# UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

# FORM 10-K

(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the Fiscal Year Ended December 31, 2004

or
[   ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

# For the transition period from ____________ to ____________

# Commission file number: 0-28080

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

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

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. [   ]

Indicate by
checkmark whether the Registrant is an accelerated filer (as defined by Rule 12b-2 of the Securities Exchange Act of
1934). Yes [   ]   No [X]

The aggregate
market value of the voting common stock held by non-affiliates of the Registrant, as of June 30, 2004 (the last day of
the Registrants most recently completed second fiscal quarter), was $34,072,829 (based on the last sale price of such
stock as quoted on the Nasdaq National Market ($23.99) on such date).

The number of
shares of Registrants common stock outstanding on February 28, 2005 was 2,444,016. 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 2005 Annual Meeting of Stockholders are incorporated by reference into Part III of this
Form 10-K.



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# UNITED FINANCIAL CORP.
2004 FORM 10-K ANNUAL REPORT

# TABLE OF CONTENTS

|                                                                                                                          |  |    | 
|------------------------------------------------------------------------------------------------------------------------- |  | -- | 
|PART I                                                                                                                   
|Cautionary Statement                                                                                                      |  | 1  | 
|Item 1.   Business                                                                                                        |  | 2  | 
|Item 2.   Properties                                                                                                      |  | 18 | 
|Item 3.   Legal Proceedings                                                                                               |  | 18 | 
|Item 4.   Submission of Matters to a Vote of Security Holders                                                             |  | 18 | 
|PART II                                                                                                                  
|Item 5.   Market for Registrants Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 19 | 
|Item 6.   Selected Financial Data                                                                                         |  | 20 | 
|Item 7.   Managements Discussion and Analysis of Financial Condition and Results of Operations                           |  | 21 | 
|Item 7A.   Quantitative and Qualitative Disclosures about Market Risk                                                     |  | 40 | 
|Item 8.   Financial Statements and Supplementary Data                                                                     |  | 41 | 
|Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            |  | 41 | 
|Item 9A.   Controls and Procedures                                                                                        |  | 41 | 
|Item 9B.   Other Information                                                                                              |  | 41 | 
|PART III                                                                                                                 
|Item 10.   Directors and Executive Officers of the Registrant                                                             |  | 42 | 
|Item 11.   Executive Compensation                                                                                         |  | 42 | 
|Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                 |  | 42 | 
|Item 13.   Certain Relationships and Related Transactions                                                                 |  | 42 | 
|Item 14.   Principal Accounting Fees and Services                                                                         |  | 42 | 
|PART IV                                                                                                                  
|Item 15.   Exhibits and Financial Statements Schedules                                                                    |  | 43 | 
|Signatures                                                                                                                |  | 44 | 
|Exhibit Index                                                                                                             |  | 45 | 

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 $347.1 million, deposits of approximately $258.3 million and stockholders equity of approximately
$30.6 million at December 31, 2004.

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, 45% 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 December 2003, Heritage
Bank formed Heritage Northwest, Inc., a mortgage banking company in Bellingham, Washington, which began operations in the spring
of 2004. Management of United has decided to terminate these operations in Bellingham as of March 2005. In December 2004, Heritage
Bank incorporated a second wholly-owned subsidiary, HPM, Inc. to acquire land and a building for a new Great Falls drive-up
location, which it will then lease back to Heritage Bank. For more information on these transactions, see Other
Activities in this item. Heritage Bank also holds a 14% ownership interest in Bankers Resource Center, a computer data
center, located in Helena, Montana.

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.

2

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# 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 $16.4 million, $15.9 million and $16.5 million, or approximately 90%, 89% and 85% of
total interest income, for the years ended December 31, 2004, 2003 and 2002, 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 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, 2004, 2003, 2002, 2001 and 2000:

|(Dollars in thousands)             | December 31, |  | December 31, |         | December 31,
|---------------------------------- | ------------ |  | ------------ | ------- | ------------
|
|
|Loans secured by real estate:      |              |  |              |         |             
|1  4 residential                  |              |  | $            | 27,543  |             
|5 or more residential              |              |  |              | 3,012   |             
|Construction                       |              |  |              | 29,083  |             
|Agricultural                       |              |  |              | 40,685  |             
|Commercial                         |              |  |              | 51,017  |             
|                                   |              |  |              |         |             
|Total loans secured by real estate |              |  |              | 151,340 |             
|Commercial loans                   |              |  |              | 62,410  |             
|Tax exempt municipal loans         |              |  |              | 2,698   |             
|Agricultural loans                 |              |  |              | 15,109  |             
|Loans on deposit and other loans   |              |  |              | 1,278   |             
|Second mortgage consumer loans     |              |  |              | 6,122   |             
|Consumer loans                     |              |  |              | 29,762  |             
|                                   |              |  |              |         |             
|Total loans receivable             |              |  |              | 268,719 |             
|                                   |              |  |              |         |             
|Less:                              |              | 
|Allowance for loan losses          |              |  |              | 3,708   |             
|                                   |              |  |              |         |             
|Net loans receivable               |              |  | $            | 265,011 |             
|                                   |              |  |              |         |             

3

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|(Dollars in thousands)             | December 31, |  | December 31,
|---------------------------------- | ------------ |  | ------------
|
|
|Loans secured by real estate:      |              |  |             
|1  4 residential                  |              |  | $           
|5 or more residential              |              |  |             
|Construction                       |              |  |             
|Agricultural                       |              |  |             
|Commercial                         |              |  |             
|                                   |              |  |             
|Total loans secured by real estate |              |  |             
|Commercial loans                   |              |  |             
|Tax exempt municipal loans         |              |  |             
|Agricultural loans                 |              |  |             
|Loans on deposit and other loans   |              |  |             
|Second mortgage consumer loans     |              |  |             
|Consumer loans                     |              |  |             
|                                   |              |  |             
|Total loans receivable             |              |  |             
|                                   |              |  |             
|Less:                              |              | 
|Allowance for loan losses          |              |  |             
|                                   |              |  |             
|Net loans receivable               |              |  | $           
|                                   |              |  |             

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.

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

4

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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 9.75 years at December 31, 2004.

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. While origination and sale of these loans produces fee income, the loans are carried
at their outstanding principal balance, which is the contracted purchase price, and therefore no gain or loss is
realized at sale, except for gains associated with recognizing any retained mortgage servicing rights. Heritage Bank
sold long-term fixed-rate residential mortgage loans to the secondary market in aggregate amounts of approximately
$143.3 million in 2004, $325.9 million in 2003 and $201.4 million in 2002. 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. These loans are carried at their outstanding
principal balance, which was the contracted purchase price, and therefore no gain or loss is realized at sale. The
combination of both of these types of secondary market sales resulted in fee income totaling $2.8 million, $5.0 million
and $3.6 million in 2004, 2003 and 2002, respectively. These fees are reported by United as gain on sale of loans within
non-interest income in its statements of operations. 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.

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, 2004, Heritage Bank had $62.4 million of non-mortgage commercial loans in
its loan portfolio, which included approximately $25.7 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

5

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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 $1.6 million, $1.7 million and $2.6 million, or approximately 8.8%, 9.6%
and 13.3% of Uniteds total interest income, for the years ended December 31, 2004, 2003 and 2002, 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.

The following table
sets forth the carrying values of Uniteds investments at December 31, 2004, 2003 and 2002:

|(Dollars in thousands)                | December 31,2004 |  | December 31,2003 |        | December 31,2002
|------------------------------------- | ---------------- |  | ---------------- | ------ | ----------------
|U.S. government and federal agencies  |                  |  | $                | 4,029  |                 
|Mortgage-backed securities            |                  |  |                  | 34,446 |                 
|Municipal bonds                       |                  |  |                  | 474    |                 
|Corporate bonds and equity securities |                  |  |                  |       |                 
|                                      |                  |  |                  |        |                 
|                                      |                  |  | $                | 38,949 |                 
|                                      |                  |  |                  |        |                 

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. The decrease in principal
payments on mortgage-backed securities was a result of the stabilizing of interest rates during 2004, which slowed the
prepayments on mortgage-backed securities. Uniteds purchases of investment securities decreased accordingly to
maintain its investment portfolio.

During 2003, United
received $20.8 million in mortgage-backed security principal payments and had $7.1 million of calls and maturities of
investment securities. United sold $1.9 million of investment securities and mortgagebacked securities while
purchasing $30.2 million in investment securities and mortgage-backed securities. United recorded a decrease in
unrealized gain in market values of its investment portfolio of $.5 million, amortization of purchase premium of $.2
million and a realized gain of $.1 million, before taxes.

6

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# 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.

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

|(Dollars in thousands)      | December 31, |  | December 31, |         | December 31,
|--------------------------- | ------------ |  | ------------ | ------- | ------------
|
|
|Type:Non-interest bearing   |              |  | $            | 47,490  |             
|Interest bearing:           |              | 
|NOW & money market Accounts |              |  |              | 35,974  |             
|Savings accounts            |              |  |              | 54,427  |             
|Time deposits               |              |  |              | 120,444 |             
|                            |              |  |              |         |             
|Total                       |              |  | $            | 258,335 |             
|                            |              |  |              |         |             

Scheduled
maturities of certificates of deposit at December 31, 2004 are as follows:

|(Dollars in thousands)       
|-----------------------------
|Due within one year          
|Due within two to three years
|Due within four to five years
|                             
|Totals                       
|                             

Time deposits of
$100,000 or more were approximately $29.1 million, $24.0 million and $29.1 million at December 31, 2004, 2003 and 2002,
respectively. Amounts in excess of $100,000 are not insured by a federal agency.

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The maturity of time deposits of $100,000 or more at December 31,
2004 was as follows:

|(Dollars in thousands)     | 
|-------------------------- | 
|Less than three months     | 
|Three to six months        | 
|Six to twelve months       | 
|Greater than twelve months | 
|                           | 
|Total                      | 
|                           | 

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 acquiring brokered deposits. At December 31, 2004, such brokered deposits totaled $8.4 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.

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 2004
was 25% of assets. The FHLB is required to review its credit limitations and standards at least annually.

For the years ended
December 31, 2004, 2003 and 2002, FHLB borrowing information was as follows:

|(Dollars in thousands)         | 2004 |  | 2003 |      | 2002
|------------------------------ | ---- |  | ---- | ---- | ----
|Average FHLB advances          |      |  | $    | 42.5 |     
|Maximum advances outstanding   |      |  |      | 60.6 |     
|Year end advances outstanding  |      |  |      | 44.8 |     
|Weighted average interest rate |      |  |      | 3.41 | %   

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.

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For the years ended
December 31, 2004, 2003 and 2002, securities sold under agreements to repurchase information was as follows:

|(Dollars in thousands)         | 2004 |  | 2003 |      | 2002
|------------------------------ | ---- |  | ---- | ---- | ----
|Average balances               |      |  | $    | 8.2  |     
|Maximum balances outstanding   |      |  |      | 13.7 |     
|Year end balances              |      |  |      | 7.5  |     
|Weighted average interest rate |      |  |      | 1.30 | %   

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 offering price was $1,000 per capital security. 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, 2005 was 6.71%. 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. 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.

In accordance with
newly issued accounting pronouncements, for periods ending after March 15, 2004, United will no longer consolidate the
Trust in its financial statements. See Part IV, Item 15.  Notes to Consolidated Financial Statements 
Subordinated Debentures.

# Other Activities

In December 2003,
Heritage Bank formed Heritage Northwest, Inc., a mortgage banking company in Bellingham, Washington, which began operations in the
spring of 2004. Management of United has made the decision to terminate these operations in Bellingham as of March 2005. At
December 31, 2004, this subsidiary had total assets of $.1 million. As the amount of assets and revenue involved has been
determined to be insignificant to United, no discontinued operations reporting is reflected in the financial statements included
in this report with regard to this subsidiary. United does not expect to assume any material liabilities as a result of the
termination of operations.

In December 2004,
Heritage Bank incorporated a second wholly-owned subsidiary, HPM, Inc. to acquire land and a building for a new Great
Falls drive-up location, which it will then lease back to Heritage Bank. The total cost of the land and building acquired by HPM,
Inc. in December 2004 was $.6 million. Heritage Bank expects to begin operating the drive-up location in April 2005.

# Market Area

Great Falls, the
county seat of Cascade County and a regional trade center, is one of the largest cities in Montana. The estimated 2004
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

9

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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. There are approximately 45 depository
institutions, commercial banks, credit unions and savings banks with offices 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,
2005, Heritage Bank employed 123 full-time employees and 30 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.

|Name             | Age |    | Position Held
|---------------- | --- | -- | -------------
|                
|Kurt R. Weise    |     | 48 |              
|                
|Kevin P. Clark   |     | 49 |              
|                
|Steve L. Feurt   |     | 49 |              
|                
|Paula J. Delaney |     | 44 |              

10

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Mr. Weise has
served as Chief Executive Officer of United since 1999 and Chairman of United since 2003. Mr. Weise has served as
President and director of United, and director and Vice President of Heritage Bank since 1998. 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.

Mr. Clark has
served as Senior Vice President and Secretary of United, and director, President and Chief Executive Officer of Heritage Bank,
since 1998. 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 Senior Vice President and Chief Credit Officer of United, and director and Executive Vice President and Senior
Lending Officer of Heritage Bank, since 1998. Mr. Feurt has served as a director of United since 1998. His term of
office as a director of United expires at Uniteds annual shareholder meeting in 2005.

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 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, 2004, United met the
limitations on redemption of common stock and the minimum capital requirements issued by the FRB.

11

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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.

United does not
believe that the Financial Services Modernization Act has negatively affected its operations in the near-term. However,
to the extent that the legislation 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. The rules were effective November 13, 2000,
but compliance was optional until July 1, 2001. United has implemented procedures to comply with these rules and
believes that compliance has not adversely affected its operations.

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

12

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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.   Effective January 1, 2001, Heritage Bank became a
Montana-chartered commercial bank. As such, 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 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-

13

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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, 2004.

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 rating under CRA is satisfactory. The next CRA exam is scheduled for May 2005.

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, 2004, 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 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.

14

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Deposit
Insurance and FDIC Regulation.   Effective January 1, 2001, Heritage Bank became 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 2004, the FDIC
assessment rate for Heritage Bank decreased each quarter from 1.54 basis points per $100 of insured deposits during the
first quarter, to 1.46 basis points for the fourth quarter. As a result, Heritage Banks 2004 FDIC deposit
insurance premium was approximately $.1 million. FDIC has published assessment rates for the first quarter of 2005, per
$100 of insured deposits, of 1.44 basis points.

State Lending
Limits.   As of January 1, 2001, Heritage Bank became 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,
2004 and 2003 was approximately $2.2 million and $2.4 million, respectively. At December 31, 2004 and 2003 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 definition of well
capitalized as of December 31, 2004. 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 or to open new facilities.

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 minimize disincentives for holding liquid assets. Assets and off-balance sheets
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 current
guidelines require all bank holding companies and federally regulated banks to maintain a minimum risk-based total
capital ratio equal to 8%, of which at least 4% must be Tier I capital.

15

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Tier I capital for
bank holding companies includes common shareholders equity, qualifying perpetual preferred stock (up to 25% of
total Tier I capital, if cumulative, although under a Federal Reserve rule, redeemable perpetual preferred stock may not
be counted as Tier I capital unless the redemption is subject to the prior approval of the Federal Reserve), and
minority interests in equity accounts of consolidated subsidiaries, less intangibles, except as described above.

The Federal Reserve
also employs a leverage ratio, which is Tier I capital as a percentage of total assets less intangibles, to be used as a
supplement to risk-based guidelines. Except for the most highly rated banks, the minimum leverage ratio is 4%.

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) establishes 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 has:

- Established a Nominating Committee and adopted a Nominating Committee Charter;
- Adopted a Code of Ethics and Business Conduct applicable to directors, officers and employees of the Company and of Heritage Bank;
- Amended its Audit committee Charter;
- Adopted a Compensation Committee Charter; and
- Commenced holding regularly scheduled meetings of Uniteds non-management directors, separate from management.

Uniteds Audit, Compensation and Nominating Committee charters
can be obtained by visiting Uniteds website and clicking on the Corporate Governance link 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

16

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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. At December 31, 2004, Heritage Banks bad debt reserve for tax
purposes was approximately $3.5 million. For additional information regarding federal and state income taxes, see Part
IV, Item 15  Notes to Consolidated Financial Statements  Income Taxes.

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# Item 2.   PROPERTIES

At December 31,
2004, United owned 13 of its 16 offices, including its headquarters and other property having an aggregated book value including
land of approximately $6.9 million, and leased the remaining branches. Five locations are leased, including four building leases
and one land lease. The following schedule provides property information for the Uniteds locations as of December 31, 2004.

|(Dollars in thousands)      | PropertiesLeased |  | PropertiesOwned |   | Net LeaseholdImprovements |  | Net BookValue Owned
|--------------------------- | ---------------- |  | --------------- | - | ------------------------- |  | -------------------
|Heritage Bank:              |                  |  |                 |   |                           |  |                    
|Great Falls (22,800 sq.ft.) |                  |  |                 | 1 |                           |  | 3                  
|Billings (4,900 sq. ft.)    |                  |  |                 | 1 |                           |  | 1                  
|Bozeman (4,000 sq. ft.)     |                  |  |                 |  |                           |  | 1                  
|Missoula (3,600 sq. ft.)    |                  |  |                 |  |                           |  | 1                  
|Havre (2,400 sq. ft.)       |                  |  |                 |  |                           |  | 1                  
|Libby (1,250 sq. ft.)       |                  |  |                 |  |                           |  | 1                  
|Chester (1,800 sq. ft.)     |                  |  |                 |  |                           |  | 1                  
|Shelby (2,800 sq. ft.)      |                  |  |                 |  |                           |  | 1                  
|Fort Benton (5,000 sq. ft.) |                  |  |                 |  |                           |  | 1                  
|Glendive (4,000 sq. ft.)    |                  |  |                 |  |                           |  | 1                  
|Geraldine (4,350 sq. ft.)   |                  |  |                 |  |                           |  | 1                  
|Kalispell (2,500 sq. ft.)   |                  |  |                 | 1 |                           |  |                   
|Hamilton (1,200 sq. ft.)    |                  |  |                 | 1 |                           |  |                   
|                            |                  |  |                 |   |                           |  |                    
|Total Montana locations     |                  |  |                 | 4 |                           |  | 13                 
|                            |                  |  |                 |   |                           |  |                    
|Heritage Northwest Inc:     |                  | 
|Bellingham (1,025 sq.ft.)   |                  |  |                 | 1 |                           |  |                   

The Great Falls lease expires in June 2005, and will not be renewed. Heritage
Bank has purchased property to replace the Great Falls leased facilities, through its subsidiary HPM, Inc. See Part I, Item 1,
Business  Other Activities. Heritage Bank is currently attempting to sublease the vacated space in Bellingham.

# Item 3.   LEGAL PROCEEDINGS

Although United was not
involved in any material pending litigation as of February 28, 2005, 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, 2004.

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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 25, 2005 was $24.07.

# Shareholder Data

As of February 17, 2005,
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 and the June 2003 50% stock dividend.

|               | 2004 |  | 2003
|-------------- | ---- |  | ----
|
|
|First Quarter  |      |  | $   
|Second Quarter |      |  |     
|Third Quarter  |      |  |     
|Fourth quarter |      |  |     

# Dividend Payment History on United Common Stock

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

|               | 2004 |  | 2003
|-------------- | ---- |  | ----
|First Quarter  |      |  | $   
|Second Quarter |      |  |     
|Third Quarter  |      |  |     
|Fourth quarter |      |  |     
|               |      |  |     
|               |      |  | $   
|               |      |  |     

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.

19

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# Item 6.   SELECTED FINANCIAL DATA

# Five Year Summary of Operations and Selected Financial Data

|(Dollars in thousands, except per share data)    | As Of And For The Years Ended December 31,
|------------------------------------------------ | ------------------------------------------
|
|Operating Data:                                  |                                           
|Interest income                                  |                                           
|Interest expense                                 |                                           
|                                                 |                                           
|Net interest income                              |                                           
|Provision for loan losses                        |                                           
|                                                 |                                           
|Net interest income after provision              |                                           
|for loan losses                                  |                                           
|Non-interest income                              |                                           
|Non-interest expense                             |                                           
|                                                 |                                           
|Income from continuing operations                |                                           
|before income taxes                              |                                           
|Provision for income taxes                       |                                           
|                                                 |                                           
|Income from continuing operations                |                                           
|Income from discontinued operations              |                                           
|                                                 |                                           
|Net income                                       |                                           
|                                                 |                                           
|Per Share Data(1):                               |                                           
|Basic earnings per share                         |                                           
|Diluted earnings per share                       |                                           
|Book value per share                             |                                           
|Dividends per common share                       |                                           
|Shares used to calculate per share               |                                           
|data (Book value)                                |                                           
|Shares used to calculate per share               |                                           
|data (Earnings  basic)                          |                                           
|Shares used to calculate per share               |                                           
|data (Earnings  diluted)                        |                                           
|Financial Condition Data(2):                     |                                           
|Assets from continuing operations                |                                           
|Assets from discontinued operations              |                                           
|Net loans and loans held for sale                |                                           
|Investment securities                            |                                           
|Deposits                                         |                                           
|FHLB advances                                    |                                           
|Other borrowings and securities sold             |                                           
|under agreements to repurchase                   |                                           
|Stockholders equity                             |                                           
|Selected Financial Ratios and Other Data:        |                                           
|Return on average assets                         |                                           
|Return on average stockholders equity           |                                           
|Net interest margin                              |                                           
|Efficiency ratio (3)                             |                                           
|Net charge-offs to average loans                 |                                           
|Nonperforming loans to total loans               |                                           
|Allowance for loan losses to total loans         |                                           
|Nonperforming loans to allowance for loan losses |                                           
|Average equity to average assets                 |                                           
|Dividend payout ratio                            |                                           

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

20

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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.

21

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# Selected United Financial Data

The following
results of operations for 2004, 2003 and 2002 is derived from the audited consolidated financial statements.

|(In thousands, except per share data) | December 31, |  | December 31, |        | December 31,
|------------------------------------- | ------------ |  | ------------ | ------ | ------------
|
|Interest income                       |              |  | $            | 18,165 |             
|Interest expense                      |              |  |              | 5,153  |             
|                                      |              |  |              |        |             
|Net interest income                   |              |  |              | 13,012 |             
|Provision for loan losses             |              |  |              | 70     |             
|                                      |              |  |              |        |             
|Net interest income after             |              | 
|provision for loan losses             |              |  |              | 12,942 |             
|Non-interest income                   |              |  |              | 4,427  |             
|Non-interest expense                  |              |  |              | 11,089 |             
|                                      |              |  |              |        |             
|Income from continuing operations     |              | 
|before income taxes                   |              |  |              | 6,280  |             
|Provision for income taxes            |              |  |              | 2,362  |             
|                                      |              |  |              |        |             
|Income from continuing operations     |              |  |              | 3,918  |             
|Income from discontinued operations   |              |  |              |       |             
|                                      |              |  |              |        |             
|Net income                            |              |  | $            | 3,918  |             
|                                      |              |  |              |        |             
|Basic earnings per share              |              | 
|Continuing operations                 |              |  | $            | 1.61   |             
|Discontinued operations               |              |  |              |       |             
|                                      |              |  |              |        |             
|Net income                            |              |  | $            | 1.61   |             
|                                      |              |  |              |        |             
|Weighted average shares               |              | 
|outstanding  basic                   |              |  |              | 2,435  |             
|                                      |              |  |              |        |             
|Diluted earnings per share            |              | 
|Continuing operations                 |              |  | $            | 1.56   |             
|Discontinued operations               |              |  |              |       |             
|                                      |              |  |              |        |             
|Net income                            |              |  | $            | 1.56   |             
|                                      |              |  |              |        |             
|Weighted average shares               |              | 
|outstanding  diluted                 |              |  |              | 2,514  |             
|                                      |              |  |              |        |             

# Results of Operations for the Year Ended December 31, 2004

Uniteds net
income for the year ended December 31, 2004 was $3.9 million, or basic and diluted earnings per share of $1.61 and
$1.56, respectively. This compares to net income of $4.7 million, or basic and diluted earnings per share of $1.93 and
$1.88, respectively, in 2003 and to net income of $3.0 million, or basic and diluted earnings per share of $1.21 and
$1.20, respectively, in 2002.

During 2004,
Uniteds continuing operations contributed $3.9 million in net income or $1.56 per diluted share, compared to $1.53
per diluted share in 2003 and $1.04 per diluted share in 2002.

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. The $.4 million decrease in non-interest expense in 2004
includes a $.3 million decrease in salaries and commissions, a $.1 million increase in occupancy costs and a $.2 million
decrease in marketing and business development costs.

22

---

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.

Uniteds
results of operations for the year ended December 31, 2004 were impacted favorably by consistent new origination
mortgage lending volumes, an improved net interest margin and a gain on sale of investment securities. Interest rates
were relatively stable in 2004, with a gradual 1.15% increase of the federal funds rate by the Federal Reserve Board in
the third and fourth quarters of 2004.

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 current low rate environment, Heritage Bank has 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.

The mortgage
re-finance market softened in 2004, as compared to 2003, however, the new origination market remained strong. Mortgage
loans originated in 2004 were $142.4 million or $169.6 million less than 2003 levels. The related gain on sale of
residential loans on the secondary market at Heritage Bank was $2.8 million in 2004, a 44% decrease from 2003, which was
a record year of $5.0 million.

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.

Critical
Accounting Policies.   United has identified its most critical accounting policy to be that related
to the allowance for loan losses. 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 has decided to apply 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:

23

---

|(Dollars in thousands, except for share amounts) | 2004 |  | 2003 |       | 2002
|------------------------------------------------ | ---- |  | ---- | ----- | ----
|
|Net income                                       |      |  | $    | 3,917 |     
|                                                 |      |  |      |       |     
|Basic earnings per share:                        |      | 
|Continuing operations                            |      |  | $    | 1.61  |     
|Discontinued operations                          |      |  |      |      |     
|                                                 |      |  |      |       |     
|                                                 |      |  | $    | 1.61  |     
|                                                 |      |  |      |       |     
|Diluted earnings per share:                      |      | 
|Continuing Operations                            |      |  | $    | 1.56  |     
|Discontinued Operations                          |      |  |      |      |     
|                                                 |      |  |      |       |     
|                                                 |      |  | $    | 1.56  |     
|                                                 |      |  |      |       |     

In December 2004,
FASB issued SFAS No 123 (R) (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.

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 for its interim period ended September 30, 2005. 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, 2004, management estimates the total stock-based employee
compensation expense that United will report for the quarter ended September 30, 2005 will be approximately $22,000.

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. While fair values are determined per
market quotes from independent brokers and not subject to management estimation, the carrying value of the securities is
subject to market variations. At December 31, 2004 and 2003, the unrealized gain on securities available-for-sale to
mark them to market was $.1 million and $.5 million, respectively. (See Part IV, Item 15- Notes to Consolidated
Financial Statements- Securities Available-For-Sale).

24

---

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 $.35 per diluted share, during 2003, and $400,061, or $.16 per diluted share,
during 2002.

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:

|(Dollars in thousands)        | Year Ended December 31,2004 vs. 2003 |  | Year Ended December 31,2003 vs. 2002
|----------------------------- | ------------------------------------ |  | ------------------------------------
|
|
|Interest-earning assets:      |                                      |  |                                     
|Loans                         |                                      |  | $                                   
|Investment and mortgage       |                                      | 
|backed securities             |                                      |  |                                     
|Other interest-earning        |                                      | 
|assets                        |                                      |  |                                     
|                              |                                      |  |                                     
|Total interest-earning        |                                      | 
|assets                        |                                      |  | $                                   
|Interest-bearing liabilities: |                                      | 
|Interest-bearing demand       |                                      |  |                                     
|Savings deposits              |                                      |  |                                     
|Time deposits                 |                                      |  |                                     
|Borrowings                    |                                      |  |                                     
|                              |                                      |  |                                     
|Total interest-bearing        |                                      | 
|liabilities                   |                                      |  | $                                   
|                              |                                      |  |                                     
|Net interest income           |                                      |  | $                                   
|                              |                                      |  |                                     

25

---

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, 2004
|---------------------------------- | ----------------------------
|
|Interest-earning assets:           |                             
|Loans (1)                          |                             
|Investment and mortgage-backed     |                             
|securities                         |                             
|Other interest-earning assets      |                             
|                                   |                             
|Total interest-earning assets      |                             
|Non-interest-earning assets        |                             
|                                   |                             
|Total assets                       |                             
|                                   |                             
|Interest-bearing liabilities:      |                             
|Interest-bearing demand            |                             
|Savings deposits                   |                             
|Time deposits                      |                             
|Borrowings                         |                             
|                                   |                             
|Total interest-bearing liabilities |                             
|                                   |                             
|                                  
|Stockholders equity               |                             
|                                   |                             
|                                  
|                                   |                             
|Net interest income                |                             
|                                   |                             
|Net interest spread                |                             
|Net interest margin(2)             |                             

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

26

---

|Average Balance Sheet (Dollars in thousands)
|--------------------------------------------

|                                   | Year Ended December 31, 2003
|---------------------------------- | ----------------------------
|
|Interest earning assets:           |                             
|Loans (1)                          |                             
|Investment and mortgage-backed     |                             
|securities                         |                             
|Other interest-earning assets      |                             
|                                   |                             
|Total interest-earning assets      |                             
|Non-interest-earning assets        |                             
|                                   |                             
|Total assets                       |                             
|                                   |                             
|Interest-bearing liabilities:      |                             
|Interest-bearing demand            |                             
|Savings deposits                   |                             
|Time deposits                      |                             
|Borrowings                         |                             
|                                   |                             
|Total interest-bearing liabilities |                             
|                                   |                             
|                                  
|Stockholders equity               |                             
|                                   |                             
|                                   |                             
|Net interest income                |                             
|                                   |                             
|Net interest spread                |                             
|Net interest margin(2)             |                             

|Average Balance Sheet (Dollars in thousands)
|--------------------------------------------

|                                   | Year Ended December 31, 2002
|---------------------------------- | ----------------------------
|
|Interest-earning assets:           |                             
|Loans (1)                          |                             
|Investment and mortgage-backed     |                             
|securities                         |                             
|Other interest-earning assets      |                             
|                                   |                             
|Total interest-earning assets      |                             
|Non-interest-earning assets        |                             
|                                   |                             
|Total assets                       |                             
|                                   |                             
|Interest-bearing liabilities:      |                             
|Interest-bearing demand            |                             
|Savings deposits                   |                             
|Time deposits                      |                             
|Borrowings                         |                             
|                                   |                             
|Total interest-bearing liabilities |                             
|                                   |                             
|                                  
|Stockholders equity               |                             
|                                   |                             
|                                   |                             
|Net interest income                |                             
|                                   |                             
|Net interest spread                |                             
|Net interest margin(2)             |                             

|(1) |  | Includes nonaccrual loans.
|--- |  | --------------------------

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

27

---

Interest-Earning
Assets.   The yield earned on loans outstanding (including residential mortgage loans held-for-sale)
during 2004 was 6.41% compared to 6.86% in 2003 and 7.52% in 2002. Increased volume of loans more than offset decreased
rates on loans from 2003 to 2004, causing the total interest income on loans to increase to $16.4 million for 2004
compared to $15.9 million for 2003 and $16.5 million for 2002. The yield earned on taxable securities decreased to 3.95%
in 2004 from 4.03% in 2003 as longer term securities earning a higher rate matured and were replaced at current, lower
rates. The average other interest-earning assets balances decreased $ 9.7 million during 2004 to $11.9 million compared
to 2003, and the yield earned on these assets declined .24% to 1.13%. The total yield earned on all interest-earning
assets declined to 5.89% in 2004 from 6.06% and 6.75% for the years 2003 and 2002, respectively. As discussed above, the
decline is due to continued decreases in interest rates, refinancing of higher rate loans, and the maturity of higher
rate securities.

Interest-Bearing
Liabilities.   The rate paid for each category of interest-bearing liabilities continued to decrease
during 2004 although not as significantly as during 2003 and 2002. The yield on interest-bearing demand deposit accounts
decreased to .60% in 2004 compared to .80% and 1.45% in 2003 and 2002, respectively. The yield on savings deposits
decreased to .75% in 2004 compared to 1.09% and 1.94% in 2003 and 2002, respectively. Average rates on certificates of
deposit also declined to 2.59% during 2004 from 3.13% in 2003 and 4.17% in 2002. As certificates of deposit matured
during 2004, they were either not renewed or replaced at lower rates. Borrowings had a decline in rate, but increases in
volume and interest expense in 2004 compared to 2003. For all interest-bearing liabilities, the average rate paid
decreased to 2.03% in 2004 from 2.48% in 2003 and 3.72% in 2002.

Net interest income
for the year ended December 31, 2004 was $13.0 million, an increase of $1.1 million from $11.9 million in 2003, which
was $1.6 million higher than 2002. The net interest margins for the periods ended December 31, 2004, 2003 and 2002 were
4.22%, 4.03% and 3.57%, respectively.

The following
factors affected Uniteds interest yields, margins, and spread when comparing the year ending December 31, 2004, to
the same period for 2003. During 2003, the national federal funds interest rate and Uniteds prime rate,
experienced one decline of .25% in June 2003. In 2004 by comparison, these rates increased by .25% in the first six
months of the year and increased another .90% in the second six months of 2004. 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 increased in 2004 compared to 2003, while yields and costs declined under the same comparison.

Loan volumes
increased in 2004 with a decrease in volumes of investment securities and other assets, which was also consistent with
the results in 2003. Borrowing volumes were up in 2004 and down in 2003, with rates decreasing in both years. In 2004
and 2003, volumes of time deposits were down with respective increases in volumes of interest-bearing demand and savings
deposits.

Provision for
Loan Loss.   United provided $.1 million for loan losses in 2004 compared to $.8 million in 2003 and
$1.1 million in 2002. The significant decrease in the loan loss provisions in 2004 reflected managements estimate
of improvement in loan quality.

The provision for
loan losses is determined by management as the amount to be added to the allowance for loan losses after net charge-offs
have been deducted to bring the allowance to a level which is considered adequate to absorb losses inherent in the loan
portfolio in accordance with 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.

28

---

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 decreased by $1.8 million, or 29.0%, in 2004 to $4.4 million compared to $6.2 million in 2003 and
$4.6 million in 2002, principally due to the level of fees from the real estate production activity at Heritage Bank in
2004, 2003 and 2002. Uniteds loan demand continued to be strong in the residential mortgage market, and
particularly the purchase origination market, during 2004, as interest rates continued to be at levels which were
attractive to customers in the residential mortgage market. As explained above, interest income and interest margins
improved in 2004 as compared to 2003 and 2002. Based on the number of loans originated in 2004 and 2003, purchase
originations were down only 11.0% in 2004 over 2003. United has seen a significant decline, however, in its residential
mortgage refinancing market. Again based on number of loans originated in 2004 and 2003, refinances were down 69.1% in
2004 compared to 2003. Gain on sale of loans decreased $2.2 million in 2004, to $2.8 million from a record $5.0 million
in 2003. This decrease was a direct result of the decline in the real estate mortgage refinancing market mentioned
above. The following table illustrates the comparison of number of loans originated in 2004 and 2003.

|                       | Number of Loans Originated
|---------------------- | --------------------------
|                       |                           
|
|                       |                           
|Purchase originations  |                           
|Refinance originations |                           
|                       |                           
|Total                  |                           
|                       |                           

Non-Interest
Expense.   Non-interest expense decreased $ .4 million, or 3.5%, to $11.1 million from 2003 to 2004,
and increased $1.8 million, or 18.6%, to $11.5 million from 2002 to 2003. Salary and employee benefit expense decreased
$.3 million to $6.6 million from 2003 to 2004 and increased $1.5 million to $6.9 million in 2003 over 2002 in part due
to commissions paid to loan originators in Heritage Banks mortgage banking department. Commissions decreased $.7
million in 2004 to $1.2 million, compared to $1.9 million in 2003. The increase in 2003 was $.6 million, up from $1.3
million in 2002. Occupancy and equipment expenses increased $.1 million in each of 2004 and 2003, respectively.

29

---

# Financial Condition

The following
balance sheet information as of December 31, 2004 and 2003 is derived from the audited consolidated financial
statements.

|                                       | December 31, 2004 |  | December 31, 2003
|-------------------------------------- | ----------------- |  | -----------------
|                                       |                   |  |                  
|Assets                                 |                   |  |                  
|Cash and cash equivalents              |                   |  | $                
|Securities available-for-sale          |                   |  |                  
|Loans held for sale                    |                   |  |                  
|Loans receivable, net                  |                   |  |                  
|Other assets                           |                   |  |                  
|                                       |                   |  |                  
|Total assets                           |                   |  | $                
|                                       |                   |  |                  
|Liabilities and Stockholders Equity   |                   | 
|Non-interest-bearing deposits          |                   |  | $                
|Interest-bearing deposits              |                   |  |                  
|                                       |                   |  |                  
|Total deposits                         |                   |  |                  
|Federal Home Loan Bank advances        |                   |  |                  
|Subordinated debt                      |                   |  |                  
|Accrued expenses and other liabilities |                   |  |                  
|                                       |                   |  |                  
|Total liabilities                      |                   |  |                  
|                                       |                   |  |                  
|Stockholders Equity                   |                   |  |                  
|                                       |                   |  |                  
|Total liabilities and                  |                   | 
|stockholders equity                   |                   |  | $                
|                                       |                   |  |                  

Loans
Receivable and Loans Held for Sale.   Net loans receivable increased $37.8 million during 2004 to
$265.0 million from $227.2 million at December 31, 2003. Construction loans increased $11.9 million to $29.1 million in
2004, agricultural and commercial real estate loans increased $9.9 million and $2.8 million to $40.7 million and $51.0
million, respectively, in 2004. The decrease in 5 or more residential loans was $ .1 million. Total loans secured by
real estate increased $25.2 million to $151.3 million in 2004. Commercial non-mortgage loans increased $8.4 million to
$62.4 million in 2004 and agricultural loans increased $ .6 million to $15.1 million in 2004. Consumer and other loans
increased $3.6 million for an increase in total loans receivable of $37.8 million.

Approximately 71%
of the increase in net loans receivable was generated in Heritage Banks Billings, Bozeman and Kalispell branches.
Billings is a new market for Heritage Bank in 2004 with Bozeman and Kalispell continuing to be robust markets. Another
approximately 9% of the increase came from Heritage Banks Great Falls main branch, which was 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 branch have also increased as a function of low interest rates and a stable economy. The
remaining increase of approximately 20% 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 $25.7 million and $32.8
million of participation and purchased loans as of December 31, 2004 and 2003, respectively. Nearly all of these loans
are secured by properties outside the Montana market area.

30

---

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, 2004 and 2003, the carrying value of originated servicing rights was approximately $.5 million and $.3
million, respectively. Heritage Banks servicing portfolio as of December 31, 2004 was $69.3 million and as of
December 31, 2003 was $49.9 million.

During 2004, loans
held for sale by Heritage Bank increased $1.9 million to $5.8 million at December 31, 2004 from $3.9 million at December
31, 2003. Approximately $142.4 and $312.0 million of loans were originated for sale and $143.3 and $325.9 million of
loans were sold to the secondary market during 2004 and 2003, 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, 2004 |  | Year Ended
December
31, 2003 |       | Year Ended
December
31, 2002 |   | Year Ended
December
31, 2001 |   | Year Ended
December
31, 2000
|---------------------------- | ---------------------------- |  | ---------------------------- | ----- | ---------------------------- | - | ---------------------------- | - | ----------------------------
|                             |                              |  |                              |       |                              |   |                              |   |                             
|Balance beginning of year    |                              |  | $                            | 3,755 |                              | $ | 3,113                        |   | $                           
|Provision for loan losses    |                              |  |                              | 70    |                              |   | 778                          |   |                             
|Charge-offs:                 |                              | 
|Residential                  |                              |  |                              | (45   | )                            |   |                             |   |                             
|Commercial                   |                              |  |                              | (90   | )                            |   | (76                          | ) |                             
|Consumer                     |                              |  |                              | (50   | )                            |   | (72                          | ) |                             
|                             |                              |  |                              |       |                              |   |                              |   |                             
|Total charge-offs            |                              |  |                              | (185  | )                            |   | (148                         | ) |                             
|Recoveries                   |                              |  |                              | 68    |                              |   | 12                           |   |                             
|                             |                              |  |                              |       |                              |   |                              |   |                             
|Net charge-offs              |                              |  |                              | (117  | )                            |   | (136                         | ) |                             
|                             |                              |  |                              |       |                              |   |                              |   |                             
|Balance end of year end      |                              |  | $                            | 3,708 |                              | $ | 3,755                        |   | $                           
|                             |                              |  |                              |       |                              |   |                              |   |                             
|Allowance for loan losses to |                              | 
|total loans at year end      |                              |  |                              | 1.38  | %                            |   | 1.63                         | % |                             
|                             |                              |  |                              |       |                              |   |                              |   |                             
|Net charge-offs to average   |                              | 
|loans                        |                              |  |                              | .05   | %                            |   | .06                          | % |                             
|                             |                              |  |                              |       |                              |   |                              |   |                             

31

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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, 2004 |  | December 31, 2003 |       | December 31, 2002
|--------------------------- | ----------------- |  | ----------------- | ----- | -----------------
|                            |                   |  |                   |       |                  
|
|                            |                   |  |                   |       |                  
|Real estate loans:          |                   |  |                   |       |                  
|1  4 residential           |                   |  | $                 | 278   |                  
|5 or more residential       |                   |  |                   | 28    |                  
|Construction                |                   |  |                   | 272   |                  
|Commercial and agricultural |                   |  |                   | 1,160 |                  
|Non-real estate loans:      |                   | 
|Commercial and agricultural |                   |  |                   | 1,508 |                  
|Consumer                    |                   |  |                   | 347   |                  
|Unallocated                 |                   |  |                   | 115   |                  
|                            |                   |  |                   |       |                  
|Total                       |                   |  | $                 | 3,708 |                  
|                            |                   |  |                   |       |                  

|(Dollars in thousands)      | December 31, 2001 |  | December 31, 2000
|--------------------------- | ----------------- |  | -----------------
|                            |                   |  |                  
|
|                            |                   |  |                  
|Real estate loans:          |                   |  |                  
|1  4 residential           |                   |  | $                
|5 or more residential       |                   |  |                  
|Construction                |                   |  |                  
|Commercial and agricultural |                   |  |                  
|Non-real estate loans:      |                   | 
|Commercial and agricultural |                   |  |                  
|Consumer                    |                   |  |                  
|                            |                   |  |                  
|Total                       |                   |  | $                
|                            |                   |  |                  

32

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Real Estate and
Other Personal Property Owned. Total real estate and other personal property owned (REO) of United was
$.3 million, $.7 million and $.6 million at December 31, 2004, 2003 and 2002, respectively. The schedule below
details properties both held for sale and investment by United as of the dates indicated.

|(Dollars in thousands)        | December 31,
2004 |  | December 31,
2003 |     | December 31,
2002
|----------------------------- | ----------------- |  | ----------------- | --- | -----------------
|                              |                   |  |                   |     |                  
|REO held for sale             |                   |  | $                 | 195 |                  
|Allowance for possible losses |                   |  |                   |    |                  
|                              |                   |  |                   |     |                  
|Total REO held for sale       |                   |  | $                 | 195 |                  
|                              |                   |  |                   |     |                  
|                             
|REO held for investment       |                   |  | $                 |    |                  
|Accumulated depreciation      |                   |  |                   |    |                  
|                              |                   |  |                   |     |                  
|REO held for investment       |                   |  |                   |    |                  
|                              |                   |  |                   |     |                  
|Total REO                     |                   |  | $                 | 195 |                  
|                              |                   |  |                   |     |                  
|As a percent of total assets  |                   |  |                   | .05 | %                
|                              |                   |  |                   |     |                  
|Other personal property       |                   | 
|held for sale                 |                   |  | $                 | 98  |                  
|                              |                   |  |                   |     |                  
|As a percent of total assets  |                   |  |                   | .03 | %                
|                              |                   |  |                   |     |                  

Securities
Available-for-Sale.   Uniteds securities available-for-sale decreased $4.4 million to $38.9
million at December 31, 2004 compared to $43.3 million at December 31, 2003. In 2004, Uniteds purchases of
securities available-for-sale were approximately $18.5 million while proceeds from sales, maturities and paydowns
totaled approximately $22.5 million. United also recorded a decrease in unrealized gain in market values of
approximately $.4 million in 2004, amortization of purchase premium of $.2 million and a realized gain on sales of $.2
million, before taxes.

Cash and Cash
Equivalents.   Cash and cash equivalents from continuing operations increased $5.7 million during
2004 to $19.2 million at December 31, 2004 from $13.5 million at December 31, 2003. Net cash from operating activities,
or net income adjusted for non-cash items, was $2.0 million in 2004. Net cash from investing activities such as the net
decrease in loans receivable and the net decrease in securities available-for-sale was $(35.1) million in 2004. Net cash
from financing activities such as increases in deposits, net changes in borrowings and dividends paid to stockholders
was $38.8 million, for a net increase in cash and cash equivalents for 2004 of $5.7 million.

Other
Assets.   Premises and equipment increased $1.0 million during 2004 due in part to the $.5 million
cost to complete the construction of a new branch building in Billings, Montana for a new location opened in 2004.
Another $.6 million was used to acquire land and a building to relocate the current drive up facility in Great Falls,
Montana. Purchases of other premises and equipment totaling $.5 million consisted of equipment and computer upgrades at
the main facilities and various branch locations. The purchases were offset by $.6 million in depreciation expense on
existing premises and equipment.

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.

33

---

The following
schedule details the amounts of Uniteds nonperforming assets, consisting of nonaccrual loans, accruing loans past
due over 90 days and restructured loans.

|(Dollars in thousands)   | December 31,
2004 |  | December 31,
2003 |      | December 31,
2002 |   | December 31,
2001 |  | December 31,
2000
|------------------------ | ----------------- |  | ----------------- | ---- | ----------------- | - | ----------------- |  | -----------------
|                         |                   |  |                   |      |                   |   |                   |  |                  
|Principal Balances:      |                   |  |                   |      |                   |   |                   |  |                  
|Accruing loans past due  |                   | 
|Over 90 days             |                   |  | $                 | 75   |                   | $ | 324               |  | $                
|Non-accrual loans        |                   |  |                   | 327  |                   |   | 498               |  |                  
|                         |                   |  |                   |      |                   |   |                   |  |                  
|Total                    |                   |  | $                 | 402  |                   | $ | 822               |  | $                
|                         |                   |  |                   |      |                   |   |                   |  |                  
|Interest:                |                   | 
|Due on non-accrual loans |                   |  | $                 | 40   |                   | $ | 128               |  | $                
|Included in income       |                   |  |                   | 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, 2004, United had $.3 million assets reported as doubtful and no assets classified as loss. At December 31,
2003, United had no reported doubtful assets and no assets classified as loss. At December 31, 2004, 2003 and 2002,
United had $.1 million, $.6 million and $.6 million, respectively, of reported substandard assets. As a percent of total
assets, substandard assets were approximately .01%, .20% and .16% at December 31, 2004, 2003 and 2002, respectively.

Deposits and
Borrowings.   United experienced a net increase in deposits of $30.8 million or 13.5% in 2004 as
deposits grew to $258.3 million at Heritage Bank in 2004 from $227.5 million in 2003. 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
increased $13.8 million in 2004 to $44.8 million from $31.0 million in 2003. Heritage Bank was able to repay $5.7
million in FHLB long term note advances in 2004 and received proceeds of $13.0 million on new FHLB long term note
advances, for a net increase of $7.3 million. At December 31, 2004, 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 3.41% and
4.05% at December 31, 2004 and 2003, 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 2004,
Heritage Bank had a Cash Management Advance (CMA) credit facility with a maximum allowable advance of $75.3 million,
subject to available collateral limits. The credit facility expires on February 24, 2006. During 2004, there were
advances of $57.3 million and repayments of $50.8 million made on the CMA credit facility. The outstanding balance due
as of December 31, 2004 was $6.5 million.

United, at the
parent company level, has a line of credit of $1.0 million with a correspondent bank at an interest rate of 1.50% and
1.75% over the federal funds rate, which totaled 3.69% and 2.69% at December 31, 2004 and 2003, respectively. This line
is secured by Uniteds Heritage Bank stock and expires November 1, 2005. Interest is payable quarterly. Principal
is payable at maturity. There was no principal balance outstanding at December 31, 2004 and 2003, respectively.

34

---

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.

35

---

The following table
shows the contractual maturities of Uniteds loans as of December 31, 2004. 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, 2004
|----------------------------- | -----------------
|                              |                  
|
|                              |                  
|Loans secured by real estate: |                  
|Adjustable rate (all          |                  
|property types)               |                  
|Loans:                        |                  
|1-4 family residential        |                  
|Multi-family and commercial   |                  
|Construction and undeveloped  |                  
|land                          |                  
|                              |                  
|Loans secured by real         |                  
|estate-fixed rate             |                  
|Commercial non-real           |                  
|estate(1)                     |                  
|Agricultural non-real estate  |                  
|Consumer(2)                   |                  
|                              |                  
|Gross loans                   |                  
|                              |                  

|                             | Gross loans due after
                                                                     December 31, 2005
|---------------------------- | ------------------------------------------------------------------------------------------------------------
|                             |                                                                                                             
|Fixed interest rates         |                                                                                                             
|Floating or adjustable rates |                                                                                                             
|or balloon payments          |                                                                                                             
|                             |                                                                                                             
|                             |                                                                                                             
|                             |                                                                                                             

|(1) |  | Includes
loans on commercial savings accounts
|--- |  | ---------------------------------------------

|(2) |  | Includes
consumer loans secured by real estate
|--- |  | ----------------------------------------------

36

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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, 2004
|---------------------------- | -----------------
|                             |                  
|
|                             |                  
|U.S. government and agencies |                  
|Mortgage-backed securities   |                  
|Municipal bonds              |                  
|                             |                  
|Total securities             |                  
|                             |                  
|Weighted average yield       |                  

|                             | December 31, 2003
|---------------------------- | -----------------
|                             |                  
|
|                             |                  
|U.S. government and agencies |                  
|Mortgage-backed securities   |                  
|Municipal bonds              |                  
|Other                        |                  
|                             |                  
|Total securities             |                  
|                             |                  
|Weighted average yield       |                  

|                             | December 31, 2002
|---------------------------- | -----------------
|                             |                  
|
|                             |                  
|U.S. government and agencies |                  
|Mortgage-backed securities   |                  
|Municipal bonds              |                  
|Other                        |                  
|                             |                  
|Total securities             |                  
|                             |                  
|Weighted average yield       |                  

Stockholders
Equity.   Stockholders equity at December 31, 2004 was $30.6 million, or 8.82% of total assets, a
decrease of $1.8 million from $32.4 million, or 10.63% of total assets, at December 31, 2003. At December 31, 2004, book value was
$12.57 per share. The decrease in stockholders equity is primarily due to the special $1 per share dividend paid in June
2004 of $2.4 million. Increases included net income of $3.9 million for 2004 and the issuance of employee stock options of $.2
million. Other decreases included the payment of $2.7 million in cash dividends on Uniteds common stock, treasury stock
purchases of $.6 million, and a decrease in unrealized gain on securities available-for-sale of $.3 million.

37

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# 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 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. 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.

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, 2004, 2003 and 2002.

|(Dollars in thousands)                              | For the Year Ended December 31,
|--------------------------------------------------- | -------------------------------
|
|                                                    |                                
|Net income from continuing operations               |                                
|Adjustments to reconcile net income from continuing |                                
|operations to net cash from continuing operations   |                                
|                                                    |                                
|Net cash from continuing operations                 |                                
|Net cash from discontinued operations               |                                
|                                                    |                                
|Net cash from operating activities                  |                                
|Net cash from investing activities                  |                                
|Net cash from financing activities                  |                                
|                                                    |                                
|Net increase in cash and cash equivalents           |                                
|Change in cash from discontinued operations         |                                
|Cash and cash equivalents at beginning of year      |                                
|                                                    |                                
|Cash and cash equivalents at end of year            |                                
|                                                    |                                

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 2004 and 2003, loans receivable increased $38.3 and
$15.1, respectively, which was a use of cash. In 2002, loans receivable decreased $7.7 million, which was a source of cash.
Purchases of securities available-for-sale totaled $18.5 million, $38.6 million and $60.0 million in 2004, 2003 and 2002,
respectively. During 2003 a net $8.3 million of cash was realized from the sale of Valley.

During 2004, 2003 and 2002,
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 $22.5 million, $40.7 million and $73.3 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 2004, 2003, and 2002 the net increase (decrease) in cash flows from financing activities was $38.8
million, $(15.3) million and $(7.6) 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.

38

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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, 2004 Heritage Bank had outstanding borrowings of $52.3
million which included $44.8 million of FHLB advances and $7.5 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. (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, 2004 United met all capital adequacy requirements to which it is subject.

|                   |  | Actual |   | Minimum for capital
adequacy purposes
|------------------ |  | ------ | - | -------------------------------------
|                   |  |        |   |                                      
|
|                   |  |        |   |                                      
|December 31, 2004: |  |        |   |                                      
|Total capital      |  |        | $ | 35,694                               
|Tier I capital     |  |        |   | 32,075                               
|Tier I leverage    |  |        |   | 32,075                               

# 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.

39

---

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

|(Dollars in thousands)                              | 2004 |  | 2003
|--------------------------------------------------- | ---- |  | ----
|                                                    |      |  |     
|Unused lines of credit                              |      |  | $   
|Commitments outstanding- variable rate              |      |  |     
|Unfunded commitments under credit card arrangements |      |  |     
|Letters of credit                                   |      |  |     

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, 2004,
Heritage Bank had outstanding commitments to originate loans of $15.6 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, 2004.

|(Dollars in thousands)   | December 31, 2004
|------------------------ | -----------------
|
|                         |                  
|FHLB advances            |                  
|Securities sold under    |                  
|agreements to repurchase |                  
|Operating leases         |                  
|Subordinated debentures  |                  
|                         |                  
|Total                    |                  
|                         |                  

# 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. 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.

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.

40

---

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 100 basis point (bp) rise or decline in interest rates.

The following summarizes the
sensitivity analysis for Heritage Bank as of December 31, 2004, the most recent information available. Management believes there
has been no material change in interest rate risk since December 31, 2004. For additional information, see Managements
Discussion and Analysis of Financial Condition and Results of Operations included herein in Item 7.

|Heritage Bank
Estimated increase (decrease)
in net interest income: |  | +200 bp |   | -200 bp 
|------------------------------------------------------------------- |  | ------- | - | --------
|                                                                    |  |         |   |         
|0-90 days                                                           |  |         | $ | (21,641 
|91-360 days                                                         |  |         |   | (249,903
|2 years                                                             |  |         |   | (446,588
|3 years                                                             |  |         |   | (552,119

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. The Chief
Executive Officer and Chief Financial Officer have concluded, based on that evaluation as of the end of the period covered by this
report, that Uniteds disclosure controls and procedures (as defined in section 13a-15(e) of the Securities Exchange Act of
1934, as amended) are adequately designed to ensure that information required to be disclosed by United in the reports that it
files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within
periods specified in applicable rules and forms. There were no changes made in Uniteds internal control over financial
reporting (as defined in section 13a-15(f) of the Securities Exchange Act of 1934, as amended) during Uniteds fourth quarter
that have materially affected, or is reasonably likely to materially affect, this internal control.

# ITEM 9B.   OTHER INFORMATION

None

41

---

# 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 2005 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.

42

---

# 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
  December 31, 2004 and 2003 |  | F-3
| | --------------------------------------------------------------------------- |  | ---

| | Consolidated Statements of Income  Years Ended
   December 31, 2004, 2003, and 2002 |  | F-4
| | ------------------------------------------------------------------------------------ |  | ---

| | Consolidated Statements of Stockholders Equity and
Comprehensive Income  Years Ended
  December 31, 2004, 2003, and 2002 |  | F-5
| | -------------------------------------------------------------------------------------------------------------------------- |  | ---

| | Consolidated Statements of Cash Flows  Years Ended
  December 31, 2004, 2003, and 2002 |  | F-6
| | --------------------------------------------------------------------------------------- |  | ---

| | 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 45 of this report.
| | -----------------------------------------------------------------------------

|(b) |  | See Item 15(a)(3) above.
|--- |  | ------------------------

|(c) |  | See Item 15(a)(2) above.
|--- |  | ------------------------

43

---

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/ Kurt R. Weise                                                                                                                                                                                                                                                                                                                                      | 
|                                                                                                                                                                                                                                                                                                                                                          
|Kurt R. Weise
                                                                            Chairman and Chief Executive Officer
                                                                            (Principal Executive Officer
                                                                              and Director)Date:    March 29, 2005 | 
|                                                                                                                                                                                                                                                                                                                                                          

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/ Kurt R. Weise                                                                                                      |  | By: /s/ Paula J. Delaney                    
|-------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------
|                                                                                                                           |  |                                             
|Kurt R. Weise                                                                                                              |  | Paula J. Delaney                            
|Chairman and Chief Executive Officer                                                                                       |  | Chief Financial Officer                     
|(Principal Executive Officer 
                                                                               and Director) |  | (Principal Financial and Accounting Officer)
|Date:    March 29, 2005                                                                                                    |  | Date:    March 29, 2005                     
|                                                                                                                           |  |                                             

|By: /s/ Larry D. Albert |  | By: /s/ Dr. J. William Bloemendaal
|----------------------- |  | ----------------------------------
|                        |  |                                   
|Larry D. Albert         |  | Dr. J. William Bloemendaal        
|Director                |  | Director                          
|Date:    March 29, 2005 |  | Date:    March 29, 2005           
|                        |  |                                   

|By: /s/ Kevin P. Clark  |  | By: /s/ Steve L. Feurt 
|----------------------- |  | -----------------------
|                        |  |                        
|Kevin P. Clark          |  | Steve L. Feurt         
|Director                |  | Director               
|Date:    March 29, 2005 |  | Date:    March 29, 2005
|                        |  |                        

|By: /s/ Jerome H. Hentges |  | By: /s/ William L. Madison
|------------------------- |  | --------------------------
|                          |  |                           
|Jerome H. Hengtes         |  | William L. Madison        
|Director                  |  | Director                  
|Date:    March 29, 2005   |  | Date:    March 29, 2005   
|                          |  |                           

|By: /s/ Kenneth R. Murray |  | 
|------------------------- |  | 
|                          |  | 
|Kenneth R. Murray         |  | 
|Director                  |  | 
|Date:    March 29, 2005   |  | 
|                          |  | 

44

---

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 |  | Revolving Line of Credit Note between Wells Fargo Bank Minnesota
National Association and United Financial Corp. dated October 30, 2002 (incorporated by reference to Exhibit 10.13 of
Uniteds Annual Report on Form 10-K dated March 28, 2003).
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.14 |  | 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).
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.15 |  | 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).
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

45

---

|10.16 |  | Revolving Line of Credit Note between Wells Fargo Bank Minnesota
National Association and United Financial Corp. dated October 21, 2003. (incorporated by reference to Exhibit 10.16 of
Uniteds Annual Report on Form 10-K dated March 29, 2004).
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.17 |  | Revolving Line of Credit Note between Wells Fargo Bank Minnesota
National Association and United Financial Corp. dated October 1, 2004.
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------

|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.

46

---

# UNITED FINANCIAL CORP.
AND SUBSIDIARIES

Consolidated Financial
Statements

December 31, 2004



---

# Report of Independent
Registered Public Accounting Firm

To the Board of DirectorsUnited
Financial Corp. and SubsidiariesGreat Falls, Montana

We have audited the consolidated
statement of financial condition of United Financial Corp. and Subsidiaries as of December
31, 2004, and the related consolidated statements of income, stockholders equity and
comprehensive income, and cash flows for the year 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 audit.

We conducted our audit 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 audit provides 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, 2004 and
the results of their operations and their cash flows for the year then ended in conformity
with U.S. generally accepted accounting principles.

/s/ McGladrey &
Pullen, LLP

Minneapolis, MinnesotaFebruary 25, 2005

F-1

---

# REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

Board of Directors and
StockholdersUnited Financial Corp. and SubsidiariesGreat Falls, Montana

We have audited the accompanying consolidated
statements of financial condition of United Financial Corp. and subsidiaries as of
December 31, 2003, and the related consolidated statements of income,
stockholders equity and comprehensive income, and cash flows for the years ended
December 31, 2003 and 2002. 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 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,
2003, and the results of their operations and their cash flows for the years ended
December 31, 2003 and 2002, in conformity with accounting principles generally accepted in
the United States of America.

Spokane, WashingtonFebruary 25, 2005

|A member of                                                                                                                                                                                                       | Offices in                                                                                                        
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------
|Moores Rowland International                                                                                                                                                                                      | Principal Cities of                                                                                               
|an association of independent 
                                                                      accounting firms throughout 
                                                                      the world | Washington, Oregon 
                                                                                and California

F-2

---

# UNITED FINANCIAL CORP.
AND SUBSIDIARIES

Consolidated Statements
of Financial Condition

|                                              |  | December 31,
|--------------------------------------------- |  | ------------
|                                              |  |             
|
|                                              |  |             
|Cash and cash equivalents                     |  |             
|Securities available-for-sale                 |  |             
|Restricted stock, at cost                     |  |             
|Loans held for sale                           |  |             
|Loans receivable, net                         |  |             
|Accrued interest receivable                   |  |             
|Premises and equipment, net                   |  |             
|Real estate and other personal property owned |  |             
|Income taxes receivable                       |  |             
|Deferred tax asset, net                       |  |             
|Goodwill                                      |  |             
|Other assets                                  |  |             
|                                              |  |             
|                                              |  |             
|                                              |  |             

|Liabilities and Stockholders Equity           |  |  |  
|---------------------------------------------- |  |  | -
|                                               |  |  |  
|Liabilities:                                   |  |  |  
|Non-interest bearing deposits                  |  |  | $
|Interest bearing deposits                      |  |  |  
|Federal Home Loan Bank advances                |  |  |  
|Securities sold under agreements to repurchase |  |  |  
|Income taxes payable                           |  |  |  
|Accrued interest payable                       |  |  |  
|Subordinated debt owed to trust                |  |  |  
|Accrued expenses and other liabilities         |  |  |  
|                                               |  |  |  
|Total liabilities                              |  |  |  
|                                               |  |  |  

|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; 2,436,599 and 2,437,042  shares issued      |  | 
|at December 31, 2004 and 2003, respectively         |  |  |   | 26,649,795  |  |  | 27,025,147  | 
|Paid in capital                                     |  |  |   | 29,341      |  |  |            | 
|Retained earnings                                   |  |  |   | 3,871,256   |  |  | 5,014,656   | 
|Accumulated other comprehensive income,             |  | 
|net of taxes                                        |  |  |   | 77,726      |  |  | 340,886     | 
|                                                    |  |  |   |            
|Total stockholders equity                          |  |  |   | 30,628,118  |  |  | 32,380,689  | 
|                                                    |  |  |   |            
|                                                    |  |  | $ | 347,139,792 |  |  | 304,816,935 | 
|                                                    |  |  |   |            

|See accompanying
notes to consolidated financial statements.
|------------------------------------------------------------

F-3

---

# UNITED FINANCIAL CORP.
AND SUBSIDIARIES

Consolidated Statements
of Income

|                                               | Years ended December 31,
|---------------------------------------------- | ------------------------
|
|                                               |                         
|Interest income:                               |                         
|Loans receivable                               |                         
|Taxable investments                            |                         
|Nontaxable investments                         |                         
|Other interest-earning assets                  |                         
|                                               |                         
|Total interest income                          |                         
|                                               |                         
|Interest expense:                              |                         
|Deposits                                       |                         
|Federal Home Loan Bank advances                |                         
|Securities sold under agreements to repurchase |                         
|Other borrowings                               |                         
|Subordinated debt owed to trust                |                         
|                                               |                         
|Total interest expense                         |                         
|                                               |                         
|Net interest income                            |                         
|Provision for loan losses                      |                         
|                                               |                         
|Net interest income after provision for        |                         
|loan losses                                    |                         
|                                               |                         
|Non-interest income:                           |                         
|Gain on sale of loans                          |                         
|Customer service charges                       |                         
|Loan servicing fees                            |                         
|Gain on sale of securities                     |                         
|Other                                          |                         
|                                               |                         
|Total non-interest income                      |                         
|                                               |                         
|Non-interest expense:                          |                         
|Compensation and benefits                      |                         
|Occupancy and equipment                        |                         
|Data processing fees                           |                         
|Management fees                                |                         
|Marketing and business development             |                         
|Telephone and postage                          |                         
|Legal and accounting                           |                         
|Other                                          |                         
|                                               |                         
|Total non-interest expense                     |                         
|                                               |                         
|Income from continuing operations before       |                         
|income taxes                                   |                         
|                                              
|Income taxes                                   |                         
|                                               |                         
|Income from continuing operations              |                         
|                                              
|Discontinued operations:                       |                         
|                                              
|Income from operations, net of tax             |                         
|                                              
|Gain on disposal, net of tax                   |                         
|                                               |                         
|Income from discontinued operations            |                         
|                                              
|Net income                                     |                         
|                                               |                         
|Basic earnings per share                       |                         
|Continuing operations                          |                         
|Discontinued operations                        |                         
|                                               |                         
|Net income                                     |                         
|                                               |                         
|Diluted earnings per share                     |                         
|Continuing operations                          |                         
|Discontinued operations                        |                         
|                                               |                         
|Net income                                     |                         
|                                               |                         

|See accompanying notes to consolidated financial statements.
|------------------------------------------------------------

F-4

---

# UNITED FINANCIAL CORP.
AND SUBSIDIARIES

Consolidated Statements
of Stockholders Equity and Comprehensive Income

Years ended December
31, 2004, 2003 and 2002

|                                                  | Number of
shares |  | Common
stock |           | Paid in
capital |  | Retained
earnings |   | Accumulated
other
comprehensive
income (loss) |        | Total
stockholders
equity
|------------------------------------------------- | ---------------- |  | ------------ | --------- | --------------- |  | ----------------- | - | --------------------------------------------- | ------ | --------------------------
|                                                  |                  |  |              |           |                 |  |                   |   |                                               |        |                           
|Balances at December 31, 2001                     |                  |  |              | 2,438,831 |                 |  | 23,950,437        |   |                                               |       |                           
|                                                 
|Comprehensive income:                             |                  | 
|Net income                                        |                  |  |              |           |                 |  |                  |   |                                               |       |                           
|Increase in net unrealized gain on securities     |                  | 
|available-for-sale, net of reclassification       |                  | 
|adjustment                                        |                  |  |              |           |                 |  |                  |   |                                               |       |                           
|                                                  |                  |  |              |           |                 |  |                  
|Total comprehensive income                        |                  |  |              |           |                 |  |                   |   |                                               |        |                           
|                                                  |                  |  |              |           |                 |  |                  
|Issuance of 338 shares; employee stock options    |                  |  |              | 338       |                 |  | 3,300             |   |                                               |       |                           
|                                                 
|Dividends declared ($.67 per share)               |                  |  |              |           |                 |  |                  |   |                                               |       |                           
|                                                 
|10% stock dividend                                |                  |  |              |          |                 |  | 3,213,019         |   |                                               |       |                           
|                                                  |                  |  |              |           |                 |  |                   |   |                                               |        |                           
|Balances at December 31, 2002                     |                  |  |              | 2,439,169 |                 |  | 27,166,756        |   |                                               |       |                           
|                                                 
|Comprehensive income:                             |                  | 
|Net income                                        |                  |  |              |           |                 |  |                  |   |                                               |       |                           
|Decrease in net unrealized gain on securities     |                  | 
|available-for-sale, net of reclassification       |                  | 
|adjustment                                        |                  |  |              |           |                 |  |                  |   |                                               |       |                           
|                                                  |                  |  |              |           |                 |  |                  
|Total comprehensive income                        |                  |  |              |           |                 |  |                   |   |                                               |        |                           
|                                                  |                  |  |              |           |                 |  |                  
|Issuance of 6,673 shares; employee stock options  |                  | 
|and stock awards                                  |                  |  |              | 6,673     |                 |  | 78,501            |   |                                               |       |                           
|                                                 
|Dividends declared ($.90 per share)               |                  |  |              |           |                 |  |                  |   |                                               |       |                           
|                                                 
|Redemption of common stock                        |                  | 
|(8,800 shares)                                    |                  |  |              | (8,800    | )               |  | (220,110          | ) |                                               |       |                           
|                                                  |                  |  |              |           |                 |  |                   |   |                                               |        |                           
|Balances at December 31, 2003                     |                  |  |              | 2,437,042 |                 |  | 27,025,147        |   |                                               |       |                           
|                                                 
|Comprehensive income:                             |                  | 
|Net income                                        |                  |  |              |           |                 |  |                  |   |                                               |       |                           
|Decrease in net unrealized gain on securities     |                  | 
|available-for-sale, net of reclassification       |                  | 
|adjustment                                        |                  |  |              |           |                 |  |                  |   |                                               |       |                           
|                                                  |                  |  |              |           |                 |  |                  
|Total comprehensive income                        |                  |  |              |           |                 |  |                   |   |                                               |        |                           
|                                                  |                  |  |              |           |                 |  |                  
|Tax benefit on exercise of stock options          |                  |  |              |           |                 |  |                  |   |                                               | 29,341 |                           
|                                                 
|Issuance of 24,057 shares; employee stock options |                  |  |              | 24,057    |                 |  | 248,363           |   |                                               |       |                           
|                                                 
|Dividends declared ($2.08 per share)              |                  |  |              |           |                 |  |                  |   |                                               |       |                           
|                                                 
|Redemption of common stock                        |                  | 
|(24,500 shares)                                   |                  |  |              | (24,500   | )               |  | (623,715          | ) |                                               |       |                           
|                                                  |                  |  |              |           |                 |  |                   |   |                                               |        |                           
|Balances at December 31, 2004                     |                  |  |              | 2,436,599 |                 |  | 26,649,795        |   |                                               | 29,341 |                           
|                                                  |                  |  |              |           |                 |  |                   |   |                                               |        |                           

|Disclosure of reclassification amount:                       |  | 2004 |   | 2003     |   | 2002
|------------------------------------------------------------ |  | ---- | - | -------- | - | ----
|                                                             |  |      |   |          |   |     
|Unrealized holding gains (losses) arising during the period  |  |      | $ | (185,583 | ) |     
|Tax  (expense) benefit                                       |  |      |   | 72,467   |   |     
|                                                             |  |      |   |          |   |     
|Net after tax                                                |  |      |   | (113,116 | ) |     
|                                                             |  |      |   |          |   |     
|Realized gain from discontinued operations                   |  |      |   |         |   |     
|Tax expense from discontinued operations                     |  |      |   |         |   |     
|Less realized gain allocated to minority interest            |  |      |   |         |   |     
|                                                             |  |      |   |          |   |     
|                                                             |  |      |   |         |   |     
|Reclassification adjustment for gains included in net income |  |      |   | (242,007 | ) |     
|Tax expense                                                  |  |      |   | 91,963   |   |     
|                                                             |  |      |   |          |   |     
|Net after tax                                                |  |      |   | (150,044 | ) |     
|                                                            
|Portion of unrealized gain allocated to minority interest    |  |      |   |         |   |     
|                                                             |  |      |   |          |   |     
|Net change in unrealized gain (loss) on availiable-for-sale  |  |     
|securities                                                   |  |      | $ | (263,160 | ) |     
|                                                             |  |      |   |          |   |     

|See accompanying notes to consolidated financial statements.
|------------------------------------------------------------

F-5

---

# UNITED FINANCIAL CORP.
AND SUBSIDIARIES

Consolidated Statements
of Cash Flows

|                                                          | Years ended December 31,
|--------------------------------------------------------- | ------------------------
|
|                                                          |                         
|Cash flows from operating activities:                     |                         
|Net income from continuing operations                     |                         
|Adjustments to reconcile net income from continuing       |                         
|operations to net cash from operating activities:         |                         
|                                                         
|Provision for loan losses                                 |                         
|Amortization of identifiable intangibles                  |                         
|Depreciation                                              |                         
|Net (gain) loss on sale of premises and equipment         |                         
|Deferred income tax expense (benefit)                     |                         
|Amortization/accretion of premiums and discounts          |                         
|on securities and loans, net                              |                         
|Gain on sale of investment securities                     |                         
|Loss on sale of real estate owned, net                    |                         
|Writedown of loan premium                                 |                         
|Mortgage loans originated and held for sale               |                         
|Proceeds from sales of mortgage loans held for sale       |                         
|Gain on sale of loans                                     |                         
|FHLB stock dividends                                      |                         
|(Increase) decrease in accrued interest receivable        |                         
|(Increase) decrease in other assets                       |                         
|Increase (decrease) in income taxes                       |                         
|Increase (decrease) in accrued interest payable           |                         
|Increase (decrease) in accrued expenses and               |                         
|other liabilities                                         |                         
|                                                          |                         
|Net cash from continuing operations                       |                         
|                                                          |                         
|Net income from discontinued operations                   |                         
|Adjustments to reconcile net income from discontinued     |                         
|operations to net cash from operating activities:         |                         
|                                                         
|Provision for loan losses                                 |                         
|Depreciation                                              |                         
|Deferred income tax expense (benefit)                     |                         
|Amortization/accretion of premiums and discounts          |                         
|on securities and loans, net                              |                         
|Gain on sale of investment securities                     |                         
|Mortgage loans originated and held for sale               |                         
|Proceeds from sales of mortgage loans held for sale       |                         
|Gain on sale of discontinued operations                   |                         
|FHLB stock dividends                                      |                         
|Decrease (increase) in accrued interest receivable and    |                         
|other assets                                              |                         
|Increase (decrease) in accrued interest payable and other |                         
|liabilities                                               |                         
|Net change in minority interest                           |                         
|                                                          |                         
|Net cash from discontinued operations                     |                         
|                                                          |                         
|Net cash from operating activies                          |                         
|                                                          |                         

F-6

---

# UNITED FINANCIAL CORP.
AND SUBSIDIARIES

Consolidated Statements
of Cash Flows (Continued)

|                                                      | Years ended December 31,
|----------------------------------------------------- | ------------------------
|                                                      |                         
|
|                                                      |                         
|Cash flows from investing activities:                 |                         
|Net (increase) decrease in loans receivable           |                         
|Purchases of securities available-for-sale            |                         
|Proceeds from maturities, calls, paydowns and sales   |                         
|of securities available-for-sale                      |                         
|Purchase of restricted stock                          |                         
|Purchases of premises and equipment                   |                         
|Proceeds from sale of premises and equipment          |                         
|Proceeds from sale of real estate and other personal  |                         
|property owned                                        |                         
|Additions of real estate and other personal           |                         
|property owned                                        |                         
|Net proceeds from the sale of discontinued operations |                         
|                                                      |                         
|Net cash from investing activities                    |                         
|                                                      |                         
|Cash flows from financing activities:                 |                         
|Net increase (decrease) in deposits                   |                         
|Proceeds from FHLB advances                           |                         
|Payments on FHLB advances                             |                         
|Payments on line of credit                            |                         
|Net increase (decrease) in securities sold under      |                         
|repurchase agreements                                 |                         
|Net increase (decrease) in federal funds purchased    |                         
|Proceeds from issuance of common stock                |                         
|Redemption of common stock                            |                         
|Dividends paid to stockholders                        |                         
|                                                      |                         
|Net cash from financing activities                    |                         
|                                                      |                         
|Net increase (decrease) in cash and cash equivalents  |                         
|                                                     
|Less net (increase) decrease in cash from             |                         
|discontinued operations                               |                         
|                                                      |                         
|Net increase (decrease) in cash from                  |                         
|continuing operations                                 |                         
|                                                     
|Cash and cash equivalents at beginning of year        |                         
|                                                      |                         
|Cash and cash equivalents at end of year              |                         
|                                                      |                         
|Cash paid during the year for:                        |                         
|Interest, approximately                               |                         
|Income taxes, approximately                           |                         
|                                                     
|Loans transferred to other real estate owned          |                         

|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, 45% of Uniteds assets are located at Heritage Banks
Great Falls locations.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
December 2003, Heritage Bank incorporated a wholly-owned subsidiary, Heritage Northwest,
Inc., a mortgage banking company in Bellingham, Washington, which began operations in the
spring of 2004. Management of United has made the decision to terminate these operations
in Bellingham as of March 2005. In December 2004, Heritage Bank incorporated a second
wholly-owned subsidiary, HPM, Inc. to acquire land and a building for a new Great Falls
drive-up location, which it will then lease back to Heritage Bank. All significant
intercompany balances and transactions have been eliminated in consolidation. Heritage
Bank also holds a 14% ownership interest in Bankers Resource Center, a computer data
center, located in Helena, Montana.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Material
estimates that are particularly susceptible to significant change in the near-term relate
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
| | --- | ----------------

| | 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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
| | --- | ------------------------------

| | 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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
| | --- | -------------------------

| | 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 of any underlying collateral, current economic
conditions and independent appraisals. Past-due status is determined based upon the
loans contractual terms.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-9

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIES

Notes to Consolidated
Financial Statements

| | 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, 2004 and 2003, no such amount shave been recognized.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (h) | Goodwill
| | --- | --------

| | Goodwill
represents the excess of cost over the fair value of the net assets at the date of
acquisition.
| | --------------------------------------------------------------------------------------------------------

| | Effective
January 1, 2002, United adopted Statement of Financial Accounting Standards (SFAS) No.
142, issued by the Financial Accounting Standards Board (FASB), which requires that
goodwill and intangible assets that have indefinite lives no longer be amortized but be
reviewed for impairment annually, or more frequently if certain indicators arise. United
did not incur any goodwill impairment in 2004, 2003 or 2002.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (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
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-10

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIES

Notes to Consolidated
Financial Statements

| | security for  advances  from the FHLB.  During 2002,  the FHLB revised its capital
structure from the issuance of one class of stock to two, B(1) and B(2) stock. B(1) stock
can be sold back to the FHLB at 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
$3,463,400 and $3,476,800 of class B(1) stock, respectively, at December 31, 2004 and
2003. Heritage Bank held $748,000 and $632,100 of class B(2) stock, respectively, at
December 31, 2004 and 2003.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (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
September 2002, Uniteds Board of Directors (the Board) approved a stock repurchase
plan for a period of one year to repurchase up to 121,950 shares or $1,707,300 of
Uniteds common stock. No shares have been repurchased under this plan. This stock
repurchase program ended September 2003.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
October 2003, a stock repurchase plan was approved by the Board for a period of one year
to repurchase up to 150,000 shares, or up to $3,900,000 of Uniteds common stock.
Total shares repurchased under this plan in 2003 and 2004 totaled 33,300 or $843,826, an
average price of $25.34 per share. The program was extended on September 22, 2004 for
twelve months. Under the extended program, United may purchase up to 115,000 shares of its
common stock at an aggregate purchase price not to exceed $2.8 million. At December 31,
2004, total shares available under the plan were 115,000.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (m) | Stock-Based
Compensation
| | --- | ------------------------

| | At
December 31, 2004, 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, as all options granted under the plan had an exercise price equal to the market
value of the underlying common stock on the date of grant. The following table illustrates
the effect on net income and
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-11

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIES

Notes to Consolidated
Financial Statements

| | 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                     | Years ended December 31,
|---------------------------------------------------- | ------------------------
|                                                     |                         
|
|                                                     |                         
|Net income:  As reported                             |                         
|Deduct:  Total stock-based employee compensation     |                         
|expense determined under fair value based method for |                         
|all awards, net of related tax effects               |                         
|                                                     |                         
|Pro forma net income                                 |                         
|                                                     |                         
|Earnings per share:                                  |                         
|Basic  as reported                                  |                         
|Basic  pro forma                                    |                         
|Diluted  as reported                                |                         
|Diluted  pro forma                                  |                         

| | (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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
May 20, 2003, a 3 for 2 stock split effected as a 50% stock dividend was approved by the
Board, payable June 30, 2003 to shareholders of record on June 23, 2003. As a result, all
per share amounts from time periods prior to this date have been restated to illustrate
the effect of the stock dividend. Any fractional shares were paid in cash.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
May 21, 2002, a 10% stock dividend was approved by the Board, payable June 28, 2002, to
shareholders of record on June 24, 2002. As a result, all per share amounts from time
periods prior to this date have been restated to illustrate the effect of the stock
dividend. Any fractional shares were paid in cash. The net effect on Uniteds
stockholders equity as a result of the 10% stock dividend was to reduce retained
earnings and increase common stock by approximately $3.2 million, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-12

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIES

Notes to Consolidated
Financial Statements

| | (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 2004, 2003 or 2002.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (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 at fair value based on
comparable market quotes and are amortized in proportion to and over the period of
estimated net servicing 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
| | --- | --------------------

| | United
is required to report its 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, 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 on a Company-wide basis by a chief
decision maker. Accordingly, all of Uniteds operations are aggregated in one
reportable segment.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (t) | Reclassifications
| | --- | -----------------

| | Certain reclassifications
have been made to the 2003 and 2002 amounts to conform to the 2004 presentation.
| | ----------------------------------------------------------------------------------------------------------

| | (u) | New
Accounting Pronouncements
| | --- | -----------------------------

| | In
December 2004, FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets. This
Statement addresses the measurement of exchanges of nonmonetary assets. It eliminates the
exception from fair value measurement for nonmonetary exchanges of similar productive
assets in paragraph 21(b) of Accounting Principals Board APB Opinion No. 29,
Accounting for Nonmonetary Transactions, and replaces it with an exception
for exchanges that do not have commercial substance. This Statement specifies that a
nonmonetary exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. This Statements states that
the subsequent measurement of servicing assets and liabilities will continue to be subject
to the guidance set forth in SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguisments of Liabilities, issued in September
2000. Uniteds management does not expect that the application of this Statement will
have a material impact on Uniteds consolidated financial
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-13

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIES

Notes to Consolidated
Financial Statements

| | statements. The provisions of this Statement are effective for nonmonetary asset exchanges
          occurring in fiscal periods beginning after June 15, 2005.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| | FASB
issued its last statement for 2004 in late December, SFAS No 123 (R) (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 (usually the
vesting period).
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 for its interim period ended
September 30, 2005. 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, 2004, management estimates the total
stock-based employee compensation expense that United will report for the quarter ended
September 30, 2005 will be approximately $22,000.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
American Institute of Certified Public Accountants (AICPA)s Statement of Position
(SOP) 03-3, Accounting for Loans or Certain Debt Securities Acquired in a
Transfer, provides guidance on accounting for loans acquired in fiscal years beginning
after December 15, 2004 where there has been deterioration in credit quality since the
loan was originated. The SOP also prohibits carrying over or creation of
valuation allowances in the initial accounting of loans acquired in a transfer.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
March 2004, FASB released Emerging Issues Task Force (EITF) 03-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments (EITF 03-1).
The EITF 03-1 provides guidance for determining when an investment is impaired and whether
the impairment is other than temporary as well as guidance for quantifying the impairment.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
September 30, 2004, FASB issued FASB Staff Position (FSP) EITF Issue 03-1-1 delaying the
effective date of paragraphs 10-20 of EITF 03-1, The Meaning of Other-Than-Temporary
Impairment and Its Applications to Certain Investments, which provides guidance for
determining the meaning of other-than-temporarily impaired and its application
to certain debt and equity securities within the scope of SFAS No. 115, Accounting
for Certain Investments in Debt and Equity Securities, and investments accounted for
under the cost method. The guidance requires that investments which have declined in value
due to credit concerns or solely due to changes in interest rates must be recorded as
other-than-temporarily impaired unless United can assert and demonstrate its intention to
hold the security for a period of time sufficient to allow for a recovery of fair value up
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-14

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIES

Notes to Consolidated
Financial Statements

| | to or beyond the cost of the investment which might mean maturity. The delay of the effective date of EITF 03-1 will be
          superceded concurrent with the final issuance of proposed FSP Issue 03-1-a. Proposed FSP 03-1-a is intended to provide
          implementation guidance with respect to all securities analyzed for impairment under paragraphs 10-20 of EITF 03-1.
          Management continues to closely monitor and evaluate how the provisions of EITF 03-1 and proposed FSP Issue 03-1-a will
          affect United.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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, 2004 and 2003 was approximately $3,656,000 and $2,409,000,
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:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                    | 2004
|------------------- | ----
|                    |     
|
|                    |     
|U.S. Government and |     
|federal agencies    |     
|Mortgage-backed     |     
|securities          |     
|Municipal bonds     |     
|                    |     
|                   
|                    |     
|                    |     

F-15

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIES

Notes to Consolidated
Financial Statements

|                    | 2003
|------------------- | ----
|                    |     
|
|                    |     
|U.S. Government and |     
|federal agencies    |     
|Mortgage-backed     |     
|securities          |     
|Municipal bonds     |     
|Corporate bonds and |     
|equity securities   |     
|                    |     
|                   
|                    |     
|                    |     

| |  | 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 eighteen investment securities with unrealized losses. 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, 2004 and 2003 are as follows:
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|December 31, 2004   |  | More than 12 Months |   | Less than 12 Months |  | Total
|------------------- |  | ------------------- | - | ------------------- |  | -----
|                    |  |                     |   |                     |  |      
|
|                    |  |                     |   |                     |  |      
|U.S. Government and |  |                     |   |                     |  |      
|federal agencies    |  |                     | $ |                    |  |      
|Mortgage-backed     |  |                    
|securities          |  |                     |   | 1,528,785           |  |      
|Municipal bonds     |  |                     |   |                    |  |      
|                    |  |                     |   |                     |  |      
|                    |  |                     | $ | 1,528,785           |  |      
|                    |  |                     |   |                     |  |      

F-16

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIES

Notes to Consolidated
Financial Statements

|December 31, 2003   |  | More than 12 Months |   | Less than 12 Months |  | Total
|------------------- |  | ------------------- | - | ------------------- |  | -----
|                    |  |                     |   |                     |  |      
|
|                    |  |                     |   |                     |  |      
|U.S. Government and |  |                     |   |                     |  |      
|federal agencies    |  |                     | $ |                    |  |      
|Mortgage-backed     |  |                    
|securities          |  |                     |   |                    |  |      
|                    |  |                     |   |                     |  |      
|                    |  |                     | $ |                    |  |      
|                    |  |                     |   |                     |  |      

| | 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, 2004 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, 2004 and 2003, market values of variable rate securities included
in securities available-for-sale are $16,469,562 and $15,066,642, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                       | Amortized
cost |  | Estimated
fair
value
|-------------------------------------- | -------------- |  | --------------------
|                                       |                |  |                     
|Due within one year                    |                |  | $                   
|Due after one year through five years  |                |  |                     
|Due after five years through ten years |                |  |                     
|Due after ten years                    |                |  |                     
|                                       |                |  |                     
|                                       |                |  | $                   
|                                       |                |  |                     

| | United
has not entered into any swaps, options, or futures contracts. Included in the municipal
bonds and U.S. Government and federal agencies security amounts are investments which have
call features. At December 31, 2004, United had securities callable within one year with
amortized cost and estimated fair value of $3,117,835 and $3,140,779, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
category due after five years through ten years included amortized cost and estimated fair
value of $1,000,000 in securities callable within one year. The category due after ten
years included amortized cost and estimated market value of $1,117,835 and $1,130,499,
respectively, in securities callable within one year.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-17

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIES

Notes to Consolidated
Financial Statements

| | Gross
proceeds from sales of securities were $3,543,019, $1,890,658 and $18,625 for the years
ended December 31, 2004, 2003 and 2002, respectively, resulting in gross gains of
$242,007, $17,587 and $1,436 in 2004, 2003 and 2002, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
December 31, 2004 and 2003, investment securities with an amortized cost of $37,201,851
and $37,152,647 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:
| |  | ------------------------------------------------------------------------------------------------------

|                                                          | 2004 |  | 2003
|--------------------------------------------------------- | ---- |  | ----
|                                                          |      |  |     
|First mortgage loans and contracts secured by real estate |      |  | $   
|Commercial real estate loans                              |      |  |     
|Commercial loans                                          |      |  |     
|Auto and other consumer loans                             |      |  |     
|Second mortgage consumer loans                            |      |  |     
|Agricultural loans                                        |      |  |     
|Tax exempt municipal loans                                |      |  |     
|Loans on deposits and other loans                         |      |  |     
|                                                          |      |  |     
|                                                          |      |  |     
|Allowance for loan losses                                 |      |  |     
|                                                          |      |  |     
|                                                          |      |  | $   
|                                                          |      |  |     

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

|                           | 2004 |  | 2003 |           | 2002
|-------------------------- | ---- |  | ---- | --------- | ----
|                           |      |  |      |           |     
|Balance, beginning of year |      |  | $    | 3,755,197 |     
|Provision for loan losses  |      |  |      | 70,000    |     
|Losses charged off         |      |  |      | (184,573  | )   
|Recoveries                 |      |  |      | 67,738    |     
|                           |      |  |      |           |     
|Balance, end of year       |      |  | $    | 3,708,362 |     
|                           |      |  |      |           |     

| | Nonaccrual
loans amounted to approximately $327,000 and $498,000 at December 31, 2004 and 2003,
respectively. If interest on nonaccrual loans had been accrued, such income would have
approximated $40,000, $128,000 and $67,000 for the years ended December 31, 2004, 2003 and
2002, respectively. Loans contractually past due ninety days or more aggregating
approximately $75,000 and $324,000 as of December 31, 2004 and 2003, respectively, were on
accrual status.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Impaired
loans at December 31, 2004 and 2003 were approximately $348,000 and $589,000,
respectively. The allowance associated with impaired loans included in the allowance for
loan losses at December 31, 2004 and 2003 was approximately $148,000 and $88,000,
respectively. The average recorded investment in impaired loans for the years ended
December 31, 2004 and 2003 was approximately $427,000 and
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-18

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIES

Notes to Consolidated
Financial Statements

| | $571,000,
respectively. Interest income recognized on impaired loans during 2004, 2003 and 2002 was
approximately $8,000, $19,400 and $46,500, respectively. At December 31, 2004 and 2003,
all impaired loans were associated with a specific allowance amount as stated above.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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:
| |  | ------------------------------------------------------------------------------------------------------

|                                                    | 2004 |  | 2003
|--------------------------------------------------- | ---- |  | ----
|                                                    |      |  |     
|Unused lines of credit                              |      |  | $   
|Commitments outstanding  variable rate             |      |  |     
|Unfunded commitments under credit card arrangements |      |  |     
|Letters of credit                                   |      |  |     

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

| |  | Premises and
equipment at December 31 are summarized as follows:
| |  | ----------------------------------------------------------------

|                                  | 2004 |  | 2003
|--------------------------------- | ---- |  | ----
|                                  |      |  |     
|Land                              |      |  | $   
|Building and improvements         |      |  |     
|Furniture, fixtures and equipment |      |  |     
|Construction in progress          |      |  |     
|                                  |      |  |     
|                                  |      |  |     
|Accumulated depreciation          |      |  |     
|                                  |      |  |     
|                                  |      |  | $   
|                                  |      |  |     

F-19

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIES

Notes to Consolidated
Financial Statements

|(6) |  | Deposits
|--- |  | --------

| |  | Deposits at
December 31 are summarized as follows:
| |  | --------------------------------------------------

|                                | 2004 |  | 2003
|------------------------------- | ---- |  | ----
|                                |      |  |     
|
|                                |      |  |     
|Demand accounts                 |      |  |     
|                               
|NOW and money market accounts   |      |  |     
|Savings accounts                |      |  |     
|                               
|Certificates of deposit:        |      |  |     
|                                |      |  |     
|                                |      |  |     
|                                |      |  |     
|                                |      |  |     
|                                |      |  |     
|                                |      |  |     
|                                |      |  |     
|                               
|Total certificates of deposit   |      |  |     
|                                |      |  |     
|Total interest-bearing deposits |      |  |     
|                                |      |  |     
|                                |      |  |     
|                                |      |  |     

| |  | Scheduled maturities
of certificates of deposit at December 31, 2004 are as follows:
| |  | ------------------------------------------------------------------------------------

|     | 
|---- | 
|2005 | 
|2006 | 
|2007 | 
|2008 | 
|2009 | 
|     | 
|     | 
|     | 

| | Certificates
of deposit of $100,000 or more are approximately $29,110,108 and $24,049,833 at December
31, 2004 and 2003, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------

| | Certificates
of deposit balances include $8,395,000 of brokered deposits at December 31, 2004. No
brokered deposits were held at December 31, 2003.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------

F-20

---

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:

|                                                                    | 2004 |  | 2003
|------------------------------------------------------------------- | ---- |  | ----
|1.32% to 5.40% fixed rate advances, interest payable monthly        |      |  | $   
|5.52% to 6.12% putable advances, put options exercisable quarterly, |      | 
|interest payable monthly                                            |      |  |     
|3.57%, fixed rate amortizing advance, interest payable monthly      |      | 
|                                                                    |      |  |     
|                                                                    |      |  |     
|                                                                    |      |  | $   
|                                                                    |      |  |     

| | The weighted average interest rate on these advances was 3.41% and
4.05% at December 31, 2004 and 2003, respectively.
| | ---------------------------------------------------------------------------------------------------------------------

| | Contractual principal repayments on advances from the Federal Home
Loan Bank are as follows:
| | --------------------------------------------------------------------------------------------

|Years ending December 31, |  |  |   |            | 
|------------------------- |  |  | - | ---------- | 
|2005                      |  |  | $ | 21,500,000 | 
|2006                      |  |  |   | 8,000,000  | 
|2007                      |  |  |   | 6,000,000  | 
|2008                      |  |  |   | 9,294,355  | 
|                          |  | 
|                          |  |  | $ | 44,794,355 | 
|                          |  | 

| | 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At December 31, 2004, 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 $86,785,000 as of December 31, 2004.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Interest expense on FHLB advances included a $274,927 prepayment
fee in the year ended December 31, 2002.
| | ---------------------------------------------------------------------------------------------------------

F-21

---

UNITED FINANCIAL CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

|(8) |  | Securities Sold Under Agreements toRepurchase
|--- |  | ---------------------------------------------

| | Securities sold under agreements to repurchase at December 31
consist of the following:
| | ---------------------------------------------------------------------------------------

|                      | 2004
|--------------------- | ----
|
|To repurchase within: |     
|1  30 days           |     
|31  90 days          |     
|Greater than 90 days  |     
|                      |     
|                      |     
|                      |     
|                      |     
|                     
|
|
|To repurchase within: |     
|1  30 days           |     
|31  90 days          |     
|Greater than 90 days  |     
|                      |     
|                      |     
|                      |     
|                      |     

| | Securities underlying the agreements to repurchase are for the
same securities originally sold and are held in a custodial account by a third party. For the years ended December 31, 2004 and
2003, securities sold under agreements to repurchase averaged approximately $8,204,000 and $9,174,000, respectively, and the
maximum outstanding at any month end during the year was approximately $13,667,000 and $9,930,000, 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 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 28, 2005 was 6.71%. The junior
subordinated debentures
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-22

---

UNITED FINANCIAL CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

| | 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Pursuant to FASB Interpretation No. 46R (FIN 46R),
Consolidation of Variable Interest Entities, issued in December 2003, United deconsolidated the Trust during the first
quarter of 2004 and restated the December 31, 2003 balance sheet. As a result, the 2004 and 2003 balance sheets include $3.1
million of subordinated debt, which was previously included on Uniteds balance sheet as $3.0 million in trust preferred
securities, after a consolidation elimination of $.1 million. The overall effect on Uniteds financial position and operating
results of the deconsolidation was not material.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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 totaled 3.69% and 2.69% at December 31, 2004 and
2003, respectively. This line is secured by Uniteds Heritage Bank stock and expires November 1, 2005. Interest is payable
quarterly. There was no principal balance outstanding at December 31, 2004 and 2003.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(11) |  | Income Taxes
|---- |  | ------------

| | Income tax expense for the years ended December 31 is summarized
as follows:
| | ----------------------------------------------------------------------------

|                                  | Federal |  | State |           | Total
|--------------------------------- | ------- |  | ----- | --------- | -----
|2004:                             |         |  |       |           |      
|Current  continuing operations   |         |  | $     | 1,808,310 |      
|Deferred                          |         |  |       | 129,647   |      
|                                  |         |  |       |           |      
|                                  |         |  | $     | 1,937,957 |      
|                                  |         |  |       |           |      
|2003:                             |         | 
|Current  continuing operations   |         |  | $     | 1,485,154 |      
|Deferred                          |         |  |       | (34,353   | )    
|                                  |         |  |       |           |      
|                                  |         |  |       | 1,450,801 |      
|Current  discontinued operations |         |  |       | 573,291   |      
|                                  |         |  |       |           |      
|                                  |         |  | $     | 2,024,092 |      
|                                  |         |  |       |           |      
|2002:                             |         | 
|Current  continuing operations   |         |  | $     | 1,348,117 |      
|Deferred                          |         |  |       | (67,952   | )    
|                                  |         |  |       |           |      
|                                  |         |  | $     | 1,280,165 |      
|                                  |         |  |       |           |      

| | 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 35% to income before income
taxes) as follows
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-23

---

UNITED FINANCIAL CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

|                                       | 2004 |  | 2003 |           | 2002
|-------------------------------------- | ---- |  | ---- | --------- | ----
|Computed expected tax expense        |      |  | $    | 2,130,816 |     
|Increase (decrease) resulting from:    |      | 
|State taxes, net of Federal income tax |      | 
|effects                                |      |  |      | 280,196   |     
|Tax-exempt interest                    |      |  |      | (51,716   | )   
|Other, net                             |      |  |      | 3,201     |     
|                                       |      |  |      |           |     
|                                       |      |  | $    | 2,362,497 |     
|                                       |      |  |      |           |     

| | Deferred tax assets and liabilities at December 31 are as follows:
| | ------------------------------------------------------------------

|                                                                 | 2004 |  | 2003
|---------------------------------------------------------------- | ---- |  | ----
|Deferred tax assets:                                             |      |  |     
|Loans, principally due to allowance for loan losses              |      |  | $   
|Premises and equipment and real estate owned, due to difference  |      | 
|in basis                                                         |      |  |     
|Purchase accounting basis differences                            |      |  |     
|Other                                                            |      |  |     
|                                                                 |      |  |     
|Total gross deferred tax assets                                  |      |  |     
|                                                                 |      |  |     
|Deferred tax liabilities:                                        |      | 
|Loans, due to difference in basis                                |      |  |     
|Stock in FHLB, principally due to stock dividends not recognized |      | 
|for tax purposes                                                 |      |  |     
|Premises and equipment, principally due to differences in        |      | 
|depreciation                                                     |      |  |     
|Prepaid SAIF assessment                                          |      |  |     
|Unrealized gains on securities available-for-sale                |      |  |     
|Other                                                            |      |  |     
|                                                                 |      |  |     
|Total gross deferred tax liabilities                             |      |  |     
|                                                                 |      |  |     
|Net deferred tax asset                                           |      |  | $   
|                                                                 |      |  |     

| | 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
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, 2004 and 2003 management believes it is more likely than not that United will realize the benefits of
these deductible differences.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-24

---

UNITED FINANCIAL CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

| | Retained earnings at December 31, 2004 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 $525,597 and $340,596 at December 31, 2004 and 2003, respectively. Servicing rights of $299,199, $184,050, and $109,600 were
capitalized in 2004, 2003 and 2002, respectively. Amortization expense of $114,198, $67,322, and $44,173 was recognized in 2004,
2003 and 2002, respectively. There were no impairment losses recognized in 2004, 2003, and 2002. At December 31, 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 $69,274,000 and $49,901,000 at December 31, 2004 and
2003, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(13) |  | Leases
|---- |  | ------

| | Heritage Bank leases certain land and office space under
noncancelable operating leases in its Billings, Great Falls and Kalispell branches. The Billings lease is a 30 year ground lease
agreement for the new branch location. The lease required a deposit of $10,000 and annual rentals of $70,000. The Great Falls and
Kalispell leases are for office space and range in length from 1.5 to 3 years. Heritage Northwest, Inc. leased office space under
a noncancelable two year operating lease beginning in March 2004 in Bellingham, WA. As of March 2005, Heritage Northwest, Inc. is
attempting to sublease that office space. Total rental expense for the years ended December 31, 2004, 2003 and 2002 was $156,916,
$130,236 and $75,389, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The total future minimum lease payments required under operating
leases which have initial or remaining noncancelable lease terms in excess of one year at December 31, 2004 are as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Year Ending December 31, |  |  |   |           | 
|------------------------ |  |  | - | --------- | 
|2005                     |  |  | $ | 127,954   | 
|2006                     |  |  |   | 110,839   | 
|2007                     |  |  |   | 70,000    | 
|2008                     |  |  |   | 70,000    | 
|2009                     |  |  |   | 70,000    | 
|Thereafter               |  |  |   | 1,627,500 | 
|                         |  | 
|                         |  |  | $ | 2,076,293 | 
|                         |  | 

F-25

---

UNITED FINANCIAL CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

|(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 former Chairman of the Board of Directors and its current
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 $472,183, $459,000 and $465,908 for the years ended December 31, 2004, 2003, and 2002,
respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | United acquires loan participations from a bank controlled by
current largest shareholder. At December 31, 2004 and 2003, the outstanding balances of loans purchased from this bank were
$4,605,405 and $6,448,349, respectively. During 2004, Uniteds CEO served on the board of directors of a bank in Grand
Junction, Colorado. Loan participations are also acquired from this bank. At December 21, 2004, the outstanding balance of loans
purchased from this bank were $239,524. Management believes the loans are underwritten under substantially the same terms and
procedures as loans underwritten by United.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Bankers Resource Center (BRC) provides data processing
services for United. United has a 14% ownership interest in BRC, a computer data center. The charges for BRCs services were
$753,169, $708,518 and $591,395 for the years ended December 31, 2004, 2003 and 2002, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As of December 31, 2004 and 2003, the Board of Directors and
officers of United (personally and through their respective businesses which bank with Heritage Bank) had approximately $578,814
and $836,628, 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, 2004 and 2003 follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------------

|                           | 2004 |  | 2003
|-------------------------- | ---- |  | ----
|Balance, beginning of year |      |  | $   
|New loans                  |      |  |     
|Repayments                 |      |  |     
|                           |      |  |     
|Balance, end of year       |      |  | $   
|                           |      |  |     

| | 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 $201,000, $197,000, and $157,000 during the years ended December 31, 2004, 2003 and 2002, respectively
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-26

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UNITED FINANCIAL CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

| | 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 $17,800, $15,900 and $14,300, respectively, for the years ended December 31, 2004, 2003 and 2002.
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
$360,000 and $346,000 at December 31, 2004 and 2003, 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. The plan provides for award of
options for a maximum of 198,000 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, 2004, total shares available for option grants
under the Plan were 3,868. Changes in options granted by United for the years ended December 31, 2004 and 2003, are summarized as
follows:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                       | 2004 |  | 2003
|-------------------------------------- | ---- |  | ----
|
|Outstanding options, beginning of year |      |  |     
|Granted                                |      |  |     
|Exercised                              |      |  |     
|Forfeited                              |      |  |     
|                                       |      |  |     
|Outstanding options, end of year       |      |  |     
|                                       |      |  |     
|Options exercisable at end of year     |      |  |     
|                                       |      |  |     
|Weighted-average fair value of options |      | 
|granted during year                    |      |  | $   
|                                       |      |  |     

F-27

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UNITED FINANCIAL CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

| | The stock options outstanding at December 31, 2004 consist of the
following:
| | ----------------------------------------------------------------------------

|                     | Options outstanding |  | Exercisable options
|-------------------- | ------------------- |  | -------------------
|
|Exercise Prices:    
|Price ranges $ 9.18  |                     |  |                    
|Price ranges $ 10.81 |                     |  |                    
|Price ranges $ 14.18 |                     |  |                    
|Price ranges $ 17.47 |                     |  |                    
|Price ranges $ 24.86 |                     |  |                    
|                     |                     |  |                    
|Total                |                     |  |                    
|                     |                     |  |                    

| | 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:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        | 2004 |  | 2003 |         | 2002
|----------------------- | ---- |  | ---- | ------- | ----
|Risk-free interest rate |      |  |      | 3.85%   |     
|Expected life           |      |  |      | 5 years |     
|Expected volatility     |      |  |      | 31.77%  |     
|Expected dividend yield |      |  |      | 4.38%   |     

| | 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-28

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UNITED FINANCIAL CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

|(17) |  | Earnings Per Share
|---- |  | ------------------

| | The following table sets forth the computation of basic and
diluted earnings per share for the years ended December 31:
| | -----------------------------------------------------------------------------------------------------------------------

|                                              | 2004 |  | 2003 |           | 2002
|--------------------------------------------- | ---- |  | ---- | --------- | ----
|Weighted average shares outstanding during    |      |  |      |           |     
|the year on which basic earnings per          |      | 
|share is calculated                           |      |  |      | 2,434,592 |     
|Add: incremental shares under stock option    |      | 
|plans                                         |      |  |      | 79,818    |     
|                                              |      |  |      |           |     
|Average outstanding shares on which diluted   |      | 
|earnings per share is calculated              |      |  |      | 2,514,410 |     
|                                              |      |  |      |           |     
|Net income applicable to common stockholders, |      | 
|basic                                         |      |  | $    | 3,917,959 |     
|Less: reduction of proportionate share of     |      | 
|Valley net income assuming option             |      | 
|exercises                                     |      |  |      |          |     
|                                              |      |  |      |           |     
|Net income applicable to common stockholders, |      | 
|diluted                                       |      |  | $    | 3,917,959 |     
|                                              |      |  |      |           |     
|Basic earnings per share                      |      | 
|Continuing operations                         |      |  | $    | 1.61      |     
|Discontinuing operations                      |      |  |      |          |     
|                                              |      |  |      |           |     
|Net Income                                    |      |  | $    | 1.61      |     
|                                              |      |  |      |           |     
|Diluted earnings per share                    |      | 
|Continuing operations                         |      |  | $    | 1.56      |     
|Discontinuing operations                      |      |  |      |          |     
|                                              |      |  |      |           |     
|Net income                                    |      |  | $    | 1.56      |     
|                                              |      |  |      |           |     

F-29

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UNITED FINANCIAL CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

|                                    | Year Ended December 31, 2004
|----------------------------------- | ----------------------------
|
|Interest income                     |                             
|Interest Expense                    |                             
|                                    |                             
|Net interest income                 |                             
|Provision for loan losses           |                             
|Non-interest income                 |                             
|Non-interest expense                |                             
|                                    |                             
|Income from continuing operations   |                             
|before income taxes                 |                             
|Income tax expense                  |                             
|                                    |                             
|Net income from continuing          |                             
|operations                          |                             
|Income from discontinued operations |                             
|                                    |                             
|Net income                          |                             
|                                    |                             
|Net income per share:               |                             
|Basic                               |                             
|Continuing operations               |                             
|Discontinued operations             |                             
|                                    |                             
|                                    |                             
|                                    |                             
|Diluted                             |                             
|Continuing operations               |                             
|Discontinued operations             |                             
|                                    |                             
|                                    |                             
|                                    |                             

F-30

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UNITED FINANCIAL CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

|                                    | Year Ended December 31, 2003
|----------------------------------- | ----------------------------
|
|Interest income                     |                             
|Interest expense                    |                             
|                                    |                             
|Net interest income                 |                             
|Provision for loan losses           |                             
|Non-interest income                 |                             
|Non-interest expense                |                             
|                                    |                             
|Income from continuing operations   |                             
|before income taxes                 |                             
|Income tax expense                  |                             
|                                    |                             
|Net income from continuing          |                             
|operations                          |                             
|Income from discontinued operations |                             
|                                    |                             
|Net income                          |                             
|                                    |                             
|Net income per share:               |                             
|Basic                               |                             
|Continuing operations               |                             
|Discontinued operations             |                             
|                                    |                             
|                                    |                             
|                                    |                             
|Diluted                             |                             
|Continuing operations               |                             
|Discontinued operations             |                             
|                                    |                             
|                                    |                             
|                                    |                             

F-31

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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, 2004, management believes United and Heritage Bank met all capital adequacy requirements to which they are subject.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As of December 31, 2004, 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                | Actual |  | Minimum for capitaladequacy purposes |        | Minimum to bewell capitalizedunder PCA provisions
|------------------------------- | ------ |  | ------------------------------------ | ------ | ---------------------------------------------------
|
|                               
|Consolidated:   (in thousands) 
|December 31, 2004:              |        |  |                                      |        |                                                    
|Total capital                   |        |  | $                                    | 35,694 |                                                    
|Tier I capital                  |        |  |                                      | 32,075 |                                                    
|Tier I leverage                 |        |  |                                      | 32,075 |                                                    
|December 31, 2003:              |        | 
|Total capital                   |        |  |                                      | 36,722 |                                                    
|Tier I capital                  |        |  |                                      | 33,583 |                                                    
|Tier I leverage                 |        |  |                                      | 33,583 |                                                    
|                               
|Heritage Bank:   (in thousands)
|December 31, 2004:              |        | 
|Total capital                   |        |  |                                      | 29,865 |                                                    
|Tier I capital                  |        |  |                                      | 26,257 |                                                    
|Tier I leverage                 |        |  |                                      | 26,257 |                                                    
|December 31, 2003:              |        | 
|Total capital                   |        |  |                                      | 27,916 |                                                    
|Tier I capital                  |        |  |                                      | 24,651 |                                                    
|Tier I leverage                 |        |  |                                      | 24,651 |                                                    

| | 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-32

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UNITED FINANCIAL CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

| | 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-33

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UNITED FINANCIAL CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

| | 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:
| | -----------------------------------------------------------------------------------------------------------------

|                                        | 2004 |  | 2003
|--------------------------------------- | ---- |  | ----
|
|Financial assets:                       |      |  |     
|Cash and cash equivalents               |      |  | $   
|Securities available-for-sale           |      |  |     
|Restricted stock                        |      |  |     
|Loans held for sale                     |      |  |     
|Loans receivable, net                   |      |  |     
|Accrued interest receivable             |      |  |     
|                                       
|Financial liabilities:                  |      | 
|Deposits                                |      |  |     
|FHLB advances and securities sold under |      | 
|agreements to repurchase                |      |  |     
|Accrued interest payable                |      |  |     
|Subordinated debt owed to trust         |      |  |     

|(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, 2004 is approximately $ 5,249,000. In 2002, Heritage Bank was
required to repurchase one such loan that had been sold in the amount of approximately $62,000. There were no loans repurchased
during 2004 or 2003.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In December 2001, Heritage Bank entered into a five-year service
contract for data processing services with BRC. In the event of early termination of this contract by United, United has agreed to
pay an amount equal to fifty percent of the average monthly fee paid for services multiplied by the number of months remaining
under the term of the contract.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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, 2004, Heritage Bank had loan commitments
outstanding on 1-4 family fixed and adjustable rate mortgages totaling approximately $15,580,000. These loans were approved prior
to December 31, 2004 to be closed and funded in 2005. Heritage Bank also has at December 31, 2004 interest rate locks outstanding
on 1-4 family mortgages totaling approximately $4,058,000. These loans may or may not be approved and closed in 2005.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-34

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UNITED FINANCIAL CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

|(22) |  | Parent Company Information (Condensed)
|---- |  | --------------------------------------

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

| | Condensed Statements of Financial Condition
| | -------------------------------------------

|                                                                    | December 31, | 
|------------------------------------------------------------------- | ------------ | 
|
|
|Cash and cash equivalents ($2,254,541 and $6,519,610, respectively, |              | 
|Deposited with Heritage Bank)                                       |              | 
|Securities available-for-sale                                       |              | 
|Investment in subsidiary bank                                       |              | 
|Accrued interest receivable                                         |              | 
|Other assets                                                        |              | 
|                                                                    |              | 
|Total assets                                                        |              | 
|                                                                    |              | 
|Liabilities and Stockholders Equity                               
|Other liabilities                                                   |              | 
|Subordinated debt owed to trust                                     |              | 
|                                                                    |              | 
|Total liabilities                                                   |              | 
|                                                                    |              | 
|Common stock                                                        |              | 
|Paid in capital                                                     |              | 
|Retained earnings                                                   |              | 
|Accumulated other comprehensive income                              |              | 
|                                                                    |              | 
|Total stockholders equity                                          |              | 
|                                                                    |              | 
|Total liabilities and stockholders equity                          |              | 
|                                                                    |              | 

| | Condensed Statements of Income
| | ------------------------------

|                                                | Year ended December 31,
|----------------------------------------------- | -----------------------
|
|Revenues:                                       |                        
|Cash dividends from bank subsidiary             |                        
|Interest income                                 |                        
|Other income                                    |                        
|                                                |                        
|                                                |                        
|                                                |                        
|Expenses:                                       |                        
|Interest expense                                |                        
|Other operating expenses                        |                        
|                                                |                        
|                                                |                        
|                                                |                        
|Income before equity in undistributed           |                        
|earnings of subsidiary, discontinued            |                        
|operations and income taxes                     |                        
|Equity in undistributed earnings of subsidiary  |                        
|                                                |                        
|Income from continuing operations before income |                        
|taxes                                           |                        
|Income tax benefit                              |                        
|                                                |                        
|Income from continuing operations               |                        
|Income from discontinued operations             |                        
|                                                |                        
|Net income                                      |                        
|                                                |                        

F-35

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UNITED FINANCIAL CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

| | Condensed Statements of Cash Flows
| | ----------------------------------

|                                               | Year ended December 31,
|---------------------------------------------- | -----------------------
|
|Cash flows from operating activities:          |                        
|Net income from continuing operations          |                        
|Adjustments to reconcile net income from       |                        
|continuing operations to net cash from         |                        
|operating activities:                          |                        
|Gain on sale of securities                     |                        
|available-for-sale                             |                        
|Equity in undistributed earnings of            |                        
|subsidiary                                     |                        
|Increase (decrease) in other assets and        |                        
|liabilities, net                               |                        
|                                               |                        
|Net cash from continuing                       |                        
|operations                                     |                        
|                                               |                        
|Net cash from discontinued                     |                        
|Operations                                     |                        
|                                               |                        
|Net cash from operating                        |                        
|activities                                     |                        
|                                               |                        
|Cash flows from investing activities:          |                        
|Purchase of securities available-for sale      |                        
|Proceeds from sales, maturities and paydowns   |                        
|of securities available-for-sale               |                        
|Net decrease in loans receivable               |                        
|                                               |                        
|Net cash from investing activities             |                        
|                                               |                        
|Cash flows from financing activities:          |                        
|Payments on line of credit                     |                        
|Redemption of common stock                     |                        
|Proceeds from issuance of common stock         |                        
|Dividends paid to stockholders                 |                        
|                                               |                        
|Net cash from financing activities             |                        
|                                               |                        
|Net increase (decrease) in cash and cash       |                        
|equivalents                                    |                        
|Cash and cash equivalents at beginning of year |                        
|                                               |                        
|Cash and cash equivalents at end of year       |                        
|                                               |                        

F-36

---

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 years
ended December 31, 2003 and 2002 report 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-37

---