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, 1999

                                       or

            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
                        THE SECURITY 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) (Zip Code)


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

        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 twelve 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. [ ]

         The aggregate market value of the voting stock held by non-affiliates
of the Registrant, computed by reference to the closing price of such stock on
the Nasdaq National Market as of February 25, 2000, was $17,344,507.

         The number of shares of Registrant's common stock outstanding on
February 25, 2000 was 1,652,312. Registrant's common stock is traded on the
Nasdaq National Market, symbol UBMT.


                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Proxy Statement for the 2000 Annual Meeting of
Stockholders to be held on May 23, 2000 are incorporated by reference into Part
III of this Form 10-K.


<PAGE>





                             UNITED FINANCIAL CORP.
                          1999 FORM 10-K ANNUAL REPORT

                                TABLE OF CONTENTS

                                     PART I

ITEM 1.  BUSINESS............................................................ 1

ITEM 2.  PROPERTIES..........................................................14

ITEM 3.  LEGAL PROCEEDINGS...................................................15

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................15

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
         STOCKHOLDER MATTERS.................................................15

ITEM 6.  SELECTED FINANCIAL DATA.............................................17

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS...............................................18

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..........33

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................35

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
         ON ACCOUNTING AND FINANCIAL DISCLOSURE..............................35

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................35

ITEM 11. EXECUTIVE COMPENSATION..............................................35

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
         AND MANAGEMENT......................................................35

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................35

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
         ON FORM 8-K.........................................................36






                                       i

<PAGE>





                                     PART I

ITEM 1.  BUSINESS

GENERAL. United Financial Corp. ("United") is a bank holding company
headquartered in Great Falls, Montana, with operations in 12 other Montana
communities. In 1999, substantially all of United's banking business was
conducted through its wholly-owned subsidiaries Heritage Bank F.S.B. ("Heritage
Bank") and Heritage State Bank ("State Bank"), a banking subsidiary formed in
1998, collectively referred to herein as the "Banks". United had assets of
approximately $270 million, deposits of approximately $180 million and
stockholders' equity of approximately $29 million at December 31, 1999. United
is the result of the merger on February 3, 1998 (the "Heritage Merger") of two
Montana-based savings and loan holding companies of relatively comparable size:
United Financial Corp. (as it existed prior to the merger, "Old United") and
Heritage Bancorporation ("Heritage"). Heritage Bank is the result of the
subsequent merger in May 1998 of the savings bank subsidiaries of these two
holding companies: United Savings Bank, F.A., the savings bank subsidiary of Old
United ("United Bank"), and Heritage Bank, the savings bank subsidiary of
Heritage.

         Heritage Bank is a federally chartered stock savings bank with full
service banking offices in Chester, Glendive, Great Falls, Havre and Shelby,
Montana, and loan production offices in Bozeman, Hamilton, Kalispell, Libby,
Missoula, and Polson, Montana. As of December 31, 1999, full service banking
offices are under construction in Missoula and Bozeman, which will replace the
loan production offices in those cities. State Bank is a state chartered bank
with full service banking operations in Fort Benton and Geraldine, Montana. The
Banks are engaged in the community banking business of attracting deposits from
the general public through their offices and using those deposits, together with
other available funds, to originate commercial (including lease financing),
commercial real estate, residential, agricultural and consumer loans primarily
in their market areas in Montana. A majority of United's banking business is
conducted in the Great Falls area. The Banks also invest in mortgage-backed
securities, U.S. Treasury obligations, other U.S. Government agency obligations
and other interest-earning assets.

         The Banks' financial condition and results of operations, and therefore
the financial condition and results of operations of United, are dependent
primarily on net interest income and fee income. The Banks' financial condition
and results of operations are also significantly influenced by local and
national economic conditions, changes in market interest rates, governmental
policies, tax laws and the actions of various regulatory agencies.

         United's principal offices are located at 120 First Avenue North, Great
Falls, Montana, and its telephone number is (406) 727-6106. Heritage Bank has a
wholly owned subsidiary, Community Service Corporation ("CSC"), which owned and
managed real estate held for investment during 1999, but which is inactive at
December 31, 1999. Heritage Bank holds an 11% ownership interest in Bankers'
Resource Center, a computer data center. United, Heritage Bank, State Bank and
CSC are collectively referred to herein as "United."

         VALLEY BANCORP, INC. During 1999, United increased its ownership in
Valley Bancorp Inc. ("Valley") to 39.93% of Valley's outstanding shares at
December 31, 1999. On January 10, 2000, United increased its ownership to 50.6%
and combined with additional shares acquired thereafter United currently owns
54.03% of the outstanding shares of Valley as of March 8, 2000. Valley is a bank
holding company located in Phoenix, Arizona and is the parent company of Valley
Bank of Arizona, a state chartered commercial bank. Valley had assets of
approximately $59.5 million, deposits of approximately $50.1 million and
stockholders' equity of approximately $7.4 million at December 31, 1999. The
aggregate purchase price of the shares of Valley purchased to date is $6.1
million, including $1.7 million for shares acquired in 1999. As a result of
acquiring over 50% of the outstanding shares of Valley, United will consolidate
Valley with its financial statements effective January 1, 2000. See Part IV,
Item 20 - "Notes to Consolidated Financial Statements - Acquisition". In
December 1998, United purchased shares from various shareholders,


                                       1

<PAGE>

including 150,000 shares from the Chairman of United. United owned approximately
25% of Valley at December 31, 1998.

         STATE BANK. As a result of the formation of State Bank in August 1998,
United, which was formerly regulated by the Office of Thrift Supervision ("OTS")
as a savings and loan holding company, became a bank holding company subject to
supervision by the Federal Reserve Board. Heritage Bank, as a federally
chartered savings bank, remains subject to supervision by the OTS as its
principal regulator and both Heritage Bank and State Bank, as financial
institutions with deposits insured by the Federal Deposit Insurance Corporation
("FDIC"), remain subject to regulation by the FDIC.

         HERITAGE MERGER. The new management of United changed Old United's
business strategy in 1998 and is engaging in a growth-oriented expansion
strategy by pursuing internal and external growth opportunities, when available.
United has expanded the customer base of Heritage Bank and State Bank by
emphasizing commercial, agricultural and consumer loans as well as the mortgage
business previously emphasized by United Bank. Management continues to pursue
external growth through opening new branches, possible acquisitions of other
financial institutions, and expansion of the geographic area currently served.

         United's business strategy may subject United to a greater degree of
risk than that of Old United. Historically, Old United had concentrated on
residential lending, as home loans were believed to present the least amount of
risk. Commercial real estate loans, commercial loans and consumer loans, which
constituted a larger portion of Heritage's portfolio and lending activities, had
been made by Old United only on a limited basis. Risks associated with United's
business strategy include increased risk of losses on loans, provisions for loan
losses which exceed historical levels, difficulties in integrating or managing
new branches or acquired institutions, and problems relating to the management
of growth. There can be no assurance that United will be successful in
instituting this new business strategy or in managing growth.

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 $13.8 million, $10.5 million and $4.5 million, or
approximately 80%, 74% and 78% of total interest income, for the years ended
December 31, 1999, 1998 and 1997, respectively. To date, United's principal
lending activity has been the origination of real estate loans, including
conventional residential real estate loans (loans which are neither insured nor
partially guaranteed by government agencies) and residential real estate loans
insured by the Federal Housing Administration ("FHA") or partially guaranteed by
the Veterans Administration ("VA"), agricultural loans and commercial loans. In
1999, United used increased Federal Home Loan Bank ("FHLB") borrowings and
repurchase agreements, as well as cash equivalents and deposits, to expand its
loan portfolio. Accordingly, its interest income from loans receivable, as well
as the percentage of total income from loans receivable, increased in 1999.

         In general, prior to the Heritage Merger, the lending operations of
Heritage more closely paralleled the lending activities of a commercial bank
than a savings bank. As a result of the Heritage Merger, United now uses the
lending policies, guidelines and procedures of Heritage and, accordingly, is
placing more emphasis on commercial and consumer lending and effective use of
its capital.



                                       2
<PAGE>

         The following table sets forth the composition of United's loans
receivable at December 31, 1999 and 1998 and at December 31, 1997 (on a pro
forma combined basis):

<TABLE>
<CAPTION>

(Dollars in thousands)                                                                     Pro Forma Combined
                                            December 31,             December 31,              December 31,
                                       ------------------------ ------------------------ ------------------------
                                                1999                     1998                     1997
                                       ------------------------ ------------------------ ------------------------
                                         Amount      Percent      Amount      Percent      Amount      Percent
                                       ------------ ----------- ------------ ----------- ------------ -----------
<S>                                       <C>             <C>       <C>            <C>       <C>            <C>
 Loans secured by real estate:
   1 - 4 residential                      $ 34,097        18.1%     $27,109        18.7%     $43,156        45.4%
   5 or more residential                     5,237         2.8        6,601         4.6        6,705         7.1
   Construction                             10,564         5.6        9,224         6.4        5,476         5.8
   Agricultural                             16,210         8.6       10,275         7.1        2,980         3.1
   Commercial                               30,594        16.3       27,449        18.9       11,437        12.0
                                       ------------ ----------- ------------ ----------- ------------ -----------
 Total loans secured by real
    estate                                  96,702        51.4       80,658        55.7       69,754        73.4
   Commercial non-real
    estate                                  60,060        32.0       37,564        25.9       13,435        14.2
   Municipal                                 1,428          .8        1,477         1.0          795          .8
   Agricultural non-real
    estate                                   9,805         5.2        8,191         5.7        2,968         3.1
   Loans secured by deposits                   957          .5          752          .5          616          .7
   Consumer loans - real
    estate secured                           7,702         4.1        9,066         6.3        2,327         2.5
   Other consumer                           11,276         6.0        7,160         4.9        5,075         5.3
                                       ------------ ----------- ------------ ----------- ------------ -----------
 Total loans receivable                    187,930       100.0%     144,868       100.0%      94,970       100.0%
                                                    ===========              ===========              ===========
  Less:
   Unearned discount and
    deferred loan
    origination fees                           (4)                       24                       33
   Allowance for loan losses                 1,586                    1,485                    1,146
                                       ------------             ------------             ------------
 Net loans receivable                     $186,348                 $143,359                  $93,791
                                       ============             ============             ============

</TABLE>

         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 its seven banking offices and its six loan
production offices in Montana. Virtually all of United's residential loan
production is secured by properties located in Montana.

         Under United'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 a 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 all residential loans in excess of $250,000.
United generally also obtains appraisals or valuations on most residential loans
under $250,000. The terms of United'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 United'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 United's loans are
fixed rate loan products, United offers both fixed and adjustable rate
residential loans. United offers a variety of adjustable-rate mortgage loans
("ARMs"), the interest rates on which vary with the movement of the index upon
which the interest rates are based. If



                                       3
<PAGE>

the interest rates change, loan payments, balances or terms may be adjusted.
United's primary indexes are the 1, 3, 5 and 10-year constant maturity Treasury
indexes. Most of the ARMs currently originated by United have loan terms of 10
to 30 years with rate adjustments generally every 1, 3, 5 or 10 years during the
term of the loan. Generally, interest rate adjustments on United's ARMs are
limited to changes of 2.5% - 3.25% per year and 6% - 10% for the life of the
loan.

         The majority of United'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. United sold long-term fixed-rate mortgage loans to
the secondary market in aggregate amounts of $119.1 million in 1999. United also
sells long-term fixed-rate loans that are refinances of existing portfolio loans
or permanent financing of completed construction loans 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 was realized at sale. During 1999, United sold
portfolio loans in aggregate amounts of $11.3 million. United 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, United 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 six 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. United provides financing primarily for a
limited number of contractors who have demonstrated an ability to complete
projects and financial responsibility in residential development and
construction and have operated in United's lending area for a number of years.

         COMMERCIAL AND AGRICULTURAL REAL ESTATE LOANS. United engages in
commercial real estate lending secured by both commercial and agricultural
properties. Occasionally when making such loans, United participates in the U.S.
Small Business Administration's program for guaranteed commercial real estate
loans. United'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. While OTS regulations limit
the level of commercial real estate lending by a federally charted thrift
institution to 400% of its capital, this limitation has not had a material
impact on the lending activities of Heritage Bank to date.

         NON-MORTGAGE COMMERCIAL AND AGRICULTURAL LENDING. In addition to real
estate lending, United offers commercial and agricultural non-mortgage loans.
OTS regulations limit the level of commercial non-mortgage lending by a
federally chartered thrift institution to 20% of total assets. In 1999,
increased commercial demand has caused Heritage Bank to exceed the 20% limit.
United is currently working with the OTS to rectify this matter. United is
concerned that offering only traditional thrift products is not sufficient in
it's highly competitive financial marketplace, especially in areas such as
Glendive, Havre, Shelby and Chester, Montana. Based on discussions with the
Federal Reserve Bank, OTS, and it's external advisors, United is considering
several alternatives to alleviate the 20% limitation for Heritage Bank.

         United 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 and purchases, on a participation basis,
loans originated outside its normal market areas. These are generally purchased
from commercial banks and third party loan production offices. These purchased
participations allow United



                                       4
<PAGE>

to diversify its geographic risk and are purchased with a higher level of
underwriting standards since a direct customer relationship does not exist.
United has not had any credit losses on its participation portfolio to date.
Most of United's commercial non-mortgage loans are originated or purchased by
United's senior lending staff in Great Falls.

         CONSUMER LENDING. United's consumer loan portfolio includes home
equity, home improvement, line of credit, auto, deposit account, dealer loans
and credit card receivables. United has entered into agreements with certain
local merchants to purchase qualifying conditional sales contracts. Although
some consumer lending is conducted through loan production offices, most of
United's consumer lending is conducted at branch offices and United's home
office in Great Falls. United requires fire, hazard and casualty insurance for
loans secured by home equity and casualty insurance for loans secured by autos
and recreational vehicles.

INVESTMENT ACTIVITIES

         The investment activities of United are designed to provide an
investment alternative for funds not presently required to meet loan demand,
assist Heritage Bank and State Bank in meeting potential regulatory liquidity
requirements, assist in maximizing income consistent with quality and liquidity
requirements, supply collateral to secure public funds and retail repurchase
agreements, provide a means for balancing market and credit risks, and provide
consistent income and market value throughout changing economic times.

         Historically, interest income from investment securities and
mortgage-backed securities was a major source of Old United's income. Interest
income from these two sources as a percentage of Old United's total interest
income for the year ended December 31, 1997 was approximately 52.1%. In
contrast, interest income from mortgage-backed and investment securities
constituted only 18.0% of the total interest income of Heritage during the year
ended December 31, 1997. Interest income from investment activities was $3.2
million and $3.1 million, or 18.3% and 21.8%, of United's total interest income
during 1999 and 1998, respectively, and $4.7 million, or 36.6%, of United's
total interest income during the year ended December 31, 1997, (on a pro forma
combined basis).

         United's portfolio consists primarily of obligations of the U.S.
government and its agencies and mortgage-backed securities, state and local
governments, and agency collateralized obligation securities. United's
investment portfolio does not contain a concentration of investments in any one
issuer in excess of 10% of United's total investment portfolio, except for
securities of the U.S. government and U.S. government agencies. All of the
United's investments are classified as available-for-sale.

<TABLE>
<CAPTION>
(Dollars in thousands)
                                                                                                    Pro Forma
                                                                                                    Combined
                                                            ---------------    ---------------    --------------
                                                             December 31,       December 31,      December 31,
                                                                 1999               1998              1997
                                                            ---------------    ---------------    --------------
<S>                                                                 <C>              <C>               <C>
    U.S. government and agencies                                    $9,794           $ 13,637          $ 22,993
    Mortgage-backed securities                                      39,455             36,353            32,222
    Municipal bonds                                                  1,935                885             1,239
    Kemper U.S. government bond mutual fund                              -                  -             5,260
    Other investments                                                1,860              1,025               407
                                                            ---------------    ---------------    --------------
                                                                  $ 53,044           $ 51,900          $ 62,121
                                                            ===============    ===============    ==============
</TABLE>

         During 1999, United held it's investment portfolio relatively constant.
United sold $10.1 million of U.S. Treasury notes and mortgage-backed securities,
received $14.7 million in mortgage-backed security principal payments and had
$6.1 million of calls and maturities of investment securities, while purchasing
$33.9 million in investment securities and mortgage-backed securities. United
also recorded an unrealized loss in market values of it's investment portfolio
of $1.6 million.



                                       5
<PAGE>

SOURCES OF FUNDS

         The primary sources of funds for United's lending and investment
activities are deposits, repurchase agreements, FHLB borrowings, loan and
mortgage-backed securities repayments, proceeds from loan sales, investment
securities interest payments and maturities, and net operating revenues. During
recent periods, United has funded a large portion of the increase in its loan
portfolio through additional FHLB borrowings and maturing of investment
securities, as well as new deposit liabilities and repurchase agreements.

         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
weekly.

         The following table sets forth the composition of United's deposits at
December 31, 1999 and 1998, and at December 31, 1997 (on a pro forma combined
basis):

<TABLE>
<CAPTION>
                                                                                           Pro Forma Combined
(Dollars in thousands)                  December 31,              December 31,                December 31,
                                  -------------------------- ------------------------- --------------------------
                                            1999                       1998                      1997
                                  -------------------------- ------------------------- --------------------------
Type:                                Amount       Percent      Amount       Percent       Amount      Percent
                                  ------------- ------------ ------------ ------------ --------------------------
<S>                                   <C>              <C>      <C>              <C>       <C>              <C>
Non-interest bearing                  $ 18,751         10.4%    $ 18,895         11.3%     $ 15,560         11.0%
Interest bearing:
  NOW & money market
   demand accounts                      23,333         13.0       22,907         13.7        17,025         12.1
  Savings accounts                      48,295         26.8       46,811         27.9        33,479         23.7
  Time deposits                         89,503         49.8       79,007         47.1        75,199         53.2
                                  ------------- ------------ ------------ ------------ ------------- ------------
Total                                 $179,882        100.0%    $167,620        100.0%     $141,263        100.0%
                                  ============= ============ ============ ============ ============= ============
</TABLE>

         Scheduled maturities of certificates of deposit at December 31, 1999
are as follows:

         Due within one year                       $65,289
         Due within two to three years              21,803
         Due within four to five years               2,303
         Due after five years                          108
                                               ------------
         Totals                                    $89,503
                                               ============

         Time deposits of $100,000 or more were approximately $15.9 million and
$13.0 million at December 31, 1999 and 1998, respectively, and $9.1 million at
December 31, 1997 (on a proforma combined basis). Amounts in excess of $100,000
are not insured by a federal agency.

         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.

         As a matter of policy, United does not accept, place or solicit
brokered deposits. Although deposits are not solicited outside of Montana,
historically, a small number of United's depositors have resided outside
Montana. As market demand generally dictates deposit maturities and rates,
United intends to continue to offer those types of accounts that it believes
have broad market appeal.



                                       6
<PAGE>

         BORROWINGS. United relies to a significant extent on borrowings from
the FHLB of Seattle to finance its short-term, and increasingly its longer term,
financing needs. The FHLB of Seattle functions as the central reserve bank
providing credit for savings institutions and certain other member financial
institutions. In recent periods, borrowings from the FHLB of Seattle have been
available at rates that are as favorable, or more favorable, than the rates that
United would be required to pay on deposits. Further, borrowings from the FHLB
are available at various maturities, facilitating the accurate matching of asset
and liability maturity dates. United has used these available borrowings during
the past year in part to fund expansion of its lending activities.

         As a member of the FHLB of Seattle, Heritage Bank and State Bank are
required to own capital stock in the FHLB of Seattle and are authorized to apply
for advances on the security of specified collateral. Advances are made pursuant
to several different credit programs. Each credit program has its own interest
rate and range of maturities. Heritage Bank's currently established available
FHLB advance credit line is 30% of assets. State Bank's currently established
FHLB advance credit line is 10% of assets. The FHLB of Seattle is required to
review its credit limitations and standards at least annually. At December 31,
1999, 1998 and 1997, $46.4 million, $22.2 million and $6.4 million,
respectively, of FHLB advances were outstanding. Old United had no FHLB advances
at December 31, 1997.

         SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE. United also generates
funds through the sale of investment securities under agreements requiring their
repurchase at a premium that represents interest. The securities underlying
agreements to repurchase are for the same securities originally sold and are
held in a custody account by a third party. For the year ended December 31,
1999, securities sold under agreements to repurchase averaged approximately
$10.3 million and the maximum outstanding at any month end during the year was
approximately $11.5 million. United had $11.5 million, $9.4 million and $3.2
million of securities sold under repurchase agreements at December 31, 1999,
1998 and 1997, respectively. Old United had no securities sold under repurchase
agreements at December 31, 1997.

OTHER ACTIVITIES

         United has no direct subsidiaries other than Heritage Bank and State
Bank. Heritage Bank has a wholly owned service corporation, CSC, which owned and
managed a limited amount of real estate held for investment. Heritage Bank also
holds an 11% ownership interest in Bankers' Resource Center, a computer data
center, which provides certain data processing services to Heritage Bank.

MARKET AREA

         Prior to the Heritage Merger, United's primary market area had been the
Great Falls, Montana metropolitan area and the areas surrounding its offices in
Glendive, Havre and Shelby, Montana. With the Heritage Merger, Chester, Montana
was added as a market area as well as market areas served by a loan production
office ("LPO") in Bozeman. Since the Heritage Merger, United has also added LPOs
in Hamilton, Kalispell, Libby, Missoula and Polson, Montana. The Polson office
was closed effective January 31, 2000.

         Great Falls, the county seat of Cascade County and a regional trade
center, is one of the largest cities in Montana. The estimated 1999 Great Falls
and Cascade County populations were approximately 58,000 and 78,000,
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 4,800 people, is the largest employer in
Great Falls and Cascade County. Reduction in size or closure of MAFB could
adversely affect United.

         The economies of Chester, Fort Benton, Glendive, Havre and Shelby,
Montana are dependent to a large extent on agricultural, livestock and railroad
activities. Areas served by United's LPOs are less dependent upon agriculture.
Areas such as Bozeman, Hamilton, Kalispell and Missoula are also supported in
part by tourism and higher



                                       7
<PAGE>

education. Nevertheless, agriculture is the predominant activity in the State of
Montana and any adverse trends in agriculture could adversely affect United.

COMPETITION

         Heritage Bank and State Bank, like other depository institutions, are
operating in a rapidly changing environment and, therefore, face considerable
competition in the attraction of deposits and the origination of loans.
Historically, the most direct competition for deposits has come from other
savings banks, credit unions and commercial banks. There are approximately 30
depository institutions, commercial banks, credit unions and savings banks with
offices in United's market areas. Non-depository financial service
organizations, primarily in the securities and insurance industries, have also
become competitors for retail savings and investment funds. United's deposit
programs compete with money market mutual funds, government securities and other
investment alternatives. United 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 March 15, 2000, Heritage Bank employed 83 full-time employees and 23
part-time employees, and State Bank employed 6 full-time employees and 1
part-time employee. Management considers its relations with its employees to be
very good. United 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. United's employees
are not represented by any collective bargaining group. See Part IV, Item 14. -
"Notes to Consolidated Financial Statements - Employee Benefit Plan."

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 and serve at the discretion of the Board of Directors. There
are no arrangements or understandings between individual officers and any other
person pursuant to which he was elected as an officer.

Name                      Age              Position Held
----                      ---              -------------

John M. Morrison           63         Chairman of United

Kurt R. Weise              43         Director, President and Chief Executive
                                      Officer of United; Vice President of
                                      Heritage Bank and State Bank

Kevin P. Clark             44         Director, Secretary and Senior Vice
                                      President of United; President and Chief
                                      Executive Officer of Heritage Bank and
                                      State Bank

Steve L. Feurt             44         Director, Chief Credit Officer of United
                                      and Senior Vice President and Chief Credit
                                      Officer of Heritage Bank and State Bank


         MR. MORRISON has served as Chairman of United since the Heritage
Merger. Mr. Morrison's term of office as a director of United expires at
United's annual shareholder meeting in 2000. Before the Heritage Merger, he
served as Chairman of Heritage since 1994. Mr. Morrison is the Chief Executive
Officer and sole shareholder of Central Bancshares, the parent company of
Central Bank, located in Stillwater, Minnesota, which was founded by Mr.
Morrison in 1988. He is also the sole shareholder and Chairman of the Board of
Directors of Central Financial Services ("CFS"), a bank consulting firm. Mr.
Morrison was the Chairman and majority shareholder of Bank of Montana System, a
bank holding company with approximately $800 million in assets ("BMS"), prior to
its sale to Norwest Corporation in 1994. He is involved in various other
businesses, and sits on a number of boards including University of St. Thomas,
Fairview Corporation, Fairview-University Medical Center and Fairview-University
of Minnesota.



                                       8
<PAGE>

         MR. WEISE has served as President, Chief Executive Officer and a
director of United since the annual shareholder meeting in 1999. Mr. Weise had
served as President, Chief Operating Officer and a director of United and Vice
President of Heritage Bank since the Heritage Merger. Mr. Weise's term of office
as a director of United expires at United's annual shareholder meeting in 2000.
Before the Heritage Merger, he served as Vice President, Treasurer and a
director of Heritage. Mr. Weise also serves as President of CFS and President of
Central Bancshares. He has been involved with the Central Bank group of
companies since they were founded in 1988. He was the Chief Financial Officer of
BMS until its sale to Norwest Corporation.

         MR. CLARK has served as Secretary of United and President and Chief
Executive Officer of Heritage Bank since the Heritage Merger. Mr. Clark was
elected as Vice President and a director of United in May 1998, and his term of
office as a director of United expires at United's annual shareholder meeting in
2001. Before the Heritage Merger, he served as President, Chief Executive
Officer and a director of Heritage Bank since 1994. Mr. Clark served in various
capacities with BMS until its sale to Norwest Corporation, including President,
Chief Executive Officer and a director of Bank of Montana, a subsidiary of BMS,
and Regional Vice President of BMS.

         MR. FEURT has served as Chief Credit Officer of United and Senior Vice
President and Chief Credit Officer of Heritage Bank since the Heritage Merger.
Mr. Feurt was elected as a director of United in May 1998, and his term of
office as a director of United expires at United's annual shareholder meeting in
2002. Before the Heritage Merger, he served as Senior Vice President, Senior
Credit Officer and a director of Heritage Bank since 1994. Mr. Feurt served as
Senior Vice President, Senior Credit Officer and a director of BMS and Bank of
Montana from 1984 until the sale of BMS to Norwest Corporation.

SUPERVISION AND REGULATION

         UNITED. United became a registered bank holding company under the Bank
Holding Company Act ("BHCA") in 1998 by reason of its ownership of State Bank.

         Bank holding companies are subject to the general supervision and
regulation by the Federal Reserve Bank ("FRB"). Under the 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, 1999, United met all minimum capital requirements issued by the FRB.



                                       9
<PAGE>

         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 has opted out of
the interstate branching by acquisition and consolidation until October 1, 2001.
Although the Interstate Act and Montana law prohibits interstate branching by
State Bank, neither statute applies to Heritage Bank. As a federal savings bank,
Heritage Bank has the ability, subject to the prior approval of the OTS, to
engage in interstate branching activities.

         Under the Financial Services Modernization Act, bank holding companies
are authorized to affiliate with any financial company (for example, insurance
or securities companies) and to cross-sell an affiliates products. This permits
bank holding companies to expand their product mix to adapt to changing market
conditions.

         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 transaction be
appropriately collateralized and require that such transactions be on terms as
favorable to the depository institution as transactions with non-affiliates.
Loans to insiders (officers, directors and 10% shareholders) of a depository
institution are subject to Sections 22(g) and (h) of the FRA and regulations
thereunder. Among other things, such loans must be made on terms substantially
the same as loans to non-insiders.

         DEPOSITORY INSTITUTION SUBSIDIARIES--HERITAGE BANK AND STATE BANK.
Heritage Bank is a federally chartered stock savings bank regulated by the OTS.
State Bank is a Montana-chartered commercial bank. As such, State 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. The deposits of each of these banks are insured by the FDIC.

         In addition to the federal banking agency statutes and regulation,
State Bank is subject to Montana statutes governing its respective activities
and regulations issued by the Montana Division. The Montana statutes and
regulations place limitations on the business and other activities of State Bank
which may be more restrictive than limitations applicable to depository
institutions that are not Montana-chartered commercial banks. In particular, and
among other limitations, the establishment and operation of new branch offices,
are limited by, and subject to approval by, the Montana Division. In addition,
Montana-chartered commercial banks are generally not authorized to make
investments in subsidiary companies or to make other investments in equity
securities or to engage in securities or insurance activities. Some federally
chartered depository institutions located in Montana may engage in such
activities without regard to Montana law.

         By reason of FDIC insurance, both Banks are insured depository
institutions for purposes of certain federal laws and regulations. The federal
laws that apply to the Banks 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



                                       10
<PAGE>

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") requires federal banking regulators to adopt regulations in a number
of specific areas to insure depository institution safety and soundness,
including internal controls, credit underwriting, asset growth, management
compensation, asset quality and earnings performance. FDICIA also contains
provisions intended to change independent auditing requirements, to restrict the
activities of certain insured depository institutions, to change various
consumer banking laws and to limit the ability of "under-capitalized banks" to
borrow from the FRB's discount window or to acquire brokered deposits.

         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.

         Both Banks are 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.

         During the most recent OTS compliance examinations of Heritage Bank
(completed in July 1999), the OTS conducted a CRA performance evaluation and
Heritage Bank was rated as having had "an outstanding record of meeting
community credit needs". Being newly formed, FDIC has not yet conducted a CRA
performance evaluation for State Bank.

         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, 1999, Heritage Bank and State 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 it 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 the primary
market area and the broader economy. In addition to general economic conditions
affecting business generally, depository institutions such as Heritage Bank and
State Bank are 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.



                                       11
<PAGE>

         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. Neither Bank is currently 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 generally. It cannot be predicted
whether such legislation will be adopted or how such legislation would affect
the business of the banks.

         FEDERAL REGULATION OF SAVINGS ASSOCIATIONS. The OTS has extensive
authority over the operations of Heritage Bank, including, among other things,
the ability to assess civil money penalties, to issue cease and desist orders or
removal orders, and to initiate injunctive actions for violations of laws and
regulations and for unsafe or unsound practices. Heritage Bank is required to
file periodic reports with the OTS and is also subject to periodic examinations
by the OTS and the FDIC. The OTS and the FDIC have entered into an agreement
that provides for joint examinations by the FDIC and the OTS.

         Under federal law, the aggregate amount of loans that Heritage Bank is
permitted to make to any one borrower ("LTOB") cannot exceed 15% of unimpaired
capital and surplus. Amounts up to an additional 10% of unimpaired capital and
surplus may be extended for loans and extensions of credit fully secured by
readily marketable collateral, which is defined to include certain financial
instruments and bullion having a market value at least equal to the loan amount.

         The OTS has amended the LTOB limitation to permit savings associations
meeting certain requirements, including capital requirements, to extend loans to
one borrower in additional amounts under certain circumstances limited
essentially to loans to develop or complete residential housing units. At
December 31, 1999, Heritage Bank's LTOB limit was approximately $3,022,600. The
aggregate amount of loans outstanding to a single borrower at December 31, 1999
was approximately $1,644,030. At December 31, 1999, Heritage Bank was in
compliance with the LTOB limitations.

         DEPOSIT INSURANCE AND FDIC REGULATION. Heritage Bank is a member of the
Savings Association Insurance Fund ("SAIF"), and State Bank is a member of Bank
Insurance Fund ("BIF"), both administered by the FDIC. 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, after giving the OTS an opportunity to take such
action, 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 is in an unsafe or unsound condition.

         For 1999, Heritage Bank's SAIF assessment rate was 5.96 basis points
per $100 of insured deposits, compared to 1.19 basis points for State Bank. As a
result, Heritage Bank's and State Bank's 1999 FDIC deposit insurance premium was
$93,728. FDIC assessment rates for 2000 will be the same for Heritage Bank and
State Bank at 2.10 basis points per $100 of insured deposits.

         REGULATORY CAPITAL REQUIREMENTS. OTS capital regulations require
federal savings institutions such as Heritage Bank to satisfy three capital
requirements: (i) tangible capital must not be less than 1.5% of adjusted total
assets, (ii) core capital must not be less than 3% of adjusted total assets and
(iii) risk-based capital



                                       12
<PAGE>

must not be less than 8.0% of "risk-adjusted" assets. Heritage Bank exceeded
these minimum standards at December 31, 1999.

         Heritage Bank's tangible and core capital includes stockholders'
equity, less intangible assets and certain investments in subsidiaries that
conduct activities not permissible for a national bank. Purchased mortgage
servicing rights may be included in tangible capital at the lower of 90% of fair
market value, 90% of original cost, or 100% of current amortized book value.

         Risk-based capital is determined by assigning a risk-weight, ranging
from 0% for government securities to 100% for certain equity investments, to
each of an institution's assets, including the credit-equivalent amount of
off-balance sheet assets. An institution is required to maintain total
regulatory capital (consisting of both "core capital" and supplementary capital;
primarily comprised of the allowance for loan losses) equal to the regulatory
mandated percentage (8%) of the sum of its assets multiplied by their respective
risk-weights. The OTS also requires institutions with more than a "normal" level
of interest-rate risk ("IRR") to maintain additional risk-based capital. A
savings institution with a greater than normal IRR is required to deduct from
total capital, for purposes of calculating its risk-based capital requirement,
an amount equal to one-half the difference between the institution's measured
IRR and the normal level of IRR, multiplied by the present value of its total
assets. Based on its current capital position, most recent OTS calculated IRR,
and proposed exemption criteria, Heritage Bank would not have an IRR capital
adjustment.

         FDICIA places much greater emphasis on capital as a measure of
performance and establishes a rigid regulatory scheme based almost entirely on
capital levels. The five statutory capital categories established by FDICIA are
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." Heritage Bank's capital
position substantially exceeds the definition of "well capitalized." FDICIA 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."

         QUALIFIED THRIFT LENDER TEST. Unless a savings institution meets the
Qualified Thrift Lender ("QTL") test, it is classified and subject to regulation
as a national bank or becomes subject to a number of limitations on investment,
branching, advances, dividends and other activities. The QTL test generally
requires that an insured institution's Qualified Thrift Investments ("QTIs")
(primarily residential mortgages and related investments, including certain
mortgage-related securities and loans for education purposes, loans to small
businesses and loans made through credit cards or credit card accounts) equal or
exceed 65% of the institution's portfolio assets (defined as all assets minus
intangible assets, property used by the institution in conducting its business
and qualifying liquid assets up to 20% of total assets). Certain assets are
subject to a percentage limitation of 20% of portfolio assets. Savings
associations may include shares of stock of the FHLBs, Federal National Mortgage
Association, and Federal Home Loan Mortgage Corporation as QTIs. As of December
31, 1999, Heritage Bank met the test. Future QTL tests could be affected by
commercial non-mortgage lending activity which is discussed in Item 1-Lending
Activities.

         LIQUIDITY. All savings associations are required to maintain qualifying
liquid assets equal to a percentage designated by the Director of the OTS
(currently 4%) of the balance of its withdrawable deposit accounts and
borrowings payable in one year or less. Liquid assets for purposes of this ratio
include specified short-term assets (E.G., cash, certain time deposits, certain
banker's acceptances and short-term United States Government obligations), and
long-term assets (E.G., United States Government obligations and certain state
agency obligations). Monetary penalties will be imposed, unless waived, for
failure to meet liquidity requirements. Heritage Bank has exceeded liquidity
requirements for 1999. Being a state-chartered bank, State Bank is not subject
to the same liquidity requirements as Heritage Bank. However, a recent FDIC exam
found State Bank's liquidity to be satisfactory.



                                       13
<PAGE>

         FEDERAL HOME LOAN BANK SYSTEM. Heritage Bank and State Bank are members
of the FHLB of Seattle, Washington, one of several regional banks that
administer the home financing credit function for savings associations. 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. Heritage Bank and State Bank
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, .3% of
total assets or 5% of FHLB advances outstanding.

TAXATION

         GENERAL. United and its subsidiaries report their income on a calendar
year basis. The State of Montana allowed the filing of a combined Montana income
tax return for the first time in 1997. United, Heritage Bank and State Bank are
filing combined state 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 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, such as Heritage Bank, which met certain
definitional tests primarily relating to their assets and the nature of their
business ("qualifying thrifts"), were permitted to establish a reserve for bad
debts and to make annual additions thereto, which additions may, within
specified formula limits, have been 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,
1999, Heritage Bank's bad debt reserve for tax purposes was approximately
$3,477,000. At December 31, 1999, there was $43,000 remaining of post-1987
reserves which are being recaptured into taxable income over a period of two
years. For additional information regarding federal and state income taxes, see
Part IV, Item 12 - "Notes to Consolidated Financial statements - Income Taxes."

ITEM 2.  PROPERTIES

         The physical assets of United as of December 31, 1999 consist of a
modern banking facility located at 120 First Avenue North, Great Falls, Montana,
which is the location of the corporate offices as well as the main branch
location for Heritage Bank. This facility, which is owned by Heritage Bank,
includes a full service bank with 4 drive-up lanes, a real estate department,
accounting and loan servicing departments, and support staff for United's
employees. Heritage Bank also leases a drive-up detached facility located at
10th Avenue South, Great Falls, Montana, and owns a facility located at 601
First Avenue North, Great Falls, Montana. Heritage Bank has four full-service
branches located in Chester, Glendive, Havre, and Shelby, Montana. These four
facilities are owned by Heritage Bank and have drive-up services. A full



                                       14
<PAGE>

service branch located in Missoula, Montana was opened in February 2000 and
replaced the loan production office in Missoula, which was previously leased. A
full service branch located in Bozeman, Montana is currently under construction
and is estimated to open in June 2000. This location will replace the previously
leased loan production office in Bozeman. Heritage Bank also leases three loan
production offices in Hamilton, Kalispell, and Libby, Montana. State Bank
facilities include two full service locations, owned by State Bank, located in
Fort Benton and Geraldine, Montana. There is no debt on any of the owned
facilities.

ITEM 3.  LEGAL PROCEEDINGS

         Although not involved in any material pending litigation as of February
29, 2000, United is engaged in litigation normal for its type of business from
time to time.

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

         No matter was submitted to a vote of security holders though the
solicitation of proxies or otherwise during the quarter ended December 31, 1999.


                                     PART II

ITEM 5.  MARKET FOR UNITED COMMON EQUITY AND RELATED STOCKHOLER MATTERS

MARKET INFORMATION

         United common stock is quoted on the Nasdaq National Market under the
symbol "UBMT." The closing sale price per share of United common stock on
February 25, 2000 was $17.375.

SHAREHOLDER DATA

         As of February 7, 2000, there were approximately 213 owners of record
of United common stock and an estimated 934 additional beneficial holders whose
shares of United common stock were held in street name by brokerage houses.

COMMON STOCK MARKET PRICES

         The Company's quarterly (high and low) stock prices for the past two
years are as follows:

                                                        UBMT Stock Price
                                                     ------------------------
                                                       High           Low
                                                     ----------    ----------

         1998     First Quarter                     $28.50        $25.13
                  Second Quarter                     31.50         27.00
                  Third Quarter                      29.00         23.50
                  Fourth Quarter                     24.86         19.00

         1999     First Quarter                     $24.125       $22.00
                  Second Quarter                     23.00         21.00
                  Third Quarter                      21.25         17.50
                  Fourth quarter                     20.875        16.75


DIVIDEND PAYMENT HISTORY ON UNITED COMMON STOCK

         The Board of Directors of Old United declared per share dividends of
$.235, $.24, $.245 and $.25 for the four quarters of 1997, for a total of $.97
per share. An additional $.25 per share dividend was declared by Old United in
January 1998 prior to the Heritage Merger. Heritage had not declared any
dividends prior to the Heritage Merger. The United Board declared dividends of
$.25 for each of the second, third and fourth quarters of 1998, for a total of
$.75 per share, and $.26 for each of the four quarters of 1999, for a total of
$1.04 per share.



                                       15
<PAGE>

         The declaration and payment of future dividends by the United Board is
dependent upon the combined entity's net income, financial condition, economic
and market conditions, industry standards, certain regulatory and tax
considerations 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.



                                       16
<PAGE>

ITEM 6.  SELECTED  FINANCIAL DATA

           FIVE YEAR SUMMARY OF OPERATIONS AND SELECTED FINANCIAL DATA

         The following table includes 1999 and 1998 historical audited balances
for United and the comparative balances for 1997, 1996, and 1995 are historical
audited balances for Heritage.

<TABLE>
<CAPTION>
(Dollars in thousands, except per
  share data)                                                      Year ended December 31,
                                               -----------------------------------------------------------------
                                                  1999          1998         1997         1996         1995
                                               ------------ ------------- ------------- ------------ -----------
<S>                                                <C>           <C>           <C>          <C>          <C>
OPERATING DATA:
  Interest income                                  $17,340       $14,249       $5,773       $4,520       $3,469
  Interest expense                                   9,556         7,393        3,157        2,419        1,941
                                               ------------ ------------- ------------ ------------ ------------
  Net interest income                                7,784         6,856        2,616        2,101        1,528
  Provision for loan losses                            204           335          492          160           46
                                               ------------ ------------- ------------ ------------ ------------
  Net interest income after provision
   for loan losses                                   7,580         6,521        2,124        1,941        1,482
  Non-interest income                                3,530         3,292        1,103        1,059          631
  Non-interest expense                               7,102         6,147        2,361        2,251        1,505
                                               ------------ ------------- ------------ ------------ ------------
  Income before income taxes                         4,008         3,666          866          749          608
  Provision for income taxes                         1,539         1,399          324          263          214
                                               ------------ ------------- ------------ ------------ ------------
  Net income                                       $ 2,469       $ 2,267         $542        $ 486        $ 394
                                               ============ ============== =========== ============ ============
RESTATED PER SHARE DATA(1):
  Income per share                                   $1.47         $1.43        $1.14        $1.02        $ .83
  Dividends per share                                 1.04           .75           --           --           --
  Book value per share                               17.77         17.98         5.78         4.59         3.57
  Shares used to calculate per share
   data (Book Value)                                 1,652         1,698          475          475          475
  Shares used to calculate per share
   data (Earnings)                                   1,684         1,588          475          475          475
FINANCIAL CONDITION DATA(2):
  Assets                                          $270,226      $232,561     $ 86,269     $ 71,280     $ 55,210
  Net loans and loans held for sale                187,539       149,076       58,263       43,853       29,169
  Investment securities                             53,044        51,900       14,219       14,172       16,090
  Deposits                                         179,882       167,620       70,386       57,641       42,742
  FHLB advances                                     46,425        22,175        6,425        1,425            -
  Long-term debt                                         -             -        2,350        2,550        2,650
  Stockholders' equity                              29,359        30,528        2,748        2,178        1,694
SELECTED FINANCIAL RATIOS AND OTHER
 DATA:
  Return on average assets                             .98%         1.06%         .73%         .81%         .83%
  Return on average stockholders'
   equity                                             8.52%         7.47%       21.45%       25.78%       27.81%
  Net interest margin                                 3.32%         3.34%        3.83%        3.74%        3.45%
  Efficiency ratio (3)                               62.77%        60.58%       63.46%       63.67%       69.71%
  Net charge-offs to average loans                     .06%          .03%         .06%         .27%         .18%
  Nonperforming loans to total loans                   .18%          .68%         .47%         .06%         .02%
  Allowance for loan losses to total
   loans                                               .84%         1.02%        1.43%         .88%        1.10%
  Nonperforming loans to allowance for
   loan losses                                       21.88%        66.07%       31.56%        6.96%        1.84%
  Average equity to average assets                   11.51%        14.17%        3.19%        3.05%        3.07%
  Dividend payout ratio                              70.94%        56.18%           -            -            -

</TABLE>

(1)      Share and per share amounts for Heritage have been restated to
         retroactively reflect the issuance of 475,000 shares of United common
         stock in exchange for all outstanding shares of common stock of
         Heritage.

(2)      At period end.

(3)      Excludes September 1996 pretax charge for SAIF assessment of $239,000.



                                       17
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

SELECTED UNITED AND PRO FORMA COMBINED FINANCIAL DATA OF HERITAGE AND OLD UNITED

         GENERAL. Certain statements in this Report, including the following
section, constitute "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, which involve risks and uncertainties.
United's actual results may differ significantly from the results discussed in
such forwarding-looking statements. Factors that might cause such a difference
include, but are not limited to, economic conditions, competition and weather
conditions in the geographic and business areas in which United conducts its
operations, fluctuations in interest rates, credit quality and government
regulations.

         United is the result of the combination on February 3, 1998 of two
savings and loan holding companies operating in Montana: Heritage and Old
United. Although United was the surviving corporation, the merger was treated as
a reverse merger for accounting purposed because the stockholders and management
of Heritage controlled the operation of United after the Heritage Merger. Using
purchase accounting, the historical financial statements of United included in
this Report for periods preceding the Heritage Merger reflect only the
operations of Heritage, while the historical financial statements for periods
after the Heritage Merger reflect combined operations.

         The following unaudited pro forma combined financial information gives
effect to the Heritage Merger based on the purchase accounting adjustments,
estimates and other assumptions described in the accompanying notes. The
unaudited pro forma combined balance sheet and statements of income as of and
for the year ending December 31, 1997 are based upon the audited annual
consolidated balance sheets and statements of income of Heritage and Old United.
The unaudited pro forma combined balance sheet combines the historical
consolidated balance sheets of Heritage and Old United as if the Heritage Merger
had become effective as of December 31, 1997. The actual audited consolidated
balance sheets of United as of December 31, 1999 and 1998, the actual
consolidated statement of income for the year ended December 31, 1999, and the
unaudited pro forma combined statement of income for the year ended December 31,
1998 which combines United's results of operations for the year ended December
31, 1998 and the operations of Old United for the period from January 1, 1998 to
January 31, 1998, are also presented for comparative purposes. The unaudited pro
forma combined statements of income combines the historical consolidated
statements of income of Heritage and Old United as if the Heritage Merger had
become effective as of the beginning of the period presented. The selected pro
forma consolidated financial data is unaudited and is not necessarily indicative
of the results of operations that would have been achieved had the Heritage
Merger occurred on such dates or of the results of operations that may be
achieved in the future.

         While the operations of United on a pro forma basis for the year ended
December 31, 1997 reflect the counterbalancing of operations of two different
financial institutions and their differing operating policies, the pro forma and
historical operations of United for the year ended December 31, 1998 reflect a
unified operating policy that more closely paralleled the historical policy of
Heritage. During 1998, United focused its attention on expanding commercial,
residential real estate, agricultural borrowings and some assets that were
formerly maintained by United Bank in investment securities to invest in
additional loans.




                                       18
<PAGE>


<TABLE>
<CAPTION>

(In thousands)                                  Historical        Pro Forma Combined
                                                 December             December
                                                   31,                   31,
                                              ------------- ---------------------------
                                                  1999          1998          1997
                                              ------------- ------------- -------------
<S>                                               <C>           <C>           <C>
 Total interest income                            $ 17,340      $ 14,730      $ 12,951
 Total interest expense                              9,556         7,649         6,445
                                              ------------- ------------- -------------
 Net interest income                                 7,784         7,081         6,506
 Provision for loan losses                             204           340           717
                                              ------------- ------------- -------------
 Net interest income after
   provision for loan losses                         7,580         6,741         5,789
 Total non-interest income                           3,530         3,450         1,779
 Total non-interest expense                          7,102         6,427         4,545
                                              ------------- ------------- -------------
 Income before income taxes                          4,008         3,764         3,023
 Provision for income tax expense                    1,539         1,434         1,131
                                              ------------- ------------- -------------
 Net income                                         $2,469       $ 2,330        $1,892
                                              ============= ============= =============
 Net income per share                               $ 1.47        $ 1.37        $ 1.11
                                              ============= ============= =============
 Weighted average shares
   outstanding                                       1,684         1,698         1,698
                                              ============= ============= =============
</TABLE>

                 See Notes to Pro Forma Combined Financial Data


                                       19
<PAGE>

<TABLE>
<CAPTION>

(Dollars in thousands)


                                                                                         Pro Forma
                                                                   Historical             Combined
                                                                    December              December
                                                                      31,                    31,
                                                           ---------------------------- -------------
                                                                1999          1998          1997
                                                           -------------- ------------- -------------
<S>                                                              <C>           <C>           <C>
  ASSETS
    Cash and cash equivalents                                    $11,457       $19,256       $17,396
    Investment securities available-for-sale                      53,044        51,900        62,121
    Loans receivable, net                                        186,348       143,359        93,791
    Loans held for sale                                            1,191         5,717         2,575
    Premises and equipment, net                                    4,873         3,482         3,279
    Real estate and other personal property
     owned, net                                                       14           304           827
    Accrued interest receivable                                    2,259         1,918         1,597
    Federal Home Loan Bank stock, at cost                          3,046         1,232           939
    Identifiable intangibles                                         537           606             -
    Goodwill, net                                                  1,289         1,400           571
    Investment in Valley Bancorp, Inc.                             4,549         2,684             -
    Other assets                                                   1,619           703           751
                                                           -------------- ------------- -------------
    Total assets                                               $ 270,226     $ 232,561     $ 183,847
                                                           ============== ============= =============

  LIABILITIES AND STOCKHOLDERS' EQUITY
    Liabilities:
    Deposits                                                   $ 179,882     $ 167,620     $ 141,263
    FHLB advances                                                 46,425        22,175         6,425
    Securities sold under agreements to
     repurchase                                                   11,546         9,451         3,173
    Accrued interest payable and other
     liabilities                                                   3,014         2,787         3,183
                                                           -------------- ------------- -------------
    Total liabilities                                            240,867       202,033       154,044

    Stockholders' equity:
      Common stock                                                28,002        28,002        28,116
      Retained earnings                                            3,251         2,533         1,559
      Treasury stock                                                (932)            -             -
      Accumulated other comprehensive income
        (loss)                                                      (962)           (7 )         128
                                                           -------------- ------------- -------------
      Total stockholders' equity                                  29,359        30,528        29,803
                                                           -------------- ------------- -------------
      Total liabilities and stockholders'
        equity                                                 $ 270,226     $ 232,561     $ 183,847
                                                           ============== ============= =============

  Tangible Equity/Assets                                           10.19%        12.26%        15.90%
  Tangible Book Value Per Share                                  $ 16.66       $ 16.79       $ 17.21

</TABLE>

                 See Notes to Pro Forma Combined Financial Data


NOTES TO PRO FORMA COMBINED FINANCIAL DATA

          BASIS OF PRESENTATION. The pro forma combined balance sheet combines
the historical consolidated balance sheets of Heritage and Old United as of
December 31, 1997 as if the Heritage Merger, which was effective February 3,
1998 (the "Heritage Merger Effective Date"), had become effective on December
31, 1997. The unaudited pro forma combined statements of income for the years
ended 1998 and 1997 combines the historical consolidated statements of income of
Heritage and Old United as if the Heritage Merger had become effective at the
beginning of the respective period. Certain amounts in the historical financial
statements of Old United have been reclassified in the pro forma combined
financial information to conform to Heritage's historical financial statements.



                                       20
<PAGE>



RESULTS OF OPERATIONS

         In the year 2000, United intends to invest a significant portion of its
earnings in several new branches and people as well as in its Valley subsidiary.
As a result of the costs associated with opening branches in Bozeman and
Missoula, and a Valley Bank of Arizona branch being built in Scottsdale,
Arizona, United does not expect its earnings per share to increase in 2000.
Heritage Bank will have increased personnel and operating expenses associated
with its new branches, which will impact earnings per share growth for 2000.
However, management believes that growth potential in these markets is good. The
acquisition of Valley continues United's strategy of growth and geographic
diversification.

         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 rate (in each case on a pro forma combined basis):

<TABLE>
<CAPTION>

(Dollars in thousands)                       Year Ended December 31,                        Year Ended December 31,
                                             1999 (Actual) vs. 1998                              1998 vs. 1997
                                              (Pro Forma Combined)                           (Pro Forma Combined)
                                   --------------------------------------------   --------------------------------------------
                                           Increase (decrease) due to                     Increase (decrease) due to
                                   --------------------------------------------   --------------------------------------------
                                                           Rate/                                           Rate/
                                    Volume      Rate      Volume       Total       Volume      Rate       Volume      Total
                                   ---------  ---------- ----------  ----------   ---------- ----------  ---------- ----------
<S>                                  <C>          <C>         <C>       <C>          <C>         <C>         <C>       <C>
Interest earning assets:
  Loans                              $3,434       $(294)      $(94)     $3,046       $4,161      $(710)      $(385)    $3,066
  Investment securities                 166         (71)        (4)         91       (1,222)      (281)         72     (1,431)
  Other interest earning
   assets                              (492)       (151)       116        (527)          47         88           9        144
                                   ---------  ---------- ----------  ----------   ---------- ----------  ---------- ----------
Total interest earning
 assets                               3,108        (516)        18       2,610        2,986       (903)       (304)     1,779
Interest bearing
 liabilities:
  Interest bearing
   checking                             (37)        (11)         1         (47)         606       (245)       (312)        49
  Savings deposits                      178         129         15         322          299          9           2        310
  Time deposits                         482        (213)       (24)        245           25         31           1         57
  Short-term borrowings               1,236          74         77       1,387          476        (40)        352        788
                                   ---------  ---------- ----------  ----------   ---------- ----------  ---------- ----------
Total interest bearing
 liabilities                          1,859         (21)        69       1,907        1,406       (245)         43      1,204
                                   ---------  ---------- ----------  ----------   ---------- ----------  ---------- ----------
Net interest income                  $1,249       $(495)     $ (51)      $ 703       $1,580      $(658)      $(347)      $575
                                   =========  ========== ==========  ==========   ========== ==========  ========== ==========
</TABLE>


                                       21
<PAGE>



         The following table sets 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
periods indicated:

<TABLE>
<CAPTION>

Average Balance Sheet
(Dollars in thousands)                                                            Actual
                                                       -------------------------------------------------------------
                                                                       Year Ended December 31, 1999
                                                            Average                                    Average
                                                             Balance             Interest            Yield/Rate
                                                       ------------------- ------------------- ---------------------
<S>                                                              <C>                 <C>                     <C>
   Interest earning assets:
     Loans (1)                                                   $171,957            $ 13,825                8.04%
     Investment securities                                         58,192               3,182                5.47%
     Other interest earning assets                                  4,451                 334                7.50%
                                                       ------------------- ------------------- -------------------
     Total interest earning assets                                234,600              17,341                7.39%
     Non-interest earning assets                                   17,221
                                                       -------------------
   Total assets                                                  $251,821
                                                       ===================
   Interest bearing liabilities:
     Interest bearing checking                                   $ 36,754                 479                1.30%
     Savings deposits                                              47,851               1,838                3.84%
     Time deposits                                                 83,129               4,563                5.49%
     Short-term borrowings                                         49,610               2,677                5.40%
                                                       ------------------- ------------------- -------------------
   Total interest bearing liabilities                            $217,344               9,557                4.40%
                                                       ===================

                                                                           -------------------
   Net interest income                                                                 $7,784
                                                                           ===================
   Net interest spread                                                                                       3.00%
   Net interest margin(2)                                                                                    3.32%

</TABLE>

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

<TABLE>
<CAPTION>

Average Balance Sheet
(Dollars in thousands, unaudited)                                           Pro Forma Combined
                                                       -------------------------------------------------------------
                                                                       Year Ended December 31, 1998
                                                        Average Balance                         Average Yield/Rate
                                                                                Interest
                                                       ------------------- ------------------- ---------------------
<S>                                                              <C>                 <C>                     <C>
   Interest earning assets:
     Loans (1)                                                   $130,307            $ 10,743                8.25%
     Investment securities                                         55,440               3,348                6.04%
     Other interest earning assets                                  9,765                 639                6.54%
                                                       ------------------- ------------------- -------------------
     Total interest earning assets                                195,512              14,730                7.53%
     Non-interest earning assets                                   18,770
                                                       -------------------
   Total assets                                                  $214,282
                                                       ===================
   Interest bearing liabilities:
     Interest bearing checking                                   $ 38,105                 526                1.38%
     Savings deposits                                              42,842               1,525                3.56%
     Time deposits                                                 74,767               4,309                5.76%
     Short-term borrowings                                         25,625               1,289                5.03%
                                                       ------------------- ------------------- -------------------
   Total interest bearing liabilities                            $181,339               7,649                4.22%
                                                       ===================

                                                                           -------------------
   Net interest income                                                                 $7,081
                                                                           ===================
   Net interest spread                                                                                       3.32%
   Net interest margin(2)                                                                                    3.62%

</TABLE>

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




                                       22
<PAGE>

<TABLE>
<CAPTION>

Average Balance Sheet
(Dollars in thousands)                                                  Pro Forma Combined (2)
                                                       -------------------------------------------------------------
                                                                       Year Ended December 31, 1997
                                                             Average                                Average
                                                             Balance            Interest           Yield/Rate
                                                       ------------------- ------------------- ---------------------
<S>                                                              <C>                   <C>                   <C>
   Interest earning assets:
     Loans (1)                                                   $ 84,505              $7,677                9.08%
     Investment securities                                         74,493               4,779                6.42
     Other interest earning assets                                  8,916                 495                5.55
                                                       ------------------- ------------------- -------------------
     Total interest earning assets                                167,914              12,951                7.71
     Non-interest earning assets                                    8,637
                                                       -------------------
   Total assets                                                  $176,551
                                                       ===================
   Interest bearing liabilities:
     Interest bearing checking                                    $16,790                 477                2.84%
     Savings deposits                                              34,381               1,215                3.53
     Time deposits                                                 74,332               4,252                5.72
     Short-term borrowings                                          8,874                 501                5.65
                                                       ------------------- ------------------- -------------------
   Total interest bearing liabilities                            $134,377               6,445                4.80%
                                                       ===================

                                                                           -------------------
   Net interest income                                                                 $6,506
                                                                           ===================
   Net interest spread                                                                                       2.91%
   Net interest margin(3)                                                                                    3.84%
</TABLE>

(1)     Includes nonaccrual loans.
(2)     Includes average pro forma adjustments to loans, investments,
        non-interest earning assets and time deposits.
(3)     Computed on a fully taxable basis, without regard to tax equivalent
        yields.

          As illustrated in the preceding tables, the principal reason for the
increase in net interest income from 1997 to 1998, and 1998 to 1999, was an
increase in the volume of United's interest earning assets. The decrease in
interest income from a planned decrease in the volume of investment securities
held in portfolio was more than offset by a large positive contribution from
increased loan volumes, as funds from borrowings, deposits and repayments of
investment securities were applied to increase the volume of higher yielding
loan assets. This increased volume of loans was largely responsible for the $3.0
million increase in interest income due to volume from 1997 to 1998 and the $2.6
million increase in interest income due to volume from 1998 to 1999. Average
interest rates earned on loans declined during these periods as market interest
rates declined slightly. Rates earned on investment securities declined slightly
from 1997 to 1998 and also from 1998 to 1999.

          Rates paid on deposits remained relatively constant from 1997 to 1998
and from 1998 to 1999, resulting in only minimal changes in interest expense as
a result of changes in such rates. An $8.5 million increase in savings accounts
from 1997 to 1998 and a $16.7 million increase in short-term borrowings,
resulted in a $1.2 million increase in interest expense due to volume from 1997
to 1998. Further increases in borrowings from 1998 to 1999, particularly in
repurchase agreements and FHLB borrowings along with a $8.3 million increase in
time deposits, caused an increase of $1.9 million in interest expense in 1999 as
compared to 1998.

          The increased interest expense was more than offset by the increased
interest income resulting from expansion of United's loan portfolio during both
1998 and 1997. United's net interest income increased $.7 million from $7.1
million for 1998 to $7.8 million for 1998 and increased $.6 million from $6.5
million for the year ended December 31, 1997 to $7.1 million for the year ended
December 31, 1998.

         PROVISION FOR LOAN LOSS. United provided $204,000 for loan losses in
1999. United provided $340,000 for loan losses in 1998 as compared with $717,000
in 1997. The increase in the provision for loan losses for 1997 was in part
because of the increased average balance in loans receivable and in part because
of management's evaluation of overall economic conditions, both regionally and
nationally.

                                       23
<PAGE>

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

         NON-INTEREST INCOME. In addition to net interest income, United
generates significant non-interest income from a range of retail banking
services, including mortgage banking activities and service charges for deposit
services. Non-interest income remained consistent in 1999 when compared to 1998
at $3.5 million. In contrast, non-interest income increased $1.7 million, or
94.0%, to $3.5 million for 1998 as compared to 1997. The principal reason for
this fluctuation was the strength of the home lending market, and particularly
the refinancing market during 1998, as interest rates were relatively low and
stable. The active refinancing market during this period resulted in a
substantial increase in loan origination fees and discounts on sale of mortgage
loans. United believes that future increases in interest rates are likely to
result in a decreased refinancing market which would negatively affect United's
fee income. Rates increased in the third quarter of 1999, which resulted in a
decrease in the volume of refinancing activity and therefore a decrease in loan
origination fees during 1999 of $.1 million. Other non-interest income,
including servicing fees on mortgage loans, service charges and FHLB stock
dividends, remained relatively constant from 1998 to 1999. Loan servicing fees
increased $.1 million in 1999 due to mortgage servicing rights recorded and also
$.1 million from equity in income of Valley. United also recognized a small
amount of gain on sale of investment securities in 1999 and 1998, while no
investment securities were sold in 1997.

         NON-INTEREST EXPENSE. Non-interest expense increased $.7 million, or
10.5%, to $7.1 million in 1999, and increased $1.9 million, or 41.0%, to $6.4
million in 1998. Salary and employee benefit expense represented $.4 million of
the increase and was the result of additional staffing of loan originators and
rate increases for existing employees. Salary and employee benefit expense,
which increased $1.1 million to $3.5 million in 1998 from $2.4 million in 1997,
also accounted for most of the increase in 1998. This increase was due primarily
to increased salary and commission expense associated with the refinancing
activity and growth in the size of United's overall operations. To a lesser
extent, this increase was also due to one-time merger related charges of $85,000
and increased data processing charges in the first quarter of 1998.

         INCOME TAXES. Income tax expense increased $.1 million to $1.5 million
for 1999 and increased $.3 million to $1.4 million for 1998 from $1.1 million
for 1997. The principal reason for the increase in both periods was increased
income, after adjustment for non-deductible goodwill amortization and tax-free
interest on municipal bonds and loans.

FINANCIAL CONDITION

         GENERAL. United's total assets increased $37.7 million to $270.2
million at December 31, 1999 from $232.5 million at December 31, 1998, and
increased $48.7 million in 1998 from $183.8 million at December 31, 1997. The
principal reason for the increases in both periods was growth in United's loan
portfolio, which increased $43 million during 1999 and $49.5 million during
1998. The aggregate balance of mortgage-backed and investment securities
declined in 1998, but increased slightly in 1999 as United worked to apply some
of these resources in higher yielding assets.

         LOANS. Net loans receivable increased $43 million during 1999 to $186.3
million at December 31, 1999. Nearly all loan categories continued to show
steady growth, although not at the same pace as 1998, due to increases in rates
later in 1999. Net loans increased $49.5 million during 1998 to $143.3 million
at December 31, 1998. Residential mortgage loans increased as United expanded
its loan production offices and added residential lending staff. Although
smaller in dollar amount,



                                       24
<PAGE>

United's construction, agricultural and commercial real estate loans, and its
non-real estate commercial and agricultural loans, grew even more rapidly during
1998. Substantial increases in commercial and agricultural loans, which are
consistent with new loan policies adopted after the Heritage Merger, resulted
from increased marketing through officer call programs, primarily through
United's Great Falls office.

         MORTGAGE-BACKED AND INVESTMENT SECURITIES. United's mortgage-backed and
investment securities increased $1.1 million to $53 million during 1999 and
decreased $10.2 million to $51.9 million during the year ended December 31,
1998. In 1999, United's purchases were approximately $33.9 million while sales,
maturities and calls totaled $30.9 million. The net increase was also offset by
an unrealized loss in market values of approximately $1.6 million in 1999.
Declining balances of investment securities from calls and maturities, and from
the sale of $5.7 million of bonds and government mutual funds during 1998,
accounted for the majority of the decrease. Mortgage-backed securities increased
during 1998, as a result of net purchases of $8.4 million of mortgage-backed
securities.

         OTHER ASSETS. Real estate owned decreased $523,000 during 1998 to
$304,000 at December 31, 1998, as United sold one of its two remaining apartment
complexes in Glendive, Montana for $360,000 (for no gain or loss) and recorded
depreciation of $15,500. Real estate owned decreased $290,000 during 1999 as the
result of the sale of the remaining Glendive apartment complex for $360,000, a
gain of $5,000 and recorded depreciation of $15,540.

         United purchased $1,652,800 of additional FHLB stock during 1999 and
purchased $210,600 of FHLB stock during 1998, primarily as required to support
the increased scope of its operations. United received FHLB stock dividends of
$161,100 in 1999.

         Premises and equipment increased $1.4 million during 1999, as the
result of the construction of the two new branches in Missoula and Bozeman as
well as computer purchases and upgrades for Y2K compliance, and increased $.2
million during 1998, primarily as a result of the purchase of additional
computer equipment and remodeling of United's home office.

         Goodwill and identifiable intangibles decreased $180,000 during 1999
due to amortization. Goodwill and identifiable intangibles increased $1.4
million during 1998 as a result of the acquisition of Old United in the Heritage
Merger ($981,000), the purchase of two loan production offices ($184,000), and
the purchase premium paid on State Bank deposits ($454,000), offset by
amortization of $107,000 and changes to Old United's historical net assets of
$87,000.

         DEPOSITS AND BORROWINGS. United experienced a net increase in deposits
of $12.3 million in 1999 and $26.4 million in 1998. The increase in deposits
during 1999 and 1998 resulted primarily from the application of competitive
rates on all deposit offerings by United as well as the offering of a greater
array of loan products to attract depositors.

         Borrowings increased $26.4 million to $58.0 million at December 31,
1999, from $31.6 million at December 31, 1998, and increased $22.0 million
during 1998 from $9.6 million at December 31, 1997. The additional borrowings in
both years, comprised of a net increase of $24.3 million and $15.7 million in
FHLB advances and $2.1 million and $6.3 million in securities sold under
repurchase agreements in 1999 and 1998 respectively, were used to fund increases
in United's loan portfolio.

          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




                                       25
<PAGE>

guaranteed, leading to the conclusion that loss of principal and interest would
likely not be realized, then interest income will continue to be accrued.

          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.

<TABLE>
<CAPTION>

         (Dollars in thousands)                                                               Pro Forma
                                                                                              Combined
                                                        --------------   ----------------------------------
                                                        December 31,      December 31,      December 31,
                                                            1999              1998              1997
                                                        --------------   ----------------  ---------------
<S>                                                              <C>                <C>              <C>
         Principal Balances:
           Accruing loans past due over 90                       $117               $387             $437
            days
           Non-accrual loans                                      230                594                4
                                                        --------------   ----------------  ---------------
         Total                                                   $347               $981             $441
                                                        --------------   ----------------  ----------------
         Interest:
           Due on non-accrual loans                              $ 14               $ 12              $ -
           Included in income                                    none               none             none
</TABLE>

         United is required to review, classify and report to its Board of
Directors its assets on a regular basis and classify them as "substandard"
(distinct possibility that some loss will be sustained), "doubtful" (high
likelihood of loss), or "loss" (uncollectible). Adequate valuation allowances
are required to be established for assets classified as substandard or doubtful
in accordance with generally accepted accounting principles. If an asset is
classified as a loss, the institution must either establish a specific valuation
allowance equal to the amount classified as loss or charge off such amount. At
December 31, 1999, United had $6,000 of reported doubtful assets and no assets
classified as loss. At December 31, 1998, United had $553,000 of reported
doubtful assets and no assets classified as loss. The doubtful balance
represented one loan to a company which originates and securitizes home equity
loans. In 1999, the loan was reclassified to substandard. As of March 31, 2000,
the loan was current with regard to principal and interest payments. As of
December 31, 1997 (on a pro forma combined basis), United had no assets
classified as doubtful or loss. At December 31, 1999, 1998 and 1997 (on a pro
forma combined basis), United had $506,000, $405,000 and $116,000, respectively,
of reported substandard assets. As a percent of total assets, substandard assets
were approximately .19%, .17% and .06% at December 31, 1999, 1998 and 1997,
respectively.



                                       26
<PAGE>

         PROVISION FOR LOAN LOSSES. The following schedule details changes in
United's loan loss reserve at December 31 for each of the three years indicated:

<TABLE>
<CAPTION>

       (Dollars in thousands)                                                               Pro Forma
       (Dollars in thousands)                                                               Combined
                                                                        ---------------------------------
                                                       Year Ended         Year Ended       Year Ended
                                                      December 31,       December 31,     December 31,
                                                          1999               1998             1997
                                                     ----------------   ---------------  ----------------
<S>                                                  <C>                <C>              <C>
       Balance beginning of period                   $         1,485    $        1,146   $           463
       Provision for loan losses                                 204               340               717
       Acquired from State Bank                                    -                43                 -
       Charge-offs:
         Residential                                             (16)                -                 -
         Commercial                                              (59)               (4)              (10)
         Consumer                                                (34)              (52)              (25)
                                                     ----------------   ---------------  ----------------
       Total charge-offs                                        (109)              (56)              (35)
       Recoveries                                                  7                12                 1
                                                     ----------------   ---------------  ----------------
       Net charge-offs                                          (102)              (44)              (34)
                                                     ----------------   ---------------  ----------------
       Balance end of period end                     $         1,586    $        1,485   $         1,146
                                                     ================   ===============  ================
       Allowance for loan losses to:
         Total loans at period end                               .84%             1.03%             1.21%
                                                     ================   ===============  ================
         Net charge-offs to average
          loans                                                  .06%              .04%              .04%
                                                     ================   ===============  ================
</TABLE>

         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:


<TABLE>
<CAPTION>

(Dollars in thousands)                                                                                Pro Forma Combined
                                            December 31, 1999            December 31, 1998            December 31, 1997
                                       ----------------------------  ---------------------------  ---------------------------
                                        Allowance         % to         Allowance        % to        Allowance        % to
                                       -------------  -------------  -------------  ------------  -------------  ------------
<S>                                           <C>             <C>           <C>            <C>           <C>            <C>
Real estate loans:
  1 - 4 residential                           $ 128           18.1%         $ 124          18.7%         $ 387          45.4%
  5 or more residential                          52            2.8             66           4.6             67           7.1
  Construction                                   84            5.6             92           6.4             55           5.8
  Commercial and agricultural                   488           24.9            462          26.0            217          15.1
Non-real estate loans:
  Commercial and agricultural                   712           37.2            601          31.6            259          17.3
  Consumer                                      122           11.4            140          12.7            161           9.3
                                       -------------  -------------  -------------  ------------  -------------  ------------
Total                                       $ 1,586          100.0%       $ 1,485         100.0%       $ 1,146         100.0%
                                       =============  =============  =============  ============  =============  ============

</TABLE>



                                       27
<PAGE>

         REAL ESTATE AND OTHER PERSONAL PROPERTY OWNED. Total real estate and
other personal property owned ("REO") of United was $14,000, $304,000 and
$827,000 at December 31, 1999, 1998 and 1997 (on a pro forma combined basis),
respectively. The schedule below details properties both held for sale and
investment) by United as of the dates indicated.

<TABLE>
<CAPTION>
        (Dollars in thousands)                                                               Pro Forma
                                                                                             Combined
                                                 December 31, 1999   December 31, 1998    December 31, 1997
                                                 ------------------  ------------------  ------------------
<S>                                                            <C>                 <C>                 <C>
        REO held for sale                                      $ -                 $ -                 $ -
        Allowance for possible losses                            -                   -                   -

        REO held for investment                                  -                 328                 827
        Accumulated depreciation                                 -                 (24)                  -
                                                 ------------------  ------------------  ------------------
        Total REO held for investment                            -                $304                $827
                                                 ==================  ==================  ==================
        As a percent of total assets                            .0%                .13%                .45%
                                                 ==================  ==================  ==================
        Other personal property
          held for sale                                       $ 14                 $ -                 $ -
                                                 ------------------  ------------------  ------------------
        As a percent of total assets                           .01%                  -%                  -%
                                                 ==================  ==================  ==================
</TABLE>

         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
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). Savings 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 savings institutions. In periods of rising
interest rates, this mismatch can render savings 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, United
has maintained the 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 the FHLB borrowings.



                                       28
<PAGE>

         The following tables provide information regarding the maturity of
loans included in United's portfolio as of December 31, 1999. 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.

<TABLE>
<CAPTION>

  (Dollars in thousands)
                                                                 December 31, 1999
                                            ------------------------------------------------------------
                                                                              5 Years
                                                Up to          1 - 5            and
                                               1 Year          Years           Beyond          Total
                                            --------------  -------------  --------------  -------------
<S>                                               <C>            <C>             <C>            <C>
Loans:
Loans secured by real estate:
  Adjustable rate (all
   property types)                                $ 4,573        $10,869         $ 4,829        $20,271
  1-4 family residential                            6,611         12,341          20,677         39,629
  Multi-family and commercial                       3,298         15,416          11,497         30,211
  Construction and undeveloped
   land                                            10,480              -               -         10,480
                                            --------------  -------------  --------------  -------------
Loans secured by real
  estate                                           24,962         38,626          37,003        100,591
  Commercial non-real
   estate(1)                                       11,064         39,921           8,173         59,158
  Agricultural non-real estate                      3,860          5,100             551          9,511
  Consumer(2)                                       3,370          8,572           5,146         17,088
                                            --------------  -------------  --------------  -------------
Net loans                                         $43,256        $92,219         $50,873       $186,348
                                            ==============  =============  ==============  =============

                                                                         Total loans due
                                                                              after
                                                                        December 31, 2000
                                                                       --------------------
                            Fixed interest rates                                  $127,394
                            Floating or adjustable rates
                              or balloon payments                                   15,698
                                                                       --------------------
                                                                                  $143,092
                                                                       ====================
</TABLE>

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



                                       29
<PAGE>

         The following table sets forth the amortized cost, maturities and
weighted average yield of United's investment portfolio at the dates indicated:

<TABLE>
<CAPTION>

(Dollars in thousands)
                                                                      December 31, 1999
                                              -------------------------------------------------------------------
                                                                                        10 years
                                                 Up to        1 - 5         5 - 10     and beyond
                                                1 year        years         years                       Total
                                              ------------  -----------   -----------  ------------  ------------
<S>                                                  <C>        <C>           <C>              <C>       <C>
  U.S. government and agencies                       $200       $5,010        $5,000           $ -       $10,210
  Mortgage-backed securities                        1,053        4,501         4,164        30,543        40,261
  Municipal bonds                                       3          386           300         1,406         2,095
  Other                                                 -          500         1,496            45         2,041
                                              ------------  -----------   -----------  ------------  ------------
  Total investments                                $1,256      $10,397       $10,960       $31,994       $54,607
                                              ============  ===========   ===========  ============  ============
  Weighted average yield                             6.10%        6.14%         6.21%         6.15%         6.16%

                                                                      December 31, 1998
                                              -------------------------------------------------------------------
                                                                                        10 years
                                                 Up to        1 - 5         5 - 10     and beyond
                                                1 year        years         years                       Total
                                              ------------  -----------   -----------  ------------  ------------
  U.S. government and agencies                     $2,322       $6,201        $3,120        $2,001       $13,644
  Mortgage-backed securities                        1,567       10,477           550        23,776        36,370
  Municipal bonds                                      10          192           605            52           859
  Other                                               993            -             -            45         1,038
                                              ------------  -----------   -----------  ------------  ------------
  Total investments                                $4,892      $16,870        $4,275       $25,874       $51,911
                                              ============  ===========   ===========  ============  ============
  Weighted average yield                             6.41%        6.39%         6.25%         5.89%         6.20%


                                                                      Pro Forma Combined
                                                                      December 31, 1997
                                              -------------------------------------------------------------------
                                                                                        10 years
                                                 Up to        1 - 5         5 - 10     and beyond
                                                1 year        years         years                       Total
                                              ------------  -----------   -----------  ------------  ------------
  U.S. government and agencies                     $6,037      $13,449        $3,507             -       $22,993
  Mortgage backed securities                        2,393       17,244         6,138         6,447        32,222
  Municipal bonds                                       -           67         1,069           103         1,239
  Kemper U.S. Gov't bond mutual
    fund                                            5,260            -             -             -         5,260
  Other                                                 -            -           407             -           407
                                              ------------  -----------   -----------  ------------  ------------
  Total investments                               $13,690      $30,760       $11,121        $6,550       $62,121
                                              ============  ===========   ===========  ============  ============
  Weighted average yield                             5.71%        6.61%         6.70%         6.93%         6.46%

</TABLE>

         Maturity of time deposits of $100,000 or more at the dates indicated
are as follows:

<TABLE>
<CAPTION>
              (Dollars in thousands)                                                    Pro Forma
                                                                                         Combined
                                                                                      ---------------
                                                    December 31,      December 31,     December 31,
                                                        1999              1998             1997
                                                   ---------------   ---------------  ---------------
<S>                                                       <C>               <C>              <C>
             Less than three months                       $ 2,856           $ 2,578          $ 1,822
             Three to six months                            4,711             3,043            1,454
             Six to twelve months                           4,932             3,970            3,015
             Greater than twelve months                     3,395             3,407            2,833
                                                   ---------------   ---------------  ---------------
             Total                                        $15,894           $12,998          $ 9,124
                                                   ===============   ===============  ===============
</TABLE>

STOCKHOLDERS' EQUITY. Stockholders' equity at December 31, 1999 was $29.4
million, or 10.86% of total assets, down slightly from $30.5 million, or 13.1%
of total assets, at December 31, 1998. At December 31, 1999, book value was
$17.77 per share. The



                                       30
<PAGE>

decrease in stockholders' equity is primarily due to net income of $2.5 million
for 1999, offset by the payment of $1.8 million in dividends on United's common
stock, the purchase of 46,000 shares of treasury stock for $.9 million, and an
increase in net unrealized losses on securities of $.9 million.

         BUSINESS SEGMENT RESULTS. United manages its operations and prepares
management reports with a primary focus on geographical areas. Operating
segments information, including earnings performance on an operating cash basis,
is presented in the following schedule. United allocates centrally provided
services to the business segments based upon estimated usage of those services.
The operating segment identified as other includes the Parent company and
eliminations of transactions between segments.

         Heritage Bank includes United's thrift banking operations in twelve
Montana cities. The bank experienced steady growth in 1999 with loans increasing
$27.7 million or 18.9% over 1998 and deposits increasing $8.8 million or 5.5%.
Operating cash earnings for 1999 increased $.2 million over 1998.

         Net income increased 7.7% to $2.5 million from $2.3 million in 1998.
The increase was due to the continued growth in the loan portfolio and favorable
interest rates during the first three quarters of 1999. Net interest income
increased 11.3% to $7.1 million in 1999, non-interest income increased 3.3% to
$3.3 million, and non-interest expense on an operating cash basis increased
12.9% to $6.1 million. Heritage Bank's operating cash performance efficiency
ratio was 59.68% in 1999 as compared to 57.04% in 1998.

         Heritage Bank had thirteen banking locations during 1999, but closed
one drive up location in Great Falls, Montana in 1999. Also, a loan production
office in Polson, Montana was closed in January 2000.

         During 1998, United formed State Bank to acquire a portion of the
business of a failed commercial bank in Fort Benton, Montana. State Bank has one
branch office in Geraldine, Montana. The acquisition of State Bank was accounted
for as a purchase and results of operations prior to the acquisition date of
August 7, 1998 are not included in the segment information. Therefore the year
1998 is not comparable to 1999. On the acquisition date, United, through State
Bank, acquired certain assets of approximately $1.6 million and assumed certain
liabilities of approximately $14 million. State Bank paid a $454,000 premium for
the right to acquire such assets and assume the bank's insured deposits.

         State Bank experienced rapid growth in 1999 with loans increasing $11.4
million to $15.1 million and deposits increasing $2.1 million to $12 million.
Although operating cash earnings for 1999 were a loss of $28,000, State Bank is
expected to generate a profit in 2000. Net interest income for 1999 was $.4
million and non-interest income rose to $43,000. The operating cash efficiency
ratio for 1999 was 94.06% as compared to 134.78% for 1998.



                                       31
<PAGE>



The following table sets forth certain operating segment information for the
years ended December 31, 1999 and 1998 (in thousands). Operating information is
not presented for 1997 as it is not comparable as a result of Heritage Merger.

<TABLE>
<CAPTION>
                                                  Heritage State
                              Heritage Bank            Bank                 Other              Consolidated
                           -------------------- -------------------- -------------------- ------------------------
                             1999        1998        1999      1998       1999      1998      1999         1998
<S>                        <C>           <C>          <C>        <C>       <C>       <C>      <C>           <C>
Net interest income        $   7,085     6,364        444        87        270       420      7,799         6,871
Non-interest income            3,360     3,276         43        14        128         2      3,531         3,292
                           -------------------- -------------------- -------------------- ------------------------
Total revenue                 10,445     9,640        487       101        398       422     11,330        10,163
Provision for loan
  losses                         110       335         94         -          -         -        204           335
Non-interest expense           6,174     5,499        458       136        290       407      6,922         6,042
                           -------------------- -------------------- -------------------- ------------------------
Pretax cash earnings
  (loss)                       4,161     3,806        (65)      (35)       108        15      4,204         3,786
Income tax expense
  (benefit)                    1,537     1,413        (36)      (17)        39         3      1,540         1,399
                           -------------------- -------------------- -------------------- ------------------------
Cash earnings(1)               2,624     2,393        (29)      (18)        69        12      2,664         2,387
Amortization of
  goodwill and CDI               165       110         30        10          -         -        195           120
Net income                 $   2,459     2,283        (59)      (28)        69        12      2,469         2,267
                           ==================== ==================== ==================== ========================

PER SHARE DATA

Cash earnings per share                                                                       $1.58          1.50
Net income per share                                                                          $1.47          1.43
Weighted average shares
  outstanding                                                                                 1,684         1,588

AVERAGE BALANCE SHEET DATA

Total assets               $ 230,958   198,093     16,522    10,577      4,341     5,613    251,821       214,283
Net loans                    159,340   126,902     11,992     2,936        625       469    171,957       130,307
Allowance for loan
  losses                       1,489     1,216         93        46          -         -      1,582         1,262
Total deposits               157,819   147,843     10,303     9,168       (388)   (1,297)   167,734       155,714
Equity                        20,553    15,985      1,804     1,359     (6,619)  (13,013)    28,976        30,358

PERFORMANCE RATIOS

Return on average
  assets                        1.06     1.15%     -0.36%    -0.26%          -         -      0.98%         1.06%
Return on average
  equity                      11.96%    14.28%     -3.25%    -2.05%          -         -      8.52%         7.47%
Efficiency ratio              60.63%    57.64%    100.27%   144.79%          -         -     62.77%        60.58%

OPERATING CASH
  PERFORMANCE RATIOS

Return on average
  assets                       1.14%     1.21%     -0.17%    -0.17%          -         -      1.06%         1.11%
Return on average
  equity                      12.77%    14.97%     -1.57%    -1.31%          -         -      9.20%         7.86%
Efficiency ratio              59.68%    57.04%     94.06%   134.78%          -         -     61.10%        59.45%

</TABLE>

(1) Before amortization of goodwill
and core deposit intangible.




                                       32
<PAGE>



YEAR 2000

         Many previously installed computer systems and software were coded to
accept only two-digit entries in the date code fields. These date code fields
needed to be reformatted to accept four-digit entries to distinguish 21st
century dates from 20th century dates. This problem could have resulted in
system failures or miscalculations causing disruptions of business operations,
including production of erroneous data, inability to process transactions, and
other operational problems. As a result, many companies' computer systems and
software needed to be upgraded or replaced in order to comply with Year 2000
requirements.

         United undertook efforts, prior to December 31, 1999, to address Year
2000 computer issues. United formed a project team and contracted with a
computer consulting firm, to evaluate the Year 2000 impact on United's
mission-critical computer hardware and software and embedded technologies in its
physical plant and automated equipment (such as ATMs, proof machines, vaults and
security systems). United has replaced, modified or reprogrammed certain
systems, requires that new purchased hardware and software be Year 2000
compliant, and continues to test its systems. To date United has not experienced
any significant Y2K related computer disruptions. United will continue to
monitor the Y2K issue throughout the year 2000.

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 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.

         INTEREST RATE SENSITIVITY OF NET PORTFOLIO VALUE. Interest rate risk
sensitivity of net portfolio value ("NPV") measurement seeks to establish a
methodology to measure the potential for the reduction of earnings and
stockholders' equity resulting from both lower net interest income ("NII") and
lower NPV caused by changes in market interest rates. NPV is the difference
between Heritage Bank's depository portfolio value and its loans receivable
portfolio value. NPV thus provides a leading indicator of future potential
changes in both NII and stockholders' equity. Because of its asset size (less
than $500 million), Heritage Bank falls under an OTS exemption that allows
utilization of an asset/liability computer simulation program prepared and
distributed by the OTS. The OTS Thrift Financial Report includes Schedule CMR
that provides detailed information about the balances, interest rates,
repricing, and maturity characteristics of Heritage Bank's financial
instruments. By utilizing Heritage Bank's Schedule CMR data, the OTS runs
computer simulations ("Net Portfolio Value Model") utilizing OTS assumptions.
Heritage Bank, per OTS requirements, has established maximum percentage changes
for NPV resulting from instantaneous changes in interest rates of 100 to 400
basis points. A maximum change of -15% for an instantaneous 200 basis point
change in interest rate has been established by United. A 200 basis point change
is used by the OTS as the current Interest Rate Sensitivity Measure by which
thrifts are evaluated. Heritage Bank periodically reviews and makes changes to
established limits for NPV changes due to mergers and other market factors.




                                       33
<PAGE>

         The following table demonstrates Heritage Bank's December 31, 1999 NPV
and the $ present value of total assets, NPV ratio and basis point change for
three instantaneous increases and the three instantaneous decreases in interest
rates:

<TABLE>
<CAPTION>
                                 Interest Rate Sensitivity of Net Portfolio Value

(Dollars in thousands)
   Instanta            Net Portfolio Value                            NPV as % of PV of Assets
     neous       ---------------------------------------------------------------------------------------------------
Change in Rates    $ Amount        $ Change         % Change       Total Assets       NPV Ratio       Change
---------------- -------------- ---------------- --------------- ------------------ --------------- ----------------

<S>          <C>    <C>               <C>                <C>           <C>                <C>           <C>
   +300      bp     13,355           -8,687             -39%           238,101            5.61%        -320  bp
   +200      bp     16,307           -5,735             -26%           242,206            6.73%        -207  bp
   +100      bp     19,231           -2,811             -13%           246,304            7.81%        -100  bp
      0      bp     22,042                -               -%           250,317            8.81%           -
   -100      bp     24,581            2,539             +12%           254,093            9.67%         +87  bp
   -200      bp     27,289            5,247             +24%           258,072           10.57%        +177  bp
   -300      bp     30,183            8,141             +37%           262,262           11.51%        +270  bp
</TABLE>

         The following table demonstrates Heritage Bank's December 31, 1998 NPV
and the $ present value of total assets, NPV ratio and basis point change for
four instantaneous increases and the four instantaneous decreases in interest
rates:

<TABLE>
<CAPTION>
                                 Interest Rate Sensitivity of Net Portfolio Value
(Dollars in thousands)
 Instantane            Net Portfolio Value                            NPV as % of PV of Assets
     ous         ---------------------------------------------------------------------------------------------------
Change in Rates    $ Amount        $ Change         % Change       Total Assets       NPV Ratio       Change
---------------- -------------- ---------------- --------------- ------------------ --------------- ------------
<S>          <C>    <C>               <C>                <C>           <C>                <C>           <C>
   +400      bp     17,799           -6,240             -26%           207,356            8.58%        -245  bp
   +300      bp     19,517           -4,521             -19%           210,123            9.29%        -174  bp
   +200      bp     21,173           -2,866             -12%           212,850            9.95%        -108  bp
   +100      bp     22,662           -1,376              -6%           215,443           10.52%         -51  bp
      0      bp     24,039                -               -%           217,948           11.03%           -
   -100      bp     25,593            1,554              +6%           220,664           11.60%         +57  bp
   -200      bp     27,362            3,324             +14%           223,626           12.24%        +121  bp
   -300      bp     29,604            5,566             +23%           227,092           13.04%        +201  bp
   -400      bp     31,617            7,578             +32%           230,361           13.73%        +270  bp

</TABLE>

         The preceding tables for 1999 and 1998 would indicate a decrease in NPV
based on three instantaneous increases and three instantaneous decreases. This
would be consistent with increasing interest rates during 1999. Total $ present
value of total assets has increased based on asset growth in 1999. However,
based on the three increases and decreases in rates, the value of total assets
would also decrease based on increasing interest rates.

         The preceding sensitivity analysis does not represent a forecast and
should not be relied upon as being indicative of expected operation 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.



                                       34
<PAGE>

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 generally accepted accounting principles applied on a
consistent basis.

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

         None.


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information set forth under the captions "Election of Directors"
and "Section 16(a) Beneficial Ownership Reporting Compliance" in United's
definitive Proxy Statement for its 2000 Annual Meeting of Shareholders to be
filed with the Securities and Exchange Commission on or about April 20, 2000
(the Proxy Statement is incorporated herein by reference). Information regarding
executive officers is set forth in Part I of this Report.

ITEM 11.  EXECUTIVE COMPENSATION

         The information set forth under the caption "Executive Compensation and
Other Information," "Compensation of Directors" and "Stock Price Performance
Graph" in the Proxy Statement is incorporated by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information set forth under the captions "Securities Ownership of
Certain Beneficial Owners" and " Securities Ownership of Management" 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.




                                       35
<PAGE>


                                     PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

List of Documents filed by Company as part of this Report.

(a) (1) FINANCIAL STATEMENTS:

    The following financial statements of United Financial are included herein
as follows:

                                                                   Page Number
                                                                   -----------


    INDEPENDENT AUDITORS' REPORT                                           F-1

    CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION,                        F-2
      December 31, 1999 and 1998

    CONSOLIDATED STATEMENTS OF INCOME - YEARS ENDED                        F-3
      December 31, 1999, 1998, and 1997

    CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND
    COMPREHENSIVE INCOME - YEARS ENDED                                     F-4
      December 31, 1999, 1998, and 1997

    CONSOLIDATED STATEMENTS OF CASH FLOWS - YEARS ENDED                    F-5
      December 31, 1999, 1998, and 1997

    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                             F-6

    (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.

      The exhibits listed in the accompanying index are filed as part of this
      Report or incorporated by reference as indicated therein.

(b) REPORTS ON FORM 8-K FILED DURING THE QUARTER ENDED DECEMBER 31, 1999

         None



                                       36
<PAGE>
















                     UNITED FINANCIAL CORP. AND SUBSIDIARIES

                        Consolidated Financial Statements

                           December 31, 1999 and 1998

                   (With Independent Auditors' Report Thereon)


<PAGE>









                          INDEPENDENT AUDITORS' REPORT



The Board of Directors and Stockholders
United Financial Corp.



We have audited the accompanying consolidated statements of financial condition
of United Financial Corp. and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of income, stockholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 1999. 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 generally accepted auditing
standards. 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, 1999 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999 in conformity with generally accepted accounting
principles.


/s/ KPMG LLP


February 17, 2000






                                      F-1
<PAGE>

                     UNITED FINANCIAL CORP. AND SUBSIDIARIES

                 Consolidated Statements of Financial Condition


<TABLE>
<CAPTION>
                                                                         DECEMBER 31,
                                                               --------------------------------
                         ASSETS                                    1999               1998
                                                               -------------      -------------
<S>                                                            <C>                   <C>
Cash and cash equivalents                                      $  11,456,801         19,255,570
Securities available-for-sale                                     53,044,472         51,899,657
Loans receivable, net                                            186,347,794        143,359,113
Loans held for sale                                                1,191,111          5,716,976
Stock in Federal Home Loan Bank of Seattle, at cost                3,046,200          1,232,300
Accrued interest receivable                                        2,258,662          1,918,365
Premises and equipment, net                                        4,872,670          3,482,411
Real estate and other personal property owned                         13,657            304,224
Deferred income taxes, net                                           740,107            101,780
Investment in Valley Bancorp, Inc.                                 4,548,949          2,683,791
Goodwill, net of accumulated amortization of $335,900 and
     $225,573 at December 31, 1999 and 1998, respectively          1,289,456          1,399,783
Identifiable intangibles, net of accumulated amortization
     of $99,904 and $30,554 at December 31, 1999 and 1998,           537,412            606,762
     respectively
Other assets                                                         878,604            600,477
                                                               -------------      -------------

                                                               $ 270,225,895        232,561,209
                                                               =============      =============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
     Non-interest bearing deposits                             $  18,750,554         18,895,349
     Interest bearing deposits                                   161,130,984        148,724,735
     Federal Home Loan Bank advances                              46,425,000         22,175,000
     Securities sold under agreements to repurchase               11,545,959          9,450,572
     Advances from borrowers for taxes and insurance                 408,161            342,607
     Income taxes payable                                            476,273            115,634
     Accrued interest payable                                      1,528,035          1,267,108
     Accrued expenses and other liabilities                          601,973          1,062,237
                                                               -------------      -------------

           Total liabilities                                     240,866,939        202,033,242
                                                               -------------      -------------

Stockholders' equity:
     Preferred stock, no par value; authorized 2,000,000
        shares; no shares issued                                          --                 --
     Common stock, no par value; authorized 8,000,000
        shares; 1,698,312 shares issued                           28,001,579         28,001,579
     Retained earnings, substantially restricted                   3,250,876          2,533,289
     Treasury stock, at cost, 46,000 shares                         (931,649)                --
     Accumulated other comprehensive loss                           (961,850)            (6,901)
                                                               -------------      -------------

           Total stockholders' equity                             29,358,956         30,527,967
                                                               -------------      -------------

Commitments and contingencies
                                                               $ 270,225,895        232,561,209
                                                               =============      =============

</TABLE>


See accompanying notes to consolidated financial statements.




                                      F-2
<PAGE>

                     UNITED FINANCIAL CORP. AND SUBSIDIARIES

                        Consolidated Statements of Income


<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                                       -------------------------------------------
                                                           1999            1998           1997
                                                       -----------     -----------     -----------
<S>                                                    <C>              <C>              <C>
Interest income:
    Loans receivable                                   $13,824,741      10,515,655       4,529,566
    Mortgage-backed securities                           2,747,649       2,189,305         832,182
    Investment securities                                  432,987         914,676         209,263
    Time deposits in banks                                   1,607           6,709           6,860
    Other interest-earning assets                          333,651         622,694         195,579
                                                       -----------     -----------     -----------

          Total interest income                         17,340,635      14,249,039       5,773,450
                                                       -----------     -----------     -----------

Interest expense:
    Deposits                                             6,879,588       6,090,923       2,635,234
    Long-term debt                                              --          11,917         189,657
    Federal Home Loan Bank advances                      2,171,681         898,446         253,407
    Securities sold under agreements to repurchase         505,199         391,281          79,035
                                                       -----------     -----------     -----------

          Total interest expense                         9,556,468       7,392,567       3,157,333
                                                       -----------     -----------     -----------

          Net interest income                            7,784,167       6,856,472       2,616,117

Provision for loan losses                                  203,500         335,000         492,400
                                                       -----------     -----------     -----------

          Net interest income after provision for
             loan losses                                 7,580,667       6,521,472       2,123,717
                                                       -----------     -----------     -----------

Non-interest income:
    Loan origination fees on loans sold                  2,524,190       2,606,436         649,354
    Loan servicing fees                                    211,732          78,600          65,739
    Customer service charges                               420,523         336,684         275,509
    Gain on sale of investment securities                   30,357          43,162              --
    Equity in income of Valley Bancorp, Inc.               126,367           1,550              --
    Other                                                  217,042         225,603         112,992
                                                       -----------     -----------     -----------

          Total non-interest income                      3,530,211       3,292,035       1,103,594
                                                       -----------     -----------     -----------

Non-interest expense:
    Compensation and benefits                            3,895,030       3,369,524       1,206,812
    Occupancy and equipment                                742,331         625,110         227,861
    Deposit insurance premiums                             121,088          82,873          27,389
    Data processing fees                                   398,022         349,251         199,263
    Other                                                1,945,896       1,720,734         699,604
                                                       -----------     -----------     -----------

          Total non-interest expense                     7,102,367       6,147,492       2,360,929
                                                       -----------     -----------     -----------

          Income before income taxes                     4,008,511       3,666,015         866,382

Income taxes                                             1,539,239       1,398,595         324,161
                                                       -----------     -----------     -----------

          Net income                                   $ 2,469,272       2,267,420         542,221
                                                       ===========     ===========     ===========

Net income per share                                   $      1.47            1.43            1.14
                                                       ===========     ===========     ===========

Weighted average shares outstanding                      1,684,246       1,587,711         475,000
                                                       ===========     ===========     ===========

</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-3
<PAGE>

                     UNITED FINANCIAL CORP. AND SUBSIDIARIES

    Consolidated Statements of Stockholders' Equity and Comprehensive Income

                  Years ended December 31, 1999, 1998 and 1997


<TABLE>
<CAPTION>
                                                                                                                ACCUMULATED
                                                                                                                   OTHER
                                                        COMMON      ADDITIONAL      RETAINED        TREASURY    COMPREHENSIVE
                                                         STOCK    PAID-IN CAPITAL   EARNINGS         STOCK      INCOME (LOSS)
                                                      -----------   -----------    -----------    -----------    -----------
<S>                                                   <C>             <C>              <C>                           <C>
Balances at December 31, 1996                         $       100     1,080,028        997,384             --        100,189

Comprehensive income:
    Net income                                                 --            --        542,221             --             --
    Increase in net unrealized gains on securities
      available-for-sale                                       --            --             --             --         27,993

        Total comprehensive income
                                                      -----------   -----------    -----------    -----------    -----------
Balances at December 31, 1997                                 100     1,080,028      1,539,605             --        128,182

Comprehensive income:
    Net income                                                 --            --      2,267,420             --             --
    Decrease in net unrealized gains on securities
      available-for-sale, net of reclassification
      adjustment                                               --            --             --             --       (135,083)

        Total comprehensive income

Issuance of 1,223,312 shares, net of issuance costs
    of $125,617                                        24,646,451            --             --             --             --

Change in par value of stock to no par                  1,080,028    (1,080,028)            --             --             --

Capital contribution                                    2,275,000            --             --             --             --

Dividends declared ($.75 per share)                            --            --     (1,273,736)            --             --
                                                      -----------   -----------    -----------    -----------    -----------
Balances at December 31, 1998                          28,001,579            --      2,533,289             --         (6,901)

Comprehensive income:
    Net income                                                 --            --      2,469,272             --             --
    Increase in net unrealized losses on securities
      available-for-sale, net of reclassification
      adjustment                                               --            --             --             --       (954,949)

        Total comprehensive income

Dividends declared ($1.04 per share)                           --            --     (1,751,685)            --             --

Treasury shares purchased at cost                              --            --             --       (931,649)            --
                                                      -----------   -----------    -----------    -----------    -----------
Balances at December 31, 1999                         $28,001,579            --      3,250,876       (931,649)      (961,850)
                                                      ===========   ===========    ===========    ===========    ===========
</TABLE>



[WIDE TABLE CONTINUED FROM ABOVE]



                                                         TOTAL
                                                     STOCKHOLDERS'
                                                        EQUITY
                                                     -----------

Balances at December 31, 1996                          2,177,701

Comprehensive income:
    Net income                                           542,221
    Increase in net unrealized gains on securities
      available-for-sale                                  27,993
                                                     -----------
        Total comprehensive income                       570,214
                                                     -----------
Balances at December 31, 1997                          2,747,915

Comprehensive income:
    Net income                                         2,267,420
    Decrease in net unrealized gains on securities
      available-for-sale, net of reclassification
      adjustment                                        (135,083)
                                                     -----------
        Total comprehensive income                     2,132,337
                                                     -----------
Issuance of 1,223,312 shares, net of issuance costs
    of $125,617                                       24,646,451

Change in par value of stock to no par                        --

Capital contribution                                   2,275,000

Dividends declared ($.75 per share)                   (1,273,736)
                                                     -----------
Balances at December 31, 1998                         30,527,967

Comprehensive income:
    Net income                                         2,469,272
    Increase in net unrealized losses on securities
      available-for-sale, net of reclassification
      adjustment                                        (954,949)
                                                     -----------
        Total comprehensive income                     1,514,323
                                                     -----------
Dividends declared ($1.04 per share)                  (1,751,685)

Treasury shares purchased at cost                       (931,649)
                                                     -----------
Balances at December 31, 1999                         29,358,956
                                                     ===========


See accompanying notes to consolidated financial statements.



                                      F-4
<PAGE>

                     UNITED FINANCIAL CORP. AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows


<TABLE>
<CAPTION>
                                                                              YEARS ENDED DECEMBER 31,
                                                                 -----------------------------------------------
                                                                      1999             1998              1997
                                                                 -------------    -------------    -------------
<S>                                                              <C>                  <C>                <C>
Cash flows from operating activities:
    Net income                                                   $   2,469,272        2,267,420          542,221
    Adjustments to reconcile net income to net cash
      provided by (used) in operating activities:
        Provision for loan losses                                      203,500          335,000          492,400
        Amortization of goodwill and identifiable intangibles          187,477          105,683           42,984
        Depreciation                                                   287,083          320,080          110,329
        Equity in income of Valley Bancorp, Inc.                      (126,367)          (1,550)              --
        Amortization of loan origination fees                               --            3,292          (54,037)
        Amortization of premiums and discounts on
          investment securities and loans                              265,178          (30,636)          (2,040)
        Gain on sale of investment securities                          (30,357)         (43,162)              --
        Gain on sale of real estate owned                               (4,970)              --               --
        Mortgage loans originated and held for sale               (114,591,857)     (85,999,406)     (30,718,295)
        Proceeds from sales of mortgage loans held for sale        119,117,722       81,749,817       31,649,850
        FHLB stock dividends                                          (161,100)         (82,800)         (26,800)
        Increase in accrued interest receivable                       (340,297)        (404,023)        (207,127)
        Decrease (increase) in deferred income taxes                   (41,604)         117,440         (133,003)
        Decrease (increase) in other assets                           (278,127)       2,185,394          (32,448)
        Increase (decrease) in income taxes payable                    360,639         (168,053)         102,349
        Increase in accrued interest payable                           260,927          129,408          233,664
        Decrease in accrued expenses
          and other liabilities                                       (127,019)      (2,568,482)        (172,248)
                                                                 -------------    -------------    -------------

             Net cash provided by (used in) operating
               activities                                            7,450,100       (2,084,578)       1,827,799
                                                                 -------------    -------------    -------------

Cash flows from investing activities:
    Net decrease in time deposits in banks                                  --           98,000               --
    Net increase in loans receivable                               (43,534,649)     (46,501,033)     (15,777,452)
    Purchases of securities available-for-sale                     (33,921,870)     (37,033,497)      (6,872,431)
    Proceeds from maturities, paydowns and sales of securities
      available-for-sale                                            30,990,562       44,300,431        6,869,640
    Purchases of Federal Home Loan Bank stock                       (1,652,800)        (210,600)         (49,100)
    Purchase of Valley Bancorp, Inc. stock                          (1,746,591)      (2,682,241)              --
    Cash paid to FDIC on failed bank                                  (333,245)              --               --
    Purchases of premises and equipment                             (1,661,802)        (940,655)        (556,554)
    Proceeds from sale of real estate and other personal
      property owned                                                   662,213          360,000               --
    Additions of real estate and other personal
      property owned                                                   (39,748)          (4,756)              --
    Acquisition of identifiable intangibles                                 --         (183,316)              --
    Decrease in minority interest                                           --               --             (451)
    Acquired cash and cash equivalents in merger                            --        8,112,629               --
    Acquired cash and cash equivalents of failed bank                       --       11,553,977               --
                                                                 -------------    -------------    -------------

             Net cash used in investing activities                 (51,237,930)     (23,131,061)     (16,386,348)
                                                                 -------------    -------------    -------------

Cash flows from financing activities:
    Net increase in deposits                                        12,261,454       13,982,987       12,745,405
    Net increase in FHLB advances                                   24,250,000       15,750,000        5,000,000
    Payments on long-term debt                                              --       (2,350,000)        (200,000)
    Net increase (decrease) in securities sold under
      repurchase agreements                                          2,095,387        6,277,423       (3,201,637)
    Increase (decrease) in advances from borrowers for
      taxes and insurance                                               65,554          (59,450)          (5,437)
    Capital contribution                                                    --        2,275,000               --
    Purchase of treasury stock                                        (931,649)              --               --
    Dividends paid to stockholders                                  (1,751,685)      (1,273,736)              --
                                                                 -------------    -------------    -------------

             Net cash provided by financing activities              35,989,061       34,602,224       14,338,331
                                                                 -------------    -------------    -------------

Net increase (decrease) in cash and cash equivalents                (7,798,769)       9,386,585         (220,218)

Cash and cash equivalents at beginning of year                      19,255,570        9,868,985       10,089,203
                                                                 -------------    -------------    -------------

Cash and cash equivalents at end of year                         $  11,456,801       19,255,570        9,868,985
                                                                 =============    =============    =============

Cash paid during the year for:
    Interest                                                     $   9,280,000        6,933,000        2,924,000
    Income taxes                                                     1,220,000        1,449,000          355,000
                                                                 =============    =============    =============

</TABLE>


See accompanying notes to consolidated financial statements.



                                      F-5
<PAGE>



                     UNITED FINANCIAL CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 1999, 1998 and 1997





(1)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


       (a)    GENERAL

              The accompanying consolidated financial statements include the
              accounts of United Financial Corp. (UFC) and its wholly-owned
              subsidiaries, Heritage Bank (Heritage) and Heritage State Bank
              (Heritage State). The consolidated financial statements also
              include Community Service Corporation (CSC), a wholly-owned
              subsidiary of Heritage. UFC, Heritage, Heritage State and CSC are
              herein referred to collectively as "the Company." All significant
              intercompany balances and transactions have been eliminated in
              consolidation.

              The Company, through its subsidiary banks, provides a full range
              of banking services to individual and corporate customers in
              central and western Montana. The subsidiary banks are subject to
              competition from other financial service providers. The Company
              and its subsidiary banks are also subject to the regulations of
              certain government agencies and undergo periodic examinations by
              those regulatory authorities.

              On February 3, 1998, Heritage Bancorporation merged with United
              Financial Corp. ("United"). Heritage Bancorporation was the parent
              company of Heritage Bank (acquired by Heritage Bancorporation in
              June 1994) and United Financial Corp. was the parent company of
              United Savings Bank. The merger resulted in a combined entity,
              United Financial Corp., owning these two subsidiary banks. The
              subsidiary banks were combined into one bank called Heritage Bank
              in May 1998.

              The merger was treated as a reverse acquisition accounted for as a
              purchase of United by Heritage Bancorporation. Consistent with
              Heritage Bancorporation being the acquiring corporation, the
              historical statements of operations of the combined entity only
              reflect the operations of United commencing on and after the
              closing date of the merger.

              In August 1998, the Company formed Heritage State to acquire a
              portion of the business of a failed commercial bank in Fort
              Benton, Montana.


       (b)    BASIS OF PRESENTATION

              The consolidated financial statements have been prepared in
              conformity with generally accepted accounting principles. 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.



                                      F-6
<PAGE>

                     UNITED FINANCIAL CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

              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 the Company to recognize additions to the allowance
              based on their judgments about information available to them at
              the time of their examination.


       (c)    CASH EQUIVALENTS

              For purposes of the consolidated statements of cash flows, the
              Company 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.


       (d)    INVESTMENT AND MORTGAGE-BACKED SECURITIES

              Investment and mortgage-backed securities available-for-sale
              include 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. All investment and
              mortgage-backed securities acquired are classified as
              available-for-sale.

              Declines in the fair value of available-for-sale securities below
              carrying value that are other than temporary are charged to
              expense as realized losses and the related carrying value reduced
              to fair value. The cost of any investment, if sold, is determined
              by specific identification.

              Premiums and discounts on investment securities are amortized or
              accreted into income using a method which approximates the
              level-yield interest method.


       (e)    LOANS RECEIVABLE AND LOAN FEES

              Loans receivable are stated at unpaid principal balances, less
              unearned discounts and net 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.




<PAGE>

                     UNITED FINANCIAL CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


              Material loan origination fees and related direct origination
              costs are deferred and the net fee or cost is recognized as
              interest income using the level-yield method over the contractual
              life of the loans, adjusted for prepayments. Origination fees on
              loans sold to the secondary market are recognized when the loan is
              sold. Amortization of deferred loan origination fees and costs and
              the accretion of unearned discounts are suspended during periods
              in which the related loan is on nonaccrual status.


       (f)    ALLOWANCE FOR LOAN LOSSES

              The allowance for loan losses is based on management's evaluation
              of the adequacy of the allowance, including an assessment of the
              Company'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.

              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 there
              has been permanent impairment of their carrying values.

              The Company 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 the
              Company 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, will be 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.

              At December 31, 1999 and 1998, the amount of impaired loans was
              not material.


       (g)    LOANS HELD FOR SALE

              Mortgage loans originated and intended for sale in the secondary
              market are carried at the lower of cost or estimated market value.
              Net unrealized losses are recognized by charges to income.




<PAGE>

                     UNITED FINANCIAL CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       (h)    GOODWILL AND IDENTIFIABLE INTANGIBLES

              Goodwill and identifiable intangibles represent the excess of cost
              over the fair value of the net assets at the date acquired.
              Goodwill is being amortized against income using the straight-line
              method over 15 to 25 years. Identifiable intangibles are being
              amortized against income using the straight-line method over 5
              years.


        (i)   STOCK IN FEDERAL HOME LOAN BANK

              Member institutions of the Federal Home Loan Bank (FHLB) are
              required to hold stock of its district FHLB according to
              predetermined formulas. This investment is carried at cost.


       (j)    PREMISES AND EQUIPMENT

              Premises and equipment are stated at cost less accumulated
              depreciation. Depreciation is computed on straight-line and
              accelerated methods over the estimated useful lives of 39 years
              for the building, 5 to 15 years for improvements, and 5 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 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 minus 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. At
              December 31, 1998, foreclosed assets held for the production of
              income were held by CSC and carried at cost, less accumulated
              depreciation, which is computed using the straight-line method
              over the estimated useful lives of the assets. During 1999, the
              Company sold real estate held for investment with a book value of
              $325,000 and recorded a gain of approximately $5,000 on the sale.
              Also during 1999, the Company sold real estate and other personal
              property acquired through foreclosure with an aggregate book value
              of $342,000 and reported no gain or loss. During 1998, the Company
              sold real estate held for investment with a book value of $360,000
              and recorded no gain or loss.


        (l)   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.




<PAGE>

                     UNITED FINANCIAL CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       (m)    NET INCOME PER SHARE

              Basic earnings per share (EPS) is calculated by dividing net
              income by the weighted average number of common shares outstanding
              during the period. Diluted EPS is calculated by dividing net
              income by the weighted average number of common shares used to
              compute basic EPS plus the incremental amount of potential common
              stock determined by the treasury stock method. The Company had no
              dilutive potential common stock during the years ended December
              31, 1999, 1998 or 1997.

              Net income per share for the year ended December 31, 1997 is
              calculated by dividing net income by the pro forma weighted
              average Heritage Bancorporation common shares outstanding. Pro
              forma weighted average shares outstanding is based on the 475,000
              shares assumed to be outstanding after the February 3, 1998
              assumed recapitalization effected in conjunction with the
              acquisition of United.


       (n)    LONG-LIVED ASSETS

              Long-lived assets and certain identifiable intangibles 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. At
              December 31, 1999 and 1998, there were no assets that were
              considered impaired.

       (o)    MORTGAGE SERVICING RIGHTS

              The Company 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, 1999
              the carrying value of originated servicing rights was
              approximately $102,000. There were no capitalized mortgage
              servicing rights at December 31, 1998.


        (p)   COMPREHENSIVE INCOME

              The Company is required to report it's 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. The
              Company's only significant element of other comprehensive income
              is unrealized gains and losses on available-for-sale securities.



<PAGE>

                     UNITED FINANCIAL CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       (q)    NEW ACCOUNTING PRONOUNCEMENTS

              In June 1998, SFAS No. 133, "Accounting for Derivative Instruments
              and Hedging Activities" was issued. SFAS No. 133 establishes
              accounting and reporting standards requiring that every derivative
              instrument (including certain derivative instruments embedded in
              other contracts) be recorded in the balance sheet as either an
              asset or liability measured at its fair value. SFAS No. 133
              requires that changes in the derivative's fair value be recognized
              currently in earnings unless specific hedge accounting criteria
              are met. Management of the Company is currently assessing the
              effect, if any, on its financial statements of implementing SFAS
              No. 133. In June 1999, SFAS No. 133 was amended by SFAS No. 137,
              "Accounting for Derivative Instruments and Hedging
              Activities-Deferral of the Effective Date of FASB Statement No.
              133," which extended the required adoption date of SFAS No. 133
              for the Company from January 1, 2000 to January 1, 2001.


(2)    CASH ON HAND AND IN BANKS

       The subsidiary banks are required to maintain an average reserve balance
       with the Federal Reserve Bank, or maintain such reserve in cash on hand.
       The amount of this required reserve balance at December 31, 1999 was
       approximately $621,000. An additional $225,000 compensating balance is
       required to be maintained with the Federal Reserve Bank for wire
       transfers.

(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:

<TABLE>
<CAPTION>
                                                                               1999
                                      ---------------------------------------------------------------------------------------
                                                                   GROSS                  GROSS               ESTIMATED
                                          AMORTIZED             UNREALIZED             UNREALIZED                FAIR
                                             COST                  GAINS                 LOSSES                 VALUE
                                      -------------------   --------------------   --------------------   -------------------
<S>                                <C>                                                     <C>                   <C>
      U.S. Government and
          Federal agencies         $        10,210,411                     -               (416,163)             9,794,218
      Mortgage-backed securities
                                            40,260,666                89,533               (895,451)            39,454,748
      Municipal bonds                        2,094,961                 2,414               (162,041)             1,935,334
      Other                                  2,041,273                     -               (181,101)             1,860,172
                                      -------------------   --------------------   --------------------   -------------------

                                   $        54,607,311                91,947             (1,654,786)            53,044,472
                                      ===================   ====================   ====================   ===================

                                                                               1998
                                      ---------------------------------------------------------------------------------------
                                                                   GROSS                  GROSS               ESTIMATED
                                          AMORTIZED             UNREALIZED             UNREALIZED                FAIR
                                             COST                  GAINS                 LOSSES                 VALUE
                                      -------------------   --------------------   --------------------   -------------------
      U.S. Government and
          Federal agencies         $        13,643,490                26,394                (33,159)            13,636,725
      Mortgage-backed securities
                                            36,369,874                76,794                (93,923)            36,352,745
      Municipal bonds                          858,660                30,641                 (4,510)               884,791
      Other                                  1,038,800                     -                (13,404)             1,025,396
                                      -------------------   --------------------   --------------------   -------------------

                                   $        51,910,824               133,829               (144,996)            51,899,657
                                      ===================   ====================   ====================   ===================

</TABLE>


<PAGE>

                     UNITED FINANCIAL CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


The Company has not entered into any swaps, options, or futures contracts.
Included in the municipal bonds, U.S. Government and Federal agencies security
amounts are investments which have call features.

Maturities of securities available-for-sale by contractual maturity at December
31, 1999 are shown below. Maturities of securities do not reflect repricing
opportunities present in many adjustable rate securities.

<TABLE>
<CAPTION>
                                                                                               ESTIMATED
                                                                      AMORTIZED                   FAIR
                                                                        COST                     VALUE
                                                                 --------------------   -------------------
<S>                                                           <C>                                <C>
      Due within one year                                     $           202,567                202,438
      Due after one year through five years                             5,896,288              5,663,064
      Due after five years through ten years                            6,795,866              6,435,641
      Due after ten years                                               1,451,925              1,288,581
                                                                 --------------------   -------------------
                                                                       14,346,646             13,589,724
      Mortgage-backed securities                                       40,260,666             39,454,748
                                                                 --------------------   -------------------

                                                              $        54,607,312             53,044,472
                                                                 ====================   ===================
</TABLE>


Gross proceeds from sales of investment securities were $10,123,123 and
$7,594,567 for the years ended December 31, 1999 and 1998 respectively,
resulting in gross gains of $30,357 and gross losses of $0 in 1999, and gross
gains of $63,880 and gross losses of $20,718 in 1998. There were no sales of
investment securities available-for-sale during the year ended December 31,
1997.


<PAGE>

                     UNITED FINANCIAL CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


(4)     COMPREHENSIVE INCOME

       The Company's only significant element of other comprehensive income is
       unrealized gains and losses on available-for-sale securities.

<TABLE>
<CAPTION>
                                                                            YEAR ENDED DECEMBER 31,
                                                              ---------------------------------------------------
                                                                                    1999
                                                              ---------------------------------------------------
                                                                   BEFORE              TAX            AFTER
                                                                     TAX             EXPENSE           TAX
                                                              -----------------  --------------  ---------------
<S>                                                             <C>                   <C>             <C>
        Unrealized and realized
          holding losses arising during period                  $(1,582,029)          (609,043)       (972,936)
        Less:  reclassification adjustment for gains
          included in net income                                     30,357             12,320          17,987
                                                              -----------------  --------------- ---------------
        Net unrealized losses on securities                     $(1,551,672)          (596,723)       (954,949)
                                                              =================  =============== ===============

                                                                                   1998

                                                               -------------------------------------------------
                                                                   Before              Tax           After
                                                                     Tax             Expense          Tax
                                                               ----------------  --------------  ---------------
        Unrealized and realized
          holding losses arising during period                 $  (257,794)           (96,166)      (161,628)
        Less:  reclassification adjustment for gains
          included in net income                                    43,162             16,617         26,545
                                                               ----------------  --------------  ---------------
        Net unrealized losses on securities                    $  (214,632)           (79,549)      (135,083)
                                                               ================  ==============  ===============

                                                                                 1997

                                                               -------------------------------------------------
                                                                   Before             Tax             After
                                                                     Tax            Expense            Tax
                                                               ----------------  --------------  ---------------
        Unrealized and realized
          holding losses arising during period                 $      44,417           16,424            27,993
        Less:  reclassification adjustment for gains
          included in net income                                       -                 -               -
                                                               ----------------  --------------  ---------------
        Net unrealized gains on securities                     $      44,417           16,424            27,993
                                                               ================  ==============  ===============

</TABLE>



<PAGE>

                     UNITED FINANCIAL CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


(5)    LOANS RECEIVABLE, NET

Loans receivable, net at December 31 are summarized as follows:

<TABLE>
<CAPTION>
                                                                                          1999                   1998
                                                                                   --------------------   -------------------
<S>                                                                             <C>                            <C>
      First mortgage loans and contracts secured by real estate                 $        66,107,637             53,208,295
      Commercial real estate loans                                                       30,594,201             27,449,222
      Commercial loans                                                                   60,060,456             37,564,411
      Second mortgage consumer loans                                                      7,702,056              9,065,655
      Auto and other consumer loans                                                      11,275,882              7,159,864
      Agricultural loans                                                                  9,804,791              8,191,121
      Savings account loans                                                                 957,364                752,320
      Tax exempt municipal loans                                                          1,427,646              1,476,736
                                                                                   --------------------   -------------------
                                                                                        187,930,033            144,867,624
      Less:
          Unearned discount and deferred loan origination fees                               (3,580)                23,831
          Allowance for loan losses                                                       1,585,819              1,484,680
                                                                                   --------------------   -------------------
                                                                                $       186,347,794            143,359,113
                                                                                   ====================   ===================
</TABLE>

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

<TABLE>
<CAPTION>
                                                                   1999                   1998                   1997
                                                            --------------------   --------------------   -------------------
<S>                                                      <C>                              <C>                   <C>
          Balance, beginning of year                     $       1,484,680                845,905               387,656
          Balance acquired in merger                                    --                347,900                  -
          Provision for loan losses                                203,500                335,000               492,400
          Losses charged off, net of recoveries                   (102,361)               (44,125)              (34,151)
                                                            --------------------   --------------------   -------------------

          Balance, end of year                           $       1,585,819              1,484,680               845,905
                                                            ====================   ====================   ===================

</TABLE>

       Loans receivable include approximately $44,984,000 and $37,163,000 in
       adjustable rate loans at December 31, 1999 and 1998, respectively.

       Real estate loans serviced for others totaled approximately $39,742,000
       and $23,021,000 at December 31, 1999 and 1998, respectively.

       At December 31, 1999 and 1998 approximately $55,691,000 and $36,117,000,
       respectively, of the Company's loans receivable are obligations of
       customers located outside of the Company's trade area.

       The Company 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. The Company'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. The


<PAGE>

                     UNITED FINANCIAL CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       Company uses the same credit policies in making commitments and
       conditional obligations as it does for on-balance-sheet instruments.

       Financial instruments outstanding at December 31, 1999 whose contract
       amounts represent credit risk include:

               Letters of credit                          $          77,219
                                                           ===================
               Commitment outstanding - fixed rate        $       3,609,000
                                                           ===================
               Unused lines of credit                     $      12,910,000
                                                           ===================

(6)    ACCRUED INTEREST RECEIVABLE

       Accrued interest receivable at December 31 is summarized as follows:

<TABLE>
<CAPTION>
                                                                                          1999                   1998
                                                                                   --------------------   -------------------
<S>                                                                             <C>                            <C>
           Loans receivable                                                     $      1,752,476               1,483,478
           Mortgage-backed securities                                                    229,682                 190,691
           Investment securities                                                         265,404                 207,105
           Time deposits in banks and other interest-earning assets                       11,100                  37,091
                                                                                   --------------------   -------------------

                                                                                $      2,258,662               1,918,365
                                                                                   ====================   ===================
</TABLE>


(7)    PREMISES AND EQUIPMENT

       Premises and equipment at December 31 are summarized as follows:

<TABLE>
<CAPTION>
                                                                                          1999                   1998
                                                                                   --------------------   -------------------
<S>                                                                             <C>                              <C>
          Land                                                                  $        714,913                 384,912
          Building and improvements                                                    2,677,611               2,538,110
          Construction in progress                                                       936,812                       -
          Furniture, fixtures and equipment                                            1,665,768               1,442,947
                                                                                   --------------------   -------------------
                                                                                       5,995,104               4,365,969
          Accumulated depreciation                                                    (1,122,434)               (883,558)
                                                                                   --------------------   -------------------

                                                                                $      4,872,670               3,482,411
                                                                                   ====================   ===================
</TABLE>

       Included in building and improvements is approximately $530,000 related
       to a duplicate facility acquired in the merger which is currently held
       for sale.



<PAGE>

                     UNITED FINANCIAL CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


(8)    DEPOSITS

Deposits at December 31 are summarized as follows:

<TABLE>
<CAPTION>
                                                                    1999                                       1998
                                          ---------------------------------------------------   ------------------------------
                                              WEIGHTED
                                            AVERAGE RATE            AMOUNT             %             AMOUNT             %
                                          ------------------   ------------------   ---------   ------------------   ---------
<S>                                             <C>         <C>                       <C>    <C>                       <C>
      Demand accounts                           0.00%       $     18,750,554          10.4%  $     18,895,349          11.3%

      NOW and money market accounts             1.74%             23,332,776          13.0         22,906,877          13.7
      Savings accounts                          4.04%             48,295,547          26.8         46,810,631          27.9

      Certificates of deposit:              2.00 to 2.99%                311            -                 147            -
                                            3.00 to 3.99%              8,346            -               6,229            -
                                            4.00 to 4.99%         15,772,283           8.8          4,981,241           3.0
                                            5.00 to 5.99%         59,323,533          33.0         53,790,598          32.1
                                            6.00 to 6.99%         14,398,188           8.0         20,108,513          12.0
                                            7.00 to 7.99%              -               -              120,499           -
                                                               ------------------   ---------   ------------------   ---------

      Total certificates of deposit             5.46%             89,502,661          49.8         79,007,227          47.1
                                                               ------------------   ---------   ------------------   ---------

      Total interest-bearing deposits           4.50%            161,130,984          89.6        148,724,735          88.7
                                                                                                                     ---------

                                                4.03%       $    179,881,538         100.0%  $    167,620,084         100.0%
                                                               ==================   =========   ==================   =========
</TABLE>

       Scheduled maturities of certificates of deposit at December 31, 1999 are
as follows:

       Due within one year                       $         65,288,455
       Due within two to three years                       21,803,047
       Due within four to five years                        2,303,026
       Due after five years                                   108,133
                                                     -------------------
                                                 $         89,502,661
                                                     ===================


<PAGE>

                     UNITED FINANCIAL CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       Certificates of deposit of $100,000 or more are approximately $15,894,000
       and $12,998,000 at December 31, 1999 and 1998, respectively. Amounts in
       excess of $100,000 are not insured by a federal agency.

       Interest expense on deposits for the years ended December 31 is
       summarized as follows:

<TABLE>
<CAPTION>
                                                                   1999                   1998                   1997
                                                            --------------------   --------------------   -------------------

<S>                                                      <C>                            <C>                     <C>
          Savings accounts                               $       1,837,886              1,610,134               468,392
          NOW and money market accounts                            479,045                267,275               229,475
          Certificates of deposit                                4,562,657              4,213,514             1,937,367
                                                            --------------------   --------------------   -------------------

                                                         $       6,879,588              6,090,923             2,635,234
                                                            ====================   ====================   ===================
</TABLE>


(9)    FEDERAL HOME LOAN BANK ADVANCES

       Federal Home Loan Bank advances at December 31 are summarized as follows:

<TABLE>
<CAPTION>
                                                                                          1999                   1998
                                                                                   --------------------   -------------------

<S>                                                                             <C>                             <C>
          4.79% to 6.55% fixed rate advances, interest payable monthly          $        40,425,000             19,175,000
          4.82% to 5.52% putable advances, put options exercisable quarterly,
             interest payable monthly                                                     6,000,000              3,000,000

                                                                                   --------------------   -------------------

                                                                                $        46,425,000             22,175,000
                                                                                   ====================   ===================
</TABLE>


       Contractual principal repayments on advances from the Federal Home Loan
       Bank subsequent to December 31, 1999 are as follows:

               YEARS ENDING DECEMBER 31,
                        2000                            $         24,750,000
                        2001                                       9,675,000
                        2002                                       1,000,000
                        2003                                       5,000,000
                        2004                                       4,000,000
                        Thereafter                                 2,000,000
                                                            --------------------

                                                        $         46,425,000
                                                            ====================

       These advances are collateralized by the Federal Home Loan Bank of
       Seattle stock held by the Company, unpledged investment and
       mortgage-backed securities and qualifying real estate loans totaling
       $64,214,000 at December 31, 1999.

       The weighted average interest rate on these advances was 5.77% and 5.65%
       at December 31, 1999 and 1998, respectively.



<PAGE>

                     UNITED FINANCIAL CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       At December 31, 1999, the Company had a Cash Management Advance (CMA)
       note with a maximum allowable advance of $47,066,400. There were no
       outstanding advances on the CMA note as of December 31, 1999.


(10)   SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

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

<TABLE>
<CAPTION>
                                                                               1999
                                      ---------------------------------------------------------------------------------------
                                                                 WEIGHTED              BOOK VALUE            MARKET VALUE
                                          REPURCHASE              AVERAGE             OF UNDERLYING         OF UNDERLYING
                                            AMOUNT                 RATE                SECURITIES             SECURITIES
                                      -------------------   --------------------   --------------------   -------------------
<S>                                <C>                              <C>         <C>                              <C>
      To repurchase within:
          1 - 30 days              $         1,646,328              5.38%       $         2,368,390              2,313,161
          31 - 90 days                         854,827              5.18                  2,268,389              2,191,401
          Greater than 90 days               9,044,804              5.66                 11,022,544             11,688,380
                                      -------------------   --------------------   --------------------   -------------------
                                   $        11,545,959              5.58%       $        15,659,323             16,192,942
                                      ===================   ====================   ====================   ===================

                                                                               1998
                                      ---------------------------------------------------------------------------------------
                                                                 WEIGHTED              BOOK VALUE            MARKET VALUE
                                          REPURCHASE              AVERAGE             OF UNDERLYING         OF UNDERLYING
                                            AMOUNT                 RATE                SECURITIES             SECURITIES
                                      -------------------   --------------------   --------------------   -------------------
      To repurchase within:
          1 - 30 days              $         3,615,604              4.69%       $         3,826,972              3,862,197
          31 - 90 days                       1,863,000              5.31                  1,987,526              2,009,188
          Greater than 90 days
                                             3,971,968              5.02                  5,253,786              5,300,364
                                      -------------------   --------------------   --------------------   -------------------

                                   $         9,450,572              4.95%       $        11,068,284             11,171,749
                                      ===================   ====================   ====================   ===================
</TABLE>

       The securities underlying agreements to repurchase are for the same
       securities originally sold and are held in a custody account by a third
       party. For the year ended December 31, 1999, securities sold under
       agreements to repurchase averaged approximately $10,299,000 and the
       maximum outstanding at any month end during the year was approximately
       $11,546,000.

(11)    LINES OF CREDIT

       To comply with OTS Year 2000 readiness guidelines, Heritage Bank
       established a Federal Funds line at Norwest Bank Minnesota/Wells Fargo
       (Norwest). The total line was for $10,000,000 with a daily interest rate
       equal to the Norwest federal funds rate, which was 5.5% at December 31,
       1999, secured by investment securities. There was no balance outstanding
       at December 31, 1999, and there were no borrowings advanced during 1999.

       Heritage also participated in the Century Date Change Special Liquidity
       Facility, a program established by the Federal Reserve Bank of
       Minneapolis. The amount available to Heritage is $10,019,383, with an


<PAGE>


                     UNITED FINANCIAL CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       interest rate at 150 basis points above the Federal Open Market
       Committee's intended federal funds rate (6.80% at December 31, 1999.) The
       line is secured by investment securities. There was no balance
       outstanding at December 31, 1999, and there were no borrowings advanced
       during 1999. As of January 2000, this agreement was cancelled.

       United also has a line of credit of $3,000,000 with Norwest at December
       31, 1999, with an interest rate of 175 basis points over the Norwest
       federal funds rate, or 7.25%. This line is secured by United's Heritage
       stock and expires October 30, 2000. There were no advances on this line
       in 1999.


 (12)  INCOME TAXES

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

<TABLE>
<CAPTION>
                                                                  FEDERAL                 STATE                 TOTAL
                                                            --------------------   --------------------   -------------------
<S>                                                      <C>                                <C>                  <C>
          1999:
             Current                                     $         1,301,647                279,196              1,580,843
             Deferred                                                (40,571)                (1,033)               (41,604)
                                                            --------------------   --------------------   -------------------

                                                         $         1,261,076                278,163              1,539,239
                                                            ====================   ====================   ===================
          1998:
             Current                                     $         1,057,210                223,945              1,281,155
             Deferred                                                 92,662                 24,778                117,440
                                                            --------------------   --------------------   -------------------

                                                         $         1,149,872                248,723              1,398,595
                                                            ====================   ====================   ===================
          1997:
             Current                                     $           417,425                 39,739                457,164
             Deferred                                               (112,368)               (20,635)              (133,003)
                                                            --------------------   --------------------   -------------------

                                                         $           305,057                 19,104                324,161
                                                            ====================   ====================   ===================
</TABLE>


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

<TABLE>
<CAPTION>
                                                                   1999                   1998                   1997
                                                            --------------------   --------------------   -------------------
<S>                                                      <C>                            <C>                     <C>
          Computed "expected" tax expense                $       1,362,894              1,246,445               294,570
          Increase (decrease) resulting from:
             State taxes, net of Federal income tax
             effects                                               178,674                166,483                40,159
             Goodwill amortization                                  40,164                 25,544                14,615
             Tax-exempt interest                                   (45,085)               (18,307)              (24,286)
             Equity in undistributed earnings of
                  Valley Bancorp., Inc.                            (42,965)                  (527)                  -
             Decrease in valuation allowance                          -                      -                  (41,743)
             Other, net                                             45,557                (21,043)               40,846
                                                            --------------------   --------------------   -------------------

                                                         $       1,539,239              1,398,595               324,161
                                                            ====================   ====================   ===================

</TABLE>


<PAGE>


                     UNITED FINANCIAL CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       Differences between the financial statement carrying amounts and the tax
       bases of assets and liabilities that give rise to significant portions of
       deferred tax assets and liabilities at December 31 are as follows:

<TABLE>
<CAPTION>
                                                                                          1999                   1998
                                                                                   --------------------   -------------------
<S>                                                                             <C>                             <C>
          Deferred tax assets:
             Loans, principally due to allowance for loan losses                $        629,487                549,976
             Investments, due to difference in basis                                     107,594                136,388
             Premises and equipment and real estate owned, due to   difference
             in basis                                                                     59,159                  8,293
             Basis differences, due to purchase accounting                                 7,568                 16,782
             Unrealized losses on securities available-for-sale                          600,989                  4,266
             Other                                                                        81,226                 52,012
                                                                                   --------------------   -------------------
                Total gross deferred tax assets                                        1,486,023                767,717
                                                                                   --------------------   -------------------

             Deferred tax liabilities:
             Loans, due to difference in basis                                           221,633                222,946
             Stock in Federal Home Loan Bank of Seattle, principally due to
             stock dividends not recognized for tax purposes                             267,782                205,823
             Premises and equipment, principally due to differences in
             depreciation                                                                249,968                218,777
             Prepaid SAIF assessment                                                       6,533                 18,391
                                                                                   --------------------   -------------------
                Total gross deferred tax liabilities                                     745,916                665,937
                                                                                   --------------------   -------------------

                Net deferred tax asset                                          $        740,107                101,780
                                                                                   ====================   ===================
</TABLE>


       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, 1999 and 1998 management believes it is more likely than not
       that the Company will realize the benefits of these deductible
       differences.

       Retained earnings at December 31, 1999 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. The Company 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.




<PAGE>

                     UNITED FINANCIAL CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


(13)   RELATED PARTIES

       Central Financial Services (CFS) provides various management services to
       the Company, including accounting, tax and insurance advisory services,
       and investment, personnel and regulatory consulting. CFS is owned by the
       Company's Chairman of the Board of Directors and largest shareholder. The
       charges were $308,691, $209,335 and $81,347 for the years ended December
       31, 1999, 1998 and 1997, respectively.


(14)   EMPLOYEE BENEFIT PLAN

       The Company has a savings plan under Section 401(k) of the Internal
       Revenue Code. The Company allows eligible employees to contribute up to
       15% of their monthly wages. The Company matched an amount equal to 75%,
       75% and 50% of the employee's contribution, up to 6% of total wages, for
       the years ended December 31, 1999, 1998 and 1997, respectively.
       Participants are at all times fully vested in their contributions and are
       immediately vested in the Company's contributions. The Company's 401(k)
       contributions and administrative costs were approximately $107,000,
       $104,000 and $36,000 during the years ended December 31, 1999, 1998 and
       1997, respectively.

       The Company has a deferred compensation agreement with an employee that
       provides for predetermined periodic payments over 15 years upon
       retirement or death. In the event of acquisition of the Company by a
       third party, disability or early retirement, the predetermined payments
       are based on years of service. Amounts expensed under this agreement were
       approximately $3,300 for each of the three years ended December 31, 1999,
       1998 and 1997. The Company owns two single premium insurance policies in
       connection with this agreement. The policies have a cash value, which is
       included in other assets on the statements of financial condition, of
       approximately $282,000 and $267,500 at December 31, 1999 and 1998,
       respectively.

       In October 1999, the Company adopted a supplemental retirement agreement
       with an employee that provides for salary continuation benefits upon
       retirement, disability, or death. The employee is vested in the plan 10%
       for every plan year of employment and 100% vested after 10 plan years.
       The effective date for vesting is January 1, 1997. The employee is
       considered 100% vested upon determination of full or partial disability,
       death, or change of control, with payment made in a lump sum within 60
       days. The normal retirement benefit will be paid in either a lump sum or
       at the election of the employee an annuity shall be purchased using all
       available accrued amounts. The amount expensed under this agreement was
       approximately $970 for the year ended December 31, 1999.

(15)    STOCK OPTION PLAN

       In January 2000, an incentive Stock Option Plan was approved by the Board
       of Directors which provides for the grant of incentive stock options
       (ISO's) and non-qualified stock options to certain full and part-time
       employees and directors of the Company up to 120,000 shares of Company
       common stock. Vesting is five years for each award. The term of the
       options is 10 years for ISO's and 15 years for non-qualified options. The
       option price for all ISO's granted under the plan shall be determined by
       the compensation committee of the Board of Directors, 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 compensation committee. Options granted
       to 10% or greater shareholders will be based upon 110% of market value
       and can not be exercised before five years. A change in control provision
       will immediately vest all options upon completion of a change in control.


<PAGE>


                     UNITED FINANCIAL CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       In January 2000, the Board of Directors granted option to acquire 31,800
       shares of common stock. The grant of these options is subject to
       ratification and adoption of the Stock Option Plan by a vote of the
       Company's shareholders.

       The Company's existing stock appreciation rights plan was rescinded by
       the Board of Directors upon its approval of this stock option plan.


 (16)  REGULATORY MATTERS

       UFC, Heritage and Heritage State 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 the Company's
       operations. Under capital adequacy guidelines and the regulatory
       framework for prompt corrective action, Heritage and Heritage State 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. Heritage's and
       Heritage State's 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 Heritage and Heritage State to maintain minimum amounts
       and ratios (set forth in the tables below). Management believes, as of
       December 31, 1999, that Heritage and Heritage State meet all capital
       adequacy requirements to which they are subject.

       As of December 31, 1999, Heritage and Heritage State were categorized 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.



<PAGE>


                     UNITED FINANCIAL CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements




<TABLE>
<CAPTION>
                                                                                                          Minimum to be "well
                                                                             Minimum for capital         capitalized" under PCA
                                                     Actual                   adequacy purposes                provisions
                                          -----------------------------    -------------------------    -------------------------
      United:  (in thousands)                Amount          Ratio            Amount         Ratio         Amount         Ratio
      -----------------------             -------------   -------------    -------------    --------    -------------    --------
<S>                                   <C>                      <C>     <C>                     <C>  <C>
      December 31, 1999:
          Total capital               $       25,429           14.10   $        14,477         8.0  $          N/A          -
          Tier I capital                      28,392           15.75               -           -               N/A          -
          Tier I leverage                     28,392           10.54            10,776         4.0             N/A          -
          Tangible capital                    28,392           10.52            10,799         4.0             N/A          -

      December 31, 1998:
          Total capital                       27,365           20.81            10,544         8.0             N/A          -
          Tier I capital                      28,564           21.72               -           -               N/A          -
          Tier I leverage                     28,564           12.56             9,098         4.0             N/A          -
          Tangible capital                    28,564           12.39             9,223         4.0             N/A          -

      Heritage:
      December 31, 1999:
          Total capital                       21,087           13.17            12,813         8.0          16,016         10.0
          Tier I capital                      19,634           12.26               -           -             9,610          6.0
          Tier I leverage                     19,634            7.86             7,492         3.0          12,486          5.0
          Tangible capital                    19,634            7.86             3,746         1.5             -            -

      December 31, 1998:
          Total capital                       20,956           16.78             9,989         8.0          12,486         10.0
          Tier I capital                      19,517           15.63               -           -             7,492          6.0
          Tier I leverage                     19,517            9.17             6,386         3.0          10,643          5.0
          Tangible capital                    19,517            9.17             3,193         1.5             -            -

      Heritage State:
      December 31, 1999:
          Total                                1,706           12.77             1,069         8.0             134         10.0
          Tier I                               1,573           11.78               534         4.0             801          6.0
          Tier I leverage                      1,573            8.60               731         4.0             914          5.0

      December 31, 1998:
          Total                                  948           20.66               367         8.0             459         10.0
          Tier I                                 902           19.66               184         4.0             275          6.0
          Tier I leverage                        902            8.84               408         4.0             510          5.0

</TABLE>

       The total capital and Tier I capital ratios are determined based on
       risk-weighted assets. The Tier I leverage and tangible capital ratios are
       determined based on tangible assets.

       Savings banks, such as Heritage, that meet or exceed their capital
       requirements may make capital distributions during any one year up to an
       amount that would reduce its surplus capital ratio to no less than
       one-half of its surplus capital ratio at the beginning of the calendar
       year. State banks, such as Heritage State, may pay dividends up to the
       total of the prior two years earnings without permission of the State
       regulator.



<PAGE>


                     UNITED FINANCIAL CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements



(17)   FAIR VALUE OF FINANCIAL INSTRUMENTS

       The Company 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 the Company 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 and time deposits in
           banks approximates fair value. For all investment and mortgage-backed
           securities available-for-sale, the fair value is based upon quoted
           market prices. The fair value of loans receivable was obtained from
           an internally generated fair value model which primarily employs the
           discounted cash flow method which estimates fair value by discounting
           the cash flows the instruments are expected to generate by the yields
           currently available to investors on instruments of comparable risk
           and duration. Therefore, to calculate present value, the model has
           assumptions about the size and timing of expected cash flows and
           appropriate discount rates. The fair value of loans receivable was
           estimated by discounting 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 the Company expects the loans to be sold,
           with no gain or loss, in the short-term. The fair value of FHLB stock
           approximates redemption value. The fair value of accrued interest
           receivable approximates book value as the Company expects contractual
           receipt in the near-term. The fair value of the investment in Valley
           Bancorp, Inc. was based on the current market value of Valley stock
           at December 31, 1999. At December 31, 1998, the fair value
           approximated the book value due to the purchase of the stock
           occurring near December 31, 1998.

           FINANCIAL LIABILITIES. The fair value of NOW, money market accounts,
           demand accounts and non-term savings deposits approximates book
           values as rates are periodically adjusted to market rates. The fair
           value of time deposits held by Heritage was obtained from the FHLB
           Analysis. 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 the long-term debt
           approximates the Company's current long-term borrowing rate, the fair
           value of long-term debt approximates the carrying value. The fair
           value of Federal Home Loan Bank advances and securities sold under
           agreements to repurchase was obtained from the FHLB Analysis. The
           fair value of accrued interest payable approximates book value due to
           contractual payment in the near-term.

           OFF-BALANCE SHEET. Commitments made to extend credit represent
           commitments for loan originations, the majority of which are
           contracted for immediate sale and therefore no fair value adjustment
           is necessary.

           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 the
           Company's entire holdings of a particular instrument. Because no
           market exists for a significant portion of the Company'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


<PAGE>


                     UNITED FINANCIAL CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


           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 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 book value and fair value of the Company's financial
       instruments as of December 31 are as follows:

<TABLE>
<CAPTION>
                                                                    1999                               1998
                                                       -------------------------------    -------------------------------
                                                         CARRYING           FAIR            CARRYING           FAIR
                                                           VALUE            VALUE             VALUE            VALUE
                                                       --------------   --------------    --------------   --------------
<S>                                                 <C>                   <C>              <C>               <C>
       Financial assets:
          Cash and cash equivalents                 $   11,457,000        11,457,000       19,256,000        19,256,000
          Securities available-for-sale                 53,044,000        53,044,000       51,900,000        51,900,000
          Loans receivable, net                        186,348,000       187,500,000      143,359,000       150,300,000
          Loans held for sale                            1,191,000         1,191,000        5,717,000         5,717,000
          Stock in FHLB of Seattle                       3,046,000         3,046,000        1,232,000         1,232,000
          Investment in Valley Bancorp, Inc.             4,549,000         4,815,000        2,684,000         2,684,000
          Accrued interest receivable                    2,259,000         2,259,000        1,918,000         1,918,000

      Financial liabilities:
          Deposits                                     179,882,000       179,384,000      167,620,000       168,410,000
          FHLB advances and securities sold under
             agreements to repurchase                   57,971,000        57,244,000       31,626,000        31,544,000
          Accrued interest payable                       1,528,000         1,528,000        1,267,000         1,267,000

</TABLE>

(18)   COMMITMENTS AND CONTINGENCIES

       Heritage has sold loans to various investors in the secondary market
       under sales agreements which contain repurchase provisions. Under the
       repurchase provisions, Heritage 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, 1999 is approximately $14,395,000. There were
       no loans repurchased during 1999. Total loans sold during 1999 were
       approximately $119,118,000.

       In June 1997, the Company entered into a five-year service contract for
       data processing services. In the event of early termination of the
       service contract by the Company, the Company 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.

       At December 31, 1999, the Company had entered into various construction
       contracts for construction of its Bozeman and Missoula branches. The
       major contracts aggregated approximately $1,638,000 and are expected to
       be completed by June 2000. Total costs incurred on these contracts as of
       December 31, 1999 were approximately $937,000.




<PAGE>

                     UNITED FINANCIAL CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


(19)   PARENT COMPANY INFORMATION (CONDENSED)

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

<TABLE>
<CAPTION>

          CONDENSED STATEMENTS OF FINANCIAL CONDITION                                            DECEMBER 31,
                                                                                   ------------------------------------------
                                         ASSETS                                           1999                   1998
                                         ------                                    --------------------   -------------------
<S>                                                                             <C>                              <C>
          Cash and cash equivalents ($373,232 and $103,401 deposited            $           556,592              2,295,721
             with Heritage, respectively)
          Investment securities available-for-sale                                        1,889,957              2,063,775
          Investment in subsidiary banks                                                 22,136,685             22,690,294
          Investment in Valley Bancorp, Inc.                                              4,548,949              2,683,791
          Loans receivable                                                                  135,884                698,006
          Accrued interest receivable                                                        24,414                 74,271
          Other assets                                                                      248,657                133,454
                                                                                   --------------------   -------------------

          Total assets                                                          $        29,541,138             30,639,312
                                                                                   ====================   ===================

                          LIABILITIES AND STOCKHOLDERS' EQUITY

          Other liabilities                                                     $           182,182                111,345
                                                                                   --------------------   -------------------

          Total liabilities                                                                 182,182                111,345
                                                                                   --------------------   -------------------

          Common stock                                                                   28,001,579             28,001,579
          Retained earnings                                                               3,250,876              2,533,289
          Treasury stock                                                                   (931,649)                 -
          Accumulated other comprehensive loss                                             (961,850)                (6,901)
                                                                                   --------------------   -------------------

          Total stockholders' equity                                                     29,358,956             30,527,967
                                                                                   --------------------   -------------------

          Total liabilities stockholders' equity                                $        29,541,138             30,639,312
                                                                                   ====================   ===================

</TABLE>

<PAGE>


                     UNITED FINANCIAL CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements



<TABLE>
<CAPTION>

      CONDENSED STATEMENTS OF INCOME                                            YEAR ENDED DECEMBER 31,
                                                            -----------------------------------------------------------------
                                                                   1999                   1998                   1997
                                                            --------------------   --------------------   -------------------
<S>                                                      <C>                            <C>                     <C>
      Revenues:
          Cash dividends from bank subsidiaries          $       2,760,000              1,225,828               320,000
          Interest income                                          270,270                432,153                 4,323
          Other income                                             127,526                  1,988                  -
                                                            --------------------   --------------------   -------------------

                                                                 3,157,796              1,659,969               324,323
                                                            --------------------   --------------------   -------------------
      Expenses:
          Interest expense                                           -                     11,917               189,657
          Other operating expenses                                 290,213                407,075                81,850
                                                            --------------------   --------------------   -------------------
                                                                   290,213                418,992               271,507
                                                            --------------------   --------------------   -------------------
             Income before equity in undistributed
                earnings of subsidiaries and income
                taxes                                            2,867,583              1,240,977                52,816
      Dividends in excess of earnings of subsidiaries
                                                                  (359,635)                     -                     -
      Equity in undistributed earnings of subsidiaries
                                                                         -              1,028,932               388,461
                                                            --------------------   --------------------   -------------------

             Income before income taxes                          2,507,948              2,269,909               441,277

       Income tax expense (benefit)                                 38,676                  2,489              (100,944)
                                                            --------------------   --------------------   -------------------
             Net income                                  $       2,469,272              2,267,420               542,221
                                                            ====================   ====================   ===================

      CONDENSED STATEMENTS OF CASH FLOWS                                        YEAR ENDED DECEMBER 31,
                                                            -----------------------------------------------------------------
                                                                   1999                   1998                   1997
                                                            --------------------   --------------------   -------------------
      Cash flows from operating activities:
          Net income                                     $       2,469,272              2,267,420               542,221
          Adjustments to reconcile net income to net
             cash provided by operating activities:
                Dividends in excess of earnings of                                          _                     _
                    subsidiaries                                   359,635
                Equity in undistributed earnings of                  _
                    subsidiaries                                                       (1,028,932)             (388,461)
                Equity in income of Valley Bancorp, Inc.
                                                                  (126,367)                (1,550)                -
                Amortization of investment securities
                    premiums and discounts, net
                                                                    28,480                  3,649                 -
                Increase (decrease) in other assets and
                    liabilities, net                                51,391                (76,098)               15,839
                                                            --------------------   --------------------   -------------------
                       Net cash provided by operating
                          activities                             2,782,411              1,164,489               169,599
                                                            --------------------   --------------------   -------------------
</TABLE>


<PAGE>

                     UNITED FINANCIAL CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


<TABLE>
<CAPTION>
                                                                                YEAR ENDED DECEMBER 31,
                                                            -----------------------------------------------------------------
                                                                   1999                   1998                   1997
                                                            --------------------   --------------------   -------------------
<S>                                                             <C>                       <C>
      Cash flows from investing activities:
          Purchases of securities available-for-sale            (2,004,167)               (45,192)                -
          Proceeds from sales and maturities of
            securities available-for-sale                        2,050,430              3,000,000                 -
          Purchases of Valley Bancorp, Inc. stock               (1,746,591)            (2,682,241)                -
          Net decrease in loans receivable                         562,122                 52,006                 -
          Capital contribution to Heritage State Bank
                                                                  (700,000)            (1,374,000)                -
          Acquired cash and cash equivalents in merger
                                                                    -                   3,468,600                 -
                                                            --------------------   --------------------   -------------------
              Net cash provided by (used in) investing
                activities                                      (1,838,206)             2,419,173                 -
                                                            --------------------   --------------------   -------------------

      Cash flows from financing activities:
          Payments on long-term debt                                -                  (2,350,000)             (200,000)
          Purchase of treasury stock                              (931,649)
          Capital contribution                                      -                   2,275,000                 -
          Dividends paid to stockholders                        (1,751,685)            (1,273,736)                -
                                                            --------------------   --------------------   -------------------
              Net cash used in financing activities             (2,683,334)            (1,348,736)             (200,000)
                                                            --------------------   --------------------   -------------------

      Net increase (decrease) in cash and cash
          equivalents                                           (1,739,129)             2,234,926               (30,401)
      Cash and cash equivalents at beginning of year
                                                                 2,295,721                 60,795                91,196
                                                            --------------------   --------------------   -------------------

      Cash and cash equivalents at end of year           $         556,592              2,295,721                60,795
                                                            ====================   ====================   ===================

</TABLE>






<PAGE>


                     UNITED FINANCIAL CORP. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


(20)  ACQUISITION

       During 1999, the Company increased its ownership percentage of Valley
       Bancorp, Inc. (Valley) to 39.93% at December 31, 1999 from 25% at
       December 31, 1998. The Company's investment in Valley was being accounted
       for by the equity method in 1999 and 1998. Valley is a bank holding
       company located in Phoenix, Arizona and is the parent company of Valley
       Bank of Arizona, a state chartered commercial bank. Summary unaudited
       financial information (in thousands) of Valley as of and for the years
       ended December 31, 1999 and 1998 follows (in thousands):

                                                 1999               1998
                                                 ----               ----
       Total assets                             $59,464            49,102

       Total liabilities                       (52,022)           (41,751)
                                               --------           --------

       Stockholders' equity                     $ 7,442             7,351
                                                =======           =======

       Interest income                          $ 4,447             3,447
       Interest expense                           1,971             1,610
                                               --------           --------

       Net interest income                      $ 2,476             1,837
                                               ========           =======

       Net income                                 $ 451               708
                                               ========           =======


       A reconciliation of the investment in Valley at December 31, 1999 is as
       follows (in thousands):

                 Stockholders' equity of Valley                  $ 7,442

                 Ownership percentage                              39.93%
                                                                 --------

                       UFC's equity in Valley                       2,972

                 Excess purchase price                              1,577
                                                                 --------

                       Investment in Valley                      $  4,549
                                                                 ========




<PAGE>

                     UNITED FINANCIAL CORP. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


       On January 10, 2000, the Company's ownership percentage increased to
       50.6%, and additional interests were acquired thereafter. Effective
       January 1, 2000 the Company will consolidate Valley with its financial
       statements. The following presents proforma condensed statements of
       financial condition for the Company at January 1, 2000 as if Valley were
       consolidated as of that date.

              Assets                                             January 1, 2000
              ------                                              -------------
                                                                   (unaudited)

              Cash and cash equivalents                           $ 12,180,423
              Investment securities available-for-sale              70,178,121
              Loans receivable - net                               226,211,207
              Loans held for sale                                    1,191,111
              Premises and equipment - net                           5,072,768
              Real estate owned                                        224,484
              Accrued interest receivable                            2,643,560
              Goodwill, net                                          3,356,385
              Other assets                                           5,692,637
                                                                   -----------
                  Total assets                                    $326,750,696
                                                                   ===========

              Liabilities and Stockholders' Equity

              Deposits                                            $229,964,160
              Federal Home Loan Bank advances                       46,425,000
              Securities sold under agreements to repurchase        11,545,959
              Federal funds purchased                                1,750,000
              Other borrowed funds                                     800,000
              Accrued interest payable                               1,586,629
              Other liabilities                                      1,642.341
                                                                    ----------
                  Total liabilities                                293,714,089
                                                                   -----------

              Minority interest                                      3,677,651
                                                                   -----------

              Total stockholders' equity                            29,358,956
                                                                    ----------

              Total liabilities and stockholders' equity          $326,750,696
                                                                   ===========

              Ownership percentage                                      50.60%
                                                                        ======

(21)    OPERATING SEGMENT INFORMATION

       As of December 31, 1998, the Company adopted FASB Statement No. 131,
       Financial Reporting for Segments of a Business Enterprise. This statement
       requires that a public business enterprise report financial and
       descriptive information about its reportable operating segments.
       According to the statement, operating segments are defined as components
       of an enterprise about which separate financial information


<PAGE>


                     UNITED FINANCIAL CORP. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       is available that is evaluated regularly by the chief operating decision
       maker in deciding how to allocate resources and in assessing performance.

       The Company evaluates segment performance internally based on geography,
       and thus the operating segments are so defined. All segments, except for
       the segment defined as "other," are based on commercial banking
       operations. The operating segment defined as "other" includes the Parent
       company and eliminations of transactions between segments.

       The accounting policies of the individual operating segments are the same
       as those of the Company described in note 1. Transactions between
       operating segments are primarily conducted at fair value, resulting in
       profits that are eliminated for reporting consolidated results of
       operations. Expenses for centrally provided services are allocated based
       on the estimated usage of those services.

       The following is a summary of selected operating segment information for
       the years ended December 31, 1999 and 1998. Operating information is not
       presented for 1997 as it is not comparable as a result of merger.

<TABLE>
<CAPTION>
                                                            HERITAGE
                                    HERITAGE BANK          STATE BANK              OTHER            CONSOLIDATED
                                 --------------------- --------------------- -------------------- --------------------
<S>                                     <C>                         <C>                  <C>                <C>
       1999:
         Net interest income            $   7,069,704               444,193              270,270            7,784,167
         Provision for loan
           losses                             110,000                93,500                    -              203,500
                                 --------------------- --------------------- -------------------- --------------------
         Net interest income
           after provision                  6,959,704               350,693              270,270            7,580,667

         Non-interest income                3,359,447                43,238              127,526            3,530,211

         Non-interest expense               6,323,404               488,750              290,213            7,102,367

         Income before income
           taxes                            3,995,747               (94,819)             107,583            4,008,511
                                 --------------------- --------------------- -------------------- --------------------

         Income taxes (benefit)             1,536,735               (36,172)              38,676            1,539,239
                                 --------------------- --------------------- -------------------- --------------------
         Net income (loss)             $    2,459,012               (58,647)              68,907            2,469,272
                                 ===================== ===================== ==================== ====================

         Assets                        $  249,073,839            19,087,125            2,064,931          270,225,895

         Loans receivable, net            171,204,354            15,007,555              135,884          186,347,794

         Deposits                         168,224,959            12,044,923             (388,344)         179,881,538

         Stockholders' equity              20,150,527             1,986,159            7,222,270           29,358,956

</TABLE>



<PAGE>


                     UNITED FINANCIAL CORP. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



<TABLE>
<CAPTION>
                                                         HERITAGE
                                 HERITAGE BANK          STATE BANK             OTHER             CONSOLIDATED
                              -------------------- ---------------------------------------------------------------
<S>                                <C>                           <C>                 <C>                <C>
    1998:
      Net interest income          $    6,349,622                86,615              420,235            6,856,472
      Provision for loan
        losses                            335,000                     -                    -              335,000
                              -------------------- ---------------------------------------------------------------
      Net interest income
        after provision                 6,014,622                86,615              420,235            6,521,472

      Non-interest income               3,275,871                14,176                1,988            3,292,035

      Non-interest expense              5,594,481               145,937              407,074            6,147,492

      Income before income
        taxes                           3,696,012               (45,146)              15,149            3,666,015

      Income taxes (benefit)            1,413,391               (17,285)               2,489            1,398,595
                              -------------------- ---------------------------------------------------------------
      Net income (loss)            $    2,282,621               (27,861)              12,660            2,267,420
                              ==================== ===============================================================

      Assets                       $  214,763,551            11,394,328            6,403,330          232,561,209

      Loans receivable, net           138,992,675             3,668,432              698,006          143,359,113

      Deposits                        159,287,569             9,629,918           (1,297,403)         167,620,084

      Stockholders' equity             21,352,771             1,337,523            7,837,673           30,527,967


</TABLE>



<PAGE>


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/John M. Morrison                By: /s/Kurt R. Weise
    ------------------------------         --------------------------------
    John M. Morrison                       Kurt R. Weise
    Chairman of the Board                  President and Chief Executive Officer
    (Duly Authorized Representative)       (Duly Authorized Representative)

Date:    March 30, 2000                Date:   March 30, 2000
    ------------------------------         --------------------------------

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/John M. Morrison                By: /s/Kurt R. Weise
    ------------------------------         -------------------------------
    John M. Morrison                       Kurt R. Weise
    Director                               Director

Date:    March 30, 2000                Date:   March 30, 2000
    ----------------------------          ------------------------------


By: /s/ Larry D. Albert                By: /s/Dr. J. William Bloemendaal
    ------------------------------         --------------------------------
    Larry D. Albert                        Dr. J. William Bloemendaal
    Director                               Director

Date:    March 30, 2000                Date:    March 30, 2000
    ----------------------------          ------------------------------


By: /s/Elliott L. Dybdal               By: /s/Janice. M. Graser
    ------------------------------         --------------------------------
    Elliott L. Dybdal                      Janice M. Graser
    Director                               Director

Date:    March 30, 2000                Date:    March 30, 2000
    ----------------------------          ------------------------------


<PAGE>



By: /s/Jerome H. Hentges               By: /s/ William L. Madison
    ------------------------------         --------------------------------
    Jerome H. Hentges                      William L. Madison
    Director                               Director

Date:    March 30, 2000                Date:    March 30, 2000
    ----------------------------          ------------------------------

By: /s/Kevin P. Clark                  By: /s/ Steve Feurt
    ------------------------------         --------------------------------
    Kevin P. Clark                         Steve Feurt
    Director                               Director

Date:    March 30, 2000                Date:    March 30, 2000
    ----------------------------          ------------------------------



<PAGE>

                                 EXHIBITS INDEX.

Exhibit Number             Description
--------------             -----------


       22.1                Subsidiaries of the Company.

       27.1                Financial Data Schedule.