                                                                                                |  |                           |           |      |  |           |   |  |           |  

|    |                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(n) | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Deferred tax
  assets and liabilities are recognized for the estimated future consequences
  attributable to differences between the financial statement carrying amounts
  of assets and liabilities and their respective tax bases. The effect on
  deferred tax assets and liabilities of a change in tax rates is recognized in
  tax expense in the period that includes the enactment date.
|    |                                                                                                                                                                                                                                                                                                                                                                                                  
|(o) | Earnings Per Share                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Basic
  earnings per share (EPS) is calculated by dividing net income by the weighted
  average number of common shares outstanding during 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
  following table summarizes stock splits approved by Uniteds Board of
  Directors.                                                                                                                                                                                                                                                                                                         

|                   |  |                                                             |  |                     |  |                     |  |              
|------------------ |  | ----------------------------------------------------------- |  | ------------------- |  | ------------------- |  | -------------
|Date Approved      |  | Type of split/dividend                                      |  | Record Date         |  | Payable Date        |  | Equity Effect
|                   |  |                                                             |  |                     |  |                     |  |              
|October 25,
  2005 |  | 5 for 4 stock split, 
  effected as a 25% stock 
  dividend |  | December 14,
  2005 |  | December 28,
  2005 |  | None         
|                   |  |                                                             |  |                     |  |                     |  |              
|May 20, 2003       |  | 3 for 2 stock split, 
  effected as a 50% stock 
  dividend |  | June 23, 2003       |  | June 30, 2003       |  | None         

F-12

---



UNITED FINANCIAL CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | Any
  fractional shares were paid in cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | As a result
  of the above stock splits, all share and per share amounts for time periods
  prior to these dates have been retroactively adjusted as if the stock splits
  occurred on January 1, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(p) | Long-Lived Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Long-lived
  assets are reviewed for impairment whenever events or circumstances indicate
  that the carrying amount of the asset may not be recoverable. An impairment
  loss is recognized if the sum of the expected future cash flows is less than
  the carrying amount of the asset. The amount of the impairment loss, if any,
  is based on the assets fair value, which may be estimated by discounting the
  expected future cash flows. There were no impairment losses recognized during
  2005, 2004 or 2003.                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(q) | Mortgage Servicing Rights                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | United
  recognizes as assets the rights to service mortgage loans for others, whether
  acquired or internally originated. Servicing assets are initially recorded
  based on fair value determined by comparable market quotes and are amortized
  in proportion to and over the period of estimated net servicing income.
  Amortization is netted with loan servicing fees in the consolidated
  statements of income. Servicing assets are periodically evaluated for
  impairment by stratifying the servicing assets based on predominant risk
  characteristics of the underlying loans including loan type, note rate and
  loan term. Servicing assets are included in other assets on the accompanying
  consolidated statements of financial condition.                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(r) | Comprehensive Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Comprehensive
  income, which includes net income as well as other changes in stockholders
  equity that result from transactions and economic events other than those
  with stockholders, is reported in a separate statement. Uniteds only
  significant element of other comprehensive income is unrealized gains and
  losses on securities available-for-sale, net of tax effects.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(s) | Segment Reporting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Operations
  are managed and financial performance is evaluated by management on a
  Company-wide basis. Accordingly, all of Uniteds operations are aggregated in
  one reportable segment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(t) | New Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | In December
  2004, the Financial Accounting Standards Board (FASB) issued Statement of
  Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based
  Payment. This Statement requires United to measure the cost of employee
  services received in exchange for an award of equity instruments based on the
  grant-date fair value of the award. United will recognize that cost over the
  period during which an employee provides service in exchange for the award.
  The new standard also impacts the presentation of tax benefits received in
  the statement of cash flows. United has adopted SFAS No. 123 R effective
  January 1, 2006. The annual expense associated with outstanding grants as of
  December 31, 2005 is currently expected to be approximately $.01 to $.02 per
  share. This amount is subject to revisions as assumptions are finalized.

F-13

---



UNITED
FINANCIAL CORP. AND SUBSIDIARIES

Notes to
Consolidated Financial Statements

|    |                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                  | In May 2005, FASB issued SFAS No. 154, Accounting
  Changes and Error Corrections.This statement requires
  retrospective application to prior periods financial statements of changes
  in accounting principle, unless it is impracticable to determine either the
  period-specific effects or the cumulative effect of the change. This
  statement also requires that any correction of an error in the financial
  statements of a prior period discovered subsequent to their issuance shall be
  reported as a prior-period adjustment by restating the prior period. SFAS No.
  154 is effective for accounting changes and corrections or errors made in
  fiscal years beginning after December 15, 2005. Uniteds management does not
  expect the adoption of this Statement to have a material impact on Uniteds
  consolidated financial statements.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(2) | Cash on Hand and In Banks                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Heritage Bank is required to maintain an average
  reserve balance with the Federal Reserve Bank (FRB), or maintain such reserve
  in cash on hand. The amount of this required reserve balance at December 31,
  2005 and 2004 was approximately $3,781,000 and $3,656,000, respectively. An
  additional $25,000 compensating balance is required to be maintained with the
  FRB for check clearing services.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | United places its cash with high credit quality
  institutions. The amount on deposit fluctuates, and at times exceeds the
  insured limit by the Federal Deposit Insurance Corporation, which subjects
  United to credit risk.                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(3) | Securities Available-for-Sale                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The amortized cost, unrealized gains and losses, and
  estimated fair values of investment and mortgage-backed securities
  available-for-sale at December 31 are as follows:                                                                                                                                                                                                                                   

|                                      |  |                  |            |                            |  |                             |  |                          |          |   |  |            | 
|------------------------------------- |  | ---------------- | ---------- | -------------------------- |  | --------------------------- |  | ------------------------ | -------- | - |  | ---------- | 
|                                      |  | 2005             |           
|                                      |  |                  |           
|                                      |  | Amortized
  cost |            | Gross
  unrealized
  gains |  | Gross
  unrealized
  losses |  | Estimated
  fair
  value |         
|                                      |  |                  |            |                            |  |                             |  |                          |         
|U.S. Government and federal agencies  |  | $                | 6,500,000  |                            |  |                            |  |                          | (77,455  | ) |  | 6,422,545  | 
|Mortgage-backed securities            |  |                  | 28,161,017 |                            |  | 56,037                      |  |                          | (361,210 | ) |  | 27,855,844 | 
|Municipal bonds                       |  |                  | 605,000    |                            |  |                            |  |                          | (17,683  | ) |  | 587,317    | 
|Corporate bonds and equity securities |  |                  | 500,062    |                            |  |                            |  |                          | (6,907   | ) |  | 493,155    | 
|                                      |  |                  |            |                            |  |                             |  |                          |          |   |  |            | 
|                                     
|                                      |  | $                | 35,766,079 |                            |  | 56,037                      |  |                          | (463,255 | ) |  | 35,358,861 | 
|                                      |  |                  |            |                            |  |                             |  |                          |          |   |  |            | 

F-14

---



UNITED
FINANCIAL CORP. AND SUBSIDIARIES

Notes to Consolidated
Financial Statements

|                                     |  |                  |            |                            |  |                             |  |                          |          |   |  |            | 
|------------------------------------ |  | ---------------- | ---------- | -------------------------- |  | --------------------------- |  | ------------------------ | -------- | - |  | ---------- | 
|                                     |  | 2004             |           
|                                     |  |                  |           
|                                     |  | Amortized
  cost |            | Gross
  unrealized
  gains |  | Gross
  unrealized
  losses |  | Estimated
  fair
  value |         
|                                     |  |                  |            |                            |  |                             |  |                          |         
|U.S. Government and federal agencies |  | $                | 4,000,000  |                            |  | 31,620                      |  |                          | (2,190   | ) |  | 4,029,430  | 
|Mortgage-backed securities           |  |                  | 34,337,879 |                            |  | 205,579                     |  |                          | (97,612  | ) |  | 34,445,846 | 
|Municipal bonds                      |  |                  | 485,000    |                            |  |                            |  |                          | (11,106  | ) |  | 473,894    | 
|                                     |  |                  |            |                            |  |                             |  |                          |          |   |  |            | 
|                                     |  | $                | 38,822,879 |                            |  | 237,199                     |  |                          | (110,908 | ) |  | 38,949,170 | 
|                                     |  |                  |            |                            |  |                             |  |                          |          |   |  |            | 

The investment securities shown below currently have
fair values less than amortized cost and therefore contain unrealized losses.
United has evaluated these securities and has determined that the decline in
value is not related to any company or industry specific event. As detailed
below, there are forty and eighteen investment securities with unrealized
losses as of December 31, 2005 and 2004, respectively. United anticipates full
recovery of amortized cost with respect to these securities at maturity or
sooner in the event of a more favorable market interest rate environment.

The length of time that individual securities have
been in a continuous unrealized loss position, aggregated by investment
category at December 31, 2005 and 2004 are as follows:

|                                        |  |                          |            |                             |  |                        |   |                             |            |                        |  |                             |   |  |            |  |  |          |  
|--------------------------------------- |  | ------------------------ | ---------- | --------------------------- |  | ---------------------- | - | --------------------------- | ---------- | ---------------------- |  | --------------------------- | - |  | ---------- |  |  | -------- | -
|December 31, 2005                       |  | More than
  12 Months    |            | Less than
  12 Months       |  | Total                  |  
|                                        |  |                          |            |                             |  |                        |  
|                                        |  | Estimated 
  fair  value |            | Gross
  unrealized
  losses |  | Estimated
  fair value |   | Gross
  unrealized
  losses |            | Estimated
  fair value |  | Gross
  unrealized
  losses |  
|                                        |  |                          |            |                             |  |                        |   |                             |            |                        |  |                             |  
|U.S. Government
  and federal agencies  |  | $                        | 988,430    |                             |  | (11,570                | ) |                             | 5,434,115  |                        |  | (65,885                     | ) |  | 6,422,545  |  |  | (77,455  | )
|Mortgage-backed
  securities            |  |                          | 10,622,191 |                             |  | (230,923               | ) |                             | 10,766,351 |                        |  | (130,287                    | ) |  | 21,388,542 |  |  | (361,210 | )
|Municipal bonds                         |  |                          | 467,317    |                             |  | (17,683                | ) |                             |           |                        |  |                            |   |  | 467,317    |  |  | (17,683  | )
|Corporate bonds
  and equity securities |  |                          |           |                             |  |                       |   |                             | 493,155    |                        |  | (6,907                      | ) |  | 493,155    |  |  | (6,907   | )
|                                        |  |                          |            |                             |  |                        |   |                             |            |                        |  |                             |   |  |            |  |  |          |  
|                                        |  | $                        | 12,077,938 |                             |  | (260,176               | ) |                             | 16,693,621 |                        |  | (203,079                    | ) |  | 28,771,559 |  |  | (463,255 | )
|                                        |  |                          |            |                             |  |                        |   |                             |            |                        |  |                             |   |  |            |  |  |          |  

F-15

---



UNITED
FINANCIAL CORP. AND SUBSIDIARIES

Notes to
Consolidated Financial Statements

|                                       |  |                       |                         |                       |  |                             |   |  |                        |  |  |                             |   |  |                        |  |  |                             |  
|-------------------------------------- |  | --------------------- | ----------------------- | --------------------- |  | --------------------------- | - |  | ---------------------- |  |  | --------------------------- | - |  | ---------------------- |  |  | --------------------------- | -
|December 31, 2004                      |  | More than
  12 Months |                         | Less than
  12 Months |  | Total                       |  
|                                       |  |                       |                         |                       |  |                             |  
|                                       |  |                       | Estimated 
  fair value |                       |  | Gross
  unrealized
  losses |   |  | Estimated
  fair value |  |  | Gross
  unrealized
  losses |   |  | Estimated
  fair value |  |  | Gross
  unrealized
  losses |  
|                                       |  |                       |                         |                       |  |                             |   |  |                        |  |  |                             |   |  |                        |  |  |                             |  
|U.S. Government
  and federal agencies |  | $                     |                        |                       |  |                            |   |  | 997,810                |  |  | (2,190                      | ) |  | 997,810                |  |  | (2,190                      | )
|Mortgage-backed
  securities           |  |                       | 1,528,785               |                       |  | (18,883                     | ) |  | 13,718,955             |  |  | (78,729                     | ) |  | 15,247,740             |  |  | (97,612                     | )
|Municipal bonds                        |  |                       |                        |                       |  |                            |   |  | 473,894                |  |  | (11,106                     | ) |  | 473,894                |  |  | (11,106                     | )
|                                       |  |                       |                         |                       |  |                             |   |  |                        |  |  |                             |   |  |                        |  |  |                             |  
|                                       |  | $                     | 1,528,785               |                       |  | (18,883                     | ) |  | 15,190,659             |  |  | (92,025                     | ) |  | 16,717,444             |  |  | (110,908                    | )
|                                       |  |                       |                         |                       |  |                             |   |  |                        |  |  |                             |   |  |                        |  |  |                             |  

Management evaluates securities for
other-than-temporary impairment at least on a quarterly basis, and more
frequently when economic or market concerns warrant such evaluation. In
estimating other-than-temporary impairment losses, management considers (1) the
length of time and the extent to which the fair value has been less than cost,
(2) the financial condition and near-term prospects of the issuer, and (3) the
intent and ability of United to retain its investment in the issuer for a
period of time sufficient to allow for any anticipated recovery in fair value.

Maturities of securities available-for-sale by
contractual maturity at December 31, 2005 are shown below. Maturities of
securities do not reflect repricing opportunities present in many adjustable
rate securities. In addition, mortgage-backed securities may be prepaid without
penalty. At December 31, 2005 and 2004, market values of variable rate
securities included in securities available-for-sale are $11,571,863 and
$16,469,562, respectively.

|                                       |  |                  |            |                           |  |            | 
|-------------------------------------- |  | ---------------- | ---------- | ------------------------- |  | ---------- | 
|                                       |  | Amortized
  cost |            | Estimated
  fair 
  value | 
|                                       |  |                  |            |                           | 
|Due within one year                    |  | $                |           |                           |  |           | 
|Due after one year through five years  |  |                  | 3,485,062  |                           |  | 3,417,957  | 
|Due after five years through ten years |  |                  | 1,000,000  |                           |  | 991,640    | 
|Due after ten years                    |  |                  | 3,120,000  |                           |  | 3,093,420  | 
|Mortgage backed securities             |  |                  | 28,161,017 |                           |  | 27,855,844 | 
|                                       |  |                  |            |                           |  |            | 
|                                       |  | $                | 35,766,079 |                           |  | 35,358,861 | 
|                                       |  |                  |            |                           |  |            | 

Gross proceeds from sales of securities were
$1,750,235, $3,543,019 and $1,890,658 for the years ended December 31, 2005,
2004 and 2003, respectively, resulting in gross gains of $989, $242,007 and
$17,587 in 2005, 2004 and 2003, respectively.

F-16

---



UNITED
FINANCIAL CORP. AND SUBSIDIARIES

Notes to
Consolidated Financial Statements

At December 31, 2005 and 2004, investment securities
with an amortized cost of $33,592,609 and $37,201,851 respectively, were
pledged on FHLB advances, repurchase agreements, public deposits, and other
purposes as permitted or required by law.

|    |                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------
|(4) | Loans Receivable, Net                                                                                   
|    |                                                                                                         
|    | Loans receivable, net of unamortized net deferred
  loan fees, at December 31 are summarized as follows:

|                                                            |  |      |             |      |  |             |  
|----------------------------------------------------------- |  | ---- | ----------- | ---- |  | ----------- | -
|                                                            |  | 2005 |             | 2004 | 
|                                                            |  |      |             |      | 
|First mortgage loans and contracts secured by real
  estate |  | $    | 114,302,901 |      |  | 100,322,421 |  
|Commercial real estate loans                                |  |      | 79,036,076  |      |  | 51,017,462  |  
|Commercial loans                                            |  |      | 65,576,077  |      |  | 65,107,859  |  
|Agricultural loans                                          |  |      | 16,577,382  |      |  | 15,108,587  |  
|Consumer loans                                              |  |      | 40,255,382  |      |  | 37,163,026  |  
|                                                            |  |      |             |      |  |             |  
|                                                            |  |      | 315,747,818 |      |  | 268,719,355 |  
|Allowance for
  loan losses                                 |  |      | (3,751,263  | )    |  | (3,708,362  | )
|                                                            |  |      |             |      |  |             |  
|                                                            |  | $    | 311,996,555 |      |  | 265,010,993 |  
|                                                            |  |      |             |      |  |             |  

A summary of activity in the allowance for loan losses
for the years ended December 31 follows:

|                           |  |      |           |      |  |           |   |  |           |  
|-------------------------- |  | ---- | --------- | ---- |  | --------- | - |  | --------- | -
|                           |  | 2005 |           | 2004 |  | 2003      |  
|                           |  |      |           |      |  |           |  
|Balance, beginning of year |  | $    | 3,708,362 |      |  | 3,755,197 |   |  | 3,113,081 |  
|Provision for loan losses  |  |      | 230,000   |      |  | 70,000    |   |  | 778,300   |  
|Losses charged off         |  |      | (217,531  | )    |  | (184,573  | ) |  | (148,089  | )
|Recoveries                 |  |      | 30,432    |      |  | 67,738    |   |  | 11,905    |  
|                           |  |      |           |      |  |           |   |  |           |  
|Balance, end of year       |  | $    | 3,751,263 |      |  | 3,708,362 |   |  | 3,755,197 |  
|                           |  |      |           |      |  |           |   |  |           |  

Loans contractually past due in excess of 90 days and
loans classified as non-accrual are summarized as follows (rounded to even
dollars):

|                                          |  |                |        |      |  |         | 
|----------------------------------------- |  | -------------- | ------ | ---- |  | ------- | 
|                                          |  | December
  31, |       
|                                          |  |                |       
|                                          |  | 2005           |        | 2004 | 
|                                          |  |                |        |      | 
|Loans 90 days past due and still accruing |  | $              | 30,000 |      |  | 75,000  | 
|Non-accrual loans                         |  |                |       |      |  | 327,000 | 
|                                          |  |                |        |      |  |         | 
|                                          |  | $              | 30,000 |      |  | 402,000 | 
|                                          |  |                |        |      |  |         | 

F-17

---



UNITED
FINANCIAL CORP. AND SUBSIDIARIES

Notes to
Consolidated Financial Statements

The following table presents data on impaired loans:

|                                                                                       |  |      |         |      |  |         |  |  |         | 
|-------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ------- |  |  | ------- | 
|                                                                                       |  | 2005 |         | 2004 |  | 2003    | 
|                                                                                       |  |      |         |      |  |         | 
|Impaired loans for which a specific allowance has
  been provided                      |  | $    | 260,000 |      |  | 348,000 |  |  | 589,000 | 
|Impaired loans for which no specific allowance has
  been provided                     |  |      |        |      |  |        |  |  |        | 
|                                                                                       |  |      |         |      |  |         |  |  |         | 
|Total loans determined to be impaired                                                  |  | $    | 260,000 |      |  | 348,000 |  |  | 589,000 | 
|                                                                                       |  |      |         |      |  |         |  |  |         | 
|Allowance for loan loss for impaired loans included
  in the allowance for loan losses |  | $    | 62,000  |      |  | 148,000 |  |  | 88,000  | 
|                                                                                       |  |      |         |      |  |         |  |  |         | 
|Average recorded investment in impaired loans                                          |  | $    | 308,000 |      |  | 427,000 |  |  | 571,000 | 
|                                                                                       |  |      |         |      |  |         |  |  |         | 
|Interest income recognized from impaired loans                                         |  | $    | 18,000  |      |  | 8,000   |  |  | 19,400  | 
|                                                                                       |  |      |         |      |  |         |  |  |         | 

|    |                         
|--- | ------------------------
|(5) | Premises
  and Equipment

Premises and equipment at December 31 are summarized
as follows:

|                                  |  |      |            |      |  |            |  
|--------------------------------- |  | ---- | ---------- | ---- |  | ---------- | -
|                                  |  | 2005 |            | 2004 | 
|                                  |  |      |            |      | 
|Land                              |  | $    | 1,879,441  |      |  | 1,856,625  |  
|Building and improvements         |  |      | 6,494,126  |      |  | 6,254,210  |  
|Furniture, fixtures and equipment |  |      | 4,025,075  |      |  | 3,736,309  |  
|                                  |  |      |            |      |  |            |  
|                                  |  |      | 12,398,642 |      |  | 11,847,144 |  
|Accumulated depreciation          |  |      | (3,880,072 | )    |  | (3,376,082 | )
|                                  |  |      |            |      |  |            |  
|                                  |  | $    | 8,518,570  |      |  | 8,471,062  |  
|                                  |  |      |            |      |  |            |  

F-18

---



UNITED
FINANCIAL CORP. AND SUBSIDIARIES

Notes to
Consolidated Financial Statements

|    |                                                   
|--- | --------------------------------------------------
|(6) | Deposits                                          
|    |                                                   
|    | Deposits at December 31 are summarized as follows:

| |                                   |  |                         |  |        |             |   |       |        |  |             |  |  |       |  | 
| | --------------------------------- |  | ----------------------- |  | ------ | ----------- | - | ----- | ------ |  | ----------- |  |  | ----- |  | 
| |                                   |  | 2005                    |  | 2004   |            
| |                                   |  |                         |  |        |            
| |                                   |  | Weighted
  average rate |  | Amount |             | % |       | Amount |  | %           | 
| |                                   |  |                         |  |        |             |   |       |        |  |             | 
|
| | Demand
  accounts                 |  | %                      |  | $      | 56,641,508  |   | 18.7  |        |  | 47,489,541  |  |  | 18.4  |  | 
| |                                   |  |                         |  |        |             |   |       |        |  |             |  |  |       |  | 
| | NOW and
  money market accounts   |  | .96%                    |  |        | 33,914,270  |   | 11.2  |        |  | 35,974,153  |  |  | 13.9  |  | 
| | Savings
  accounts                |  | 1.20%                   |  |        | 51,472,467  |   | 16.9  |        |  | 54,426,865  |  |  | 21.1  |  | 
| |                                   |  |                         |  |        |             |   |       |        |  |             |  |  |       |  | 
| | Certificates
  of deposit:        |  | 1.00 to 1.99%           |  |        |            |   |      |        |  | 74,465,946  |  |  | 28.8  |  | 
| |                                   |  | 2.00 to 2.99%           |  |        | 23,508,585  |   | 7.7   |        |  | 3,774,100   |  |  | 1.4   |  | 
| |                                   |  | 3.00 to 3.99%           |  |        | 71,948,279  |   | 23.7  |        |  | 25,804,019  |  |  | 10.0  |  | 
| |                                   |  | 4.00 to 4.99%           |  |        | 64,155,972  |   | 21.1  |        |  | 13,408,034  |  |  | 5.2   |  | 
| |                                   |  | 5.00 to 5.99%           |  |        | 1,479,730   |   | .5    |        |  | 1,776,213   |  |  | .7    |  | 
| |                                   |  | 6.00 to 6.99%           |  |        | 545,059     |   | .2    |        |  | 1,018,142   |  |  | .4    |  | 
| |                                   |  | 7.00 to 7.99%           |  |        | 25,195      |   |      |        |  | 197,171     |  |  | .1    |  | 
| |                                   |  |                         |  |        |             |   |       |        |  |             |  |  |       |  | 
| |                                   |  |                         |  |        |             |   |       |        |  |             |  |  |       |  | 
| | Total
  certificates of deposit   |  | 3.66%                   |  |        | 161,662,820 |   | 53.2  |        |  | 120,443,625 |  |  | 46.6  |  | 
| |                                   |  |                         |  |        |             |   |       |        |  |             |  |  |       |  | 
| | Total
  interest-bearing deposits |  | 2.77%                   |  |        | 247,049,557 |   | 81.3  |        |  | 210,844,643 |  |  | 81.6  |  | 
| |                                   |  |                         |  |        |             |   |       |        |  |             |  |  |       |  | 
| |                                   |  | 2.26%                   |  | $      | 303,691,065 |   | 100.0 |        |  | 258,334,184 |  |  | 100.0 |  | 
| |                                   |  |                         |  |        |             |   |       |        |  |             |  |  |       |  | 

|                                                                                       |  |            |  |   |             |  |  |  |  |  |  |  |  |  | 
|-------------------------------------------------------------------------------------- |  | ---------- |  | - | ----------- |  |  |  |  |  |  |  |  |  | 
|Scheduled maturities of certificates of deposit at
  December 31, 2005 are as follows: | 
|                                                                                       | 
|                                                                                       |  | 2006       |  | $ | 112,777,799 |  |  |  |  |  |  |  |  |  | 
|                                                                                       |  | 2007       |  |   | 21,778,473  |  |  |  |  |  |  |  |  |  | 
|                                                                                       |  | 2008       |  |   | 17,740,686  |  |  |  |  |  |  |  |  |  | 
|                                                                                       |  | 2009       |  |   | 4,995,401   |  |  |  |  |  |  |  |  |  | 
|                                                                                       |  | 2010       |  |   | 4,076,122   |  |  |  |  |  |  |  |  |  | 
|                                                                                       |  | Thereafter |  |   | 294,339     |  |  |  |  |  |  |  |  |  | 
|                                                                                       |  |            |  |   |             |  |  |  |  |  |  |  |  |  | 
|                                                                                       |  |            |  | $ | 161,662,820 |  |  |  |  |  |  |  |  |  | 
|                                                                                       |  |            |  |   |             |  |  |  |  |  |  |  |  |  | 

| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | Certificates of deposit of $100,000 or more are
  $40,429,950 and $29,110,108 at December 31, 2005 and 2004, respectively.             
| |                                                                                                                                        
| | Certificates of deposit balances include $18,300,000
  and $8,395,000 of brokered deposits at December 31, 2005 and 2004, respectively.

F-19

---



UNITED
FINANCIAL CORP. AND SUBSIDIARIES

Notes to
Consolidated Financial Statements

|    |                                                                            
|--- | ---------------------------------------------------------------------------
|(7) | Federal Home Loan Bank Advances                                            
|    |                                                                            
|    | Federal Home Loan Bank advances at December 31 are
  summarized as follows:

| |                                                                                      |  |      |            |      |  |            | 
| | ------------------------------------------------------------------------------------ |  | ---- | ---------- | ---- |  | ---------- | 
| |                                                                                      |  | 2005 |            | 2004 | 
| |                                                                                      |  |      |            |      | 
| | 2.47% to 4.68% fixed rate advances, interest payable
  monthly                       |  | $    | 34,000,000 |      |  | 36,500,000 | 
| | 4.48% adjustable rate advance, interest payable
  monthly                            |  |      | 3,000,000  |      |  |           | 
| | 5.52% putable advance, put options exercisable
  quarterly, interest payable monthly |  |      | 2,000,000  |      |  | 4,000,000  | 
| | 3.57%, fixed rate amortizing advance, interest
  payable monthly                     |  |      | 3,044,355  |      |  | 4,294,355  | 
| |                                                                                      |  |      |            |      |  |            | 
| |                                                                                      |  | $    | 42,044,355 |      |  | 44,794,355 | 
| |                                                                                      |  |      |            |      |  |            | 

| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | The weighted average interest rate on these advances
  was 4.01% and 3.41% at December 31, 2005 and 2004, respectively.
| |                                                                                                                        
| | Contractual principal repayments on advances from
  the Federal Home Loan Bank are as follows:                         

|                            |  |   |            | 
|--------------------------- |  | - | ---------- | 
|Years
  ending December 31, |  |   |            | 
|                            |  |   |            | 
|2006                        |  | $ | 23,000,000 | 
|2007                        |  |   | 11,000,000 | 
|2008                        |  |   | 8,044,355  | 
|                            |  |   |            | 
|                           
|                            |  | $ | 42,044,355 | 
|                            |  |   |            | 

| |                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Advances from the FHLB are secured by pledges of FHLB
stock and a blanket assignment of Heritage Banks otherwise unpledged,
qualifying mortgage loans, mortgage-backed securities and U.S. Government and
federal agency securities.                                                         
| |                                                                                                                                                                                                                                                                                               
| | At December 31, 2005, the current established
available FHLB advance credit line for Heritage Bank was 25% of its
assets.  Based upon the current
collateral pledged to the FHLB, Heritage Bank has an additional available credit
lines of approximately $96,434,000 as of December 31, 2005.

F-20

---



UNITED
FINANCIAL CORP. AND SUBSIDIARIES

Notes to
Consolidated Financial Statements

|    |                                                                                          
|--- | -----------------------------------------------------------------------------------------
|(8) | Securities Sold Under Agreements to
  Repurchase                                         
|    |                                                                                          
|    | Securities sold under agreements to repurchase at
  December 31 consist of the following:

| |                      |  |                     |           |                           |  |                                         |   |                                                     |            |  |  |            | 
| | -------------------- |  | ------------------- | --------- | ------------------------- |  | --------------------------------------- | - | --------------------------------------------------- | ---------- |  |  | ---------- | 
| |                      |  | 2005                |          
| |                      |  |                     |          
| |                      |  | Repurchase
  amount |           | Weighted
  average
  rate |  | Book value
  of underlying
  securities |   | Estimated
  fair value
  of underlying
  securities |           
| |                      |  |                     |           |                           |  |                                         |   |                                                     |           
| | To repurchase :      |  |                     |           |                           |  |                                         |   |                                                     |            |  |  |            | 
| |                      |  |                     |           |                           |  |                                         |   |                                                     |            |  |  |            | 
| | Overnight            |  | $                   | 1,452,891 |                           |  | 2.30                                    | % |                                                     | 3,043,276  |  |  | 3,001,942  | 
| | On demand            |  |                     | 536,452   |                           |  |                                        |   |                                                     | 4,260,622  |  |  | 4,226,819  | 
| | 1  30 days          |  |                     | 536,366   |                           |  | 2.58                                    |   |                                                     | 702,583    |  |  | 695,775    | 
| | 31  90 days         |  |                     | 262,524   |                           |  | 2.48                                    |   |                                                     | 856,257    |  |  | 836,675    | 
| | Greater than 90 days |  |                     | 1,459,887 |                           |  | 4.12                                    |   |                                                     | 2,456,513  |  |  | 2,438,961  | 
| |                      |  |                     |           |                           |  |                                         |   |                                                     |            |  |  |            | 
| |                      |  | $                   | 4,248,120 |                           |  | 2.68                                    |   |                                                     | 11,319,251 |  |  | 11,200,172 | 
| |                      |  |                     |           |                           |  |                                         |   |                                                     |            |  |  |            | 

| |                      |  |                     |           |                           |  |                                         |   |                                                     |            |  |  |            | 
| | -------------------- |  | ------------------- | --------- | ------------------------- |  | --------------------------------------- | - | --------------------------------------------------- | ---------- |  |  | ---------- | 
| |                      |  | 2004                |          
| |                      |  |                     |          
| |                      |  | Repurchase
  amount |           | Weighted
  average
  rate |  | Book value
  of underlying
  securities |   | Estimated
  fair value
  of underlying
  securities |           
| |                      |  |                     |           |                           |  |                                         |   |                                                     |           
| | To repurchase :      |  |                     |           |                           |  |                                         |   |                                                     |            |  |  |            | 
| |                      |  |                     |           |                           |  |                                         |   |                                                     |            |  |  |            | 
| | Overnight            |  | $                   | 460,429   |                           |  | .75                                     | % |                                                     | 1,230,491  |  |  | 1,224,829  | 
| | On demand            |  |                     | 2,436,506 |                           |  |                                        |   |                                                     | 3,186,966  |  |  | 3,213,554  | 
| | 1  30 days          |  |                     | 884,489   |                           |  | 1.46                                    |   |                                                     | 1,189,491  |  |  | 1,184,540  | 
| | 31  90 days         |  |                     | 2,003,967 |                           |  | 1.98                                    |   |                                                     | 2,661,981  |  |  | 2,678,343  | 
| | Greater than 90 days |  |                     | 1,712,468 |                           |  | 2.42                                    |   |                                                     | 2,742,519  |  |  | 2,783,808  | 
| |                      |  |                     |           |                           |  |                                         |   |                                                     |            |  |  |            | 
|
| |                      |  | $                   | 7,497,859 |                           |  | 1.30                                    |   |                                                     | 11,011,448 |  |  | 11,085,074 | 
| |                      |  |                     |           |                           |  |                                         |   |                                                     |            |  |  |            | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | Securities underlying the agreements to repurchase
  are for the same securities originally sold and are held in a custodial
  account by the banks safekeeping agent.
  For the years ended December 31, 2005 and 2004, securities sold under
  agreements to repurchase averaged approximately $6,116,000 and $8,204,000,
  respectively, and the maximum outstanding at any month end during the year
  was approximately $10,007,000and $13,667,000, respectively.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(9) | Subordinated Debentures                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | In July 2001, United issued junior subordinated
  debentures, aggregating $3,093,000 to United Financial-Montana Capital Trust
  I (Trust).  The Trust issued preferred
  securities, as part of a pooled issue, with an aggregate liquidation amount
  of $3,000,000 to third-party investors. The junior subordinated debentures
  and cash are the sole assets of the Trust. The preferred securities are
  includable as Tier I capital for                        

F-21

---



UNITED
FINANCIAL CORP. AND SUBSIDIARIES

Notes to
Consolidated Financial Statements

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | regulatory capital purposes. The junior subordinated
  debentures pay interest on a semi-annual basis.  The variable interest rate resets on January 25 and July 25 of
  each year, based upon six month LIBOR plus 3.75%.  The current interest rate reset on January 25, 2006 was
  8.56%.  The junior subordinated
  debentures and preferred securities will mature on July 25, 2031.  The junior subordinated debentures and
  preferred securities can be redeemed contemporaneously, in whole or in part,
  after five years at decreasing premiums with the permission of the Board of
  Governors of the Federal Reserve System (the Federal Reserve).  United has provided a full and
  unconditional guarantee of the obligations of the Trust.  Debt issuance costs totaling $118,812 were
  capitalized related to the debenture offering and are being amortized over
  the 10-year non-premium callable life of the preferred securities.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(10) | Line of Credit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|     | United has a line of credit of $1,000,000 with Wells
  Fargo with an interest rate of 1.50% and 1.75 % over the Wells Fargo federal
  funds rate, which was 5.69% and 3.69% at December 31, 2005 and 2004,
  respectively.  This line is secured by
  Uniteds Heritage Bank stock and expires November 1, 2006.  Interest is payable quarterly. There was no
  principal balance outstanding at December 31, 2005 and 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(11) | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|     | Income tax expense for the years ended December 31
  is summarized as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

| |                                   |  |         |           |       |  |         |   |  |           |  
| | --------------------------------- |  | ------- | --------- | ----- |  | ------- | - |  | --------- | -
| |                                   |  | Federal |           | State |  | Total   |  
| |                                   |  |         |           |       |  |         |  
| | 2005:                             |  |         |           |       |  |         |   |  |           |  
| | Current  continuing operations   |  | $       | 2,284,242 |       |  | 494,728 |   |  | 2,778,970 |  
| | Deferred                          |  |         | (209,191  | )     |  | (44,537 | ) |  | (253,728  | )
| |                                   |  |         |           |       |  |         |   |  |           |  
| |                                   |  | $       | 2,075,051 |       |  | 450,191 |   |  | 2,525,242 |  
| |                                   |  |         |           |       |  |         |   |  |           |  
| |                                   |  |         |           |       |  |         |   |  |           |  
| | 2004:                             |  |         |           |       |  |         |   |  |           |  
| | Current  continuing operations   |  | $       | 1,808,310 |       |  | 396,938 |   |  | 2,205,248 |  
| | Deferred                          |  |         | 129,647   |       |  | 27,602  |   |  | 157,249   |  
| |                                   |  |         |           |       |  |         |   |  |           |  
| |                                   |  | $       | 1,937,957 |       |  | 424,540 |   |  | 2,362,497 |  
| |                                   |  |         |           |       |  |         |   |  |           |  
| | 2003:                             |  |         |           |       |  |         |   |  |           |  
| | Current  continuing operations   |  | $       | 1,485,154 |       |  | 520,788 |   |  | 2,005,942 |  
| | Deferred                          |  |         | (34,353   | )     |  | (33,085 | ) |  | (67,438   | )
| |                                   |  |         |           |       |  |         |   |  |           |  
| |                                   |  |         | 1,450,801 |       |  | 487,703 |   |  | 1,938,504 |  
| | Current  discontinued operations |  |         | 573,291   |       |  | 122,054 |   |  | 695,345   |  
| |                                   |  |         |           |       |  |         |   |  |           |  
| |                                   |  |         |           |       |  |         |   |  |           |  
| |                                   |  | $       | 2,024,092 |       |  | 609,757 |   |  | 2,633,849 |  
| |                                   |  |         |           |       |  |         |   |  |           |  

F-22

---



UNITED
FINANCIAL CORP. AND SUBSIDIARIES

Notes to
Consolidated Financial Statements

| |                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Income tax expense for the years ended December 31
  differs from expected income tax expense (computed by applying the Federal
  corporate income tax rate of 34% to income before income taxes) as follows:

| |                                                  |  |      |           |      |  |           |   |  |           |  
| | ------------------------------------------------ |  | ---- | --------- | ---- |  | --------- | - |  | --------- | -
| |                                                  |  | 2005 |           | 2004 |  | 2003      |  
| |                                                  |  |      |           |      |  |           |  
| |                                                  |  |      |           |      |  |           |   |  |           |  
| | Computed expected tax expense                  |  | $    | 2,266,016 |      |  | 2,130,816 |   |  | 1,961,048 |  
| | Increase (decrease) resulting from:              |  |      |           |      |  |           |   |  |           |  
| | State taxes, net
  of Federal income tax effects |  |      | 297,219   |      |  | 280,196   |   |  | 259,551   |  
| | Tax-exempt
  interest                            |  |      | (45,697   | )    |  | (51,716   | ) |  | (52,780   | )
| | Other, net                                       |  |      | 7,704     |      |  | 3,201     |   |  | (229,315  | )
| |                                                  |  |      |           |      |  |           |   |  |           |  
| |                                                  |  | $    | 2,525,242 |      |  | 2,362,497 |   |  | 1,938,504 |  
| |                                                  |  |      |           |      |  |           |   |  |           |  

| |                                                                                     |  |      |           |      |  |           | 
| | ----------------------------------------------------------------------------------- |  | ---- | --------- | ---- |  | --------- | 
| | Deferred tax assets and liabilities at
  December 31 are as follows:                |  |      |           |      |  |           | 
| |                                                                                     |  | 2005 |           | 2004 | 
| |                                                                                     |  |      |           |      | 
| | Deferred tax
  assets:                                                              |  |      |           |      |  |           | 
| | Loans,
  principally due to allowance for loan losses                               |  | $    | 1,330,889 |      |  | 1,312,791 | 
| | Premises and
  equipment and real estate owned, due to difference in basis          |  |      | 59,152    |      |  | 59,152    | 
| | Deferred
  compensation and vacation differences                                    |  |      | 98,833    |      |  |           | 
| | Unrealized gains
  on securities available-for-sale                                 |  |      | 156,596   |      |  |          | 
| | Purchase
  accounting basis differences                                             |  |      |          |      |  | 3,071     | 
| | Other                                                                               |  |      | 8,452     |      |  | 115,027   | 
| |                                                                                     |  |      |           |      |  |           | 
| | Total gross
  deferred tax assets                                                   |  |      | 1,653,922 |      |  | 1,490,041 | 
| |                                                                                     |  |      |           |      |  |           | 
| |                                                                                     |  |      |           |      |  |           | 
| | Deferred tax liabilities:                                                           |  |      |           |      |  |           | 
| | Loans, due to
  difference in basis                                                 |  |      |          |      |  | 10,246    | 
| | Stock in FHLB,
  principally due to stock dividends not recognized for tax purposes |  |      | 653,182   |      |  | 646,683   | 
| | Premises and
  equipment, principally due to differences in depreciation            |  |      | 237,327   |      |  | 498,529   | 
| | Unrealized gains
  on securities available-for-sale                                 |  |      |          |      |  | 48,565    | 
| | Other                                                                               |  |      | 25,132    |      |  | 6,626     | 
| |                                                                                     |  |      |           |      |  |           | 
| | Total gross
  deferred tax liabilities                                              |  |      | 915,641   |      |  | 1,210,649 | 
| |                                                                                     |  |      |           |      |  |           | 
| |                                                                                     |  |      |           |      |  |           | 
| | Net deferred tax
  asset                                                            |  | $    | 738,281   |      |  | 279,392   | 
| |                                                                                     |  |      |           |      |  |           | 

| |                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized.  The ultimate realization of deferred tax assets is dependent upon
the existence of, or generation of, taxable income in the periods

F-23

---



UNITED FINANCIAL CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | which those
  temporary differences are deductible.
  Management considers the scheduled reversal of deferred tax
  liabilities, taxes paid in carryback years, projected future taxable income,
  and tax planning strategies in making this assessment.  Based upon the level of historical taxable
  income and estimates of future taxable income over the periods which the
  deferred tax assets are deductible, at December 31, 2005 and 2004 management
  believes it is more likely than not that United will realize the benefits of
  these deductible differences.                           
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     | Retained
  earnings at December 31, 2005 includes approximately $3,477,000 for which no
  provision for Federal income tax has been made.  This amount represents the base year income tax bad debt
  reserve.  This amount is treated as a
  permanent difference and deferred taxes are not recognized unless it appears
  this reserve will be reduced and thereby result in taxable income in the
  foreseeable future.  United is not
  currently contemplating any changes to its business or operations which would
  result in a recapture of the base year bad debt reserve into taxable income.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(12) | Mortgage Servicing Rights                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     | Total
  mortgage servicing rights, net of accumulated amortization, were $674,611 and
  $525,597 at December 31, 2005 and 2004, respectively.  Servicing rights of $324,900, $299,199,
  and $184,050 were capitalized in 2005, 2004 and 2003, respectively.  Amortization expense of $175,886, $114,198,
  and $67,322 was recognized in 2005, 2004 and 2003, respectively.  There were no impairment losses recognized
  in 2005, 2004, and 2003.  At December
  31, 2005 and 2004, the estimated fair value of Uniteds servicing assets
  approximates its carrying value.                           
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     | Real estate
  loans serviced for others, which are not included in the accompanying
  consolidated financial statements, totaled approximately $81,155,000 and
  $69,274,000 at December 31, 2005 and 2004, respectively.                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(13) | Leases                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     | Heritage
  Bank leases certain land and office space under non-cancelable operating
  leases in its Billings, Great Falls, Hamilton and Kalispell branches.  The Billings lease is a 30 year ground
  lease agreement.  The lease required a
  deposit of $10,000 and annual rentals of $70,000.  The Great Falls, Hamilton and Kalispell leases are for office
  space and range in length from 5 to 10 years. Total rental expense for the
  years ended December 31, 2005, 2004 and 2003 was $142,348, $156,916 and
  $130,236, respectively.                                                         
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     | The total
  future minimum lease payments required under operating leases which have
  initial or remaining non-cancelable lease terms in excess of one year at
  December 31, 2005 are as follows:                                                                                                                                                                                                                                                                                                                                                                                                      

F-24

---



UNITED FINANCIAL CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

|                         |            |   |           |           | 
|------------------------ | ---------- | - | --------- | --------- | 
|Year Ending December 31, |            |   |           |          
|                         |            |   |           |          
|                        
|                         | 2006       |   | $         | 141,184   | 
|                         | 2007       |   |           | 104,320   | 
|                         | 2008       |   |           | 104,320   | 
|                         | 2009       |   |           | 104,320   | 
|                         | 2010       |   |           | 100,600   | 
|                         | Thereafter |   |           | 1,609,500 | 
|                         |            |   |           |           | 
|                         |            | $ | 2,164,244 |          
|                         |            |   |           |          

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(14) | Related Parties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     | Central
  Financial Services, Inc. (CFS) provides various management services to
  United, including certain accounting and tax services, investment consulting,
  personnel consulting, asset-liability management and regulatory
  consulting.  CFS is owned by Uniteds
  largest shareholder and has been providing similar services to various banks
  and financial service organizations since December of 1988.  CFS fees billed to United were $452,096,
  $472,183 and $459,000 for the years ended December 31, 2005, 2004, and 2003,
  respectively.                                                                                                                          
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     | United
  acquires loan participations from a bank controlled by Uniteds current
  largest shareholder.  At December 31,
  2005 and 2004, the outstanding balances of loans purchased from this bank
  were $3,459,169 and $4,605,405, respectively.  During 2005 and 2004, Uniteds chairman served on the board of
  directors of several other banks.  One
  such bank in Grand Junction, Colorado, had loan participations with
  United.  At December 31, 2005 and 2004
  the outstanding balances of loans purchased from this bank were $12,688,694
  and $239,524, respectively. The loans are underwritten under the same terms
  and procedures as loans underwritten by United.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     | Bankers
  Resource Center (BRC) provides data processing services for United.  United has a 17% ownership interest in
  BRC, a computer data center.  The
  charges for BRCs services were $785,546, $753,169 and 708,518 for the years
  ended December 31, 2005, 2004 and 2003, respectively.                                                                                                                                                                                                                                                                                                                                                                                         
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     | As of
  December 31, 2005 and 2004, the Board of Directors and officers of United
  (personally and through their respective businesses which bank with Heritage
  Bank) had approximately $998,000 and $579,000, respectively, on deposit with
  Heritage Bank.                                                                                                                                                                                                                                                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     | A summary of
  activity with respect to aggregate loans to directors and executive officers
  for the years ended December 31, 2005 and 2004 follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

|                             |  |      |             |      |  |            |  
|---------------------------- |  | ---- | ----------- | ---- |  | ---------- | -
|                             |  | 2005 |             | 2004 | 
|                             |  |      |             |      | 
|Balance,
  beginning of year |  | $    | 3,808,461   |      |  | 1,525,626  |  
|New loans                    |  |      | 10,700,746  |      |  | 7,907,785  |  
|Repayments                   |  |      | (10,938,790 | )    |  | (5,624,950 | )
|                             |  |      |             |      |  |            |  
|                             |  |      |             |      |  |            |  
|Balance, end
  of year       |  | $    | 3,570,417   |      |  | 3,808,461  |  
|                             |  |      |             |      |  |            |  

F-25

---



UNITED FINANCIAL CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | Management
  believes these loans were made on substantially the same terms, including
  interest rates and collateral, as those prevailing at the time for comparable
  loans with equivalent risk of collectibility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(15) | Employee Benefit Plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     | Heritage
  Bank has a savings plan under Section 401(k) of the Internal Revenue Code.
  Eligible employees can contribute up to 20% of their wages.  Heritage Bank matches an amount equal to
  100% of the employees contribution, up to 4.5% of total wages.  Participants are at all times fully vested
  in their contributions and are immediately vested in the employers
  contributions.  Heritage Bank 401(k)
  contributions and administrative costs were approximately $213,000, $201,000,
  and $197,000 during the years ended December 31, 2005, 2004 and 2003,
  respectively.                                                                                                                                                                                                                                                                                                                                      
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     | Heritage
  Bank has deferred compensation agreements with two employees that provide for
  certain benefits upon retirement, change of control, disability or death.
  Amounts expensed under these agreements were approximately $19,900, $17,800
  and $15,900, respectively, for the years ended December 31, 2005, 2004 and
  2003.  Heritage Bank owns two single
  premium insurance policies in connection with one of these agreements.  The policies have a cash value, which is
  included in other assets on the accompanying consolidated statements of
  financial condition, of approximately $374,000 and $360,000 at December 31,
  2005 and 2004, respectively.                                                                                                                                                                                                                                                      
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(16) | Stock Option Plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     | In 2000, the
  United Financial Corp. 2000 Long-Term Incentive and Stock Option Plan (the
  Plan) was adopted.  The Plan provides
  for the grant of incentive stock options (ISOs) and non-qualified stock
  options to certain full and part-time employees of Heritage Bank and
  directors of United.  As of December
  31, 2005, the plan provides for award of options for a maximum of 322,500
  shares of United common stock.
  Vesting for each award is at the discretion of the Board. The term of
  the options is 10 years.  The option
  price for all ISOs granted under the Plan shall be determined by the Board,
  but shall not be less than 100% of the fair market value of the common stock
  at the date of grant of such option.
  The option price for all non-qualified options shall also be
  determined by the Board.  A change in
  control, as defined in the Plan, will immediately vest all options.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     | At December
  31, 2005, total shares available for option grants under the Plan were
  50,930.  A stock award of 1,525 shares
  was made to certain management personnel in January 2005.  Compensation expense of $36,600, the fair
  value of the shares, was recognized in connection with the award.  Changes in options granted by United for
  the years ended December 31, 2005, 2004 and 2003, are summarized as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

F-26

---



UNITED FINANCIAL CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

|                                                             |  |              |         |                                   |  |              |       |                                   |  |                 |         |                                   |  |  |        |   |  |   |         |   |  |  |       |   | 
|------------------------------------------------------------ |  | ------------ | ------- | --------------------------------- |  | ------------ | ----- | --------------------------------- |  | --------------- | ------- | --------------------------------- |  |  | ------ | - |  | - | ------- | - |  |  | ----- | - | 
|                                                             |  | 2005         |         | 2004                              |  | 2003         |      
|                                                             |  |              |         |                                   |  |              |      
|                                                             |  | Sharesactual |         | Weighted
  average exercise price |  | Sharesactual |       | Weighted
  average exercise price |  | Shares
  actual |         | Weighted
  average exercise price | 
|                                                             |  |              |         |                                   |  |              |       |                                   |  |                 |         |                                   | 
|Outstanding options, beginning of year                       |  |              | 203,334 |                                   |  | $            | 10.30 |                                   |  |                 | 228,187 |                                   |  |  | 9.63   |   |  |   | 230,888 |   |  |  | 9.41  |   | 
|Granted                                                      |  |              | 34,616  |                                   |  |              | 20.20 |                                   |  |                 | 10,000  |                                   |  |  | 19.89  |   |  |   | 9,375   |   |  |  | 13.98 |   | 
|Exercised                                                    |  |              | (23,672 | )                                 |  |              | 11.66 |                                   |  |                 | (30,071 | )                                 |  |  | (10.76 | ) |  |   | (6,749  | ) |  |  | (8.23 | ) | 
|Forfeited                                                    |  |              | (5,700  | )                                 |  |              | 14.12 |                                   |  |                 | (4,782  | )                                 |  |  | (10.56 | ) |  |   | (5,327  | ) |  |  | (9.30 | ) | 
|                                                             |  |              |         |                                   |  |              |       |                                   |  |                 |         |                                   |  |  |        |   |  |   |         |   |  |  |       |   | 
|Outstanding options, end of year                             |  |              | 208,578 |                                   |  | $            | 11.99 |                                   |  |                 | 203,334 |                                   |  |  | 10.30  |   |  |   | 228,187 |   |  |  | 9.63  |   | 
|                                                             |  |              |         |                                   |  |              |       |                                   |  |                 |         |                                   |  |  |        |   |  |   |         |   |  |  |       |   | 
|                                                             |  |              |         |                                   |  |              |       |                                   |  |                 |         |                                   |  |  |        |   |  |   |         |   |  |  |       |   | 
|Options exercisable at end of year                           |  |              | 145,555 |                                   |  |              |       |                                   |  |                 | 129,310 |                                   |  |  |        |   |  |   | 97,529  |   |  |  |       |   | 
|                                                             |  |              |         |                                   |  |              |       |                                   |  |                 |         |                                   |  |  |        |   |  |   |         |   |  |  |       |   | 
|Weighted-average fair value of options
  granted during year |  | $            | 3.98    |                                   |  |              |       |                                   |  | $               | 4.28    |                                   |  |  |        |   |  | $ | 2.70    |   |  |  |       |   | 
|                                                             |  |              |         |                                   |  |              |       |                                   |  |                 |         |                                   |  |  |        |   |  |   |         |   |  |  |       |   | 

The stock options outstanding at December 31,
2005 consist of the following:

|                 |  |                                         |  |                                                      |         |                                   |  |                                         |  |                                       |  |  |  |   |       |  |  |  |  |         |  |  |  |  |       |  | 
|---------------- |  | --------------------------------------- |  | ---------------------------------------------------- | ------- | --------------------------------- |  | --------------------------------------- |  | ------------------------------------- |  |  |  | - | ----- |  |  |  |  | ------- |  |  |  |  | ----- |  | 
|                 |  | Options
  outstanding                   |  | Exercisable
  options                                |        
|                 |  |                                         |  |                                                      |        
|                 |  | Number 
  outstanding at 
  end of year |  | Weighted 
  average 
  remaining 
  contractual life |         | Weightedaverage 
  exercise price |  | Number 
  exercisable at 
  end of year |  | Weighted 
  average 
  exercise price | 
|                 |  |                                         |  |                                                      |         |                                   |  |                                         |  |                                       | 
|Exercise Prices: |  |                                         |  |                                                      |         |                                   |  |                                         |  |                                       | 
|$  7.21          |  |                                         |  |                                                      | 30,338  |                                   |  |                                         |  | 4.5                                   |  |  |  | $ | 7.21  |  |  |  |  | 30,338  |  |  |  |  | 7.21  |  | 
|$  8.56          |  |                                         |  |                                                      | 51,191  |                                   |  |                                         |  | 5.5                                   |  |  |  |   | 8.56  |  |  |  |  | 51,191  |  |  |  |  | 8.56  |  | 
|$11.34           |  |                                         |  |                                                      | 78,586  |                                   |  |                                         |  | 6.5                                   |  |  |  |   | 11.34 |  |  |  |  | 58,940  |  |  |  |  | 11.34 |  | 
|$13.98           |  |                                         |  |                                                      | 5,860   |                                   |  |                                         |  | 7.5                                   |  |  |  |   | 13.98 |  |  |  |  | 2,930   |  |  |  |  | 13.98 |  | 
|$19.89           |  |                                         |  |                                                      | 8,625   |                                   |  |                                         |  | 8.5                                   |  |  |  |   | 19.89 |  |  |  |  | 2,156   |  |  |  |  | 19.89 |  | 
|$20.20           |  |                                         |  |                                                      | 33,978  |                                   |  |                                         |  | 9.5                                   |  |  |  |   | 20.20 |  |  |  |  |        |  |  |  |  | 20.20 |  | 
|                 |  |                                         |  |                                                      |         |                                   |  |                                         |  |                                       |  |  |  |   |       |  |  |  |  |         |  |  |  |  |       |  | 
|Total            |  |                                         |  |                                                      | 208,578 |                                   |  |                                         |  | 6.6                                   |  |  |  | $ | 11.93 |  |  |  |  | 145,555 |  |  |  |  | 9.68  |  | 
|                 |  |                                         |  |                                                      |         |                                   |  |                                         |  |                                       |  |  |  |   |       |  |  |  |  |         |  |  |  |  |       |  | 

The fair value
of each option grant is estimated on the date of grant using the Black-Scholes
pricing model with the following weighted-average assumptions:

|                          |  |  |         |   |  |         |   |  |         |  
|------------------------- |  |  | ------- | - |  | ------- | - |  | ------- | -
|                          |  |  | 2005    |   |  | 2004    |   |  | 2003    |  
|                          |  |  |         |   |  |         |   |  |         |  
|Risk-free
  interest rate |  |  | 4.01    | % |  | 3.85    | % |  | 2.52    | %
|Expected
  life           |  |  | 5 years |   |  | 5 years |   |  | 5 years |  
|Expected
  volatility     |  |  | 29.24   | % |  | 31.77   | % |  | 31.49   | %
|Expected
  dividend yield |  |  | 4.52    | % |  | 4.38    | % |  | 4.43    | %

F-27

---



UNITED FINANCIAL CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

|     |                                                                                                                                                                                                                                                                                                                                                                   
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | Based on the
  intrinsic value method, no compensation cost has been recognized for any
  stock option grants in the accompanying financial statements.  Had United determined compensation cost
  based on the estimated fair value at the grant date for its stock options,
  Uniteds net income and net income per share would have been as shown in Note
  1.
|     |                                                                                                                                                                                                                                                                                                                                                                   
|(17) | Earnings Per Share                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                   
|     | The
  following table sets forth the computation of basic and diluted earnings per
  share for the years ended December 31:                                                                                                                                                                                                                                       

|                                                                                                      |  |      |           |      |  |           |  |  |           |  
|----------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- |  | --------- |  |  | --------- | -
|                                                                                                      |  | 2005 |           | 2004 |  | 2003      | 
|                                                                                                      |  |      |           |      |  |           | 
|Weighted average shares outstanding during
  the year on which basic earnings per share is calculated |  |      | 3,060,717 |      |  | 3,043,240 |  |  | 3,050,180 |  
|Add: incremental shares under stock option
  plans                                                    |  |      | 86,455    |      |  | 99,772    |  |  | 88,881    |  
|                                                                                                      |  |      |           |      |  |           |  |  |           |  
|                                                                                                      |  |      |           |      |  |           |  |  |           |  
|Average outstanding shares on which diluted
  earnings per share is calculated                        |  |      | 3,147,172 |      |  | 3,143,012 |  |  | 3,139,061 |  
|                                                                                                      |  |      |           |      |  |           |  |  |           |  
|                                                                                                      |  |      |           |      |  |           |  |  |           |  
|Net income applicable to common stockholders,
  basic                                                 |  | $    | 4,139,511 |      |  | 3,917,959 |  |  | 4,720,001 |  
|Less: reduction of proportionate share
  of Valley net income assuming option exercises               |  |      |          |      |  |          |  |  | (820      | )
|                                                                                                      |  |      |           |      |  |           |  |  |           |  
|                                                                                                      |  |      |           |      |  |           |  |  |           |  
|Net income applicable to common
  stockholders, diluted                                               |  | $    | 4,139,511 |      |  | 3,917,959 |  |  | 4,719,181 |  
|                                                                                                      |  |      |           |      |  |           |  |  |           |  
|                                                                                                      |  |      |           |      |  |           |  |  |           |  
|Basic earnings per share                                                                              |  |      |           |      |  |           |  |  |           |  
|Continuing operations                                                                                 |  | $    | 1.35      |      |  | 1.29      |  |  | 1.26      |  
|Discontinuing operations                                                                              |  |      |          |      |  |          |  |  | .29       |  
|                                                                                                      |  |      |           |      |  |           |  |  |           |  
|Net Income                                                                                            |  | $    | 1.35      |      |  | 1.29      |  |  | 1.55      |  
|                                                                                                      |  |      |           |      |  |           |  |  |           |  
|                                                                                                      |  |      |           |      |  |           |  |  |           |  
|Diluted earnings per share                                                                            |  |      |           |      |  |           |  |  |           |  
|Continuing operations                                                                                 |  | $    | 1.32      |      |  | 1.25      |  |  | 1.22      |  
|Discontinuing operations                                                                              |  |      |          |      |  |          |  |  | .28       |  
|                                                                                                      |  |      |           |      |  |           |  |  |           |  
|Net income                                                                                            |  | $    | 1.32      |      |  | 1.25      |  |  | 1.50      |  
|                                                                                                      |  |      |           |      |  |           |  |  |           |  

F-28

---



UNITED
FINANCIAL CORP. AND SUBSIDIARIES

Notes to
Consolidated Financial Statements

|     |                                                 
|---- | ------------------------------------------------
|(18) | Condensed
  Quarterly Financial Data  Unaudited

|                             |  |                                |           |         |  |           |  |         |           |  |  |           | 
|---------------------------- |  | ------------------------------ | --------- | ------- |  | --------- |  | ------- | --------- |  |  | --------- | 
|                             |  | Year Ended
  December 31, 2005 |          
|                             |  |                                |          
|                             |  | Fourth                         |           | Third   |  | Second    |  | First   |          
|                             |  | Quarter                        |           | Quarter |  | Quarter   |  | Quarter |          
|                             |  |                                |           |         |  |           |  |         |          
|Interest income              |  | $                              | 5,887,724 |         |  | 5,562,359 |  |         | 5,150,864 |  |  | 4,707,993 | 
|Interest expense             |  |                                | 2,131,440 |         |  | 1,961,719 |  |         | 1,656,749 |  |  | 1,427,305 | 
|                             |  |                                |           |         |  |           |  |         |           |  |  |           | 
|Net interest
  income        |  |                                | 3,756,284 |         |  | 3,600,640 |  |         | 3,494,115 |  |  | 3,280,688 | 
|                             |  |                                |           |         |  |           |  |         |           |  |  |           | 
|Provision for
  loan losses  |  |                                | 80,000    |         |  | 100,000   |  |         | 50,000    |  |  |          | 
|Non-interest
  income        |  |                                | 1,202,417 |         |  | 1,421,895 |  |         | 1,095,948 |  |  | 829,713   | 
|Non-interest
  expense       |  |                                | 3,123,897 |         |  | 3,026,432 |  |         | 2,919,617 |  |  | 2,717,001 | 
|                             |  |                                |           |         |  |           |  |         |           |  |  |           | 
|Income before
  income taxes |  |                                | 1,754,804 |         |  | 1,896,103 |  |         | 1,620,446 |  |  | 1,393,400 | 
|Income tax
  expense         |  |                                | 665,505   |         |  | 719,097   |  |         | 615,085   |  |  | 525,555   | 
|                             |  |                                |           |         |  |           |  |         |           |  |  |           | 
|Net income                   |  | $                              | 1,089,299 |         |  | 1,177,006 |  |         | 1,005,361 |  |  | 867,845   | 
|                             |  |                                |           |         |  |           |  |         |           |  |  |           | 
|                             |  |                                |           |         |  |           |  |         |           |  |  |           | 
|Net income per
  share:      |  |                                |           |         |  |           |  |         |           |  |  |           | 
|Basic                        |  | $                              | .36       |         |  | .38       |  |         | .33       |  |  | .28       | 
|                             |  |                                |           |         |  |           |  |         |           |  |  |           | 
|Diluted                      |  | $                              | .35       |         |  | .37       |  |         | .32       |  |  | .28       | 

|                             |  |                                |           |         |  |           |  |         |           |  |  |           | 
|---------------------------- |  | ------------------------------ | --------- | ------- |  | --------- |  | ------- | --------- |  |  | --------- | 
|                             |  | Year Ended
  December 31, 2004 |          
|                             |  |                                |          
|                             |  | Fourth                         |           | Third   |  | Second    |  | First   |          
|                             |  | Quarter                        |           | Quarter |  | Quarter   |  | Quarter |          
|                             |  |                                |           |         |  |           |  |         |          
|Interest income              |  | $                              | 4,707,338 |         |  | 4,722,065 |  |         | 4,481,999 |  |  | 4,253,338 | 
|Interest expense             |  |                                | 1,357,278 |         |  | 1,338,661 |  |         | 1,242,848 |  |  | 1,213,697 | 
|                             |  |                                |           |         |  |           |  |         |           |  |  |           | 
|Net interest
  income        |  |                                | 3,350,060 |         |  | 3,383,404 |  |         | 3,239,151 |  |  | 3,039,641 | 
|                             |  |                                |           |         |  |           |  |         |           |  |  |           | 
|Provision for
  loan losses  |  |                                |          |         |  |          |  |         | 17,500    |  |  | 52,500    | 
|Non-interest
  income        |  |                                | 1,104,797 |         |  | 1,171,136 |  |         | 1,082,163 |  |  | 1,069,026 | 
|Non-interest
  expense       |  |                                | 2,880,932 |         |  | 2,926,508 |  |         | 2,787,958 |  |  | 2,493,524 | 
|                             |  |                                |           |         |  |           |  |         |           |  |  |           | 
|Income before
  income taxes |  |                                | 1,573,925 |         |  | 1,628,032 |  |         | 1,515,856 |  |  | 1,562,643 | 
|Income tax
  expense         |  |                                | 589,940   |         |  | 614,016   |  |         | 570,088   |  |  | 588,453   | 
|                             |  |                                |           |         |  |           |  |         |           |  |  |           | 
|Net income                   |  | $                              | 983,985   |         |  | 1,014,016 |  |         | 945,768   |  |  | 974,190   | 
|                             |  |                                |           |         |  |           |  |         |           |  |  |           | 
|                             |  |                                |           |         |  |           |  |         |           |  |  |           | 
|Net income per
  share:      |  |                                |           |         |  |           |  |         |           |  |  |           | 
|Basic                        |  | $                              | .32       |         |  | .34       |  |         | .31       |  |  | .32       | 
|                             |  |                                |           |         |  |           |  |         |           |  |  |           | 
|Diluted                      |  | $                              | .31       |         |  | .32       |  |         | .30       |  |  | .31       | 

F-29

---



UNITED
FINANCIAL CORP. AND SUBSIDIARIES

Notes to
Consolidated Financial Statements

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(19) | Regulatory Matters                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     | United (on a consolidated basis) and Heritage Bank
  are subject to various regulatory capital requirements administered by the
  federal banking agencies. Failure to meet minimum capital requirements can
  initiate certain mandatoryand possibly additional discretionaryactions by
  regulators that, if undertaken, could have a direct material effect on
  Uniteds operations. Under capital adequacy guidelines and the regulatory
  framework for prompt corrective action, United and Heritage Bank must meet
  specific capital guidelines that involve quantitative measures of the assets,
  liabilities, and certain off-balance-sheet items as calculated under
  regulatory accounting guidelines. Capital amounts and classification are also
  subject to qualitative judgments by the regulators about components, risk
  weightings, and other factors.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     | Quantitative measures established by regulation to
  ensure capital adequacy require United and Heritage Bank to maintain minimum
  amounts and ratios (set forth in the tables below). As of December 31, 2005,
  management believes United and Heritage Bank met all capital adequacy requirements
  to which they are subject.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     | As of December 31, 2005, the most recent
  notifications from the federal banking agencies categorized Heritage Bank as
  well capitalized under the regulatory framework for prompt corrective
  action (PCA). To be categorized as well capitalized the banks must maintain
  minimum ratios as set forth in the following tables. There are no conditions
  or events that management believes have changed the institutions PCA
  category.                                                                                                                                                                                                                                                                                                                                                                                                                            

|                              |  |        |        |                     |       |                       |  |                          |        |                       |     |       |  |  |        |  |      |   | 
|----------------------------- |  | ------ | ------ | ------------------- | ----- | --------------------- |  | ------------------------ | ------ | --------------------- | --- | ----- |  |  | ------ |  | ---- | - | 
|                              |  |        |        |                     |       |                       |  |                          |        | Minimum to
  be well |    
|                              |  |        |        |                     |       | Minimum
  for capital |  | capitalized
  under PCA |       
|                              |  | Actual |        | adequacy
  purposes |       | provisions            | 
|                              |  |        |        |                     |       |                       | 
|Consolidated: (in thousands)  |  | Amount |        | Ratio               |       | Amount                |  | Ratio                    |        | Amount                |     | Ratio | 
|                              |  |        |        |                     |       |                       |  |                          |        |                       |     |       | 
|December 31,
  2005:          |  |        |        |                     |       |                       |  |                          |        |                       |     |       |  |  |        |  |      |   | 
|Total capital                 |  | $      | 37,491 |                     | 11.26 | %                     |  | $                        | 26,637 |                       | 8.0 | %     |  |  | N/A    |  | -    |   | 
|Tier I capital                |  |        | 33,740 |                     | 10.18 |                       |  |                          | 13,257 |                       | 4.0 |       |  |  | N/A    |  | -    |   | 
|Tier I leverage               |  |        | 33,740 |                     | 8.71  |                       |  |                          | 15,495 |                       | 4.0 |       |  |  | N/A    |  | -    |   | 
|                              |  |        |        |                     |       |                       |  |                          |        |                       |     |       |  |  |        |  |      |   | 
|December 31,
  2004:          |  |        |        |                     |       |                       |  |                          |        |                       |     |       |  |  |        |  |      |   | 
|Total capital                 |  |        | 35,694 |                     | 12.33 |                       |  |                          | 23,158 |                       | 8.0 |       |  |  | N/A    |  | -    |   | 
|Tier I capital                |  |        | 32,075 |                     | 11.08 |                       |  |                          | 11,579 |                       | 4.0 |       |  |  | N/A    |  | -    |   | 
|Tier I leverage               |  |        | 32,075 |                     | 9.33  |                       |  |                          | 13,755 |                       | 4.0 |       |  |  | N/A    |  | -    |   | 
|                              | 
|Heritage Bank: (in thousands) |  |        |        |                     |       |                       |  |                          |        |                       |     |       |  |  |        |  |      |   | 
|                              |  |        |        |                     |       |                       |  |                          |        |                       |     |       |  |  |        |  |      |   | 
|December 31,
  2005:          |  |        |        |                     |       |                       |  |                          |        |                       |     |       |  |  |        |  |      |   | 
|Total capital                 |  |        | 33,720 |                     | 10.14 |                       |  |                          | 26,604 |                       | 8.0 |       |  |  | 33,254 |  | 10.0 | % | 
|Tier I capital                |  |        | 29,969 |                     | 9.02  |                       |  |                          | 13,290 |                       | 4.0 |       |  |  | 19,935 |  | 6.0  |   | 
|Tier I leverage               |  |        | 29,969 |                     | 7.82  |                       |  |                          | 15,329 |                       | 4.0 |       |  |  | 19,162 |  | 5.0  |   | 
|                              |  |        |        |                     |       |                       |  |                          |        |                       |     |       |  |  |        |  |      |   | 
|December 31,
  2004:          |  |        |        |                     |       |                       |  |                          |        |                       |     |       |  |  |        |  |      |   | 
|Total capital                 |  |        | 29,865 |                     | 10.35 |                       |  |                          | 23,084 |                       | 8.0 |       |  |  | 28,855 |  | 10.0 |   | 
|Tier I capital                |  |        | 26,257 |                     | 9.10  |                       |  |                          | 11,542 |                       | 4.0 |       |  |  | 17,313 |  | 6.0  |   | 
|Tier I leverage               |  |        | 26,257 |                     | 7.71  |                       |  |                          | 13,673 |                       | 4.0 |       |  |  | 17,091 |  | 5.0  |   | 

F-30

---



UNITED
FINANCIAL CORP. AND SUBSIDIARIES

Notes to
Consolidated Financial Statements

|     |                                                                                                                                                                                                                                                                                                                                                                                             
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | The total capital and Tier I capital ratios are
  determined based on risk-weighted assets. The Tier I leverage ratio is
  determined based on average tangible assets.                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                                                             
|     | State banks, such as Heritage Bank, may pay
  dividends up to the total of the prior two years earnings without permission
  of State regulators.                                                                                                                                                                                                                                           
|     |                                                                                                                                                                                                                                                                                                                                                                                             
|(20) | Fair Value of Financial Instruments                                                                                                                                                                                                                                                                                                                                                         
|     |                                                                                                                                                                                                                                                                                                                                                                                             
|     | United is required to disclose the fair value for
  financial instruments, whether or not recognized in the statements of
  financial condition. A financial instrument is defined as cash, evidence of
  an ownership interest in an entity, or a contract that both imposes a
  contractual obligation on one entity to deliver cash or another financial
  instrument to a second entity.
|     |                                                                                                                                                                                                                                                                                                                                                                                             
|     | The following assumptions and methods were used by
  United in estimating the fair value of its financial instruments:                                                                                                                                                                                                                                                                      

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Financial
  Assets. Due to the liquid nature of the instruments, the
  carrying value of cash and cash equivalents approximates fair value. For
  securities available-for-sale, the fair value is based upon quoted market
  prices. The fair value of restricted stock approximates carrying value. The
  fair value of loans receivable was estimated by discounting contractual
  future cash flow using current rates at which similar loans would be made.
  The fair value of loans held for sale approximates carrying fair, as the
  carrying value is the lower of cost or fair value, and United expects the
  loans to be sold in the short-term. The fair value of accrued interest
  receivable approximates book value as United expects contractual receipt in
  the near-term.                                                                                                      
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | Financial
  Liabilities. The fair value of NOW, money market accounts,
  demand accounts and non-term savings deposits are, by definition, equal to
  their carrying amounts, which represent the amounts payable on demand. The
  fair value of time deposits was estimated by discounting the future cash
  flows using current rates for similar deposits. Because the interest rate on
  subordinated debt approximates Uniteds current long-term borrowing rate, the
  fair value of these liabilities approximates the carrying value. The fair
  value of FHLB advances and securities sold under agreements to repurchase was
  obtained from discounting cash flows using current borrowing rates. The fair
  value of accrued interest payable approximates book value due to contractual
  payment in the near-term.                                                                     
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | Off-Balance
  Sheet. The fair value of commitments to extend credit is
  based upon the fee charged, and was determined by management to not have a
  significant fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | Limitations.Fair value estimates are made at a specific point in time,
  based on relevant market information and information about the financial
  instrument. These estimates do not reflect any premium or discount that could
  result from offering for sale at one time Uniteds entire holdings of a
  particular instrument. Because no market exists for a significant portion of
  Uniteds financial instruments, fair value estimates are based on judgments
  regarding comparable market interest rates, future expected loss experience,
  current economic conditions, risk characteristics of various financial
  instruments, and other factors. These estimates are subjective in nature and
  involve uncertainties and matters of significant judgment and, therefore,
  cannot be determined with precision. Changes in assumptions could
  significantly affect the estimates.

F-31

---



UNITED
FINANCIAL CORP. AND SUBSIDIARIES

Notes to
Consolidated Financial Statements

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Fair value estimates are based on existing on- and
  off-balance sheet financial instruments without attempting to estimate the
  value of anticipated future business and the value of assets and liabilities
  that are not considered financial instruments. In addition, the tax effect of
  the difference between the fair value and carrying value of financial
  instruments can have a significant effect on fair value estimates and have
  not been considered in the estimates presented herein.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The approximate carrying value and fair value of
  Uniteds financial instruments as of December 31 are as follows:                                                                                                                                                                                                                                                                                                                                                                                         

|                                                                   |  |                  |             |              |  |                  |  |              |             |  |  |             | 
|------------------------------------------------------------------ |  | ---------------- | ----------- | ------------ |  | ---------------- |  | ------------ | ----------- |  |  | ----------- | 
|                                                                   |  | 2005             |             | 2004         | 
|                                                                   |  |                  |             |              | 
|                                                                   |  | Carrying
  Value |             | Fair
  Value |  | Carrying
  Value |  | Fair
  Value |            
|                                                                   |  |                  |             |              |  |                  |  |              |            
|                                                                   |  |                  |             |              |  |                  |  |              |             |  |  |             | 
|Financial
  assets:                                                |  |                  |             |              |  |                  |  |              |             |  |  |             | 
|Cash and cash
  equivalents                                        |  | $                | 19,127,000  |              |  | 19,127,000       |  |              | 19,187,000  |  |  | 19,187,000  | 
|Securities
  available-for-sale                                    |  |                  | 35,359,000  |              |  | 35,359,000       |  |              | 38,949,000  |  |  | 38,949,000  | 
|Restricted stock                                                   |  |                  | 4,228,000   |              |  | 4,228,000        |  |              | 4,211,000   |  |  | 4,211,000   | 
|Loans held for
  sale                                              |  |                  | 3,902,000   |              |  | 3,902,000        |  |              | 5,786,000   |  |  | 5,786,000   | 
|Loans
  receivable, net                                            |  |                  | 311,997,000 |              |  | 308,642,000      |  |              | 265,011,000 |  |  | 264,554,000 | 
|Accrued interest
  receivable                                      |  |                  | 2,537,000   |              |  | 2,537,000        |  |              | 1,937,000   |  |  | 1,937,000   | 
|                                                                   |  |                  |             |              |  |                  |  |              |             |  |  |             | 
|Financial
  liabilities:                                           |  |                  |             |              |  |                  |  |              |             |  |  |             | 
|Deposits                                                           |  |                  | 303,691,000 |              |  | 303,047,000      |  |              | 258,334,000 |  |  | 258,963,000 | 
|FHLB advances
  and securities sold under agreements to repurchase |  |                  | 46,292,000  |              |  | 45,701,000       |  |              | 52,292,000  |  |  | 52,184,000  | 
|Accrued interest
  payable                                         |  |                  | 2,043,000   |              |  | 2,043,000        |  |              | 1,189,000   |  |  | 1,189,000   | 
|Subordinated
  debt owed to trust                                  |  |                  | 3,093,000   |              |  | 3,093,000        |  |              | 3,093,000   |  |  | 3,093,000   | 

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(21) | 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 fails to make three monthly payments within
  120 days after the sale of the loan. The balance of loans sold with
  repurchase provisions remaining at December 31, 2005 is approximately $
  5,991,000. There were no loans repurchased under these provisions during
  2005, 2004 or 2003.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     | In December 2005, Heritage Bank entered into a
  six-year service contract for data processing services with Fiserv, a
  national information processing company. In the event of early termination of
  the contract, Heritage Bank has agreed to pay an amount equal to the present
  value of all payments to be made for the remainder of the initial term or any
  renewal term of the agreement, which is estimated at December 31, 2005 to be
  approximately $4.1 million.                                                        
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     | United is a defendant in legal proceedings arising
  in the normal course of business. In the opinion of management, the
  disposition of pending litigation will not have a material effect on Uniteds
  consolidated financial position, results of operations, or liquidity.                                                                                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     | At December 31, 2005, Heritage Bank had loan
  commitments outstanding on 1-4 family fixed and adjustable rate mortgages
  totaling approximately $12,599,000. These loans were approved prior to
  December 31, 2005 to be closed and funded in 2006. Heritage Bank also has at
  December 31, 2005                                                                                                                                                                                                                                      

F-32

---



UNITED
FINANCIAL CORP. AND SUBSIDIARIES

Notes to
Consolidated Financial Statements

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | interest rate locks outstanding on 1-4 family
  mortgages totaling approximately $2,118,000. These loans may or may not be
  approved and closed in 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | United is a party to financial instruments with
  off-balance-sheet risk in the normal course of business to meet the financing
  needs of its customers. These financial instruments include commitments to
  extend credit and letters of credit and involve, to varying degrees, elements
  of credit risk. Uniteds exposure to credit loss in the event of
  nonperformance by the other party to the financial instrument for commitments
  to extend credit is represented by the contractual amount of those
  instruments. United uses the same credit policies in making commitments and
  conditional obligations as it does for loans.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Financial instruments outstanding at December 31
  whose contract amounts represent credit risk include:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

| |                                                       |  |      |            |  |      |            | 
| | ----------------------------------------------------- |  | ---- | ---------- |  | ---- | ---------- | 
| | (Rounded to even dollars)                             |  | 2005 |            |  | 2004 |           
| |                                                       |  |      |            |  |      |            | 
| | Unused lines of
  credit                              |  | $    | 49,252,000 |  |      | 52,887,000 | 
| | Commitments
  outstanding  variable rate             |  |      | 10,461,000 |  |      | 5,775,000  | 
| | Unfunded
  commitments under credit card arrangements |  |      | 2,418,000  |  |      | 2,373,000  | 
| | Letters of
  credit                                   |  |      | 1,891,000  |  |      | 970,000    | 

(22)   Parent Company Information (Condensed)

The summarized financial
information for United Financial Corp. is presented below:

Condensed Statements of Financial
Condition

|                                                                                                    |  |                |            |      |  |            | 
|--------------------------------------------------------------------------------------------------- |  | -------------- | ---------- | ---- |  | ---------- | 
|                                                                                                    |  | December
  31, |           
|                                                                                                    |  |                |           
|                                                                                                    |  | 2005           |            | 2004 | 
|                                                                                                    |  |                |            |      |  |            | 
|Assets                                                                                              |  |                |            |      | 
|Cash and cash
  equivalents ($148,957 and $2,254,541, respectively, deposited with Heritage
  Bank) |  | $              | 2,650,341  |      |  | 4,571,534  | 
|Securities
  available-for-sale                                                                     |  |                | 1,059,072  |      |  | 1,153,058  | 
|Investment in
  subsidiary bank                                                                     |  |                | 31,213,015 |      |  | 27,799,365 | 
|Accrued interest
  receivable                                                                       |  |                | 28,060     |      |  | 10,430     | 
|Other assets                                                                                        |  |                | 222,072    |      |  | 288,272    | 
|                                                                                                    |  |                |            |      |  |            | 
|Total assets                                                                                        |  | $              | 35,172,560 |      |  | 33,822,659 | 
|                                                                                                    |  |                |            |      |  |            | 
|                                                                                                    |  |                |            |      |  |            | 
|                                                                                                    |  |                |            |      |  |            | 
|Liabilities and Stockholders
  Equity                                                              |  |                |            |      |  |            | 
|                                                                                                    |  |                |            |      |  |            | 
|Other liabilities                                                                                   |  | $              | 101,426    |      |  | 101,541    | 
|Subordinated debt owed to trust                                                                     |  |                | 3,093,000  |      |  | 3,093,000  | 
|                                                                                                    |  |                |            |      |  |            | 
|Total liabilities                                                                                   |  |                | 3,194,426  |      |  | 3,194,541  | 
|                                                                                                    |  |                |            |      |  |            | 
|                                                                                                    |  |                |            |      |  |            | 
|Common stock                                                                                        |  |                | 26,901,546 |      |  | 26,649,795 | 
|Paid in capital                                                                                     |  |                | 63,864     |      |  | 29,341     | 
|Retained earnings                                                                                   |  |                | 5,263,346  |      |  | 3,871,256  | 
|Accumulated other comprehensive income                                                              |  |                | (250,622   | )    |  | 77,726     | 
|                                                                                                    |  |                |            |      |  |            | 
|Total stockholders equity                                                                          |  |                | 31,978,134 |      |  | 30,628,118 | 
|                                                                                                    |  |                |            |      |  |            | 
|                                                                                                    |  |                |            |      |  |            | 
|Total liabilities and stockholders
equity                                                          |  | $              | 35,172,560 |      |  | 33,822,659 | 
|                                                                                                    |  |                |            |      |  |            | 

F-33

---



UNITED
FINANCIAL CORP. AND SUBSIDIARIES

Notes to
Consolidated Financial Statements

Condensed Statements of Income

|                                                                                                         |  |      |                           |      |  |           |      |  |           |  
|-------------------------------------------------------------------------------------------------------- |  | ---- | ------------------------- | ---- |  | --------- | ---- |  | --------- | -
|                                                                                                         |  |      | Year ended
  December 31, |     
|                                                                                                         |  |      |                          
|                                                                                                         |  | 2005 |                           | 2004 |  |           | 2003 | 
|                                                                                                         |  |      |                           |      |  |           |      |  |           |  
|Revenues:                                                                                                |  |      |                           |      |  |           |      |  |           |  
|Cash dividends
  from bank subsidiary                                                                    |  | $    | 750,000                   |      |  | 2,800,000 |      |  | 2,600,000 |  
|Interest income                                                                                          |  |      | 152,194                   |      |  | 197,968   |      |  | 78,218    |  
|Other income                                                                                             |  |      |                          |      |  | 19,366    |      |  | 1,168     |  
|                                                                                                         |  |      |                           |      |  |           |      |  |           |  
|                                                                                                         |  |      | 902,194                   |      |  | 3,017,334 |      |  | 2,679,386 |  
|                                                                                                         |  |      |                           |      |  |           |      |  |           |  
|Expenses:                                                                                                |  |      |                           |      |  |           |      |  |           |  
|Interest expense                                                                                         |  |      | 215,277                   |      |  | 161,166   |      |  | 161,378   |  
|Other operating
  expenses                                                                               |  |      | 478,003                   |      |  | 449,784   |      |  | 476,761   |  
|                                                                                                         |  |      |                           |      |  |           |      |  |           |  
|                                                                                                         |  |      | 693,280                   |      |  | 610,950   |      |  | 638,139   |  
|                                                                                                         |  |      |                           |      |  |           |      |  |           |  
|Income before equity in
undistributed earnings of
  subsidiary, discontinued operations and income taxes |  |      | 208,914                   |      |  | 2,406,384 |      |  | 2,041,247 |  
|Equity in
  undistributed earnings of subsidiary                                                         |  |      | 3,722,613                 |      |  | 1,487,155 |      |  | 1,490,771 |  
|                                                                                                         |  |      |                           |      |  |           |      |  |           |  
|                                                                                                         |  |      |                           |      |  |           |      |  |           |  
|Income from
  continuing operations before income taxes                                                  |  |      | 3,931,527                 |      |  | 3,893,539 |      |  | 3,532,018 |  
|Income tax
  benefit                                                                                     |  |      | (207,984                  | )    |  | (24,420   | )    |  | (297,267  | )
|                                                                                                         |  |      |                           |      |  |           |      |  |           |  
|Income from
  continuing operations                                                                      |  |      | 4,139,511                 |      |  | 3,917,959 |      |  | 3,829,285 |  
|                                                                                                         |  |      |                           |      |  |           |      |  |           |  
|Income from
  discontinued operations                                                                    |  |      |                          |      |  |          |      |  | 890,716   |  
|                                                                                                         |  |      |                           |      |  |           |      |  |           |  
|Net income                                                                                               |  | $    | 4,139,511                 |      |  | 3,917,959 |      |  | 4,720,001 |  
|                                                                                                         |  |      |                           |      |  |           |      |  |           |  

F-34

---



UNITED FINANCIAL CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Condensed Statements of Cash Flows

|                                                                                                        |  |                           |            |      |  |            |   |  |            |  
|------------------------------------------------------------------------------------------------------- |  | ------------------------- | ---------- | ---- |  | ---------- | - |  | ---------- | -
|                                                                                                        |  | Year ended
  December 31, |           
|                                                                                                        |  |                           |           
|                                                                                                        |  | 2005                      |            | 2004 |  | 2003       |  
|                                                                                                        |  |                           |            |      |  |            |  
|Cash flows from operating activities:                                                                   |  |                           |            |      |  |            |   |  |            |  
|Net income from continuing operations                                                                   |  | $                         | 4,139,511  |      |  | 3,917,959  |   |  | 3,829,285  |  
|Adjustments to reconcile net income from
  continuing operations to net cash from operating activities: |  |                           |            |      |  |            |   |  |            |  
|Gain on sale of securities available-for-sale                                                           |  |                           |           |      |  | (18,766    | ) |  |           |  
|Equity in undistributed earnings of
subsidiary                                                          |  |                           | (3,722,613 | )    |  | (1,487,155 | ) |  | (1,369,725 | )
|Increase (decrease) in other assets and liabilities,
net                                                |  |                           | 89,961     |      |  | (15,468    | ) |  | (140,804   | )
|                                                                                                        |  |                           |            |      |  |            |   |  |            |  
|Net
  cash from continuing operations                                                                   |  |                           | 506,859    |      |  | 2,396,570  |   |  | 2,318,756  |  
|                                                                                                        |  |                           |            |      |  |            |   |  |            |  
|Net
  cash from discontinued operations                                                                 |  |                           |           |      |  |           |   |  | 8,299,630  |  
|                                                                                                        |  |                           |            |      |  |            |   |  |            |  
|Net
  cash from operating activities                                                                    |  |                           | 506,859    |      |  | 2,396,570  |   |  | 10,618,386 |  
|                                                                                                        |  |                           |            |      |  |            |   |  |            |  
|                                                                                                        |  |                           |            |      |  |            |   |  |            |  
|Cash flows from investing activities:                                                                   |  |                           |            |      |  |            |   |  |            |  
|Purchase of securities available-for sale                                                               |  |                           | (1,000,000 | )    |  | (1,000,000 | ) |  | (2,000,000 | )
|Proceeds from sales, maturities and
  paydowns of securities available-for-sale                         |  |                           | 1,067,618  |      |  | 2,005,015  |   |  | 256,429    |  
|                                                                                                        |  |                           |            |      |  |            |   |  |            |  
|Net cash from investing activities                                                                      |  |                           | 67,618     |      |  | 1,005,015  |   |  | (1,743,571 | )
|                                                                                                        |  |                           |            |      |  |            |   |  |            |  
|                                                                                                        |  |                           |            |      |  |            |   |  |            |  
|Cash flows from financing activities:                                                                   |  |                           |            |      |  |            |   |  |            |  
|Payments on line of credit                                                                              |  |                           |           |      |  |           |   |  | (700,000   | )
|Redemption of common stock                                                                              |  |                           |           |      |  | (623,715   | ) |  | (220,110   | )
|Proceeds from issuance of common stock                                                                  |  |                           | 251,751    |      |  | 248,363    |   |  | 78,501     |  
|Dividends paid to stockholders                                                                          |  |                           | (2,747,421 | )    |  | (5,061,359 | ) |  | (2,181,826 | )
|                                                                                                        |  |                           |            |      |  |            |   |  |            |  
|Net cash from financing activities                                                                      |  |                           | (2,495,670 | )    |  | (5,436,711 | ) |  | (3,023,435 | )
|                                                                                                        |  |                           |            |      |  |            |   |  |            |  
|                                                                                                        |  |                           |            |      |  |            |   |  |            |  
|Net increase (decrease) in cash and cash
  equivalents                                                  |  |                           | (1,921,193 | )    |  | (2,035,126 | ) |  | 5,851,380  |  
|Cash and cash equivalents at beginning of
  year                                                        |  |                           | 4,571,534  |      |  | 6,606,660  |   |  | 755,280    |  
|                                                                                                        |  |                           |            |      |  |            |   |  |            |  
|                                                                                                        |  |                           |            |      |  |            |   |  |            |  
|Cash and cash equivalents at end of year                                                                |  | $                         | 2,650,341  |      |  | 4,571,534  |   |  | 6,606,660  |  
|                                                                                                        |  |                           |            |      |  |            |   |  |            |  

F-35

---



UNITED FINANCIAL CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

|     |                                                                                                                                                                                                                                                                                                                                                                                              
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(23) | Discontinued Operations  Sale of Valley
  Bancorp, Inc.                                                                                                                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                                                              
|     | On July 31,
  2003, United sold its majority-owned subsidiary, Valley Bancorp, Inc.
  (Valley). At the time of the sale, taking into account stock options which
  were exercised immediately prior to closing, United owned approximately 62%
  of Valleys issued and outstanding capital stock. United received sales
  proceeds of approximately $9 million from the sale of the stock.
|     |                                                                                                                                                                                                                                                                                                                                                                                              
|     | The prior
  year income statements as reported herein for the year ended December 31,
  2003 reports the results of operations of Valley in discontinued operations.
  Income from discontinued operations also includes the gain on the sale of
  Valley net of applicable income tax provisions.                                                                                           

F-36

---