Table of Contents





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

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# FORM 10-Q

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(Mark One)

x    
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2005

OR

o    
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

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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 No.)

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

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

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Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

Yes
x        
No
o

Indicate by check mark
whether the Registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act).

Yes
o        
No
x

Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes
o        
No
x

Indicate the number of shares
outstanding of each of the issuers classes of Common Stock, as of the latest practicable date:

Common
Stock, no par value; 2,453,207 shares outstanding as of October 31, 2005





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# UNITED FINANCIAL CORP.
TABLE OF CONTENTS

|PART I  FINANCIAL INFORMATION                                                                  |  |  |  |    | 
|----------------------------------------------------------------------------------------------- |  |  |  | -- | 
|                                                                                               
|ITEM 1    FINANCIAL STATEMENTS                                                                  |  | 
|                                                                                               
|Consolidated Condensed Statements of Financial Condition at                                     |  | 
|September 30, 2005 and December 31, 2004                                                        |  |  |  | 1  | 
|                                                                                               
|Consolidated Condensed Statements of Income  Three and Nine Months Ended                       |  | 
|September 30, 2005 and September 30, 2004                                                       |  |  |  | 2  | 
|                                                                                               
|Consolidated Condensed Statements of Cash Flows  Nine Months Ended                             |  | 
|September 30, 2005 and September 30, 2004                                                       |  |  |  | 3  | 
|                                                                                               
|Notes to Consolidated Condensed Financial Statements                                            |  |  |  | 4  | 
|                                                                                               
|ITEM 2    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  |  |  | 8  | 
|                                                                                               
|ITEM 3    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  |  |  | 17 | 
|                                                                                               
|ITEM 4    CONTROLS AND PROCEDURES                                                               |  |  |  | 17 | 
|                                                                                               
|PART II  OTHER INFORMATION                                                                     |  | 
|                                                                                               
|ITEM 1    LEGAL PROCEEDINGS                                                                     |  |  |  | 18 | 
|                                                                                               
|ITEM 2    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                           |  |  |  | 18 | 
|                                                                                               
|ITEM 3    DEFAULTS UPON SENIOR SECURITIES                                                       |  |  |  | 18 | 
|                                                                                               
|ITEM 4    SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS                                 |  |  |  | 18 | 
|                                                                                               
|ITEM 5    OTHER INFORMATION                                                                     |  |  |  | 18 | 
|                                                                                               
|ITEM 6    EXHIBITS                                                                              |  |  |  | 18 | 
|                                                                                               
|SIGNATURES                                                                                      |  |  |  | 19 | 

Page ii

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Table of Contents

# PART I  FINANCIAL INFORMATION

# ITEM 1    FINANCIAL STATEMENTS.

UNITED FINANCIAL CORP.
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share and per share data)
(Unaudited)

|                                                          | September 30,2005 |  | December 31,2004
|--------------------------------------------------------- | ----------------- |  | ----------------
|ASSETS                                                    |                   |  |                 
|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             |                   |  |                 
|Goodwill                                                  |                   |  |                 
|Other assets                                              |                   |  |                 
|                                                          |                   |  |                 
|                                                          |                   |  | $               
|                                                          |                   |  |                 
|                                                         
|LIABILITIES AND STOCKHOLDERS EQUITY                     
|Deposits:                                                 |                   | 
|Demand                                                    |                   |  | $               
|NOW and money market demand accounts                      |                   |  |                 
|Savings deposits                                          |                   |  |                 
|Time deposits                                             |                   |  |                 
|                                                          |                   |  |                 
|                                                          |                   |  |                 
|Federal Home Loan Bank advances                           |                   |  |                 
|Securities sold under agreements to repurchase            |                   |  |                 
|Accrued interest payable                                  |                   |  |                 
|Subordinated debt owed to trust                           |                   |  |                 
|Other liabilities                                         |                   |  |                 
|                                                          |                   |  |                 
|                                                          |                   |  |                 
|                                                          |                   |  |                 
|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;  |                   | 
|2,451,887 and 2,436,599 shares issued and outstanding     |                   | 
|at September 30, 2005 and December 31, 2004, respectively |                   |  |                 
|Paid in capital                                           |                   |  |                 
|Retained earnings                                         |                   |  |                 
|Accumulated other comprehensive income (loss), net        |                   |  |                 
|                                                          |                   |  |                 
|                                                          |                   |  |                 
|                                                          |                   |  |                 
|                                                          |                   |  | $               
|                                                          |                   |  |                 
|                                                         
|Equity/Assets                                             |                   |  |                 
|Book Value/Share                                          |                   |  | $               

See Notes to Consolidated Condensed Financial Statements

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UNITED FINANCIAL CORP.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)

|                                                    | Three Months EndedSeptember 30, |  | Nine Months EndedSeptember 30,
|--------------------------------------------------- | ------------------------------- |  | ------------------------------
|
|Interest income                                     |                                 |  |                               
|Loans receivable                                    |                                 |  | $                             
|Taxable investments                                 |                                 |  |                               
|Nontaxable investments                              |                                 |  |                               
|Other interest earning assets                       |                                 |  |                               
|                                                    |                                 |  |                               
|Total interest income                               |                                 |  |                               
|Interest expense                                   
|Deposits                                            |                                 |  |                               
|Other borrowings                                    |                                 |  |                               
|                                                    |                                 |  |                               
|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                               |                                 |  |                               
|Service charges and fees                            |                                 |  |                               
|Gain on sale of securities available-for-sale       |                                 |  |                               
|Other                                               |                                 |  |                               
|                                                    |                                 |  |                               
|Total non-interest income                           |                                 |  |                               
|Non-interest expense                                |                                 | 
|Compensation and benefits                           |                                 |  |                               
|Occupancy and equipment expense                     |                                 |  |                               
|Data processing fees                                |                                 |  |                               
|Other expenses                                      |                                 |  |                               
|                                                    |                                 |  |                               
|Total non-interest expense                          |                                 |  |                               
|                                                    |                                 |  |                               
|Income before income taxes                          |                                 |  |                               
|Income taxes                                        |                                 |  |                               
|                                                    |                                 |  |                               
|Net income                                          |                                 |  | $                             
|                                                    |                                 |  |                               
|Basic earnings per share                            |                                 |  | $                             
|Diluted earnings per share                          |                                 |  | $                             
|Dividends declared per share                        |                                 |  | $                             
|Weighted average shares outstanding  basic         |                                 |  |                               
|Weighted average shares outstanding  diluted       |                                 |  |                               

See Notes to Consolidated Condensed Financial Statements

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UNITED FINANCIAL CORP.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

|                                                                               | Nine Months Ended
|------------------------------------------------------------------------------ | -----------------
|
|Cash flows from operating activities, before loans held for sale               |                  
|Mortgage loans originated and held for sale                                    |                  
|Proceeds from sales of mortgage loans held for sale                            |                  
|                                                                               |                  
|Net cash from operating activities                                             |                  
|                                                                              
|Cash flows from investing activities                                          
|                                                                              
|Net increase in loans receivable                                               |                  
|Purchases of securities available-for-sale                                     |                  
|Proceeds from maturities, pay downs and sales of securities available-for-sale |                  
|Purchases of premises and equipment                                            |                  
|Proceeds from sale of real estate and other personal property owned            |                  
|                                                                               |                  
|                                                                              
|Net cash from investing activities                                             |                  
|                                                                               |                  
|                                                                              
|Cash flows from financing activities                                           |                  
|                                                                              
|Net increase in deposits                                                       |                  
|Proceeds from Federal Home Loan Bank advances                                  |                  
|Payments on Federal Home Loan Bank advances                                    |                  
|Net increase (decrease) in securities sold under agreements to repurchase      |                  
|Dividends paid to stockholders                                                 |                  
|Proceeds from issuance of common stock                                         |                  
|Redemption of common stock                                                     |                  
|                                                                               |                  
|                                                                              
|Net cash from financing activities                                             |                  
|                                                                               |                  
|                                                                              
|Increase (decrease) in cash and cash equivalents                               |                  
|Cash and cash equivalents at beginning of year                                 |                  
|                                                                               |                  
|Cash and cash equivalents at end of period                                     |                  
|                                                                               |                  
|                                                                              
|Supplemental Cash Flow Disclosure                                              |                  
|                                                                              
|Cash payments for interest                                                     |                  
|Cash payments for income taxes                                                 |                  
|                                                                              
|Non Cash Investing and Financing Activities                                   
|                                                                              
|Acquisition of other personal property in settlement of loans                  |                  

See Notes to Consolidated Condensed Financial Statements

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UNITED FINANCIAL CORP.
NOTES TOCONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

# 1.   GENERAL

United Financial Corp.
(United, the Company, we, our or us) is a bank holding company
headquartered in Great Falls, Montana, with operations in 15 locations in 13 Montana communities. We were organized as a Minnesota
corporation in 1996. We conduct our banking business in Montana through our wholly-owned subsidiary, Heritage Bank, a Montana
corporation established in 1923.

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 conducts its community banking business
by soliciting 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 with 53%
of our total assets 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 our financial condition and results of operations, depend 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.

Heritage Bank has a
wholly-owned subsidiary HPM, Inc. which was incorporated to acquire land and a building for a new Great Falls full service branch
location, which it leases back to Heritage Bank. The new facility opened in April 2005 and replaces a formerly leased drive-up
location in Great Falls.

Heritage Bank also holds a
14% ownership interest in Bankers Resource Center, a computer data center, located in Helena, Montana.

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

You can access all our
periodic and current reports, free of charge, on our website as soon as reasonably practicable after we file or furnish such
material to the Securities and Exchange Commission (SEC). Our website address is www.ufcmontana.com. The
contents of our website are not a part of this report or of our other filings with the SEC.

# 2.   BASIS OF PRESENTATION

We have prepared our
consolidated financial statements included in this report in accordance with accounting principles generally accepted in the
United States of America (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X of the Securities and Exchange Commission. Accordingly, our consolidated financial statements do
not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management,
the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the consolidated financial condition, results of operations, and cash
flows for the periods disclosed. Our operating results for the three and nine months ended September 30, 2005 are not necessarily
indicative of the results that we anticipate for the year ending December 31, 2005. For additional information, you should refer
to the consolidated audited financial statements and related footnotes included in our Annual Report to Shareholders and Annual
Report on Form 10-K for the year ended December 31, 2004.

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# 3.   COMPREHENSIVE INCOME

Unrealized gains and losses
on securities available-for-sale comprise Uniteds only significant element of other comprehensive income.

|                                                                               | Three Months EndedSeptember 30, |  | Nine Months EndedSeptember 30,
|------------------------------------------------------------------------------ | ------------------------------- |  | ------------------------------
|
|Net income                                                                     |                                 |  | $                             
|                                                                              
|Unrealized and realized holding gains (losses) arising during period           |                                 |  |                               
|                                                                              
|Less: reclassification adjustment for gains included in net income, net of tax |                                 |  |                               
|                                                                               |                                 |  |                               
|                                                                              
|Net unrealized gains (losses) on securities available for sale, net of tax     |                                 |  |                               
|                                                                               |                                 |  |                               
|                                                                              
|Total comprehensive income                                                     |                                 |  | $                             
|                                                                               |                                 |  |                               

# 4.   COMPUTATION OF EARNINGS PER SHARE

Basic earnings per share
(EPS) is computed by dividing net income by the weighted average number of common shares outstanding for the period.
Diluted EPS is calculated by dividing net income by the weighted average number of common shares used to compute basic EPS plus
the incremental amount of potential common stock determined by the treasury stock method. Potential common stock includes the
incremental shares available for issuance under stock option plans.

The following table sets
forth the computation of basic and diluted earnings per share.

|(In thousands, except per share data)                                                                    | Three Months EndedSeptember 30, |  | Nine Months EndedSeptember 30,
|-------------------------------------------------------------------------------------------------------- | ------------------------------- |  | ------------------------------
|
|Weighted average shares outstanding during the period on which basic earnings    per share is calculated |                                 |  |                               
|Add: incremental shares under stock option plans                                                         |                                 |  |                               
|                                                                                                         |                                 |  |                               
|                                                                                                        
|Average outstanding shares on which diluted earnings per share is calculated                             |                                 |  |                               
|                                                                                                         |                                 |  |                               
|                                                                                                        
|Net income applicable to common stockholders, basic and diluted                                          |                                 |  | $                             
|                                                                                                        
|Basic earnings per share                                                                                 |                                 |  |                               
|                                                                                                        
|Diluted earnings per share                                                                               |                                 |  |                               

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# 5.   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 our largest shareholder
and has been providing similar services to various banks and financial services organizations since December of 1988. CFS fees
billed to United were approximately $.1 million and $.3 million for each of the three and nine month periods ended September 30,
2005 and 2004, respectively. The fees are billed by CFS on an hourly basis for work performed by our Chairman, our largest
shareholder, and four other CFS employees. Our Chairman does not receive direct compensation from United for these services. He is
compensated for services as a director through directors fees of $350 per month, and for services as an officer of United
through CFS. Through CFS, our largest shareholder and Chairman earn annual salaries of $100,000 and $151,000, respectively. Our
pro-rata portion of those salaries was approximately 54%, based upon CFS billings during those periods.

From time to time, Central
Bank, the Stillwater, Minnesota bank founded by our largest shareholder in 1988, sells loan participations to Heritage Bank.
Heritage Bank did not buy loan participations from Central Bank in the first nine months of 2005. Our Chairman is also the
Chairman of the Board of Central Bank.

Our Chairman also serves on
the Board of Directors of Timberline Bank in Grand Junction, Colorado. Heritage Bank bought loan participations from Timberline
Bank with original balances totaling approximately $10.4 million in the first nine months of 2005. The balances of these purchased
loans have since paid down in the first nine months of 2005. Heritage Bank has also sold loan participations to Timberline Bank.
Balances of sold and purchased loan participations outstanding with both Central Bank and Timberline Bank at September 30, 2005
and December 31, 2004, respectively, are disclosed in Managements Discussion and Analysis of Financial Condition and
Results of Operations included herein in Item 2 in the section titled Loans Receivable and Loans Held for Sale.

United expects such
transactions to continue to occur in the future with both Central Bank and Timberline Bank. We believe such sales will be made on
substantially the same terms as loan participations which are sold to nonaffiliated persons. Our largest shareholder and our
Chairman serve on other bank boards as well. These banks, to date, have not had any loan participation activity with Heritage
Bank.

Bankers Resource Center
(BRC) provides data processing services for Heritage Bank, as well as several other banks. Heritage Bank has a 14%
ownership interest in BRC. The charges for BRCs services were $.2 million and $.6 million for each of the three and nine
month periods ended September 30, 2005 and 2004, respectively.

# 6.   SUBSEQUENT EVENTS-DIVIDENDS DECLARED AND OPTION SHARES GRANTED

On October 25, 2005, our
Board of Directors declared a quarterly cash dividend of $.28 per share, payable December 1, 2005, to shareholders of record on
November 17, 2005. A five for four stock split affected as a 25% stock dividend was also approved, payable December 28, 2005 to
shareholders of record on December 14, 2005. Fractional shares will be paid in cash.

As of October 31, 2005, our
Board of Directors granted options, under the 2000 Long-Term Incentive and Stock Option Plan, for approximately 28,000 shares of
our stock at an exercise price of $25.25 to certain employees and directors. The options vest over a four year period. An
amendment to our stock option plan approved in May of 2005 by our shareholders added 60,000 shares as available for share grants.
At September 30, 2005, we had approximately 145,000 option grants outstanding, and approximately 67,000 shares available for
option grants under our stock option plan.

# 7.   STOCK-BASED COMPENSATION

United has a stock-based
employee compensation plan, which is a stock option plan described more fully in footnotes included in Uniteds Annual Report
to Shareholders and its Annual Report on Form 10-K for the year ended December 31, 2004. 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
have an exercise price at or above to the market value of the underlying common stock on the date of grant.

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

|(In thousands, except per share data)(Unaudited)                         | Three Months EndedSeptember 30, |  | Nine Months EndedSeptember 30,
|------------------------------------------------------------------------ | ------------------------------- |  | ------------------------------
|
|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                                                      |                                 |  | $                             
|                                                                         |                                 |  |                               

# 8.   CRITICAL ACCOUNTING POLICIES

# Allowance for loan losses

We have identified our most
critical accounting policy to be related to the allowance for loan losses. Our 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. We also use an internal loan risk grading system to evaluate
potential losses of individual loans. Other factors include the future economic trends in our 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, management performs a full analysis on a quarterly basis to ensure that
changes in estimated loan loss levels are reflected in the loan loss allowance on a timely basis.

# Goodwill

Another critical accounting
policy is related to the carrying value of goodwill. We use a market valuation approach in assessing goodwill impairment and
measure the carrying value similarly at least annually. Impairment analysis of the fair value of goodwill involves a substantial
amount of judgment. At June 30, 2005 and December 31, 2004, we had $1.4 million of recorded goodwill.

# Stock-based compensation

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, we apply the accounting provisions of Accounting Principles
Board (APB) Opinion No. 25, and therefore disclose 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 our stock incentive plan. Had we determined compensation cost for the plan in accordance with SFAS No. 123 and
recognized it over the vesting period, our net income and earnings per share would have been reduced to the pro forma amounts as
presented in Note 7 above.

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In December 2004, the
Financial Accounting Standards Board (the FASB) issued SFAS No 123 (R) (revised 2004), Share-Based
Payment. This Statement requires us 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. We will recognize that cost over the period during which an employee
provides service in exchange for the award. We intend to adopt SFAS No. 123 (R) beginning with our quarter ended March 31, 2006.

# Securities available-for-sale

We have also identified our
accounting method for securities available-for-sale to be a critical accounting policy. We carry securities available-for-sale at
fair value and exclude unrealized gains and losses (net of related tax effects) from earnings. We report these unrealized gains
and losses (net of related tax effects) as a separate component of stockholders equity. If the unrealized losses are
determined to be other than temporary impairments, we are required to record the loss in the current operating statement, rather
than as an adjustment to stockholders equity. At September 30, 2005, we have determined that no such impairments exist.
While fair values are determined per market quotes from independent brokers and are not subject to management estimation, the
carrying value of the securities is subject to market variations. At September 30, 2005 and December 31, 2004, the unrealized
gain(loss) on securities available-for-sale to mark them to market was approximately $(.1) million and $.1 million, respectively.

ITEM 2    MANAGEMENTS DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF       OPERATIONS.

# 1.   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. We base these forward-looking statements on
our current expectations, estimates and projections about our 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 our products and services, the competitive nature of and anticipated growth in our markets, our
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 our 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 our 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 our business environment or affect operations;
(iv) the potential need to adapt to industry changes in information technology systems, on which we are highly dependent, could
present operational issues or require significant capital spending; (v) competitive pressures could intensify and affect our
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 we conduct business; and (vii) capital investments in our 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.
We undertake no obligation to revise or update publicly any forward-looking statement for any reason. You should also carefully
review the risk factors described in documents we file from time to time with the Securities and Exchange Commission.

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# 2.   KEY PERFORMANCE INDICATORS.

Our executive level
management consider the following to be key performance indicators.

|                                                     | September 30, 2005 |  | December 31, 2004
|---------------------------------------------------- | ------------------ |  | -----------------
|Capital ratios:                                      |                    |  |                  
|Tier 1 leverage ratio                                |                    |  |                  
|Tier 1 risk-based capital ratio                      |                    |  |                  
|Total risk-based capital ratio                       |                    |  |                  
|Allowance for loan losses to loans receivable, gross |                    |  |                  
|Allowance for loan losses to loans receivable,       |                    | 
|gross and loans held for sale                        |                    |  |                  
|Nonperforming loans to loans receivable, gross       |                    |  |                  
|Book value per share                                 |                    |  | $                
|                                                    
|(In Thousands)                                       |                    | 
|Loans receivable, gross                              |                    |  | $                
|Allowance for loan losses                            |                    |  | $                
|Loans held for sale                                  |                    |  | $                
|Nonperforming loans                                  |                    |  | $                
|Total assets                                         |                    |  | $                
|Total deposits                                       |                    |  | $                
|Net loans to deposits                                |                    |  |                  

|                                    | Three Months Ended |  | Nine Months Ended
|----------------------------------- | ------------------ |  | -----------------
|
|Net earnings:                       |                    |  |                  
|Return on average assets            |                    |  |                  
|Return on average common equity     |                    |  |                  
|Net interest margin                 |                    |  |                  
|Earnings per share  basic          |                    |  |                  
|Earnings per share  diluted        |                    |  |                  
|Dividends per share                 |                    |  |                  
|                                   
|Non Financial:                      |                    | 
|Full-time employees                 |                    |  |                  
|New deposit accounts                |                    |  |                  
|Closed or reissued deposit accounts |                    |  |                  
|Full service branches               |                    |  |                  
|ATMs                               |                    |  |                  

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# 3.   MATERIAL CHANGES IN FINANCIAL CONDITION. COMPARISON OF SEPTEMBER 30, 2005 TO DECEMBER 31, 2004.

|                                               | Selected Financial Condition Data
|---------------------------------------------- | ---------------------------------
|
|Cash and cash equivalents                      |                                  
|Securities available-for-sale                  |                                  
|Restricted stock, at cost                      |                                  
|Loans held for sale                            |                                  
|Loans receivable, net                          |                                  
|Premises and equipment, net                    |                                  
|Real estate and other personal property owned  |                                  
|Goodwill                                       |                                  
|All other assets                               |                                  
|Total assets                                   |                                  
|                                              
|Deposits                                       |                                  
|Federal Home Loan Bank advances                |                                  
|Securities sold under agreements to repurchase |                                  
|Subordinated debt                              |                                  
|All other liabilities                          |                                  
|Total liabilities                              |                                  
|Stockholders equity, net                      |                                  

Total assets 
Total assets increased $33.8 million to $380.9 million at September 30, 2005 from $347.1 million at December 31, 2004. Assets
increased primarily because of a net increase in loans receivable and loans held for sale of approximately $39.8 million. This
increase in loans was offset by a decrease in securities available-for-sale of approximately $6.5 million. Other increases
totaling $ .5 million are detailed in the table above.

Securities
available-for-sale  Securities available-for-sale decreased $6.5 million to $32.4 million at September 30, 2005 from
$38.9 million at December 31, 2004. The decrease was the result of $9.2 million of principal repayments and $2.7 million in
maturities, offset by $5.7 million of purchases. We incurred unrealized losses on securities available-for-sale of $ .3 million,
before income taxes, for the nine months ended September 30, 2005. Our portfolio consists primarily of agency and mortgage backed
securities and is likely to remain as such.

Restricted stock, at
cost  During the second quarter of 2005, we were notified by the Federal Home Loan Bank of Seattle that it was
projecting very low net income over the next few years, possibly even losses. The Seattle Bank disclosed in a press release that
it anticipates minimal to no dividends during the next few years. While the Seattle Bank has ruled that members are no longer
required to purchase additional stock to support borrowing levels, it also is not redeeming member stock. Total annual dividend
income we received on this stock was $.1 million and $.2 million, respectively, for the years ended December 31, 2004 and 2003. We
do not anticipate recording any future accruals of dividend income in 2005. We account for the restricted stock at cost, with
periodic evaluation for impairment.

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We summarize loans
receivable, net of unamortized net deferred loan fees, as of September 30, 2005 and December 31, 2004, in the following table:

|(In thousands)                                               | September 30,2005 |  | December 31,2004
|------------------------------------------------------------ | ----------------- |  | ----------------
|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                            |                   |  |                 
|                                                             |                   |  |                 
|                                                             |                   |  |                 
|Less:  Allowance for loan losses                             |                   |  |                 
|                                                             |                   |  |                 
|                                                            
|                                                             |                   |  | $               
|                                                             |                   |  |                 

Allowance for loan losses for
the periods indicated are:

|(In thousands)               | Nine Months EndedSeptember 30, 2005 |  | Year EndedDecember 31, 2004
|---------------------------- | ----------------------------------- |  | ---------------------------
|Balance, beginning of period |                                     |  | $                          
|Provision for loan losses    |                                     |  |                            
|Losses charged off           |                                     |  |                            
|Recoveries                   |                                     |  |                            
|                             |                                     |  |                            
|Balance, end of period       |                                     |  | $                          
|                             |                                     |  |                            

Loans Receivable and Loans
Held for Sale  Net loans receivable increased by $35.2 million to $300.2 million at September 30, 2005 from $265.0
million at December 31, 2004. We attribute the increase primarily to growth in the real estate loan category. The increase
includes a $4.3 million increase in first mortgage loans and contracts secured by real estate, and a $25.2 million increase in
commercial real estate loans.

Heritage Bank purchases and
participates in commercial and lease financing loans. In the normal course of business, banks often purchase loans from other
banks that would exceed the originating banks lending limit. Heritage Bank had $28.9 million and $25.7 million of
participation and purchased loans as of September 30, 2005 and December 31, 2004, respectively. The $28.9 million balance at
September 30, 2005 includes $3.5 million of loans purchased from Central Bank and $9.0 million of loans purchased from Timberline
Bank. The $25.7 million balance at December 31, 2004 includes $3.8 million of loans purchased from Central Bank and $.2 million of
loans purchased from Timberline Bank. Each of the loans purchased from Central Bank and Timberline Bank were loans that would have
exceeded those banks lending limits when originated. Heritage Bank has no participated loans sold as a result of legal
lending limit issues. At September 30, 2005, Heritage Bank had $1.9 million of loans sold to Timberline Bank.

The $4.3 million increase in
first mortgage loans and contracts secured by real estate is attributable to the increase in loan balances purchased from
Timberline Bank. The $25.2 million increase in commercial real estate loans includes a $2.4 million increase in loan balances
purchased from Timberline Bank. The remaining $22.8 million increase in commercial real estate loans included increases of $10.6
million in our Bozeman market, $7.7 million in our Great Falls market, $1.4 million in our Missoula market and $3.1 million in our
Billings market. Billings is a new market for us, and our loan demand continues to grow in our Bozeman, Great Falls and Missoula
markets.

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During the nine months ended
September 30, 2005, loans held for sale increased $4.6 million to $10.4 million at September 30, 2005 from approximately $5.8
million at December 31, 2004. We originated for sale approximately $124.2 million of residential real estate loans, and we sold
$119.6 million of residential real estate loans to the secondary market during the nine months ending September 30, 2005.It has been our experience that loans held for sale balances are larger at September 30 than at December 31, as volumes of
residential real estate loan originations are greater in the third quarter of the year than in the fourth quarter.

Allowance for Loan
Losses  The allowance for loan losses totaled $3.7 million at both September 30, 2005 and December 31, 2004. Loan charge
offs of $.2 million for the nine months ended September 30, 2005, were offset by a $.2 million provision for loan losses.
Management believes the allowance for loan losses at September 30, 2005 was adequate given the low level of non-performing assets
and managements assessment of loan risk. The allowance for loan losses to total loans receivable at September 30, 2005 was
1.21% as compared to 1.38% at December 31, 2004.

Heritage Bank follows
regulatory guidelines when it suspends interest accrual on a loan. When a loan is placed on non-accrual status, all previously
accrued and uncollected interest is reversed from interest income. Heritage Banks policy is to review, classify and report
to its Board of Directors its assets on a regular basis and specify any assets that are substandard (the possibility
that some loss could be sustained), doubtful (high likelihood of loss), or loss (uncollectible). Adequate
valuation allowances must be established for assets classified as substandard or doubtful in accordance with generally accepted
accounting principles. If Heritage Bank classifies an asset as a loss, Heritage Bank must either establish a specific valuation
allowance equal to the amount classified as a loss or charge off such amount.

The following table
summarizes non-accrual, non-performing and classified asset balances at September 30, 2005 as compared to December 31, 2004.

|(In thousands)                   | September 30,2005 |  | December 31,2004
|-------------------------------- | ----------------- |  | ----------------
|
|Non-accrual loans                |                   |  | $               
|90 days past due                 |                   |  |                 
|Assets classified as loss        |                   |  |                 
|Assets classified as doubtful    |                   |  |                 
|Assets classified as substandard |                   |  |                 
|Impaired                         |                   |  |                 

Deposits 
Deposits increased by $44.5 million to $302.8 million at September 30, 2005 from $258.3 million at December 31, 2004. The
decreases in demand accounts, NOW and money market accounts and savings accounts, from December 31, 2004 to September 30, 2005
reflect the normal volatility in these types of accounts. These balances are typically highest at year end and decrease during the
year. Approximately half of the $46.7 million increase in certificates of deposits resulted from an addition in 2005 of $22.0
million of brokered deposits, done in order to fund our loan growth. Management believes brokered deposits represent a stable,
efficient source of available funding. The remaining increase of $24.7 million included increases of $9.7 million in our Billings
market, $2.4 million in our Bozeman market and $7.4 million in our Great Falls market. A significant portion of the nine month
increase in certificates of deposit occurred in the three months ended September 30, 2005, the result of a special interest rate
promotion done at Heritage Bank. Increases in the three months ended September 30, 2005 totaled $7.6 million in our Billings
market, $2.0 million in our Bozeman market and $3.6 million in our Great Falls market. Our other markets shared ratably in the
balance of the $3.4 million increase, resulting from a combination of competitive rates on all deposit offerings, and Heritage
Banks commitment to community banking, both of which continue to attract depositors.

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Average deposits by type, as
computed using ending daily balances, were as follows:

|(In thousands)                | Period EndedSeptember 30,2005 |  | Year endedDecember 31,2004 |       | Average$ Change
|----------------------------- | ----------------------------- |  | -------------------------- | ----- | ---------------
|Demand accounts               |                               |  | $                          | 45.8  |                
|NOW and money market accounts |                               |  |                            | 31.5  |                
|Savings accounts              |                               |  |                            | 54.9  |                
|Certificate of deposits       |                               |  |                            | 135.9 |                
|                              |                               |  |                            |       |                
|                              |                               |  | $                          | 268.1 |                
|                              |                               |  |                            |       |                

Borrowed Funds 
Federal Home Loan Bank advances decreased $10.4 million to $34.4 million at September 30, 2005 from $44.8 million at December 31,
2004. The decrease consists of $56.1 million in advances and $66.5 million in repayments. Heritage Bank used the proceeds from the
additional advances to fund the increase in loans during the first nine months of 2005. Securities sold under agreements to
repurchase decreased $2.6 million to $4.9 million at September 30, 2005 from $7.5 million at December 31, 2004.

Stockholders
Equity  Stockholders equity totaled $31.6 million at September 30, 2005, up $1.0 million from $30.6 million at
December 31, 2004. Stockholders equity activity during 2005 included $3.1 million of net income for the nine months ended
September 30, 2005 less cash dividends declared of $2.1 million, and less a $.2 million decrease due to decreases in unrealized
gains on investments available-for sale. An increase of $.2 million was the result of corporate stock issued to employees under
the company stock option plan.

|4. | MATERIAL CHANGES IN RESULTS OF OPERATIONS
 COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND SEPTEMBER 30, 2004.
|-- | ---------------------------------------------------------------------------------------------------------------------------

|(In thousands)                                          | Selected Income Statement DataThree Months Ended September 30,
|------------------------------------------------------- | --------------------------------------------------------------
|
|Interest income                                         |                                                               
|Interest expense                                        |                                                               
|                                                        |                                                               
|Net interest income                                     |                                                               
|Provision for losses on loans                           |                                                               
|                                                        |                                                               
|Net interest income after provision for losses on loans |                                                               
|Non-interest income                                     |                                                               
|Non-interest expense                                    |                                                               
|                                                        |                                                               
|Income before income taxes                              |                                                               
|Income taxes                                            |                                                               
|                                                        |                                                               
|Net income                                              |                                                               
|                                                        |                                                               

Net Interest Income Like most financial institutions, the most significant component of Uniteds earnings is net interest income,
which is the difference between the interest earned on interest-earning assets (loans, investment securities, mortgage-backed
securities and other interest-earning assets), and the interest paid on deposits and borrowings. This amount, when divided by
average interest-earning assets, is referred to as the net interest margin, expressed as a percentage. Net interest income and net
interest margins are affected by changes in interest rates, the volume and the mix of interest-earning assets and interest-bearing
liabilities, and the level of non-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. Net interest income
increased $.2 million to $3.6 million for the three months ended September 30, 2005 from $3.4 million for the three months ended
September 30, 2004. Net interest margin decreased .20% to 4.14% for the three months ended September 30, 2005 from 4.34% for the
three months ended September 30, 2004. Net interest spread decreased .21% to 4.10% for the three months ended September 30, 2005
from 4.31% for the three months ended September 30, 2004.

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Interest Income 
The $.8 million increase reported above in interest income was attributable to loan interest income. Average balances of loans for
the three months ended September 30, 2005 increased $38.5 million as compared to average balances for the same period in 2004.
Likewise, weighted average interest rates on loans have increased at September 30, 2005 to 6.31%, up .45% from 5.86% at September
30, 2004. The increase in loan interest income was slightly offset by a decrease in dividends on Federal Home Loan Bank stock
mentioned previously. For the three months ended September 30, 2005 no dividend income was received, as compared to income of
approximately $31,000 for the same period in 2004.

Interest Expense
 Interest expense increased $.6 million to $1.9 million for the three months ended September 30, 2005 from $1.3 million for
the three months ended June 30, 2004. The average balance of deposits increased $46.4 million for the three months ended September
30, 2005 compared to the same period in 2004, and higher interest rates during the three months ended September 30, 2005 resulted
in an increase in interest expense on deposits of $.6 million during the three months ended September 30, 2005 compared to the
same period in 2004. Weighted yields on certificates of deposits were 3.30% and 2.45% at September 30, 2005 and 2004,
respectively. At September 30, 2005 and 2004, weighted yields on savings deposits were 1.43% and 1.20%, respectively.

Provision for Loan
Losses  United provided $.1 million for loan losses in the three months ended September 30, 2005 to offset current
charge offs. No such provision was made in the same period of 2004. Asset quality at Heritage Bank has remained strong. Heritage
Banks non-performing loans, defined as 90 days past due and non-accrual loans, totaled 0% and .22% of total loans at
September 30, 2005 and 2004, respectively.

The provision for loan losses
is determined by management as the amount to be added to the allowance for loan losses after net charge-offs have been deducted to
bring the allowance to a level which is considered adequate to absorb probable losses inherent in the loan portfolio in accordance
with GAAP. Future additions to Uniteds allowance for loan losses and any change in the related ratio of the allowance for
loan losses to non-performing assets are dependent upon the performance and composition of Uniteds loan portfolio, the
economy, inflation, changes in real estate values and interest rates and the view of the regulatory authorities toward adequate
reserve levels.

Non-interest Income
 In addition to net interest income, United generates significant non-interest income from a range of retail banking
services, including mortgage banking activities and service charges for deposit services. Non-interest income totaled $1.4 million
for the three months ended September 30, 2005 and $1.2 million for the same period in 2004.

Uniteds loan demand has
remained brisk in the residential real estate origination market. During the three months ended September 30, 2005 as compared to
the same period in 2004, these originations are up 16.3%. Gain on sale of loans increased $.2 million for the three months ending
September 30, 2005 to $1.0 million from $.8 million for the same period in 2004, an increase of 22.2%.

|5. | MATERIAL CHANGES IN RESULTS OF OPERATIONS
 COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND SEPTEMBER 30, 2004.
|-- | --------------------------------------------------------------------------------------------------------------------------

|                                                        | Selected Income Statement DataNine Months Ended September 30,
|------------------------------------------------------- | -------------------------------------------------------------
|
|Interest income                                         |                                                              
|Interest expense                                        |                                                              
|                                                        |                                                              
|Net interest income                                     |                                                              
|Provision for losses on loans                           |                                                              
|                                                        |                                                              
|Net interest income after provision for losses on loans |                                                              
|Non-interest income                                     |                                                              
|Non-interest expense                                    |                                                              
|                                                        |                                                              
|Income before income taxes                              |                                                              
|Income taxes                                            |                                                              
|                                                        |                                                              
|Net Income                                              |                                                              
|                                                        |                                                              

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Net Interest Income
 Net interest income increased $.7 million to $10.4 million for the nine months ended September 30, 2005 from $9.7 million
for the nine months ended September 30, 2004. Net interest margin decreased .08% to 4.14% for the nine months ended September 30,
2005 from 4.22% for the same period in 2004. Net interest-rate spread decreased .04% to 4.10% for the nine months ended September
30, 2005 from 4.14% for the same period in 2004.

Interest Income 
The $2.0 million increase reported above in interest income was attributable to loan interest income. Average balances of loans
for the nine months ended September 30, 2005 increased $36.4 million as compared to average balances for the same period in 2004.
Likewise, weighted average interest rates on loans have increased at September 30, 2005 to 6.31%, up .45% from 5.86% at September
30, 2004. The increase in loan interest income was slightly offset by the decrease in dividends on Federal Home Loan Bank stock
mentioned previously. For the nine months ended September 30, 2005 dividend income of approximately $17,000 was received, as
compared to income of approximately $102,000 for the same period in 2004.

Interest Expense
 Interest expense increased $1.2 million to $5.0 million for the nine months ended September 30, 2005 from $3.8 million for
the nine months ended September 30, 2004. The average balance of deposits increased $29.5 million for the nine months ending
September 30, 2005, compared to the same period in 2004. The $.3 million increase in interest on other borrowings included
increases in both interest on FHLB advances and repurchase agreements. The average balance of FHLB advances increased $7.1 million
for the nine months ending September 30, 2005, compared to the same period in 2004 and the weighted average rate for outstanding
advances increased to 3.82% at September 30, 2005 from 3.49% at September 30, 2004.

Provision for Loan Losses
 United provided $.1 million for loan losses for the nine months ended September 30, 2005 and 2004, respectively. As
discussed above, provisions in 2005 were made to offset loan charge-offs.

Non-interest
Income  Non-interest income was $3.3 million for both the nine months ended September 30, 2005 and 2004.

Non-interest Expense
 Uniteds non-interest expense increased $.5 million during the nine months ended September 30, 2005 as compared to the
same period in 2004 to $8.7 million from $8.2 million primarily due to increases in personnel costs.

|6. | 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 (referred to as interest-earning assets), and the rates paid on its deposits and borrowings (referred to
as interest-bearing liabilities). The relative amounts of our interest-earning assets and interest-bearing liabilities
also affect net interest income. In recent years, our 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 managements
primary objectives has been to restructure the balance sheet to reduce our vulnerability to changes in interest rates (referred to
as interest rate risk). Commercial banking institutions can suffer 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
commercial banking institutions. In periods of rising interest rates, this mismatch can render commercial banking 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 reduction in interest rate spread and lower earnings.

Management has employed
several strategies to minimize the mismatch of asset and liability maturities. Heritage Bank sells the majority of
newly-originated long-term (15 to 30-year maturity) fixed-rate mortgage loans to the secondary market. Heritage Bank sells these
loans at their outstanding principal balance, which is the prearranged contract purchase price, and therefore, the amount
recognized under the income statement caption gain on sale of loans represents fee income only. Heritage Bank promotes
the origination and retention of loans providing for periodic interest rate adjustments, shorter terms to maturity or balloon
provisions. Heritage Bank also emphasizes investment in adjustable rate or shorter-term mortgage-backed securities and other
interest-earning investments. When maturities of loans increase, management generally offsets the increased interest rate risk
with matching funds and maturities with Federal Home Loan Bank borrowings.

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|7. | LIQUIDITY AND CAPITAL RESOURCES
|-- | -------------------------------

Our primary sources of funds
are deposits, FHLB borrowings, repurchase agreements, 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, mortgage prepayments generally increase. As a result, we generally would invest these proceeds
from mortgage prepayments in lower yielding loans or other investments which have the effect of reducing interest income. In a
period of rising interest rates, mortgage prepayments would generally decrease and we generally would invest the proceeds from
such prepayments in higher yielding loans or investments which would have the effect of increasing interest income.

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 our 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 requirements for
capital adequacy include minimum amounts and ratios set forth in the table below. As of September 30, 2005 United met all
regulatory capital adequacy requirements to which it is subject.

|Consolidated:             | Actual |  | Minimum for capitaladequacy purposes
|------------------------- | ------ |  | ------------------------------------
|
|September 30, 2005:       |        |  |                                     
|Total risk-based capital  |        |  | $                                   
|Tier I risk-based capital |        |  |                                     
|Tier I leverage           |        |  |                                     

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# ITEM 3    QUANTITATIVE AND QUALITATIVEDISCLOSURES 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. United has employed several asset/liability management strategies to minimize its exposure to IRR. These strategies
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 Asset/Liability
Management Committee utilizes a detailed simulation model prepared by an institutional fund management service to quantify the
estimated exposure of net interest income (NII) to sustained interest rate changes. The model predicts the impact of
changing interest rates on the interest income received and interest expense paid on assets and liabilities. We compare this
sensitivity analysis to ALCO policy limits which specify a maximum tolerance level for NII given a 200 basis point (bp) rise or
decline in interest rates. United is currently in compliance with all such policy limits.

The following table
summarizes the sensitivity analysis for Heritage Bank as of June 30, 2005, the most recent information available. Management
believes there has been no material change in interest rate risk since June 30, 2005. For additional information, see
Managements Discussion and Analysis of Financial Condition and Results of Operations included herein in Item 2
and refer to the Interest Rate Risk Management discussion included in our Annual Report on Form 10-K for the year ended December
31, 2004.

|Heritage BankEstimated increase (decrease)in net interest income: | +200 bp |  | -200 bp
|----------------------------------------------------------------- | ------- |  | -------
|0-90 days                                                         |         |  | $      
|91-360 days                                                       |         |  |        
|2 years                                                           |         |  |        
|3 years                                                           |         |  |        

The preceding sensitivity
analysis does not represent a forecast and you should not rely upon the analysis 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 other assumptions. Sensitivity analysis does not reflect actions
that United might take in responding to or anticipating changes in interest rates.

# ITEM 4    CONTROLS AND PROCEDURES.

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

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# PART II  OTHER INFORMATION

# ITEM 1    LEGAL PROCEEDINGS.

Although neither we nor
Heritage Bank is involved in any material pending litigation as of September 30, 2005, Heritage Bank is a defendant 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 2    UNREGISTERED SALESOF EQUITY SECURITIES AND USE OF PROCEEDS.

None

# ITEM 3    DEFAULTS UPONSENIOR SECURITIES.

None

# ITEM 4    SUBMISSION OF MATTERSTO A VOTE OF SECURITIES HOLDERS.

None

# ITEM 5   OTHER INFORMATION.

None

# ITEM 6   EXHIBITS.

|A. | Exhibits
|-- | --------

| |  | 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 |  | Amendment to United Financial Corp. 2000 Long-Term Incentive and
Stock Option Plan (incorporated by reference to Exhibit 10.1 of Uniteds Quarterly Report on Form 10-Q dated
August 12, 2005).
| |  | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 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 chief executive officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
| |  | ---- |  | ---------------------------------------------------------------------------------------------------

| |  | 32.2 |  | Certification of chief financial officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
| |  | ---- |  | ---------------------------------------------------------------------------------------------------

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Table of Contents

# Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized:

|     | United Financial Corp.
|---- | ----------------------
|    
|Date | November 10, 2005     
|     |                       
|    
|Date | November 10, 2005     
|     |                       
|    

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