# 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 theSecurities Exchange Act of 1934

For the Fiscal Year
Ended December 31, 2003

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

# For the transition
period from ____________ to ____________

# Commission file
number: 0-28080

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

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

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

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

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

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

Common Stock, no par
value(Title of Class)

Indicate
by check mark whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to file such reports), and
(2) has been subject to such requirements for the past 90 days.  YES [X]    NO [   ]

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

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

The
aggregate market value of the voting common stock held by non-affiliates of the
Registrant, as of June 30, 2003 (the last day of the Registrant's most recently completed
second fiscal quarter), was $24,137,776 (based on the last sale price of such stock as
quoted on the Nasdaq National Market ($17.72) on such date).

The
number of shares of Registrant's common stock outstanding on February 27, 2004 was
2,444,142. Registrant's common stock is traded on the Nasdaq National Market, under the
symbol UBMT.

# DOCUMENTS INCORPORATED
BY REFERENCE

Portions
of the Proxy Statement for the 2004 Annual Meeting of Stockholders are incorporated by
reference into Part III of this Form 10-K.



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i

# UNITED FINANCIAL
CORP.2003 FORM 10-K ANNUAL REPORT

# TABLE OF CONTENTS

# 

|              | Part I                                                                                |   
|------------- | ------------------------------------------------------------------------------------- | --
|Item 1.       | Business                                                                              | 1 
|Item 2.       | Properties                                                                            | 16
|Item 3.       | Legal Proceedings                                                                     | 16
|Item 4.       | Submission of Matters to a Vote of Security Holders                                   | 16
|              | Part II                                                                               |   
|Item 5.       | Market for Registrants Common Equity and Related Stockholder Matters                 | 16
|Item 6.       | Selected Financial Data                                                               | 18
|Item 7.       | Managements Discussion and Analysis of Financial Condition and Results of Operations | 19
|Item 7A.      | Quantitative and Qualitative Disclosures About Market Risk                            | 36
|Item 8.       | Financial Statements and Supplementary Data                                           | 37
|Item 9.       | Changes in and Disagreements With Accountants On Accounting and Financial Disclosure  | 37
|Item 9A.      | Controls and Procedures                                                               | 38
|              | Part III                                                                              |   
|Item 10.      | Directors and Executive Officers of the Registrant                                    | 38
|Item 11.      | Executive Compensation                                                                | 38
|Item 12.      | Security Ownership of Certain Beneficial Owners and Management                        | 38
|Item 13.      | Certain Relationships and Related Transactions                                        | 38
|Item 14.      | Principal Accounting Fees and Services                                                | 38
|              | Part IV                                                                               |   
|Item 15.      | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                      | 39
|Signatures    |                                                                                       | 40
|Exhibit Index |                                                                                       | 41

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# PART I

Item 1.    BUSINESS

General. United Financial Corp. (United) is a bank holding company
headquartered in Great Falls, Montana, with operations in 15 locations in 13
Montana communities. United was organized as a Minnesota corporation in 1996.
Uniteds banking business in Montana is conducted through its wholly-owned
subsidiary, Heritage Bank, a Montana corporation established in 1923.
Uniteds wholly-owned subsidiary, United FinancialMontana Capital
Trust I, was established in 2001 to issue and administer $3.0 million of Capital
Trust Pass-Through Securities. United had assets of approximately $304.7
million, deposits of approximately $227.5 million and stockholders equity
of approximately $32.4 million at December 31, 2003.

Heritage
Bank is a state-chartered commercial bank with locations in Billings, Bozeman, Chester,
Fort Benton, Geraldine, Glendive, Great Falls (three locations), Hamilton, Havre,
Kalispell, Missoula, Libby and Shelby, Montana. Heritage Bank is engaged in the community
banking business of attracting deposits from the general public through its branches and
using those deposits, together with other available funds, to originate commercial
(including lease financing), commercial real estate, residential, agricultural and
consumer loans primarily in its market areas in Montana. Heritage Banks banking
business is concentrated in the Great Falls area through its two full service branches and
one separate drive up location. Based on total assets, 49% of Uniteds assets are
located at Heritage Banks Great Falls locations. Heritage Bank also invests in
mortgage-backed securities, U.S. Treasury obligations, other U.S. Government agency
obligations and other interest-earning assets.

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

At
December 31, 2002 and 2001, United owned 65.32% of the outstanding stock of Valley
Bancorp, Inc. (Valley), a bank holding company for an Arizona state-chartered
commercial bank, with locations in Phoenix and Scottsdale. United completed the sale of
Valley to Marquette Financial Companies (Marquette) on July 31, 2003 (See Part
II, Item 7, Discontinued Operations). All previously issued consolidated financial
statements have been restated to disclose the assets, liabilities, and operations of
Valley as discontinued operations.

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

In
December 2003, Heritage Bank incorporated a new wholly-owned subsidiary, Heritage
Northwest, Inc. which will operate a mortgage banking company in Bellingham, Washington.
An application has been filed with the State of Washington in January 2004 and operations
are scheduled to begin in the spring of 2004.

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

United
makes available all periodic and current reports, free of charge, on its website as soon
as reasonably practicable after such material is

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electronically filed with or
furnished to the Securities and Exchange Commission (SEC). Uniteds
website address is www.ufcmontana.com. The contents of our website are not
incorporated into this report or into our other filings with the SEC.

Lending Activities

General.       
Lending activities are Uniteds primary source of both interest income and
fee income. Uniteds interest income from loans receivable was
approximately $15.4 million, $16.2 million and $18.3 million, or approximately
89%, 84% and 84% of total interest income, for the years ended December 31,
2003, 2002 and 2001, respectively. Uniteds principal lending activity has
been the origination of real estate loans, including conventional residential
real estate loans (loans which are neither insured nor partially guaranteed by
government agencies) and residential real estate loans insured by the Federal
Housing Administration (FHA) or partially guaranteed by the Veterans
Administration (VA). United also originates commercial and
agricultural loans secured by real estate. In addition to loans secured by real
estate, Uniteds lending activity includes the origination of non-mortgage
commercial, agricultural and consumer loans.

The
following table sets forth the composition of Uniteds loans receivable at December
31, 2003, 2002, 2001, 2000 and 1999:

(Dollars in thousands)

|                            | December 31, | December 31, | December 31,
|--------------------------- | ------------ | ------------ | ------------
|
|
|Loans secured by real       |              |              |             
|estate:                     |              |             
|1 - 4 residential           |              |              | $           
|5 or more residential       |              |              |             
|Construction                |              |              |             
|Agricultural                |              |              |             
|Commercial                  |              |              |             
|                            |              |              |             
|Total loans secured by real |              |             
|estate                      |              |              |             
|Commercial loans            |              |              |             
|Tax exempt municipal loans  |              |              |             
|Agricultural loans          |              |              |             
|Savings account and other   |              |             
|loans                       |              |              |             
|Second mortgage consumer    |              |             
|loans                       |              |              |             
|Consumer loans              |              |              |             
|                            |              |              |             
|Total loans receivable      |              |              |             
|                            |              |              |             
|Less:                       |              |             
|Allowance for loan losses   |              |              |             
|                            |              |              |             
|Net loans receivable        |              |              | $           
|                            |              |              |             

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(Dollars in thousands)

|                                | December 31, | December 31,
|------------------------------- | ------------ | ------------
|
|
|Loans secured by real           |              |             
|estate:                         |              |             
|1 - 4 residential               |              |             
|5 or more residential           |              |             
|Construction                    |              |             
|Agricultural                    |              |             
|Commercial                      |              |             
|                                |              |             
|Total loans secured by real     |              |             
|estate                          |              |             
|Commercial loans                |              |             
|Tax exempt municipal loans      |              |             
|Agricultural loans              |              |             
|Savings account and other loans |              |             
|Second mortgage consumer loans  |              |             
|Consumer loans                  |              |             
|                                |              |             
|Total loans receivable          |              |             
|                                |              |             
|Less:                           |              |             
|Allowance for loan losses       |              |             
|                                |              |             
|Net loans receivable            |              |             
|                                |              |             

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

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

Most
of Heritage Banks residential loans are originated through personal contacts of loan
officers, including contacts with local realtors, and through referrals from deposit
customers. Although the majority of Heritage Banks loans are fixed rate loan
products that are subsequently sold, Heritage Bank does offer a variety of adjustable rate
residential loans. The interest rates on variable loans vary with the movement of the
index upon which the interest rates are based. If the interest rates change, loan
payments, balances or terms may be adjusted. Heritage Banks primary indexes are the
1, 3 and 5-year constant maturity Treasury indexes. Most of the ARMs currently originated
by Heritage Bank have loan terms of 15 to 30 years with rate adjustments generally every
1, 3 or 5 years during the term of the loan. Generally, interest rate adjustments on
Heritage Banks ARMs are limited to changes of 2.5%  3.25% per year and 6%
 10% for the life of the loan. The average lives of these loans were 10.6 years at
December 31, 2003.

The
majority of Heritage Banks total production of long-term (15 to 30-year maturity)
fixed rate residential loans is originated according to pre-arranged

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underwriting standards that result
in immediate sale to the secondary market, primarily to mortgage bankers and pension
funds. While origination and sale of these loans produces fee income, the loans are
carried at their outstanding principal balance, which is the contracted purchase price,
and therefore no gain or loss is realized at sale, except for gains associated with
recognizing any retained mortgage servicing rights. Heritage Bank sold long-term
fixed-rate residential mortgage loans to the secondary market in aggregate amounts of
approximately $321.0 million in 2003, $197.8 million in 2002 and $167.5 million in 2001.
Heritage Bank 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
is realized at sale. The combination of both of these types of secondary market sales
resulted in fee income totaling $5.3 million, $3.8 million and $3.3 million in 2003, 2002
and 2001, respectively. These fees are reported by United as non-interest income in its
statements of operations. Fees on sales to State of Montana housing agencies are not
included in these totals. Also not included is $.6 million in 2003 and $.4 million in
each of 2002 and 2001 of interest on fundings for secondary market sales. These totals
are reflected in total loan interest income. Heritage Bank retains a limited number of
adjustable rate mortgages and fixed rate mortgage loans up to 15-year maturities for its
own portfolio.

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

Commercial
and Agricultural Real Estate Loans. Heritage Bank engages in commercial real
estate lending secured by both commercial and agricultural properties. Occasionally when
making such loans, Heritage Bank participates in the U.S. Small Business
Administrations program for guaranteed commercial real estate loans. Heritage
Banks loans on commercial and agricultural real estate are primarily first lien
loans with 10 to 15-year maturities and adjustable interest rates based on U.S. Treasury
indexes for 1, 3 and 5 years. While government regulations limit the level of commercial
real estate lending by a financial 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, Heritage Bank
offers commercial and agricultural non-mortgage loans. Heritage Bank offers commercial
lines of credit, equipment term loans, working capital loans and loans guaranteed by the
Small Business Administration to its business customers. It also offers seasonal lines of
credit and term equipment loans to its agricultural borrowers and purchases, on a
participation basis, loans originated outside its normal market areas. Participation loans
are generally purchased from commercial banks and third party loan production offices.
Generally, these purchased participations allow Heritage Bank to diversify its geographic
risk and are purchased with a higher level of underwriting standards since a direct
customer relationship does not exist. At December 31, 2003, Heritage Bank had $54.0
million of non-mortgage commercial loans in its loan portfolio, which included
approximately $27.0 million of purchased participation loans located outside of Montana.

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

Investment Activities

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

Interest
income from investment activities was approximately $1.7 million, $2.6 million and $2.8
million, or approximately 9.7%, 13.4% and 13.1% of Uniteds total interest income,
for the years ended December 31, 2003, 2002 and 2001, respectively.

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

The
following table sets forth the carrying values of Uniteds investments at December
31, 2003, 2002 and 2001:

(Dollars in thousands)

|                                      | December 31,
2003 | December 31,
2002 | December 31,
2001
|------------------------------------- | ----------------- | ----------------- | -----------------
|U.S. government and federal agencies  |                   |                   | $                
|Mortgage-backed securities            |                   |                   |                  
|Municipal bonds                       |                   |                   |                  
|Corporate bonds and equity securities |                   |                   |                  
|                                      |                   |                   |                  
|                                      |                   |                   | $                
|                                      |                   |                   |                  

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

During
2002, United received $16.1 million in mortgage-backed security principal payments and had
$43.2 million of calls and maturities of investment securities. Sales of investment
securities and mortgage-backed securities were $18,625 in 2002 and purchases totaled $48.6
million. United recorded an unrealized gain in market values of its investment portfolio
of $.7 million, before taxes. The increase in principal payments on mortgage-backed
securities and the increase in calls of investment securities are both results of the
unprecedented drops in interest rates during 2002 as compared to 2001. Uniteds
purchases of investment securities increased accordingly to maintain its investment
portfolio.

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Sources of Funds

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

Deposit
Activities.   Deposits are attracted from within Uniteds market area through the
offering of a broad selection of deposit instruments, including NOW accounts, money market
accounts, regular savings accounts, certificates of deposit and retirement savings plans.
Deposit account terms vary, according to the minimum balance required, the time periods
the funds must remain on deposit and the interest rate, among other factors. In
determining the terms of its deposit accounts, United considers current market interest
rates, profitability to United, matching deposit and loan products offered by its
competition and its customer preferences and concerns. United reviews its deposit mix and
pricing weekly.

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

(Dollars in thousands)

|                     | December 31, | December 31, | December 31,
|-------------------- | ------------ | ------------ | ------------
|
|
|Non-interest bearing |              |              | $           
|Interest bearing:    |              |             
|NOW & money market   |              |             
|demand accounts      |              |              |             
|Savings accounts     |              |              |             
|Time deposits        |              |              |             
|                     |              |              |             
|Total                |              |              | $           
|                     |              |              |             

Scheduled
maturities of certificates of deposit at December 31, 2003 are as follows:

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

Time
deposits of $100,000 or more were approximately $24.0 million, $29.1 million and $25.2
million at December 31, 2003, 2002 and 2001, respectively. Amounts in excess of $100,000
are not insured by a federal agency.

The
maturity of time deposits of $100,000 or more at December 31, 2003 was as follows:

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

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

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

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

As
a member of the FHLB, Heritage Bank is required to own capital stock in the FHLB and is
authorized to apply for advances on the security of specified collateral. Advances are
made pursuant to several different credit programs. Each credit program has its own
interest rate and range of maturities. Heritage Banks established available FHLB
advance credit line for 2003 was 25% of assets. The FHLB is required to review its credit
limitations and standards at least annually.

For
the years ended December 31, 2003, 2002 and 2001, FHLB borrowing information was as
follows:

|(Dollars in thousands)         | 2003 | 2002 | 2001
|------------------------------ | ---- | ---- | ----
|Average FHLB advances          |      |      | $   
|Maximum advances outstanding   |      |      |     
|Year end advances outstanding  |      |      |     
|Weighted average interest rate |      |      |     

Securities
Sold Under Agreements To Repurchase.   Heritage Bank generates funds through the sale of
investment securities under agreements requiring their repurchase at a premium that
represents interest. The securities underlying agreements to repurchase are for the same
securities originally sold and are held in a custody account by a third party.

For
the years ended December 31, 2003, 2002 and 2001, securities sold under agreements to
repurchase information was as follows:

|(Dollars in thousands)         | 2003 | 2002 | 2001
|------------------------------ | ---- | ---- | ----
|Average balances               |      |      | $   
|Maximum balances outstanding   |      |      |     
|Year end balances              |      |      |     
|Weighted average interest rate |      |      |     

Trust
Preferred Securities.   In July 2001, United issued junior subordinated debentures,
aggregating $3.0 million to United Financial-Montana Capital Trust I (the
Trust). The Trust issued preferred securities, as part of a pooled issue, with
an aggregate liquidation amount of $3.0 million ($1,000 per capital security) to
third-party investors. The junior subordinated debentures and cash are the sole assets of
the Trust. The preferred securities are includable as Tier I capital for regulatory
capital purposes. The offering price was $1,000 per capital security. The junior
subordinated debentures and the preferred securities pay interest and dividends,
respectively, on a semi-annual basis, which are included in interest expense. The variable
interest rate resets on January 30 and July 30 of each year, based upon six month LIBOR
plus 3.75%. The interest rate reset on January 29, 2004 was 4.96%. The Trust is a
statutory business trust formed under the laws of the State of Delaware and is
wholly-owned by United. The junior subordinated debentures and preferred securities will
mature on July 25, 2031. The junior subordinated debentures and preferred securities can
be redeemed contemporaneously, in whole or in part, after five years at decreasing
premiums with the permission of the Board of Governors of the

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Federal Reserve System (the Federal
Reserve). United has provided a full and unconditional guarantee of the obligations
of the Trust in the event of the occurrence of an event of default, as defined. Debt
issuance costs totaling $118,812 were capitalized related to the debenture offering and
are being amortized over the 10-year non-premium callable life of the preferred
securities.

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

Other Activities

Heritage
Bank also holds a 14% ownership interest in Bankers Resource Center, a computer data
center, which provides certain data processing services to Heritage Bank and United.

In
December 2003, Heritage Bank incorporated a new wholly-owned subsidiary, Heritage
Northwest, Inc. which will operate a mortgage banking company in Bellingham, Washington.
An application has been filed with the State of Washington in January 2004 and operations
are scheduled to begin in the spring of 2004.

Market Area

Great
Falls, the county seat of Cascade County and a regional trade center, is one of the
largest cities in Montana. The estimated 2003 Great Falls and Cascade County populations
were approximately 57,000 and 80,000, respectively. The economy of Great Falls is largely
based on agriculture, health care and Department of Defense activities. Malmstrom Air
Force Base (MAFB), which employs approximately 4,000 people, is the largest
employer in Great Falls and Cascade County. Any significant reduction in size or closure
of MAFB would likely adversely affect United and its results of operations and financial
condition.

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

Competition

Heritage
Bank, like other depository institutions, is operating in a rapidly changing environment
and, therefore, faces considerable competition in the attraction of deposits and the
origination of loans. Historically, the most direct competition for deposits has come from
savings banks, credit unions and commercial banks. There are approximately 41 depository
institutions, commercial banks, credit unions and savings banks with offices in Heritage
Banks Montana market areas. In addition to these entities, United estimates there
are approximately 33 mortgage companies directly competing with its real estate
originators in the Montana market area. Non-depository financial service organizations,
primarily in the securities and insurance industries, have also become competitors for
retail savings and investment funds. Heritage Banks deposit programs compete with
money market mutual funds, government securities and other investment alternatives.
Heritage Bank competes for deposits by offering a variety of deposit accounts at interest
rates based upon market conditions, convenient business hours, quality service and
convenient branch locations.

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Employees

At
February 29, 2004, Heritage Bank employed 118 full-time employees and 29 part-time
employees. Heritage Bank maintains a comprehensive employee benefit program providing,
among other benefits, hospitalization and major medical insurance, paid sick leave,
disability, life insurance and 401K retirement plans. Heritage Banks employees are
not represented by any collective bargaining group. See Part IV, Item 15. 
Notes to Consolidated Financial Statements  Employee Benefit Plans.
United, as a parent company, has no employees.

Executive Officers of the Registrant

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

|Name             | Age | Position Held                                                                                                                                     |  |  | 
|---------------- | --- | ------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | 
|Kurt R. Weise    | 47  | Chairman and Chief Executive Officer of United; Directorand Vice President of Heritage Bank                                                      
|Kevin P. Clark   | 48  | Director, Secretary and Senior Vice President of United;Director, President and Chief Executive Officer ofHeritage Bank                          
|Steve L. Feurt   | 48  | Director, Senior Vice President and Chief Credit Officerof United; Director, Executive Vice  President and SeniorLending Officer of Heritage Bank
|Paula J. Delaney | 43  | Chief Financial Officer of United; Director and Vice President of Heritage                                                                       
|John M. Morrison | 67  | Director of Heritage Bank                                                                                                                        

Mr. Weise has
served as Chief Executive Officer of United since the annual shareholder meeting
in 1999 and became chairman of United upon Mr. Morrisons resignation in
January 2003. Mr. Weise has served as President and director of United, and
director and Vice President of Heritage Bank, since February 1998. Mr.
Weises term of office as a director of United expires at Uniteds
annual shareholder meeting in 2006. Mr. Weise also serves as President of CFS
and President of Central Bancshares. He has been involved in various capacities
with the Central Bank group of companies since they were founded in 1988 and
with Heritage Bank since 1994.

Mr.
Clark has served as Senior Vice President and Secretary of United, and
director, President and Chief Executive Officer of Heritage Bank, since February
1998. 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 2006.

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

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

9

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Mr.
          Morrison has served as a director of Heritage Bank since 1994. Mr. Morrison
          is the Chief Executive Officer and sole shareholder of Central Bancshares, Inc.
          (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. In March 2003, Mr. Morrison
          became Vice Chairman of the Board of Directors of Allina Health Systems, a
          non-profit organization in Minnesota that provides healthcare services through
          hospitals and clinics in Minnesota and Wisconsin. Mr. Morrison is involved in
          various other businesses, and serves as Chairman of the Executive Committee of
          the Board of Trustees of the University of St. Thomas, and is a member of the
          board of the University of St. Thomas Law School.

Supervision and Regulation

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

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

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

Bank
holding companies are subject to certain limitations on redemption of common stock or
other equity securities. In addition, the FRB has issued regulations setting minimum
capital standards for bank holding companies. Depending on the capital classification of a
bank holding company, it may be restricted from engaging in certain non-bank activities or
from acquiring interests in additional banks or other depository institutions. As of
December 31, 2003, United met the minimum capital requirements issued by the FRB.

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

The
Gramm-Leach-Bliley Act of 1999 (the Financial Services Modernization Act) came
into effect on March 11, 2000. The Financial Services Modernization Act repeals the two
affiliation provisions of the Glass-Steagall Act: Section 20, which restricted the
affiliation of Federal Reserve member banks with firms engaged principally in
specified securities activities; and Section 32, which restricts officer, director, or
employee interlocks between a member bank and any company or person primarily
engaged in specified securities activities. In addition, the Financial Services

10

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Modernization Act contains
provisions that expressly preempt any state law restricting the establishment of
financial affiliation, primarily related to insurance. The general effect of the law is
to establish a comprehensive framework to permit affiliation among commercial banks,
insurance companies, securities firms, and other financial service providers by revising
and expanding the bank holding company framework to permit a holding company system to
engage in a full range of financial activities through a new entity known as a financial
holding company. To date, United has not elected to become a financial holding company.

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

United
does not believe that the Financial Services Modernization Act has negatively affected its
operations in the near-term. However, to the extent that the legislation permits banks,
securities firms, and insurance companies to affiliate, the financial services industry
may experience further consolidation. The Financial Services Modernization Act is intended
to grant to community banks certain powers as a matter of right that larger institutions
have accumulated on and ad hoc basis. Nevertheless, this legislation may increase the
amount of competition from larger institutions and other types of companies with
substantially greater resources and a wider variety of financial products than United
currently offers.

Under
the Financial Services Modernization Act, federal banking regulators have adopted rules
that limit the ability of banks and other financial institutions to disclose non-public
information about consumers to nonaffiliated third parties. These limitations require
disclosure of privacy policies to consumers and, in some circumstances, allow consumers to
prevent disclosure of certain personal information to a nonaffiliated third party. The
rules were effective November 13, 2000, but compliance was optional until July 1, 2001.
United has implemented procedures to comply with these rules and believes that compliance
has not adversely affected its operations.

United
and its subsidiaries are deemed affiliates within the meaning of the Federal Reserve Act,
and transactions between the affiliates are subject to certain restrictions. Accordingly,
United and its respective subsidiaries must comply with Sections 23A and 23B of the
Federal Reserve Act (the FRA). Generally, these sections restrict
covered transactions (i.e., loans, purchases of assets, guaranties and
similar transactions) to a percentage of the depository institutions capital and
surplus, require that such 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.

On
October 26, 2001, President Bush signed the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism (USA Patriot
Act) of 2001. Among other things, the USA Patriot Act (1) prohibits banks from
providing correspondent accounts directly to foreign shell banks; (2) imposes due
diligence requirements on banks opening or holding accounts for foreign financial
institutions or wealthy foreign individuals; (3) required financial institutions to
establish an anti-money-laundering compliance program; and (4) generally eliminates civil
liability for persons who file suspicious activity reports. The Act also increased
governmental powers to investigate terrorism, including expanded government access to
account records. The Department of the Treasury is empowered to administer and make rules
to implement the Act. While the USA Patriot Act may, to some degree,

11

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affect Uniteds record-keeping
and reporting expenses, United does not believe that the Act will have a material adverse
effect on its business and operation. Management believes United is in compliance with
the USA Patriot Act.

Depository
Institution SubsidiariesHeritage Bank.   Effective January 1, 2001, Heritage Bank
became a Montana-chartered commercial bank. As such, Heritage Bank is subject to
regulation and supervision by the Montana Department of Commerce, Division of Banking and
Financial Institutions (the Montana Division) and the FDIC. Heritage
Banks deposits are insured by the FDIC up to $100,000.

The
Montana statutes and regulations place limitations on the business and other activities of
Heritage Bank which may be more restrictive than limitations applicable to depository
institutions that are not state-chartered commercial banks. In particular, and among other
limitations, the establishment and operation of new branch offices, is limited by, and
subject to approval by, the Montana Division. In addition, state-chartered commercial
banks are generally not authorized to make investments in 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 state law.

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

The
Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
required federal banking regulators to adopt regulations in a number of specific areas to
insure depository institution safety and soundness, including internal controls, credit
underwriting, asset growth, management compensation, asset quality and earnings
performance. FDICIA also contains provisions intended to change independent auditing
requirements, to restrict the activities of certain insured depository institutions, to
change various consumer banking laws and to limit the ability of under-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.

Heritage
Bank is subject to certain federal consumer laws, including the Community Reinvestment Act
of 1977, as amended (CRA), and other fair lending laws and regulations which
impose nondiscriminatory lending requirements on insured depository institutions. In
recent periods, federal regulatory agencies have sought a more rigorous enforcement of the
CRA and other fair lending laws and regulations. A successful challenge to a depository
institutions performance under the CRA and

12

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related fair lending laws and
regulations could result in a variety of sanctions, including the required payment of
damages and civil money penalties, prospective and retrospective injunctive relief and
the imposition of restrictions on mergers and acquisitions or other activities of the
depository institution or the holding companies controlling such depository institutions.
Private parties may also have the ability to challenge an institutions performance
under the fair lending laws in private class action litigation. Heritage Banks most
recent rating under CRA is satisfactory. The previous CRA performance evaluation in July
1999, conducted by the OTS, rated Heritage Bank as having had an outstanding record
of meeting community credit needs.

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, 2003, Heritage Bank met the
well capitalized requirements issued by the applicable federal banking agency.

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

Federal
banking regulatory agencies may institute enforcement actions against depository
institutions, their parent holding companies and other institution-affiliated parties with
respect to violations of any federal law or regulation. Enforcement actions may include
the appointment of a conservator or receiver, the issuance of cease and desist orders or
other formal action, termination of insurance of deposits and the imposition of civil
money penalties. Heritage Bank is currently not subject to any such enforcement actions.

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

Deposit
Insurance and FDIC Regulation.   Effective January 1, 2001, Heritage Bank became a
member of the Savings Association Insurance Fund (SAIF), and the Bank
Insurance Fund (BIF), both administered by the FDIC. Section 5(d) of the
Federal Deposit Insurance Act (FDI Act), known as the Oakar Amendment, permits
merger transactions between SAIF- and BIF-member institutions resulting in an institution
with deposits that are proportionally insured by both SAIF and BIF.

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

13

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For
2003, the FDIC assessment rate for Heritage Bank decreased each quarter from 1.68 basis
points per $100 of insured deposits during the first quarter, to 1.52 basis points for the
fourth quarter. As a result, Heritage Banks 2003 FDIC deposit insurance premium was
approximately $.1 million. FDIC has published assessment rates for the first quarter of
2004, per $100 of insured deposits, of 1.54 basis points.

State
Lending Limits.   As of January 1, 2001, Heritage Bank became subject to a State of
Montana lending limit of 20% of capital. The maximum aggregate amount of loans outstanding
to a single borrower at Heritage Bank at December 31, 2003 and 2002 was approximately $2.4
million and $2.3 million, respectively. At December 31, 2003 and 2002 Heritage Bank was in
compliance with the State of Montana lending limit.

Capital
Adequacy.   FDIC emphasizes capital as a measure of performance and establishes a rigid
regulatory scheme based almost entirely on capital levels. The five statutory capital
categories established by FDIC are well capitalized, adequately
capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. Heritage Banks
capital position exceeds the definition of well capitalized. FDIC also
mandates that regulations be promulgated adding other risk-based capital requirements
covering (a) concentrations of credit risk, (b) risks from nontraditional activities and
(c) the capital impact of fair value adjustments associated with FASB Statement No. 115,
Accounting for Certain Investments in Debt and Equity Securities. See Part IV,
Item 15  Notes to Consolidated Financial Statements  Regulatory
Matters.

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

The
FDIC and Federal Reserve use risk-based capital guidelines for banks and bank holding
companies. These are designed to make such capital requirements more sensitive to
differences in risk profiles among banks and bank holding companies, to account for
off-balance sheet exposure, and to minimize disincentives for holding liquid assets.
Assets and off-balance sheets items are assigned to broad risk categories, each with
appropriate weights. The resulting capital ratios represent capital as a percentage of
total risk-weighted assets and off-balance sheet items. The guidelines are minimums, and
the Federal Reserve has noted that bank holding companies contemplating significant
expansion programs should not allow expansion to diminish their capital ratios and should
maintain ratios well in excess of the minimum. The current guidelines require all bank
holding companies and federally regulated banks to maintain a minimum risk-based total
capital ratio equal to 8%, of which at least 4% must be Tier I capital.

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

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

Banks
are assigned to one of five capital categories depending on their total risk-based capital
ratio, Tier I risk-based capital ratio, and leverage ratio, together with certain
subjective factors. Banks which are deemed to be undercapitalized are subject
to certain mandatory supervisory corrective actions.

Federal
Home Loan Bank System.   Heritage Bank is a member of the FHLB of Seattle, Washington.
Each FHLB serves as a reserve or central bank for its members within its assigned region,
is funded primarily from proceeds derived from the sale of consolidated obligations of the
FHLB system and makes loans (advances) to its members

14

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in accordance with the policies and
the procedures established by the FHLB board of directors. All advances from the FHLB are
required to be fully secured by sufficient collateral as is determined by the FHLB.
Member banks are required to purchase and maintain FHLB stock in an amount equal to the
greater of 1% of the unpaid principal of residential mortgage loans, or 5% of FHLB
advances outstanding.

Taxation

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

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

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

Federal
legislation repealed the reserve method of accounting for bad debt reserves for tax years
beginning after December 31, 1995. As a result, savings associations could no longer
calculate their deduction for bad debts using the percentage-of-taxable-income method.
Instead, savings associations were required to compute their deduction based on actual
charge-offs during the taxable year or, if the savings association or its controlled group
had assets of less than $500 million, based on actual loss experience over a period of
years. This legislation also required savings associations to recapture into income over a
six-year period their post-1987 additions to their bad debt tax reserves, thereby
generating additional current tax liability. At December 31, 2003, Heritage Banks
bad debt reserve for tax purposes was approximately $3.5 million. For additional
information regarding federal and state income taxes, see Part IV, Item 14 
Notes to Consolidated Financial Statements  Income Taxes.

15

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Item 2.     PROPERTIES

At
December 31, 2003, United owned 13 of its 15 offices, including its headquarters and other
property having an aggregated book value including land of approximately $6.1 million, and
leased the remaining branches. Four locations are leased in Montana, including three
building leases and one land lease. The following schedule provides property information
for the Uniteds locations as of December 31, 2003.

|(Dollars in thousands)      | PropertiesLeased |  | PropertiesOwned |   | Net LeaseholdImprovements |  | Net BookValue Owned | 
|--------------------------- | ---------------- |  | --------------- | - | ------------------------- |  | ------------------- | 
|                            |                  |  |                 |   |                           |  |                     | 
|Heritage Bank:              |                  |  |                 |   |                           |  |                     | 
|Great Falls (22,800 sq.ft.) |                  |  |                 | 1 |                           |  | 2                   | 
|Bozeman (4,000 sq. ft.)     |                  |  |                 |  |                           |  | 1                   | 
|Billings (4,900 sq. ft.)    |                  |  |                 | 1 |                           |  | 1                   | 
|Missoula (3,600 sq. ft.)    |                  |  |                 |  |                           |  | 1                   | 
|Havre (2,400 sq. ft.)       |                  |  |                 |  |                           |  | 1                   | 
|Libby (1,250 sq. ft.)       |                  |  |                 |  |                           |  | 1                   | 
|Chester (1,800 sq. ft.)     |                  |  |                 |  |                           |  | 1                   | 
|Shelby (2,800 sq. ft.)      |                  |  |                 |  |                           |  | 1                   | 
|Fort Benton (5,000 sq. ft.) |                  |  |                 |  |                           |  | 1                   | 
|Glendive (4,000 sq. ft.)    |                  |  |                 |  |                           |  | 1                   | 
|Geraldine (4,350 sq. ft.)   |                  |  |                 |  |                           |  | 1                   | 
|Kalispell (2,500 sq. ft.)   |                  |  |                 | 1 |                           |  |                    | 
|Hamilton (1,200 sq. ft.)    |                  |  |                 | 1 |                           |  |                    | 
|                            |                  |  |                 |   |                           |  |                     | 
|Total Montana locations     |                  |  |                 | 4 |                           |  | 12                  | 
|                            |                  |  |                 |   |                           |  |                     | 

Item 3.    LEGAL PROCEEDINGS

Although
United was not involved in any material pending litigation as of February 29, 2004, it is
a plaintiff in various legal proceedings arising in the normal course of business. In the
opinion of management, the disposition of current litigation will not have a material
effect on Uniteds consolidated financial position, results of operations, or
liquidity.

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

No
matter was submitted to a vote of security holders through the solicitation of proxies or
otherwise during the quarter ended December 31, 2003.

# PART II

Item 5.   MARKET FOR UNITEDS
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

United
common stock is quoted on the Nasdaq National Market under the symbol UBMT.
The closing sale price per share of UFC common stock on February 27, 2004 was $26.00.

Shareholder Data

As
of February 17, 2004 there were approximately 200 owners of record of United common stock
and an estimated 875 additional beneficial holders whose shares of United common stock
were held in street name by brokerage houses.

16

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Common Stock Market Prices

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

|               | 2003 |  | 2002
|-------------- | ---- |  | ----
|
|
|First Quarter  |      |  |     
|Second Quarter |      |  |     
|Third Quarter  |      |  |     
|Fourth Quarter |      |  |     

Dividend Payment History on United
Common Stock

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

|               | 2003 |  | 2002
|-------------- | ---- |  | ----
|First Quarter  |      |  | $   
|Second Quarter |      |  |     
|Third Quarter  |      |  |     
|Fourth Quarter |      |  |     
|               |     
|               |      |  | $   
|               |     

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

17

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Item 6.   SELECTED FINANCIAL DATA

# Five Year Summary of
Operations and Selected Financial Data

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

|(1) |  | All
years have been restated for the effect of the June 2002 10% stock dividend, and
the June 2003 50% stock split.
|--- |  | -------------------------------------------------------------------------------------------------------------------

|(2) |  | At
year end.
|--- |  | ------------

|(3) |  | Non-interest
expense divided by (net interest income plus non-interest income)
|--- |  | ------------------------------------------------------------------------------

18

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

Forward
Looking Statements.    This Annual Report on Form 10-K contains forward-looking
statements. Statements that are not historical or current facts, including statements
about beliefs and expectations, are forward-looking statements. Forward-looking statements
involve inherent risks and uncertainties, and important factors could cause actual results
to differ materially from those anticipated, including the following factors, in addition
to those contained in Uniteds reports on file with the SEC: (i) general economic or
industry conditions could deteriorate or be less favorable than expected, resulting in a
deterioration in credit quality, a change in the allowance for loan losses, or a reduced
demand for Uniteds products and services; (ii) changes in the domestic interest rate
environment could reduce net interest income and could increase loan losses; (iii) changes
in the extensive laws, regulations and policies governing financial services companies
could alter Uniteds business environment or affect operations; (iv) the potential
need to adapt the industry changes in information technology systems, on which United is
highly dependent, could present operational issues or require significant capital
spending; (v) competitive pressures could intensify and affect Uniteds
profitability, including as a result of continued industry consolidation, the increased
availability of financial services from non-banks, technological developments, or bank
regulatory reform; (vi) the impact of weather conditions in the geographic markets and
business areas in which United conducts it business; and (vii) capital investments in
Uniteds businesses may not produce expected growth in earnings anticipated at the
time of the expenditure. Forward-looking statements speak only as of the date they are
made, and United undertakes no obligation to update them in light of new information of
future events.

19

---

Selected United Financial Data

The
following results of operations for 2003, 2002 and 2001 is derived from the audited
consolidated financial statements.

|December31,                         | December31, | December31,
|----------------------------------- | ----------- | -----------
|
|Interest income                     |             |            
|Interest expense                    |             |            
|                                    |             |            
|Net interest income                 |             |            
|                                    |             |            
|Net interest income after           |             |            
|provision for loan losses           |             |            
|Non-interest income                 |             |            
|Non-interest expense                |             |            
|                                    |             |            
|Income from continuing operations   |             |            
|before income taxes                 |             |            
|Provision for income taxes          |             |            
|                                    |             |            
|Income from continuing operations   |             |            
|Income from discontinued operations |             |            
|                                    |             |            
|Net income                          |             |            
|                                    |             |            
|Basic earnings per share            |             |            
|Continuing operations               |             |            
|Discontinued operations             |             |            
|                                    |             |            
|Net income                          |             |            
|                                    |             |            
|Weighted average shares             |             |            
|outstanding  basic                 |             |            
|                                    |             |            
|Diluted earnings per share          |             |            
|Continuing operations               |             |            
|Discontinued operations             |             |            
|                                    |             |            
|Net income                          |             |            
|                                    |             |            
|Weighted average shares             |             |            
|outstanding  diluted               |             |            
|                                    |             |            

Results of Operations for the Year
Ended December 31, 2003

Uniteds
net income for the year ended December 31, 2003 was $4.7 million, or basic and diluted
earnings per share of $1.93 and $1.88, respectively. This compares to net income of $3.0
million, or basic and diluted earnings per share of $1.21 and $1.20, respectively, in 2002
and $.94 and $.94, respectively in 2001.

During
2003, Uniteds continuing operations contributed $3.8 million in net income or $1.53
per diluted share, compared to $1.04 per diluted share in 2002 and $.85 per diluted share
in 2001.

Net
interest income increased $1.4 million to $11.4 million in 2003 or 14.0% and the provision
for loan losses decreased $.3 million, resulting in a total increase of $1.7 million, or
19.1%, in net interest income after provision for loan losses. Non-interest income
increased $1.8 million, or 36.7%, in 2003 to $6.7 million over 2002 due to a record
increase in gain on sale of loans by Uniteds mortgage lending activities in 2003.
The $1.8 million increase in non-interest expense in 2003 includes a $1.5 million increase
in salaries and commissions, a $.1 million increase in occupancy costs and a $.1 million
increase in data processing fees.

The
$.5 million increase in income from discontinued operations in 2003 was the result of the
sale of Valley in July 2003.

20

---

Uniteds
results of operations for the year ended December 31. 2003 were impacted favorably by
record high mortgage lending volumes, an improved net interest margin and the sale of its
majority-owned commercial bank subsidiary, Valley. Interest rates were relatively stable
in 2003, with a single .25% decline of the federal funds rate by the Federal Reserve Board
in June 2003.

Uniteds
subsidiary, Heritage Bank, experienced a significant increase in loan volumes in 2003 of
$15.8 million, a 7.5% increase in net loans over 2002. In the current low rate
environment, Heritage Bank has focused on its strengths as a community service bank to
remain competitive and retain favorable client relationships. Total loans secured by real
estate were up $7.5 million in 2003 over 2002. Commercial loans were also up $4.0 million
and consumer loans have increased $3.6 million for the same time period.

The
mortgage re-finance market remained strong in 2003, as it was in 2002. Mortgage loans
originated in 2003 were $312.0 million, or $109.1 million over 2002 levels. The related
gain on sale of residential loans on the secondary market at Heritage Bank was a record
$5.3 million in 2003, a 39% increase over 2002.

Interest
rate margins at Heritage Bank rose .40% to 3.87% in 2003 from 3.47% in 2002. Average
yields on interest-earning assets declined .75% in 2003 as compared to 2002, while average
rates on interest-bearing liabilities decreased 1.24%. This resulted in a change in
interest rate spread of .49% from 2.92% in 2002 to 3.41% in 2003.

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

Another
critical accounting policy of United is that related to the carrying value of goodwill in
accordance with Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets (SFAS No. 142). United adopted a market valuation approach
in assessing goodwill impairment and will measure the carrying value similarly at least
annually under the new accounting rules. Ongoing impairment analysis of the fair value of
the remaining goodwill will involve a substantial amount of judgment, as will establishing
and monitoring estimated amounts and lives of other intangible assets. Also as required
upon adoption of SFAS No. 142, United ceased amortization of goodwill on January 1, 2002.
At December 31, 2003 and 2002, United had $1.4 million and $3.4 million of recorded
goodwill (See Part IV, Item 15- Notes to Consolidated Financial Statements- Goodwill
and Other Intangible Assets).

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

21

---

|                                                | 2003 | 2002 | 2001
|----------------------------------------------- | ---- | ---- | ----
|(Dollars in thousands,except for share amounts)
|Net income                                      |      |      | $   
|                                                |      |      |     
|Basic earnings per                              |      |     
|share:                                          |      |     
|Continuing                                      |      |     
|operations                                      |      |      | $   
|Discontinued                                    |      |     
|operations                                      |      |      |     
|                                                |      |      |     
|                                                |      |      | $   
|                                                |      |      |     
|Diluted earnings                                |      |     
|per share:                                      |      |     
|Continuing                                      |      |     
|operations                                      |      |      | $   
|Discontinued                                    |      |     
|operations                                      |      |      |     
|                                                |      |      |     
|                                                |      |      | $   
|                                                |      |      |     

United
has also identified its accounting method for securities available-for-sale to be a
critical accounting policy. Securities available-for-sale are carried at fair value and
unrealized gains and losses (net of related tax effects) are excluded from earnings and
reported as a separate component of stockholders equity. While fair values are
determined per market quotes from independent brokers and not subject to management
estimation, the carrying value of the securities is subject to market variations. At
December 31, 2003 and 2002, the unrealized gain on securities available-for-sale to mark
them to market was $.5 million and $1.1 million, respectively. (See Part IV, Item 15-
Notes to Consolidated Financial Statements- Securities Available-For-Sale).

Discontinued
Operations.   On July 31, 2003, United sold its majority-owned subsidiary, Valley, to
Marquette Financial Companies. An after-tax gain of $714,129 was recorded on the sale, and
along with the results of operations of Valley, is recorded within the consolidated income
statement as net income from discontinued operations. All previously issued consolidated
financial statements have been restated to also disclose the assets, liabilities, and
operations of Valley as discontinued operations. Valleys discontinued operations
resulted in income net of tax of $890,716, or $.35 per diluted share, during 2003,
$400,061, or $.16 per diluted share, during 2002 and $227,668, or $.09 per diluted share
during 2001.

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

Net
Interest Income.   Like most financial institutions, the most significant
component of Uniteds earnings is net interest income, which is the difference
between the interest earned on interest-earning assets (loans, investment securities,
mortgage-backed securities and other interest-earning assets), and the interest paid on
deposits and borrowings. This amount, when divided by average interest-earning assets, is
referred to as the net interest margin and expressed as a percentage. Net interest income
and net interest margin are affected by changes in interest rates, the volume and the mix
of interest-earning assets and interest-bearing liabilities, and the level of
non-performing assets. The difference between the yield on interest-earning assets and the
cost of interest-bearing liabilities expressed as a percentage is referred to as the net
interest rate spread.

22

---

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

|(Dollars in thousands)   | Year Ended December 31,
2003 vs. 2002 | Year Ended December 31,
2002 vs. 2001
|------------------------ | ------------------------------------- | -------------------------------------
|
|
|Interest-earning assets: |                                       |                                      
|Loans                    |                                       |                                      
|Investment and mortgage  |                                       |                                      
|backed securities        |                                       |                                      
|Other interest-earning   |                                       |                                      
|assets                   |                                       |                                      
|                         |                                       |                                      
|Total interest-earning   |                                       |                                      
|assets                   |                                       |                                      
|Interest-bearing         |                                       |                                      
|liabilities:             |                                       |                                      
|Interest-bearing         |                                       |                                      
|demand                   |                                       |                                      
|Savings deposits         |                                       |                                      
|Time deposits            |                                       |                                      
|Borrowings               |                                       |                                      
|                         |                                       |                                      
|Total interest-bearing   |                                       |                                      
|liabilities              |                                       |                                      
|                         |                                       |                                      
|Net interest income      |                                       |                                      
|                         |                                       |                                      

23

---

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

Average Balance Sheet(Dollars in
thousands)

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

Average Balance Sheet(Dollars in
thousands)

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

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

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

24

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Average Balance Sheet
(Dollars in thousands)

|                                   | Year Ended December 31, 2001
|---------------------------------- | ----------------------------
|Interest-earning assets:          
|Loans(1)                           |                             
|Investment and mortgage-backed     |                             
|securities                         |                             
|Other interest-earning assets      |                             
|                                   |                             
|Total interest-earning assets      |                             
|Non-interest-earning assets        |                             
|                                   |                             
|Total assets                       |                             
|                                   |                             
|Interest-bearing liabilities:      |                             
|Interest-bearing demand            |                             
|Savings deposits                   |                             
|Time deposits                      |                             
|Borrowings                         |                             
|                                   |                             
|Total interest-bearing liabilities |                             
|                                   |                             
|Stockholders' equity               |                             
|                                   |                             
|Net interest income                |                             
|                                   |                             
|Net interest spread                |                             
|Net interest margin(2)             |                             

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

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

Interest-Earning
Assets.   The yield earned on loans outstanding (including residential mortgage loans
held-for-sale) during 2003 was 6.64% compared to 7.38% in 2002 and 8.23% in 2001.
Decreased rates on loans more than offset increased volumes of loans from 2002 to 2003,
causing the total interest income on loans to decrease $15.4 million in 2003 compared to
$16.2 million for 2002 and $18.3 million in 2001. The yield earned on taxable securities
decreased to 3.71% in 2003 from 4.96% in 2002 as longer term securities earning a higher
rate have matured and been replaced at current, lower rates. The average other
interest-earning assets balances remained virtually unchanged during 2003 when compared
to 2002, but the yield earned on these assets declined considerably. The total yield
earned on all interest-earning assets declined to 5.89% in 2003 from 6.64% and 7.58% for
the years 2002 and 2001, respectively. As discussed above, the decline is due to
decreases in interest rates, refinancing of higher rate loans, and the maturity of higher
rate securities.

Interest-Bearing
Liabilities.   The rate paid for each category of interest-bearing liabilities was
significantly lower during 2003 than during 2002 and 2001. The yield on interest-bearing
demand deposit accounts decreased to .80% in 2003 compared to 1.45% and 2.10% in 2002 and
2001, respectively. The yield on savings deposits decreased to 1.09% in 2003 compared to
1.94% and 3.43% in 2002 and 2001, respectively. Average rates on certificates of deposit
also declined to 3.13% during 2003 from 4.17% in 2002 and 5.72% in 2001. As certificates
of deposit matured during 2003, they were either not renewed or replaced at lower rates.
Borrowings had a decline in rate, volume and interest expense in 2003 when compared to
2002. For all interest-bearing liabilities, the average rate paid decreased to 2.48% in
2003 from 3.72% in 2002 and 5.10% in 2001.

Net
interest income for the year ended December 31, 2003 was $11.4 million, an increase of
$1.4 million from $10.0 million in 2002, which as $.8 million higher than

25

---

2001. The net interest margins for
the periods ended December 31, 2003, 2002 and 2001 were 3.87%, 3.47% and 3.23%,
respectively.

The
following factors affected Uniteds interest yields, margins, and spread when
comparing the year ending December 31, 2003, to the same period for 2002. During both 2003
and 2002, the national federal funds interest rate, and Uniteds prime rate,
experienced one decline of .25% in June 2003 and .5% in November 2002. This compares to
2001 when those rates fell 11 times for a total decrease of 4.75%. In addition, both
interest-earning assets and interest-bearing liabilities have seen a change in the mix of
their respective components. Interest spread and interest margins have both increased when
comparing 2003 to 2002, while yields and costs have declined under the same comparison.

Loan
volumes have increased in 2003 with a decrease in volumes of investment securities and
other assets, whereas the opposite were the case in 2002. In both 2003 and 2002, volumes
of time deposits and borrowings are down with respective increases in volumes of
interest-bearing demand and savings deposits.

Provision
for Loan Loss.   United provided $.8 million for loan losses in 2003 compared to $1.1
million in both 2002 and 2001. The slight decrease in the loan loss provisions in 2003
reflects managements estimate of the improvement in loan quality.

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

Non-Interest
Income.   In addition to net interest income, United
generates significant non-interest income from a range of retail banking
services, including mortgage banking activities and service charges for deposit
services. Non-interest income increased by $1.8 million, or 36.7%, in 2003 to
$6.7 million compared to $4.9 million in 2002 and $4.5 million in 2001,
principally due to the continued increase in fees from the real estate
production activity at Heritage Bank in 2003 and 2002. Fees from record volume
secondary market sales in 2003 were $5.3 million, compared to $3.8 million in
2002 and $3.3 million in 2001.

Non-Interest
Expense.   Non-interest expense increased $1.8 million, or 18.6%, to $11.5 million in
2003, and increased $.9 million, or 10.2%, to $9.7 million in 2002. Salary and employee
benefit expense increased $1.5 million in 2003 and $.6 million in 2002 in part due to
increased commissions to loan originators in Heritage Banks mortgage banking
department. Commissions increased $.6 million in 2003 to $1.9 million, as compared to $1.3
million in 2002. The increase in 2002 was $.1 million, up from $1.2 million in 2001.
Overall, salaries and wages increased $1.2 million in 2003, before payroll taxes and
benefits, to $5.7 million, as compared to $4.5 million in 2002, which was a $.5 million
increase over 2001. Occupancy and equipment expenses increased $.1 million in 2003 and $.2
million in 2002.

Income
Taxes.   Income tax expense increased $.3 million in 2003 and $.2 million in 2002, to
$1.9 million for 2003 and $1.6 million for 2002. See Part IV, Item 15- Notes to
Consolidated Financial Statements- Income Taxes for information regarding income tax
on income from continuing operations and discontinued operations.

26

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Financial Condition

The
following balance sheet information as of December 31, 2003 and 2002 is derived from the
audited consolidated financial statements.

|December 31,
2003                    | December 31,
2002
|------------------------------------ | -----------------
|Assets                               |                  
|Cash and cash equivalents            |                  
|Securities available-for-sale        |                  
|Loans held for sale                  |                  
|Loans receivable, net                |                  
|Other assets                         |                  
|Net assets from discontinued         |                  
|operations                           |                  
|                                     |                  
|Total assets                         |                  
|                                     |                  
|Liabilities and Stockholders' Equity |                  
|Non-interest-bearing deposits        |                  
|Interest-bearing deposits            |                  
|                                     |                  
|Total deposits                       |                  
|Federal Home Loan Bank advances      |                  
|Trust preferred securities           |                  
|Accrued expenses and other           |                  
|liabilities                          |                  
|Net liabilities from discontinued    |                  
|operations                           |                  
|                                     |                  
|Total liabilities                    |                  
|                                     |                  
|Minority interest                    |                  
|                                     |                  
|Stockholders' Equity                 |                  
|                                     |                  
|Total liabilities and                |                  
|stockholders' equity                 |                  
|                                     |                  

Loans
Receivable and Loans Held for Sale.   Net loans receivable increased $15.8 million
during 2003 to $227.2 million at December 31, 2003 from $211.4 million at December 31,
2002. Construction loans increased $1.9 million, agricultural and commercial real estate
loans increased $4.5 million and $2.9 million, respectively. The decrease in 5 or more
residential loans was $1.5 million. Total loans secured by real estate increased $7.5
million. Commercial non-mortgage loans increased $4.0 million in 2003 and tax exempt
municipal loans increased $1.0 million. Consumer and other loans increased $3.8 million
for an increase in total loans receivable of $16.4 million.

The
diverse loan portfolio includes: real estate residential mortgages, commercial and
agricultural mortgages, agricultural and commercial non-mortgages, consumer loans secured
by real estate, and various consumer installment loans. Heritage Bank also purchases and
participates in commercial and lease financing loans. Heritage Bank had $32.8 million and
$40.3 million of participation and purchased loans as of December 31, 2003 and 2002,
respectively. Nearly all of these loans are secured by properties outside the Montana
market area.

Heritage
Bank sells and retains the servicing rights for a portion of its residential real estate
loans to agencies of Montana such as the Montana Board of Investments and the Montana
Board of Housing. Heritage Bank recognizes mortgage servicing rights as an asset
regardless of whether the servicing rights are acquired or retained on loans originated
and subsequently sold. The mortgage servicing rights are assessed for impairment based on
the fair value of the mortgage servicing rights. As of December 31, 2003 and 2002, the
carrying value of originated servicing rights was approximately $.3 million and $.2
million, respectively. Heritage Banks servicing portfolio as of December 31, 2003
was $49.9 million and as of December 31, 2002 was $31.0 million.

27

---

During
2003, loans held for sale by Heritage Bank decreased $8.9 million to $3.9 million at
December 31, 2003 from a record high of $12.8 million at December 31, 2002. Approximately
$312.0 and $202.9 million of loans were originated for sale and $321.0 and $197.8 million
of loans were sold to the secondary market during the years ending December 31, 2003 and
2002, respectively.

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

(Dollars in thousands)

|                             | Year EndedDecember31, 2003 |  | Year EndedDecember31, 2002 |       | Year EndedDecember31, 2001 |   | Year EndedDecember31, 2000 |   | Year EndedDecember31, 1999
|---------------------------- | -------------------------- |  | -------------------------- | ----- | -------------------------- | - | -------------------------- | - | --------------------------
|                             |                            |  |                            |       |                            |   |                            |   |                           
|Balance beginning of year    |                            |  | $                          | 3,113 |                            | $ | 2,794                      |   | $                         
|Provision for loan losses    |                            |  |                            | 778   |                            |   | 1,115                      |   |                           
|Charge-offs:                 |                            | 
|Residential                  |                            |  |                            |      |                            |   | (15                        | ) |                           
|Commercial                   |                            |  |                            | (76   | )                          |   | (697                       | ) |                           
|Consumer                     |                            |  |                            | (72   | )                          |   | (173                       | ) |                           
|                             |                            |  |                            |       |                            |   |                            |   |                           
|Total charge-offs            |                            |  |                            | (148  | )                          |   | (885                       | ) |                           
|Recoveries                   |                            |  |                            | 12    |                            |   | 89                         |   |                           
|                             |                            |  |                            |       |                            |   |                            |   |                           
|Net charge-offs              |                            |  |                            | (136  | )                          |   | (796                       | ) |                           
|                             |                            |  |                            |       |                            |   |                            |   |                           
|Balance end of year end      |                            |  | $                          | 3,755 |                            | $ | 3,113                      |   | $                         
|                             |                            |  |                            |       |                            |   |                            |   |                           
|Allowance for loan losses to |                            | 
|total loans at year end      |                            |  |                            | 1.63  | %                          |   | 1.45                       | % |                           
|                             |                            |  |                            |       |                            |   |                            |   |                           
|Net charge-offs to average   |                            | 
|loans                        |                            |  |                            | .06   | %                          |   | .36                        | % |                           
|                             |                            |  |                            |       |                            |   |                            |   |                           

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

(Dollars in thousands)

|                            | December 31, 2003 |  | December 31, 2002 |       | December 31, 2001
|--------------------------- | ----------------- |  | ----------------- | ----- | -----------------
|
|                            |                   |  |                   |       |                  
|Real estate loans:          |                   |  |                   |       |                  
|1 - 4 residential           |                   |  | $                 | 193   |                  
|5 or more residential       |                   |  |                   | 51    |                  
|Construction                |                   |  |                   | 279   |                  
|Commercial and agricultural |                   |  |                   | 1,285 |                  
|Non-real estate loans:      |                   | 
|Commercial and agricultural |                   |  |                   | 1,357 |                  
|Consumer                    |                   |  |                   | 590   |                  
|                            |                   |  |                   |       |                  
|Total                       |                   |  | $                 | 3,755 |                  
|                            |                   |  |                   |       |                  

28

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(Dollars in thousands)

|                            | December 31, 2000 |  | December 31, 1999
|--------------------------- | ----------------- |  | -----------------
|
|                            |                   |  |                  
|Real estate loans:          |                   |  |                  
|1 - 4 residential           |                   |  | $                
|5 or more residential       |                   |  |                  
|Construction                |                   |  |                  
|Commercial and agricultural |                   |  |                  
|Non-real estate loans:      |                   | 
|Commercial and agricultural |                   |  |                  
|Consumer                    |                   |  |                  
|                            |                   |  |                  
|Total                       |                   |  | $                
|                            |                   |  |                  

Real
Estate and Other Personal Property Owned.   Total real estate and other personal
property owned (REO) of United was $.7 million, $.6 million and $.7 million at
December 31, 2003, 2002 and 2001, respectively. The schedule below details properties
both held for sale and investment by United as of the dates indicated.

(Dollars in thousands)

|                              | December 31,2003 |  | December 31,2002 |     | December 31,2001 |  
|----------------------------- | ---------------- |  | ---------------- | --- | ---------------- | -
|                              |                  |  |                  |     |                  |  
|REO held for sale             |                  |  | $                | 40  |                  | $
|Allowance for possible losses |                  |  |                  |    |                  |  
|                              |                  |  |                  |     |                  |  
|Total REO held for sale       |                  |  | $                | 40  |                  | $
|                              |                  |  |                  |     |                  |  
|REO held for investment       |                  |  | $                | 567 |                  | $
|Accumulated depreciation      |                  |  |                  | (77 | )                |  
|                              |                  |  |                  |     |                  |  
|REO held for investment       |                  |  | $                | 490 |                  | $
|                              |                  |  |                  |     |                  |  
|Total REO                     |                  |  | $                | 530 |                  | $
|                              |                  |  |                  |     |                  |  
|As a percent of total assets  |                  |  |                  | 17  | %                |  
|                              |                  |  |                  |     |                  |  
|Other personal property       |                  | 
|held for sale                 |                  |  | $                | 148 |                  | $
|                              |                  |  |                  |     |                  |  
|As a percent of total assets  |                  |  |                  | .05 | %                |  
|                              |                  |  |                  |     |                  |  

Securities
Available-for-Sale.   Uniteds securities available-for-sale decreased $.2
million to $43.3 million at December 31, 2003 as compared to $43.5 million at December 31,
2002. In 2003, Uniteds purchases of securities available-for-sale were approximately
$30.2 million while proceeds from sales, maturities and paydowns totaled approximately
$29.8 million. United also recorded a decrease in unrealized gain in market values of
approximately $.5 million in 2003, amortization of purchase premium of $.2 million and a
realized gain on sales of $.1 million, before taxes.

Cash
and Cash Equivalents.   Cash and cash equivalents from continuing operations decreased
$4.5 million during 2003 to $13.5 million at December 31, 2003 from $18.0 million at
December 31, 2002. Net cash from operating activities, or net income adjusted for non-cash
items, was $13.6 million in 2003. Net cash from investing activities such as the net
decrease in loans receivable and the net decrease in securities available-for-sale was
$(5.9) million in 2003. Net cash from financing activities such as increases in deposits,
net changes in borrowings and dividends paid to stockholders was $(15.2) million, for a
net decrease in cash and cash equivalents for 2003 of $(7.5) million. Adjusting for a net
change in cash and cash equivalents from discontinued operations of $3.0 million resulted
in a decrease in cash and cash equivalents from continuing operations of $4.5 million.

29

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Other
Assets.   Premises and equipment increased $.8 million during 2003 due to the $1.0
million construction of a new branch building in Billings, Montana for a new location
opened in 2004. Purchases of other premises and equipment totaling $.3 million consisted
of equipment and computer upgrades at the main facilities and various branch locations.
The purchases were offset by $.5 million in depreciation expense on existing premises and
equipment.

Nonperforming
Assets.   When a borrower fails to make a scheduled payment on a loan and does not cure
the delinquency within 15 days, Uniteds policy is to contact the borrower between
the 15th and 30th day of delinquency to establish a repayment schedule. If a loan is not
current, or a realistic repayment schedule is not being followed by the 90th day of
delinquency, United will generally proceed with legal action to foreclose the property
after the loan has become contractually delinquent 90 days. Loans contractually past due
90 days are classified as nonperforming. However, not all loans past due 90 days
automatically result in the non-accrual of interest income. If a 90 days past due loan has
adequate collateral, or is FHA insured or VA guaranteed, and management concludes that
loss of principal and interest would likely not be realized, then interest income will
continue to be accrued.

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

(Dollars in thousands)

|                         | December 31,
2003 | December 31,
2002 | December 31,
2001 | December 31,
2000 | December 31,
1999
|------------------------ | ----------------- | ----------------- | ----------------- | ----------------- | -----------------
|Principal Balances:      |                   |                   |                   |                   |                  
|Accruing loans past due  |                   |                  
|over 90 days             |                   |                   | $                 | 324               |                  
|Non-accrual loans        |                   |                   |                   | 498               |                  
|                         |                   |                   |                   |                   |                  
|Total                    |                   |                   | $                 | 822               |                  
|                         |                   |                   |                   |                   |                  
|Interest:                |                   |                  
|Due on non-accrual loans |                   |                   | $                 | 128               |                  
|Included in income       |                   |                   |                   | none              |                  

Heritage
Bank is required to review, classify and report to its Board of Directors its assets on a
regular basis and classify them as substandard (distinct possibility that some
loss will be sustained), doubtful (high likelihood of loss), or
loss (uncollectible). Adequate valuation allowances are required to be
established for assets classified as substandard or doubtful in accordance with GAAP. If
an asset is classified as a loss, the institution must either establish a specific
valuation allowance equal to the amount classified as loss or charge off such amount. At
December 31, 2003 and December 31, 2002, United had no reported doubtful assets and no
assets classified as loss. At December 31, 2003, 2002 and 2001, United had $.6 million,
$.6 million and $.4 million, respectively, of reported substandard assets. As a percent of
total assets, substandard assets were approximately .20%, .16% and .10% at December 31,
2003, 2002 and 2001, respectively.

Deposits
and Borrowings.   United experienced a net increase in deposits of $2.3 million or 1.0%
in 2003 as deposits grew to $227.5 million at Heritage Bank in 2003 from $225.2 million in
2002. The increase in deposits resulted from a combination of competitive rates on all
deposit offerings, and Heritage Banks commitment to community banking, both of which
have attracted depositors. Lower interest rates offered on deposits in 2002 in part
impacted the lower growth rate in deposits in 2003 compared to 2002.

FHLB
advances decreased $3.0 million in 2003 to $31.0 million from $34.0 million in 2002.
Heritage Bank was able to repay $38.0 million in FHLB advances in 2003 and received
proceeds of $35.0 million on new FHLB advances, for a net decrease of $3.0 million. At
December 31, 2003, the current established available FHLB advance

30

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credit line for Heritage Bank was
25% of its assets. The weighted average interest rate on FHLB advances was 4.05% and
4.66% at December 31, 2003 and 2002, respectively. Advances from the FHLB are secured by
pledges of FHLB stock and a blanket assignment of Heritage Banks unpledged,
qualifying mortgage loans, mortgage-backed securities and U.S. Government and federal
agency securities.

During
2003, Heritage Bank had a Cash Management Advance (CMA) credit facility with a maximum
allowable advance of $75.3 million, subject to available collateral limits. The CMA credit
facility expired February 27, 2004. During the year ended December 31, 2003, there were
advances and repayments made on the CMA credit facility and there was no outstanding
balance due as of December 31, 2003. The CMA credit facility is renewable upon request by
Heritage Bank.

United,
at the parent company level, had a line of credit of $1.0 million with a correspondent
bank at an interest rate of 1.75% over the federal funds rate, which totaled 2.69% and
3.06% at December 31, 2003 and 2002, respectively. This line is secured by Uniteds
Heritage Bank stock and expires October 30, 2004. Interest is payable quarterly. Principal
is payable at maturity. The principal balance outstanding at December 31, 2003 and 2002
was $0 and $.7 million, respectively.

Heritage
Bank had established a federal funds line with a correspondent bank at December 31, 2002.
The total line was $10.0 million with a daily interest rate equal to the federal funds
rate, which was 1.31% at December 31, 2002. Advances up to $5.0 million were unsecured,
and advances over $5.0 million were secured by investment securities. There were no
amounts outstanding at December 31, 2002. The line was not renewed by Heritage Bank in
2003.

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

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

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

31

---

The
following table shows the contractual maturities of Uniteds loans as of December 31,
2003. The amounts reflected in the following table give no effect to assumptions regarding
loan prepayments or payoffs. Loans with variable rates of interest are classified as due
when the loan principal balances are contractually due, not when the interest rate
reprices.

(Dollars in thousands)

|                              | December 31, 2003
|----------------------------- | -----------------
|
|Loans secured by real estate: |                  
|Adjustable rate (all          |                  
|property types)               |                  
|Loans:                        |                  
|1-4 family residential        |                  
|Multi-family and commercial   |                  
|Construction and undeveloped  |                  
|land                          |                  
|                              |                  
|Loans secured by real         |                  
|estate-fixed rate             |                  
|Commercial non-real           |                  
|estate(1)                     |                  
|Agricultural non-real estate  |                  
|Consumer(2)                   |                  
|                              |                  
|Gross loans                   |                  
|                              |                  

|                             | Net loans due after
December 31, 2004
|---------------------------- | -------------------------------------
|Fixed interest rates         |                                      
|Floating or adjustable rates |                                      
|or balloon payments          |                                      
|                             |                                      
|                             |                                      
|                             |                                      

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

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

32

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

(Dollars in thousands)

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

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

|                             | December 31, 2001
|---------------------------- | -----------------
|
|U.S. government and agencies |                  
|Mortgage-backed securities   |                  
|Municipal bonds              |                  
|Other                        |                  
|                             |                  
|Total securities             |                  
|                             |                  
|Weighted average yield       |                  

Stockholders
Equity.   Stockholders equity at December 31, 2003 was $32.4 million, or 10.63% of
total assets, an increase of $1.9 million from $30.5 million, or 8.06% of total assets, at
December 31, 2002. At December 31, 2003, book value was $13.29 per share. The increase in
stockholders equity is primarily due to net income of $4.7 million for 2003 and the
issuance of employee stock options and stock awards of $.1 million. These increases were
offset by the payment of $2.2 million in dividends on Uniteds common stock, treasury
stock purchases of $.2 million, and a decrease in unrealized gain on securities
available-for-sale of $.5 million.

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

33

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would decrease and the proceeds from
such prepayments generally would be invested in higher yielding loans or investment which
would have the effect of increasing interest income.

Uniteds
liquidity, represented by cash and cash equivalents, is a result of its operations,
investing and financing activities. There activities are summarized below for the years
ended December 31, 2003, 2002 and 2001.

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

The
primary investing activities of United are the origination of loans held for sale and the
purchase of investment and mortgage-backed securities. During the years ended December 31,
2003, 2002 and 2001, Uniteds loan originations totaled $312.0 million, $202.9
million and $172.2 million, respectively. Purchases of securities available-for-sale
totaled $30.2 million, $48.6 million and $31.8 million for the years ended December 31,
2003, 2002 and 2001, respectively. During 2003 a net $8.3 million of cash was realized
from the sale of Valley.

During
2003, 2002 and 2001, investing activities were funded primarily by principal repayments on
loans and securities available-for-sale, the maturity of securities available-for-sale,
and the sales of loans and securities available for sale totaling $39.4 million, $73.3
million, and $43.8 million, respectively.

The
major sources of cash flows from financing activities are deposits into savings accounts
and additional borrowings. The major uses of cash flows from financing activities are
withdrawals from savings accounts, payments on borrowings, purchases of common stock, and
payment of dividends to stockholders. For the years ended December 31, 2003, 2002, and
2001 the net increase (decrease) in cash flows from financing activities was $(8.6)
million, $(11.8) million and $18.1 million, respectively.

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

Liquidity
management of Heritage Bank is both a daily and long-term function of Uniteds
management strategy. Excess funds are generally invested in FHLB overnight funds. If
Heritage Bank should require funds beyond its ability to generate them internally,
additional sources of funds are available through the use of FHLB advances. At December
31, 2003 Heritage Bank had outstanding borrowings of $38.9 million which included $31.0
million of FHLB advances and $7.9 million of securities sold under agreements to
repurchase. (See Part IV, Item 15-Notes to Consolidated Financial Statements-Federal
Home Loan Bank Advances and Securities Sold Under Agreements to Repurchase). United
has issued and outstanding $3.0 million of Trust Preferred Securities. (See Part IV, Item
15-Notes to Consolidated Financial Statements-Trust Preferred Securities).

34

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

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

|                                                 | 2003 |  | 2002
|------------------------------------------------ | ---- |  | ----
|Unused lines of credit                           |      |  | $   
|Commitments outstanding- variable rate           |      |  |     
|Unfunded commitments under Bankcard arrangements |      |  |     
|Letters of credit                                |      |  |     

The
majority of Heritage Banks loans, commitments, and standby letters of credit have
been granted to customers in Heritage Banks market area, primarily central and
western Montana. Substantially all such customers are also depositors of Heritage Bank.
The concentrations of credit by type of loan are set forth above. The distribution of
commitments to extend credit approximates the distribution of loans outstanding.
Outstanding commitments and standby letters of credit were granted primarily to commercial
borrowers as of December 31, 2003 and 2002.

At
December 31, 2003, Heritage Bank had outstanding commitments to originate loans of $9.8
million, on 1-4 family mortgages at fixed interest rates. These loans are to be secured by
properties located in Heritage Banks primary market areas. Heritage Bank anticipates
that it will have sufficient funds available to meet current loan commitments.

Table
of Contractual Obligations.   The following table presents Uniteds contractual
obligations as of December 31, 2003.

|December 31, 2003         
|--------------------------
|
|                          
|FHLB advances             
|Securities sold under     
|agreements to repurchase  
|Operating leases          
|Purchase obligations      
|Trust preferred securities
|                          
|Total                     
|                          

Purchase
obligations relate to the contract for the construction of the new Heritage Bank branch
building in Billings, Montana. At December 31, 2003, the contract sum to date was $1.2
million, payments made total $.8 million, leaving a balance due on the contract of $.4
million. The other items included in the table are detailed in footnotes to the
consolidated financial statements. (See Part IV, Item 15- Notes to Consolidated
Financial Statements).

35

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ITEM 7A.     QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

The
ALCO Committee utilizes an institutional funds management service detailed simulation
model to quantify the estimated exposure of net interest income (NII) to
sustained interest rate changes. The model predicts the impact of changing interest rates
on the interest income received and interest expense paid on assets and liabilities. This
sensitivity analysis is compared to ALCO policy limits which specify a maximum tolerance
level for NII given a 100 basis point (bp) rise or decline in interest rates.

The
following summarizes the sensitivity analysis for Heritage Bank as of December 31, 2003,
the most recent information available. Management believes there has been no material
change in interest rate risk since December 31, 2003. For additional information, see
Managements Discussion and Analysis of Financial Condition and Results of Operations
included herein in Item 7.

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

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

Interest
Rate Sensitivity of the Economic Value of Equity.   Mismatches of interest rate
repricing between assets and liabilities create interest rate risk. Interest rate risk
affects the market value of equity, also called the economic value of equity
(EVE). Measurement of the EVE is an attempt to establish a methodology to
gauge the potential for the reduction of future earnings and stockholders equity
resulting from both lower net interest income (NII) and lower EVE caused by
changes in market interest rates. EVE is the difference between Uniteds depository
portfolio value and its loans receivable portfolio value. EVE thus provides a leading
indicator of future potential changes in both NII and stockholders equity.

36

---

Heritage
Bank has established maximum percentage changes for EVE at 1.5% of total assets, given an
100 basis point change in interest rates. EVE, as a percent to total assets, was as
follows:

# Heritage Bank

|Percent to Total Assets: | 
|------------------------ | 
|2003                     | 
|2002                     | 
|2001                     | 

Heritage
Bank periodically reviews and makes changes to established limits for EVE changes due to
mergers and other market factors. The EVE calculation contains a significant number of
assumptions, some of which are not always reliable. Management does not consider this to
be a significant departure from policy.

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. The EVE analysis does not reflect actions that Heritage Bank or
Valley Bank might take in responding to or anticipating changes in interest rates.

ITEM 8.     FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA

The
management of United has prepared and is responsible for the consolidated financial
statements of United. These statements have been prepared in accordance with accounting
principles generally accepted in the United States of America applied on a consistent
basis.

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

On
January 27, 2004, United, acting with authority from its Audit Committee, dismissed Moss
Adams LLP as Uniteds independent accountants, effective upon completion of the audit
for the year ended December 31, 2003, and engaged McGladrey & Pullen, LLP as its new
independent accountants.

Moss
Adams LLP reports on Uniteds financial statements as of and for the years ended
December 31, 2003 and December 31, 2002 contained no adverse opinion or disclaimer of
opinion, and were not qualified as to uncertainty, audit scope or accounting principles.

During
the years ended December 31, 2003 and December 31, 2002 and through January 27, 2004,
there have been no disagreements with Moss Adams LLP on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or procedure.
During the years ended December 31, 2003 and December 31, 2002 and through the date of
this Form 10-K, there have been no reportable events (as defined in Regulation S-K Item
304(a)(1)(v)).

On
January 27, 2004, United engaged the accounting firm of McGladrey & Pullen, LLP as its
new independent accountant for the year beginning January 1, 2004. McGladrey & Pullen,
LLP has accepted the appointment, subject to the results of its standard due diligence
procedures. During the years ended December 31, 2003 and December 31, 2002, and the
subsequent interim period through January 27, 2004, United did not consult with McGladrey
& Pullen, LLP regarding: (i) the application of accounting principles to a specified
transaction either completed or proposed; (ii) the type of audit opinion that might be
rendered on Uniteds financial statements; or (iii) any matter that was the subject
of a disagreement with Uniteds former accountant or a reportable event (as
contemplated by Item 304 of Regulation S-K).

37

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ITEM 9A.     CONTROLS AND PROCEDURES

Uniteds
Chief Executive Officer and Chief Financial Officer have concluded, based on their
evaluation as of the end of the period covered by this report, that Uniteds
disclosure controls and procedures are adequately designed to ensure that information
required to be disclosed by United in the reports it files or submits under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within
periods specified in applicable rules and forms. There were no changes made in
Uniteds internal controls or, to Uniteds knowledge, in other factors that has
materially affected, or is reasonably likely to materially affect, these controls during
Uniteds fourth fiscal quarter.

# 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 2004 Annual Meeting of Shareholders (the Proxy
Statement) is incorporated herein by reference. Information regarding executive
officers is set forth in Part I of this Report.

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

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

ITEM 11.     EXECUTIVE COMPENSATION

The
information set forth under the 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 Equity Compensation Plan Information,
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.

ITEM 14.     PRINCIPAL ACCOUNTANT FEES
AND SERVICES

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

38

---

# PART IV

ITEM 15.     EXHIBITS, FINANCIAL
STATEMENT SCHEDULES AND REPORTS ONFORM 8-K

(a) (1)   Financial Statements:

| | The
following consolidated financial statements of United Financial Corp. are included in Part II,
Item 8 of this Annual Report as follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                 | Pages in Annual Report
|------------------------------------------------------------------------------------------------ | ----------------------
|Independent Auditors Reports                                                                    |                       
|Consolidated Statements of Financial Condition                                                   |                       
|December 31, 2003 and 2002                                                                       |                       
|Consolidated Statements of Income  Years Ended                                                  |                       
|December 31, 2003, 2002, and 2001                                                                |                       
|Consolidated Statements of Changes in Stockholders Equity andComprehensive Income  Years Ended |                       
|December 31, 2003, 2002, and 2001                                                                |                       
|Consolidated Statements of Cash Flows  Years Ended                                              |                       
|December 31, 2003, 2002, and 2001                                                                |                       
|Notes to Consolidated Financial Statements                                                       |                       

(2)   Financial Statement Schedules:

| | Financial
statement schedules have been omitted because they are inapplicable or the required
information is shown in the Consolidated Financial Statements or Notes thereto.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(3)   Exhibits.

| | Exhibits
are listed in the Exhibit Index beginning on page 41 of this report.
| | -----------------------------------------------------------------------------

(b)  Reports on Form 8-K filed during
the quarter ended December 31, 2003.

| | On
October 30, 2003, we furnished our earnings release for the third quarter ended September
30, 2003, on Form 8-K, reporting under Items 7, 9 and 12.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------

(c)  See Item 15(a)(3) above.

(d)  See Item 15(a)(2) above.

39

---

# SIGNATURES

Pursuant to the requirements of
Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized:

|UNITED FINANCIAL CORP.                                                                                                                      | 
|------------------------------------------------------------------------------------------------------------------------------------------- | 
|By: /s/ Kurt R. Weise       Kurt R. Weise       Chairman and Chief Executive Officer       (Principal Executive Officer)       and Director | 
|Date: March 29, 2004                                                                                                                        | 

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

|By: /s/ Kurt R. Weise       Kurt R. Weise       Chairman and Chief Executive Officer       (Principal Executive Officer)       and Director | By: /s/ Paula J. Delaney       Paula J. Delaney       Chief Financial Officer       (Principal Financial and Accounting Officer)
|------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------
|Date: March 29, 2004                                                                                                                        | Date: March 29, 2004                                                                                                            
|By: /s/ Larry D. Albert       Larry D. Albert       Director                                                                                | By: /s/ Dr. J. William Bloemendaal       Dr. J. William Bloemendaal       Director                                              
|Date: March 29, 2004                                                                                                                        | Date: March 29, 2004                                                                                                            
|By: /s/ Kevin P. Clark       Kevin P. Clark       Director                                                                                  | By: /s/ Steve L. Feurt       Steve L. Feurt       Director                                                                      
|Date: March 29, 2004                                                                                                                        | Date: March 29, 2004                                                                                                            
|By: /s/ Jerome H. Hentges       Jerome H. Hentges       Director                                                                            | By: /s/ William L. Madison       William L. Madison       Director                                                              
|Date: March 29, 2004                                                                                                                        | Date: March 29, 2004                                                                                                            

40

---

# INDEX TO EXHIBITS

|Exhibit No. | Exhibit                                                                                                                                                                                                                                                                                                    
|----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1         | Articles of Incorporation of United Financial Corp., as amended (incorporated by referenceto Exhibit 3.1 of United's Annual Report on Form 10-K dated March 31, 1998).                                                                                                                                     
|3.2         | Bylaws of United Financial Corp., as amended (incorporated by reference to Exhibit 3.1 of United'sAnnual Report on Form 10-K dated March 31, 1998).                                                                                                                                                        
|10.1        | Promissory Note issued by United Financial Corp. to Wells Fargo Bank Minnesota National Association,dated November 16, 2001 (incorporated by reference to Exhibit 10.1 of United's Quarterly ReportForm 10-Q dated June 30, 2002).                                                                         
|10.2        | Second Amendment to Letter Agreement between Wells Fargo Bank Minnesota National Associationand United Financial Corp., dated November 16, 2001 (incorporated by reference to Exhibit 10.2 ofUnited's Quarterly Report on Form 10-Q dated June 30, 2002).                                                  
|10.3        | Service Agreement between United Financial Corp. and Central Financial Services, Inc., datedJanuary 1, 2002 (incorporated by reference to Exhibit 10.3 of United's Quarterly Report on Form10-Q dated June 30, 2002).                                                                                      
|10.4        | Service Agreement between Heritage Bank and Central Financial Services, Inc., dated January 1, 2002(incorporated by reference to Exhibit 10.4 of United's Quarterly Report on Form 10-Q dated June 2002).                                                                                                  
|10.5*       | Management Retention Supplemental Retirement Income Salary Continuation Plan between Kevin Clarkand Heritage Bank, revised January 10, 1996 (incorporated by reference to Exhibit 10.5 of UnitedQuarterly Report on Form 10-Q dated June 30, 2002).                                                        
|10.6*       | Heritage Bank Supplemental Retirement Agreement between Heritage Bank and Steve L. Feurt, datedOctober 25, 1999 (incorporated by reference to Exhibit 10.6 of United's Quarterly Report onForm 10-Q dated June 30, 2002).                                                                                  
|10.7        | Indenture between United Financial Corp. and The Bank of New York, as trustee, dated July 16, 2001(incorporated by reference to Exhibit 10.7 of United's Quarterly Report on Form 10-Q dated June 2002).                                                                                                   
|10.8        | Amended and Restated Declaration of Trust of United Financial - Montana Capital Trust I amongUnited Financial Corp. and the trustees, administrators and holders named therein, dated July 16 2001(incorporated by reference to Exhibit 10.8 of United's Quarterly Report on Form 10-Q datedJune 30, 2002).
|10.9        | Guarantee Agreement between United Financial Corp. and The Bank of New York, as trustee, dated July 16, 2001 (incorporated by reference to Exhibit 10.9 of United's Quarterly Report on Form 10-Q dated June 30, 2002).                                                                                    
|10.10       | United Financial Corp. 2000 Long-Term Incentive and Stock Option Plan (incorporated by reference toExhibit 10.10 of United's Quarterly Report on Form 10-Q dated June 30, 2002).                                                                                                                           
|10.11       | Letter Agreement between Wells Fargo Bank Minnesota National Association and United Financial Corp., dated November 17, 1999 (incorporated by reference to Exhibit 10.11 of United's Quarterly ReportForm 10-Q dated September 30, 2002).                                                                  
|10.12       | First Amendment to Letter Agreement between Wells Fargo Bank Minnesota National Association andUnited Financial Corp., dated September 29, 2000 (incorporated by reference to Exhibit 10.12 of United'sQuarterly Report on Form 10-Q dated September 30, 2002).                                            
|10.13       | Revolving Line of Credit Note between Wells Fargo Bank Minnesota National Association and UnitedFinancial Corp. dated October 30, 2002 (incorporated by reference to Exhibit 10.13 of United'sAnnual Report on Form 10-K dated March 28, 2003).                                                            
|10.14       | Credit Agreement between Wells Fargo Bank Minnesota National Association and United Financial Corp.dated October 30, 2002 (incorporated by reference to Exhibit 10.14 of United's Annual Report onForm 10-K dated March 28, 2003).                                                                         

41

---

|Exhibit No. | Exhibit                                                                                                                                                                                                                                   
|----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.15       | General Pledge Agreement between Wells Fargo Bank Minnesota National Association and UnitedFinancial Corp. dated October 30, 2002 (incorporated by reference to Exhibit 10.15 of United's Annual Reporton Form 10-K dated March 28, 2003).
|10.16       | Revolving Line of Credit Note between Wells Fargo Bank Minnesota National Association and UnitedFinancial Corp. dated October 21, 2003.                                                                                                   
|16.1        | Letter regarding change in certifying accountant received from Moss Adams LLP dated January 30, 2004(incorporated by reference to Exhibit 16 of United's Report on Form 8-K dated January 27, 2004).                                      
|21.1        | Subsidiaries List.                                                                                                                                                                                                                        
|23.1        | Consent of Moss Adams LLP.                                                                                                                                                                                                                
|31.1        | Certification of chief executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                       
|31.2        | Certification of chief financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                       
|32.1        | Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                   
|32.2        | Certification of Princiapl financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                   

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

42

---

INDEPENDENT AUDITOR'S REPORT

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

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

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

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

/s/ Moss Adams LLP

Spokane, Washington 
February 20, 2004

F-1

---

# UNITED FINANCIAL CORP.
AND SUBSIDIARIES

Consolidated Statements
of Financial Condition

|                                                    | December 31,
|--------------------------------------------------- | ------------
|Assets                                             
|Cash and cash equivalents                           |             
|Securities available-for-sale                       |             
|Restricted stock, at cost                           |             
|Loans held for sale                                 |             
|Loans receivable, net                               |             
|Accrued interest receivable                         |             
|Premises and equipment, net                         |             
|Real estate and other personal property owned       |             
|Income taxes receivable                             |             
|Deferred tax asset, net                             |             
|Goodwill, net of accumulated amortization           |             
|Other assets                                        |             
|Net assets from discontinued operations             |             
|                                                    |             
|                                                    |             
|                                                    |             
|Liabilities and Stockholders' Equity                |             
|Liabilities:                                        |             
|Non-interest bearing deposits                       |             
|Interest bearing deposits                           |             
|Federal Home Loan Bank advances                     |             
|Securities sold under agreements to repurchase      |             
|Line of credit                                      |             
|Advances from borrowers for taxes and insurance     |             
|Income taxes payable                                |             
|Accrued interest payable                            |             
|Trust preferred securities                          |             
|Accrued expenses and other liabilities              |             
|Net liabilities from discontinued operations        |             
|                                                    |             
|Total liabilities                                   |             
|                                                    |             
|Minority interest                                   |             
|                                                    |             
|Commitments and contingencies  (Notes 4, 16 and 24) |             
|Stockholders' equity:                               |             
|Preferred stock, no par value; authorized 2,000,000 |             
|shares; no shares issued and outstanding            |             
|Common stock, no par value; authorized 8,000,000    |             
|shares; 2,437,042 and 2,439,169  shares issued      |             
|at December 31, 2003 and 2002, respectively         |             
|Retained earnings, substantially restricted         |             
|Accumulated other comprehensive income,             |             
|net of taxes                                        |             
|                                                    |             
|Total stockholders' equity                          |             
|                                                    |             
|                                                    |             
|                                                    |             

See accompanying notes to
consolidated financial statements.

F-2

---

# UNITED FINANCIAL CORP.
AND SUBSIDIARIES

Consolidated Statements
of Income

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

See accompanying notes to
consolidated financial statements.

F-3

---

# UNITED FINANCIAL CORP.
AND SUBSIDIARIES

Consolidated Statements
of Stockholders' Equity and Comprehensive Income

Year ended December 31,
2003, 2002 and 2001

|                                    | Number of
shares | Common
stock | Retained
earnings | Accumulated
other
comprehensive
income (loss) | Total
stockholders'
equity
|----------------------------------- | ---------------- | ------------ | ----------------- | --------------------------------------------- | --------------------------
|Balance at December 31, 2000        |                  |              |                   | 2,665,145                                     |                           
|Comprehensive income:               |                  |             
|Net income                          |                  |              |                   |                                              |                           
|Decrease in net unrealized loss on  |                  |             
|securities available-for-sale,      |                  |             
|net of reclassification             |                  |             
|adjustment                          |                  |              |                   |                                              |                           
|                                    |                  |              |                   |                                               |                           
|Total comprehensive income          |                  |              |                   |                                              |                           
|                                    |                  |              |                   |                                               |                           
|Issuance of 396 shares; employee    |                  |             
|stock options                       |                  |              |                   | 396                                           |                           
|Dividends declared ($.63 per share) |                  |              |                   |                                              |                           
|Treasurey shares purchased at cost  |                  |             
|(226,710 shares)                    |                  |              |                   | (226,710                                      | )                         
|                                    |                  |              |                   |                                               |                           
|Balances as of December 31, 2001    |                  |              |                   | 2,438,831                                     |                           
|Comprehansive income:               |                  |             
|Net income                          |                  |              |                   |                                              |                           
|Increase in net unrealized gain on  |                  |             
|securities available-for-sale,      |                  |             
|net of reclassification adjustment  |                  |              |                   |                                              |                           
|                                    |                  |              |                   |                                               |                           
|Total comprehensive income          |                  |              |                   |                                              |                           
|                                    |                  |              |                   |                                               |                           
|Issuance of 338 shares; employee    |                  |             
|stock options                       |                  |              |                   | 338                                           |                           
|Dividends declared ($.67 per share) |                  |              |                   |                                              |                           
|10% stock dividend                  |                  |              |                   | 3,213,019                                     |                           
|                                    |                  |              |                   |                                               |                           
|Balances as of December 31, 2002    |                  |              |                   | 2,439,169                                     |                           
|Comprehensive income:               |                  |             
|Net income                          |                  |              |                   |                                              |                           
|Decrease in net unrealized gain     |                  |             
|on securities available-for-sale,   |                  |             
|net of reclassification             |                  |             
|adjustment                          |                  |              |                   |                                              |                           
|                                    |                  |              |                   |                                               |                           
|Total comprehensive income          |                  |              |                   |                                              |                           
|                                    |                  |              |                   |                                               |                           
|Issuance of 6,673 shares; employee  |                  |             
|stock options and stock awards      |                  |              |                   | 6,673                                         |                           
|Dividends declared ($.90 per share) |                  |              |                   |                                              |                           
|Treasury shares purchased at cost   |                  |             
|(8,800 shares)                      |                  |              |                   | (8,800                                        | )                         
|                                    |                  |              |                   |                                               |                           
|Balances at December 31, 2003       |                  |              |                   | 2,437,042                                     |                           
|                                    |                  |              |                   |                                               |                           

|                                                             | 2003 | 2002 | 2001
|------------------------------------------------------------ | ---- | ---- | ----
|Disclosure of reclassification amount:                       |      |      |     
|Unrealized holding gains (losses) arising during the period  |      |      | $   
|Tax  (expense) benefit                                       |      |      |     
|                                                             |      |      |     
|Net after tax                                                |      |      |     
|                                                             |      |      |     
|Realized gain from discontinued operations                   |      |      |     
|Tax expense from discontinued operations                     |      |      |     
|Less realized gain allocated to minority interest            |      |      |     
|                                                             |      |      |     
|                                                             |      |      |     
|Reclassification adjustment for gains included in net income |      |      |     
|Tax expense                                                  |      |      |     
|                                                             |      |      |     
|Net after tax                                                |      |      |     
|Portion of unrealized gain allocated to minority interest    |      |      |     
|                                                             |      |      |     
|Net change in unrealized gain (loss) on availiable-for-sale  |      |     
|securities                                                   |      |      | $   
|                                                             |      |      |     

See accompanying notes to
consolidated financial statements.

F-4

---

# UNITED FINANCIAL CORP.
AND SUBSIDIARIES

Consolidated Statements
of Cash Flows

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

See accompanying notes to
consolidated financial statements.

F-5

---

# UNITED FINANCIAL CORP.
AND SUBSIDIARIES

Consolidated
Statementsof Cash Flows

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

See accompanying notes to
consolidated financial statements.

F-6

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

(1)   Organization and Summary of
Significant Accounting Policies

|(a) |  | General
|--- |  | -------

| | The
accompanying consolidated financial statements include the accounts of United Financial
Corp. (United), a bank holding company headquartered in Great Falls, Montana and Uniteds
wholly-owned subsidiary, Heritage Bank. Uniteds wholly-owned subsidiary, United
Financial-Montana Capital Trust I, administers the $3.0 million of Capital Trust
Pass-Through Securities (See Note 12). Heritage Bank also holds a 14% ownership interest
in Bankers Resource Center, a computer data center, located in Helena, Montana. All
significant intercompany balances and transactions have been eliminated in consolidation.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Uniteds
banking business is conducted through its wholly-owned subsidiary, Heritage Bank. United,
through Heritage Bank, provides a full range of banking services to individual and
corporate customers in thirteen Montana communities. Heritage Bank is a state-chartered
commercial bank with locations in Billings, Bozeman, Chester, Fort Benton, Geraldine,
Glendive, Great Falls (three locations), Hamilton, Havre, Kalispell, Libby, Missoula and
Shelby, Montana. Heritage Bank is engaged in the community banking business of attracting
deposits from the general public through its branches and using those deposits, together
with other available funds, to originate commercial (including lease financing),
commercial real estate, residential, agricultural and consumer loans primarily in market
areas in Montana. Heritage Banks banking business is concentrated in the Great
Falls area. Based on total assets, 49% of Uniteds assets are located at Heritage
Banks Great Falls locations. Heritage Bank is subject to competition from other
financial service providers. United and Heritage Bank are also subject to the regulations
of certain government agencies and undergo periodic examinations by those regulatory
authorities.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | At
December 31, 2002 and 2001, United owned 65.32% of the outstanding stock of Valley
Bancorp, Inc. (Valley), the bank holding company for an Arizona state-chartered
commercial bank with locations in Phoenix and Scottsdale. United completed the sale of
Valley to Marquette Financial Companies (Marquette) in July 31, 2003 (See Note 26).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
December 2003, Heritage Bank incorporated a new wholly-owned subsidiary, Heritage
Northwest, Inc., which will operate a mortgage banking company in Bellingham, Washington.
An application has been filed with the State of Washington in January 2004 and operations
are scheduled to begin in the spring of 2004.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) |  | Basis
of Presentation
|--- |  | ---------------------

| | The
consolidated financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America. In preparing the
consolidated financial statements, management is required to make estimates and
assumptions that affect the reported
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-7

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

| | amounts of assets and liabilities as of the date of the statement of
     financial condition and income and expenses for the period. Actual results
     could differ significantly from those estimates.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Material
estimates that are particularly susceptible to significant change in the near-term relate
to the determination of the allowance for loan losses. Management believes the allowance
for loan losses is adequate, however, future additions to the allowance may be necessary
based on changes in factors affecting the borrowers ability to repay. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the allowance for loan losses. Such agencies may require United to
recognize 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, United considers all cash, daily
interest demand deposits, amounts due from banks and interest-bearing deposits with banks
with original maturities of three months or less to be cash equivalents.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) |  | Securities
Available-for-Sale
|--- |  | -----------------------------

| | Securities
available-for-sale include all investment and mortgage-backed securities that management
intends to use as part of its overall asset/liability management strategy and that may be
sold in response to changes in interest rates and resultant prepayment risk and other
related factors. Securities available-for-sale are carried at fair value and unrealized
gains and losses (net of related tax effects) are excluded from earnings and reported as
a separate component of stockholders equity.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

|(e) |  | Loans
Receivable and Loan Fees
|--- |  | ------------------------------

| | Loans
receivable are stated at unpaid principal balances, less unearned discounts and net of
deferred loan origination fees. Interest on loans is credited to income as earned.
Interest receivable is accrued only if deemed collectible. Discounts on purchased loans
are amortized into interest income using the level-yield method over the remaining period
to contractual maturity, adjusted for anticipated prepayments.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Loans
are placed on nonaccrual status when collection of principal or interest is considered
doubtful. Interest income previously accrued on these loans, but not yet received, is
reversed in the current period. Interest subsequently recovered is credited to income in
the period collected.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Material
loan origination fees and related direct origination costs are deferred and the net fee
or cost is recognized as interest income using the level-yield method over the
contractual life of the loans, adjusted for prepayments. Origination fees on loans sold
to the secondary market are recognized
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-8

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

| | when
the loan is sold.  Amortization of deferred loan  origination  fees and costs and the
accretion of unearned discounts are suspended during periods in which the related loan is
on nonaccrual status.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(f) |  | Allowance
for Loan Losses
|--- |  | -------------------------

| | The
allowance for loan losses is based on managements evaluation of the adequacy of the
allowance, including an assessment of Uniteds past loan loss experience, known and
inherent risks in the portfolio, adverse situations that may affect the borrowers
ability to repay, the estimated value 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 the loans principal
balance, or a portion thereof, is no longer collectable.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | United
also provides an allowance for losses on specific loans which are deemed to be impaired.
Groups of small balance homogeneous loans (generally consumer loans) are evaluated for
impairment collectively. A loan is considered impaired when, based upon current
information and events, it is probable that United will be unable to collect, on a timely
basis, all principal and interest according to the contractual terms of the loans
original agreement. When a specific loan is determined to be impaired, the allowance for
loan losses is increased through a charge to expense for the amount of the impairment.
The amount of the impairment is measured using cash flows discounted at the loans
effective interest rate, except when it is determined that the sole source of repayment
for the loan is the operation or liquidation of the underlying collateral. In such cases,
the current value of the collateral, reduced by anticipated selling costs, is used in
place of discounted cash flows. Generally, when a loan is deemed impaired, current period
interest previously accrued but not collected is reversed against current period interest
income. Income on such impaired loans is then recognized only to the extent that cash in
excess of any amounts charged off to the allowance for loan losses is received and where
the future collection of principal is probable. Interest accruals are resumed on such
loans only when they are brought fully current with respect to interest and principal and
when, in the judgment of management, the loans are estimated to be fully collectible as
to both principal and interest.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(g) |  | Loans
Held for Sale
|--- |  | -------------------

| | Mortgage
loans originated and intended for sale in the secondary market are carried at the lower
of cost or fair value. United expects the loans to be sold with no gain or loss, in the
short-term.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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 of acquisition. Identifiable intangibles are amortized to expense
using the straight-line method over 5 to 15 years. United recorded $95,449 of goodwill in
2001, related to the acquisition of Valley shares. No goodwill was recorded in 2003 and
2002. Goodwill decreased $2,007,265 in 2003 as a result of the Valley sale.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-9

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

| | Effective
January 1, 2002, United adopted Statement of Financial Accounting Standards (SFAS) No.
142, issued by the Financial Accounting Standards Board (FASB), which requires that
goodwill and intangible assets that have indefinite lives no longer be amortized but be
reviewed for impairment annually, or more frequently if certain indicators arise. Prior
to the adoption of SFAS No. 142, goodwill was being amortized using the straight-line
method over a period of 15 to 25 years. United did not incur any goodwill impairment in
2003 or 2002.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(i) |  | Restricted
Stock Investments
|--- |  | ----------------------------

| | Federal
Home Loan Bank (FHLB) stock is a required investment for institutions that are members of
the FHLB system. The required investment in the common stock is based on a predetermined
formula and is carried at cost on the statement of financial condition. The stock is
pledged as security for advances from the FHLB. During 2002, the FHLB revised its capital
structure from the issuance of one class of stock to two, B(1) and B(2) stock. B(1) stock
can be sold back to the FHLB at cost, but is restricted as to purchase, sale, and
redemption. Class B(2) is not a required investment for institutions and is not
restricted as to purchase and sale, but has the same redemption restrictions as class
B(1) stock. Included in restricted stock on the statement of financial condition,
Heritage Bank has $3,476,800 and $3,908,800 of class B(1) stock, respectively, at
December 31, 2003 and 2002. Heritage Bank held $632,100 and $0 of class B(2) stock,
respectively, at December 31, 2003 and 2002.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(j) |  | Premises
and Equipment
|--- |  | ----------------------

| | Premises
and equipment are stated at cost less accumulated depreciation. Depreciation is computed
by straight-line and accelerated methods over the estimated useful lives of 39 years for
buildings, 5 to 40 years for improvements, and 3 to 10 years for furniture, fixtures and
equipment.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(k) |  | Real
Estate and Other Personal Property Owned
|--- |  | ---------------------------------------------

| | Real
estate owned represents real estate assets acquired through foreclosure or deed in lieu
of foreclosure and is comprised of properties held for sale and held for investment.
Foreclosed assets held for sale are carried at the lower of fair value less estimated
costs to sell, or cost. Fair value is determined as the amount that could be reasonably
expected in a current sale (other than a forced or liquidation sale) between a willing
buyer and a willing seller.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(l) |  | Stock
Repurchased
|--- |  | -----------------

| | In
May 2000, Uniteds Board of Directors (the Board) approved a stock repurchase plan
for a period of one year, to buy back 165,000 shares of Uniteds common stock. Total
shares repurchased under this plan were 89,925 for $889,326, an average price of $9.89.
This stock repurchase program ended in May 2001.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
September 2002, a second stock repurchase plan was approved by the Board to repurchase up
to 121,950 shares or $1,707,300 of Uniteds common stock. No shares have been
repurchased under this plan. This stock repurchase program ended September 2003.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
October 2003, the current stock repurchase plan was approved by the Board to repurchase
up to 150,000 shares, or up to $3,900,000 of Uniteds common stock. Total shares
repurchased under this
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-10

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

| | plan
were 8,800 or $220,110, an average price of $25.01. At December 31, 2003, total shares
available under the plan were 141,200.
| | ----------------------------------------------------------------------------------------------------------------------------------

| | In
a privately negotiated transaction in May 2001, United repurchased 197,835 shares of its
common stock at $11.29 for a total of $2,233,737.
| | ---------------------------------------------------------------------------------------------------------------------------------------------

| | Total
shares repurchased under the three plans described above and the private transaction were
296,560 for a total of $3,343,173. United used existing funds, its line of credit, and
proceeds from the trust preferred issue (see Note 12) to finance the repurchases.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | At
December 31, 2003, United has a stock-based employee compensation plan, which is
described more fully in Note 19. United accounts for the plan under the recognition and
measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees,
and related Interpretations. No stock-based employee compensation cost is reflected in
net income, as all options granted under those plans had an exercise price equal to the
market value of the underlying common stock on the date of grant. The following table
illustrates the effect on net income and earnings per share if United had applied the
fair value recognition provisions of FASB Statement No. 123, Accounting forStock-Based
Compensation, to stock-based employee compensation.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(n) |  | Income
Taxes
|--- |  | ------------

| | Deferred
tax assets and liabilities are recognized for the estimated future consequences
attributable to differences between the financial statement carrying amounts of assets
and liabilities and their respective tax bases. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in tax expense in the period that
includes the enactment date.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(o) |  | Earnings
Per Share
|--- |  | ------------------

| | Basic
earnings per share (EPS) is calculated by dividing net income by the weighted average
number of common shares outstanding during the period. Diluted EPS is calculated by
dividing net income
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-11

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

| | by
the weighted average number of common shares used to compute basic EPS plus the
incremental amount of potential common stock determined by the treasury stock method.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

|(p) |  | Long-Lived
Assets
|--- |  | -----------------

| | Long-lived
assets are reviewed for impairment whenever events or circumstances indicate that the
carrying amount of the asset may not be recoverable. An impairment loss is recognized if
the sum of the expected future cash flows is less than the carrying amount of the asset.
The amount of the impairment loss, if any, is based on the assets fair value, which
may be estimated by discounting the expected future cash flows. At December 31, 2003 and
2002, there were no assets that were considered impaired. There were no impairment losses
recognized during 2003, 2002 or 2001.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(q) |  | Mortgage
Servicing Rights
|--- |  | -------------------------

| | United
recognizes as assets the rights to service mortgage loans for others, whether acquired or
internally originated. Servicing assets are initially recorded at fair value based on
comparable market quotes and are amortized in proportion to and over the period of
estimated net servicing income. Servicing assets are periodically evaluated for
impairment by stratifying the servicing assets based on predominant risk characteristics
of the underlying loans including loan type, note rate and loan term. Servicing assets
are included in other assets on the accompanying consolidated statements of financial
condition.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(r) |  | Comprehensive
Income
|--- |  | --------------------

| | United
is required to report its comprehensive income, which includes net income as well as
other changes in stockholders equity that result from transactions and economic
events other than those with stockholders, in a separate statement. Uniteds only
significant element of other comprehensive income is unrealized gains and losses on
securities available-for-sale, net of tax effects.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(s) |  | Reclassifications
|--- |  | -----------------

| | Certain
reclassifications have been made to the 2002 and 2001 amounts to conform to the 2003
presentation.
| | ----------------------------------------------------------------------------------------------------------

F-12

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

|(t) |  | New
Accounting Pronouncements
|--- |  | -----------------------------

| | In
January 2003, FASB issued Interpretation No. 46 (FIN 46), Consolidation of Variable
InterestEntities. This Interpretation clarifies the application of Accounting
Research Bulletin No. 51, Consolidated Financial Statements, and requires existing
unconsolidated variable interest entities to be consolidated by their primary
beneficiaries if the entities do not effectively disperse risks among parties involved.
This Interpretation applies immediately to variable interest entities created after
January 31, 2003, and to variable interest entities in which an enterprise obtains an
interest after that date. It applies in the first fiscal year or interim period beginning
after June 15, 2003, to variable interest entities in which an enterprise holds a
variable interest that is acquired before February 1, 2003. The Interpretation applies to
public enterprises as of the beginning of the applicable interim or annual period, and it
applies to nonpublic enterprises as of the end of the applicable annual period. Uniteds
subsidiary, United Financial-Montana Capital Trust I, which administers the $3.0 million
of Capital Trust Pass-Through Securities, is not a variable interest entity as defined
under FIN 46. Therefore, for periods ending after March 15, 2004, United will no longer
consolidate this wholly-owned subsidiary in its financial statements. Uniteds
management does not expect that the application of the provisions of this Interpretation
will have a material impact on Uniteds consolidated financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
November 2002, FASB issued Interpretation No. 45 (FIN 45), Guarantors Accounting
and DisclosureRequirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others. This Interpretation elaborates on the disclosures to be made
by a guarantor in its financial statements about its obligations under certain guarantees
that it has issued. It also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation undertaken in
issuing a guarantee. The disclosure requirements of FIN 45 are effective for financial
statements of interim or annual periods ending after December 31, 2002, and the initial
recognition and initial measurement provisions shall be applied on a prospective basis to
guarantees issued or modified after December 31, 2002. Uniteds management does not
expect that the application of the provisions of this Interpretation will have a material
impact on Uniteds consolidated financial statements.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
May 2003, FASB issued SFAS No. 150, Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity. The statement establishes
standards for classifying and measuring certain financial instruments with
characteristics of both liabilities and equity. This statement may have the effect of
causing certain financial instruments which were previously classified as equity to be
reclassified as liabilities. Uniteds management does not believe that any of Uniteds
financial instruments will need to be reclassified under this statement. SFAS No. 150 is
effective for financial instruments entered into or modified after May 31, 2003, and
otherwise shall be effective at the beginning of the first interim period beginning after
June 15, 2003, except for mandatorily redeemable financial instruments of a nonpublic
entity. For mandatorily redeemable financial instruments of a nonpublic entity, this
Statement shall be effective for existing or new contracts for fiscal periods beginning
after December 15, 2003.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
April 2003, FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative
Instruments andHedging Activities. SFAS 133 established accounting and
reporting standards for derivative instruments. SFAS 149 amends SFAS 133 for certain
implementation issues and clarifies the
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-13

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

| | definition
of a derivative. Uniteds current operations do not include derivative instruments
or hedging activities. This statement is generally effective for contracts entered into
or modified after June 30, 2003, and for hedging relationships designated after June 30,
2003.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
November 2003, the FASB ratified the Emerging Issues Task Force Issue (EITF) 03-01, The
Meaningof Other-Than-Temporary Impairment and Its Application to Certain
Investments. EITF 03-01 requires certain quantitative and qualitative disclosures for
securities accounted for under SFAS No. 115 Accounting for Certain Investments in Debt
and Equity Securities, that are impaired at the balance sheet date but for which an
other-than-temporary impairment has not been recognized. EITF 03-01 is effective for
fiscal years ending after December 15, 2003. United has included the required disclosures
in these financial statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Cash
on Hand and In Banks
|--- |  | -------------------------

| | Heritage
Bank is required to maintain an average reserve balance with the FRB, or maintain such
reserve in cash on hand. The amount of this required reserve balance at December 31, 2003
and 2002 was approximately $2,409,000 and $2,036,000, respectively. An additional $25,000
compensating balance is required to be maintained with the FRB for check clearing
services.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | United
places its cash with high credit quality institutions. The amount on deposit fluctuates,
and at times exceeds the insured limit by the Federal Deposit Insurance Corporation,
which potentially subjects United to credit risk.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Securities
Available-for-Sale
|--- |  | -----------------------------

| | The
amortized cost, unrealized gains and losses, and estimated fair values of investment and
mortgage-backed securities available-for-sale at December 31 are as follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

F-14

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

|                    | 2002
|------------------- | ----
|
|                    |     
|U.S. Government and |     
|federal agencies    |     
|Mortgage-backed     |     
|securities          |     
|Municipal bonds     |     
|Corporate bonds and |     
|equity securities   |     
|                    |     
|                    |     
|                    |     

| | The
investment securities shown below currently have fair values less than amortized cost and
therefore contain unrealized losses. United has evaluated these securities and has
determined that the decline in value is not related to any company or industry specific
event. There are approximately thirteen investment securities with unrealized losses.
United anticipates full recovery of amortized cost with respect to these securities at
maturity or sooner in the event of a more favorable market interest rate environment. The
length of time that individual securities have been in a continuous unrealized loss
position, aggregated by investment category at December 31, 2003 are as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                    | More than 12 Months | Less than 12 Months | Total
|------------------- | ------------------- | ------------------- | -----
|
|                    |                     |                     |      
|U.S. Government and |                     |                     |      
|federal agencies    |                     |                     | $    
|Mortgage-backed     |                     |                    
|securities          |                     |                     |      
|                    |                     |                     |      
|                    |                     |                     | $    
|                    |                     |                     |      

| | Maturities
of securities available-for-sale by contractual maturity at December 31, 2003 are shown
below. Maturities of securities do not reflect repricing opportunities present in many
adjustable rate securities. At December 31, 2003 and 2002, market values of variable rate
securities included in securities available-for-sale are $15,066,642 and $15,828,729,
respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-15

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

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

| | United
has not entered into any swaps, options, or futures contracts. Included in the municipal
bonds and U.S. Government and federal agencies security amounts are investments which
have call features. At December 31, 2003, United had securities callable within one year
with amortized cost and estimated fair value of $7,189,851 and $7,261,490, respectively.
The securities are primarily included in the due after ten years category in the table
above.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Gross
proceeds from sales of securities were $1,890,658, $18,625 and $4,628,172 for the years
ended December 31, 2003, 2002 and 2001, respectively, resulting in gross gains of
$17,587, $1,436 and $124,893 in 2003, 2002 and 2001, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | There
are no significant concentrations of investments at December 31, 2003 (greater than 10%
of stockholders equity) in any individual security issuer, except for U.S.
Government or agency-backed securities.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At December 31, 2003 and 2002, investment securities available-for-sale
     were pledged as follows:
| | -----------------------------------------------------------------------------------------------------

|                                       | 2003 | 2002
|-------------------------------------- | ---- | ----
|
|                                       |      |     
|Repurchase agreements                  |      |     
|FHLB advances                          |      |     
|Public and nonpublic deposits, federal |      |     
|funds purchased and other              |      |     
|                                       |      |     
|                                       |      |     
|Unpledged                              |      |     
|                                       |      |     
|                                       |      |     
|                                       |      |     

F-16

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

|(4) |  | Loans
Receivable, Net
|--- |  | ---------------------

| | Loans
receivable, net of unamortized net deferred loan fees, at December 31 are summarized as
follows:
| | ------------------------------------------------------------------------------------------------------

|                                                          | 2003 | 2002
|--------------------------------------------------------- | ---- | ----
|First mortgage loans and contracts secured by real estate |      |     
|Commercial real estate loans                              |      |     
|Commercial loans                                          |      |     
|Auto and other consumer loans                             |      |     
|Second mortgage consumer loans                            |      |     
|Agricultural loans                                        |      |     
|Tax exempt municipal loans                                |      |     
|Savings account and other loans                           |      |     
|                                                          |      |     
|                                                          |      |     
|Allowance for loan losses                                 |      |     
|                                                          |      |     
|                                                          |      |     
|                                                          |      |     

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

|                           | 2003 | 2002 | 2001
|-------------------------- | ---- | ---- | ----
|Balance, beginning of year |      |      | $   
|Provision for loan losses  |      |      |     
|Losses charged off         |      |      |     
|Recoveries                 |      |      |     
|                           |      |      |     
|Balance, end of year       |      |      | $   
|                           |      |      |     

| | Loans
receivable include approximately $86,456,391 and $72,886,223 in adjustable rate loans at
December 31, 2003 and 2002, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------

| | Nonaccrual loans amounted to approximately $498,000 and $86,000 at December
     31, 2003 and 2002, respectively. If interest on nonaccrual loans had been
     accrued, such income would have approximated $128,000, $67,000 and $83,000
     for the years ended December 31, 2003, 2002 and 2001, respectively. Loans
     contractually past due ninety days or more aggregating approximately
     $324,000 and $553,000 as of December 31, 2003 and 2002, respectively, were
     on accrual status. Such loans are deemed adequately secured and in the
     process of collection.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Impaired
loans at December 31, 2003 and 2002 were approximately $589,000 and $554,000,
respectively. The allowance associated with impaired loans included in the allowance for
loan losses at December 31, 2003 and 2002 were approximately $88,000 and $83,000,
respectively. The average recorded investment in impaired loans for the years ended
December 31, 2003 and 2002 was approximately $571,000 and $761,000, respectively.
Interest income recognized on impaired loans during 2003, 2002 and 2001 was approximately
$19,400, $46,500 and $13,000, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-17

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

| | At
December 31, 2003, United had no concentrations of loans which exceeded 10% of total
loans other than the categories disclosed above.
| | ----------------------------------------------------------------------------------------------------------------------------------------

| | At
December 31, 2003 and 2002 approximately $32,804,000 and $40,271,000, respectively, of
Uniteds loans receivable are obligations of customers located outside of Uniteds
market area.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

|                                                 | 2003 | 2002
|------------------------------------------------ | ---- | ----
|Unused lines of credit                           |      |     
|Commitments outstanding - variable rate          |      |     
|Unfunded commitments under Bankcard arrangements |      |     
|Letters of credit                                |      |     

| | The
majority of Heritage Banks loans, commitments, and standby letters of credit have
been granted to customers in Heritage Banks market area, primarily central and
western Montana. Substantially all such customers are also depositors of Heritage Bank.
The concentrations of credit by type of loan are set forth above. The distribution of
commitments to extend credit approximates the distribution of loans outstanding.
Outstanding commitments and standby letters of credit were granted primarily to
commercial borrowers as of December 31, 2003 and 2002.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Accrued
Interest Receivable
|--- |  | ---------------------------

| | Accrued
interest receivable at December 31 is summarized as follows:
| | --------------------------------------------------------------------

|                                                         | 2003 | 2002
|-------------------------------------------------------- | ---- | ----
|Loans receivable                                         |      |     
|Mortgage-backed securities                               |      |     
|Investment securities                                    |      |     
|Time deposits in banks and other interest-earning assets |      |     
|                                                         |      |     
|                                                         |      |     
|                                                         |      |     

F-18

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

|(6) |  | Premises
and Equipment
|--- |  | ----------------------

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

|                                  | 2003 | 2002
|--------------------------------- | ---- | ----
|Land                              |      |     
|Building and improvements         |      |     
|Furniture, fixtures and equipment |      |     
|Construction in progress          |      |     
|                                  |      |     
|                                  |      |     
|Accumulated depreciation          |      |     
|                                  |      |     
|                                  |      |     
|                                  |      |     

|(7) |  | Real
Estate and Other Personal Property Owned
|--- |  | ---------------------------------------------

| | During
2003, 2002 and 2001, United sold real estate and other personal property acquired through
foreclosure with an aggregate book value of $85,820 and $247,717 and $438,375,
respectively, and reported no gain or loss on the sales.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | United
transferred loans of $287,493, $275,849 and $474,466 to real estate and other personal
property owned during the years ended December 31, 2003, and 2002, and 2001 respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) |  | Goodwill
and Other Intangible Assets
|--- |  | ------------------------------------

| | Acquired
intangible assets are as follows at December 31
| | --------------------------------------------------------

|                                | 2003 and 2002
|------------------------------- | -------------
|
|Missoula Branch office purchase |              
|Hamilton Branch office purchase |              
|                                |              
|Total                           |              
|                                |              

| | Amortization expense for the years ended December 31, 2002 and 2001 was
     $45,599 and $39,085, respectively. No amortization expense was recorded for
     the year ended December 31, 2003.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-19

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

| | The
changes in the carrying amount of goodwill for the year ended December 31, 2003 are as
follows:
| | ---------------------------------------------------------------------------------------------------

|                                 | 
|-------------------------------- | 
|Balance as of December 31, 2002  | 
|Goodwill included in Valley sale | 
|Impairment losses                | 
|                                 | 
|Balance as of December 31, 2003  | 
|                                 | 

| | As
discussed in Note 1, United adopted Statement 142 effective January 1, 2002. The
following schedule presents reported net income for all periods presented exclusive of
amortization expense recognized in those periods related to goodwill and identifiable
intangibles. Beginning in January 2002, United is no longer required to expense its
amortization of goodwill. Certain identifiable intangible assets were amortized in 2002
as disclosed above.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                      | For the Year Ended December 31,
|----------------------------------------------------- | -------------------------------
|
|                                                      |                                
|Reported net income                                   |                                
|Add back:  Goodwill amortization (net of tax effects) |                                
|                                                      |                                
|Adjusted net income                                   |                                
|                                                      |                                
|Basic earnings per share:                             |                                
|Reported net income                                   |                                
|Goodwill amortization                                 |                                
|Adjusted net income                                   |                                
|Diluted earnings per share:                           |                                
|Reported net income                                   |                                
|Goodwill amortization                                 |                                
|Adjusted net income                                   |                                

F-20

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

|(9) |  | Deposits
|--- |  | --------

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

|                              | 2003 | 2002
|----------------------------- | ---- | ----
|
|Demand accounts               |      |     
|NOW and money market          |      |     
|accounts                      |      |     
|Savings accounts              |      |     
|Certificates of deposit:      |      |     
|                              |      |     
|                              |      |     
|                              |      |     
|                              |      |     
|                              |      |     
|                              |      |     
|                              |      |     
|                              |      |     
|Total certificates of deposit |      |     
|                              |      |     
|Total interest-bearing        |      |     
|deposits                      |      |     
|                              |      |     
|                              |      |     
|                              |      |     
|                              |      |     

| | Scheduled
maturities of certificates of deposit at December 31, 2003 are as follows:
| | ------------------------------------------------------------------------------------

|2004       |  |  | $ | 65,663,403  | 
|---------- |  |  | - | ----------- | 
|2005       |  |  |   | 21,109,867  | 
|2006       |  |  |   | 7,803,453   | 
|2007       |  |  |   | 2,758,313   | 
|2008       |  |  |   | 4,848,547   | 
|Thereafter |  |  |   | 582,712     | 
|           |  | 
|           |  |  | $ | 102,766,295 | 
|           |  | 

| | Certificates
of deposit of $100,000 or more are approximately $24,049,833 and $29,094,227 at December
31, 2003 and 2002, respectively. Amounts in excess of $100,000 are not insured by a
federal agency.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-21

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

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

|                              | 2003 | 2002 | 2001
|----------------------------- | ---- | ---- | ----
|NOW and money market accounts |      |      | $   
|Savings accounts              |      |      |     
|Certificates of deposit       |      |      |     
|                              |      |      |     
|                              |      |      | $   
|                              |      |      |     

|(10) |  | Federal
Home Loan Bank Advances
|---- |  | -------------------------------

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

|                                                                    | 2003 | 2002
|------------------------------------------------------------------- | ---- | ----
|1.41% to 5.65% fixed rate advances, interest payable monthly        |      |     
|5.52% to 6.12% putable advances, put options exercisable quarterly, |      |     
|interest payable monthly                                            |      |     
|                                                                    |      |     
|                                                                    |      |     
|                                                                    |      |     

| | The
weighted average interest rate on these advances was 4.05% and 4.66% at December 31, 2003
and 2002, respectively.
| | ---------------------------------------------------------------------------------------------------------------------

| | Contractual principal repayments on advances from the Federal Home Loan Bank subsequent to December
31, 2003 are as follows:
| | ----------------------------------------------------------------------------------------------------------------------------

|Years Ending December 31, | 
|------------------------- | 
|2004                      | 
|2005                      | 
|2006                      | 
|2007                      | 
|2008                      | 
|                          | 
|                          | 
|                          | 

| | Advances
from the FHLB are secured by pledges of FHLB stock and a blanket assignment of Heritage
Banks unpledged, qualifying mortgage loans, mortgage-backed securities and U.S.
Government and federal agency securities.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
2003, Heritage Bank had a Cash Management Advance (CMA) credit facility with a maximum
allowable advance of $75,282,250, subject to available collateral limits. The CMA credit
facility expired February 27, 2004. During the year ended December 31, 2003, there were
advances and repayments made
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-22

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

| | on
the CMA credit facility and there was no outstanding balance due as of December 31, 2003.
The CMA credit facility is renewable upon request by Heritage Bank.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
December 31, 2003, the current established available FHLB advance credit line for
Heritage Bank was 25% of its assets. In December 2002, Heritage Bank repaid $8,000,000 in
FHLB advances prior to their scheduled maturity dates. As a result, Heritage Bank
incurred prepayment penalties in the form of interest expense on the repayments of
$274,927. No such advance prepayments were made in 2003 or 2001. Interest expense on FHLB
advances consists of the following:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                           | Years Ending December 31,
|------------------------------------------ | -------------------------
|
|Interest expense on contractual maturities |                          
|Interest expense on prepayment of          |                          
|advances                                   |                          
|                                           |                          
|                                           |                          
|                                           |                          

|(11) |  | Securities
Sold Under Agreements to Repurchase
|---- |  | ----------------------------------------------

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

|                      | 2003
|--------------------- | ----
|
|                      |     
|To repurchase within: |     
|1-30 days             |     
|31-90 days            |     
|Greater than 90 days  |     
|                      |     
|                      |     
|                      |     
|                      |     

F-23

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

|                      | 2002
|--------------------- | ----
|
|                      |     
|To repurchase within: |     
|1 - 30 days           |     
|31 - 90 days          |     
|Greater than 90 days  |     
|                      |     
|                      |     
|                      |     
|                      |     

| | Securities
underlying the agreements to repurchase are for the same securities originally sold and
are held in a custodial account by a third party. For the year ended December 31, 2003
and 2002, securities sold under agreements to repurchase averaged approximately
$9,174,000 and $9,908,000, respectively, and the maximum outstanding at any month end
during the year was approximately $9,930,000 and $13,518,000, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(12) |  | Trust
Preferred Securities
|---- |  | --------------------------

| | In
July 2001, UFC issued junior subordinated debentures, aggregating $3,000,000 to United
Financial-Montana Capital Trust I (Trust). The Trust issued preferred securities, as part
of a pooled issue, with an aggregate liquidation amount of $3,000,000 ($1,000 per capital
security) to third-party investors. The junior subordinated debentures and cash are the
sole assets of the Trust. The preferred securities are includable as Tier I capital for
regulatory capital purposes. The offering price was $1,000 per capital security. The
junior subordinated debentures and the preferred securities pay interest and dividends,
respectively, on a semi-annual basis, which are included in interest expense. The
variable interest rate resets on January 30 and July 30 of each year, based upon six
month LIBOR plus 3.75%. The current interest rate reset on January 29, 2004 was 4.96%.
The Trust is a statutory business trust formed under the laws of the State of Delaware
and is wholly-owned by UFC. The junior subordinated debentures and preferred securities
will mature on July 25, 2031. The junior subordinated debentures and preferred securities
can be redeemed contemporaneously, in whole or in part, after five years at decreasing
premiums with the permission of the Board of Governors of the Federal Reserve System (the
Federal Reserve). UFC has provided a full and unconditional guarantee of the obligations
of the Trust in the event of the occurrence of an event of default, as defined. Debt
issuance costs totaling $118,812 were capitalized related to the debenture offering and
are being amortized over the 10-year non-premium callable life of the preferred
securities.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(13) |  | Lines
of Credit
|---- |  | ---------------

| | United
has a line of credit of $1,000,000 with Wells Fargo with an interest rate of 1.75% over
the Wells Fargo federal funds rate, which totaled 2.69% and 3.06% at December 31, 2003
and 2002, respectively. This line is secured by Uniteds Heritage Bank stock and
expires October 30, 2004. Interest is payable
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-24

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

| | quarterly. Principal is payable at maturity. The principal balance
     outstanding at December 31, 2003 and 2002 was $0 and $700,000,
     respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| | Heritage
Bank had established a federal funds line with Wells Fargo at December 31, 2002. The
total line was $10,000,000 with a daily interest rate equal to the Wells Fargo federal
funds rate, which was 1.31% at December 31, 2002. Advances up to $5,000,000 were
unsecured, and advances over $5,000,000 were secured by investment securities. There were
no amounts outstanding at December 31, 2002. Heritage Bank did not renew the line in
2003.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(14) |  | Income
Taxes
|---- |  | ------------

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

|                                  | Federal | State | Total
|--------------------------------- | ------- | ----- | -----
|2003:                             |         |       |      
|Current - continuing operations   |         |       | $    
|Deferred                          |         |       |      
|                                  |         |       |      
|                                  |         |       |      
|Current - discontinued operations |         |       |      
|                                  |         |       |      
|                                  |         |       | $    
|                                  |         |       |      
|2002:                             |         |      
|Current - continuing operations   |         |       | $    
|Deferred                          |         |       |      
|                                  |         |       |      
|                                  |         |       |      
|Current - discontinued operations |         |       |      
|                                  |         |       |      
|                                  |         |       | $    
|                                  |         |       |      
|2001:                             |         |      
|Current - continuing operations   |         |       | $    
|Deferred                          |         |       |      
|                                  |         |       |      
|                                  |         |       |      
|Current - discontinued operations |         |       |      
|                                  |         |       |      
|                                  |         |       | $    
|                                  |         |       |      

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

F-25

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

|                                       | 2003 | 2002 | 2001
|-------------------------------------- | ---- | ---- | ----
|Computed "expected" tax expense        |      |      | $   
|Increase (decrease) resulting from:    |      |     
|State taxes, net of Federal income tax |      |     
|effects                                |      |      |     
|Goodwill amortization                  |      |      |     
|Tax-exempt interest                    |      |      |     
|Other, net                             |      |      |     
|                                       |      |      |     
|                                       |      |      | $   
|                                       |      |      |     

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

|                                                       | 2003 | 2002
|------------------------------------------------------ | ---- | ----
|Deferred tax assets:                                   |      |     
|Loans, principally due to allowance for loan losses    |      |     
|Investments, due to difference in basis                |      |     
|Premises and equipment and real estate owned, due to   |      |     
|difference  in basis                                   |      |     
|Purchase accounting basis differences                  |      |     
|Other                                                  |      |     
|                                                       |      |     
|Total gross deferred tax assets                        |      |     
|                                                       |      |     
|Deferred tax liabilities:                              |      |     
|Loans, due to difference in basis                      |      |     
|Stock in FHLB, principally due to stock dividends      |      |     
|not recognized for tax purposes                        |      |     
|Premises and equipment, principally due to differences |      |     
|in depreciation                                        |      |     
|Prepaid SAIF assessment                                |      |     
|Unrealized gains on securities available-for-sale      |      |     
|Other                                                  |      |     
|                                                       |      |     
|Total gross deferred tax liabilities                   |      |     
|                                                       |      |     
|Net deferred tax asset                                 |      |     
|                                                       |      |     

| | In
assessing the realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the existence
of, or generation of, taxable income in the periods which those temporary differences are
deductible. Management considers the scheduled reversal of deferred tax liabilities,
taxes paid in carryback years, projected future taxable income, and tax planning
strategies in making this assessment. Based upon the level of historical taxable income
and estimates of
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-26

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

| | future
taxable income over the periods which the deferred tax assets are deductible, at December
31, 2003 and 2002 management believes it is more likely than not that United will realize
the benefits of these deductible differences.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Retained
earnings at December 31, 2003 includes approximately $3,477,000 for which no provision
for Federal income tax has been made. This amount represents the base year income tax bad
debt reserve. This amount is treated as a permanent difference and deferred taxes are not
recognized unless it appears this reserve will be reduced and thereby result in taxable
income in the foreseeable future. United is not currently contemplating any changes to
its business or operations which would result in a recapture of the base year bad debt
reserve into taxable income.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(15) |  | Mortgage
Servicing Rights
|---- |  | -------------------------

| | Total
mortgage servicing rights, net of accumulated amortization, were $340,596 and $223,867 at
December 31, 2003 and 2002, respectively. Servicing rights of $184,050, $110,000 and
$162,000 were capitalized in 2003, 2002 and 2001, respectively. Amortization expense of
$67,322, $44,173, and $12,183 was recognized in 2003, 2002 and 2001, respectively. There
were no impairment losses recognized in 2003, 2002, and 2001. At December 31, 2003, the
estimated fair value of Uniteds servicing assets approximates its carrying value.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Real
estate loans serviced for others, which are not included in the accompanying consolidated
financial statements, totaled approximately $49,901,000 and $30,965,000 at December 31,
2003 and 2002, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(16) |  | Leases
|---- |  | ------

| | United as Lessor:
| | -----------------

| | In
April 2000, Heritage Bank entered into a three year operating lease to rent a duplicate
facility which had been held for sale in 1999. The lease was extended for a period of two
years, terminating in April 2005 monthly rentals of $9,010. The lease includes a purchase
option for a price of $650,000, with 25% of all lease payments applied to reduce the
purchase price.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
December 31, 2003, the cost of the asset under lease was $567,374 and accumulated
depreciation was $76,947. The net carrying value of approximately $490,427 is included in
real estate and other personal property owned on the accompanying December 31, 2003
consolidated statement of financial condition.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Future
minimum rental income under this lease including the renewal option are as follows:
| | ------------------------------------------------------------------------------------------

|Year Ending December 31, | 
|------------------------ | 
|2004                     | 
|2005                     | 
|                         | 
|                         | 
|                         | 

F-27

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

| | For
the years ended December 31, 2003 and 2002, gross rental income included in the
accompanying consolidated statement of income before expenses was $106,590 and $102,000,
respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | United as Lessee:
| | -----------------

| | Heritage
Bank leases certain land and office space under noncancelable operating leases in its
Billings, Great Falls and Kalispell branches. The Billings lease is a 30 year ground
lease agreement for the new branch location. The lease required a deposit of $10,000 and
annual rentals of $70,000. The Great Falls and Kalispell leases are for office space and
range in length from 1.5 to 3 years. Total rental expense for the years ended December
31, 2003, 2002 and 2001 was $130,236, $75,389 and $51,680, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
total future minimum lease payments required under operating leases which have initial or
remaining noncancelable lease terms in excess of one year at December 31, 2003 are as
follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Year Ending December 31, | 
|------------------------ | 
|2004                     | 
|2005                     | 
|2006                     | 
|2007                     | 
|2008                     | 
|Thereafter               | 
|                         | 
|                         | 
|                         | 

|(17) |  | Related
Parties
|---- |  | ---------------

| | Central Financial Services (CFS) provides various management services for
     United, including accounting, tax and insurance advisory services, and
     investment, personnel and regulatory consulting. CFS is owned by United's
     former Chairman of the Board and its current largest shareholder. The
     charges for their services were $459,000, $465,908, and $378,828 for the
     years ended December 31, 2003, 2002, and 2001, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | United's current largest shareholder is a director on the Heritage Bank
     Board of Directors.
| | ------------------------------------------------------------------------------------------------

| | United acquires loan participations from a bank controlled by United's
     former Chairman of the Board and its current largest shareholder. At
     December 31, 2003 and 2002, the outstanding balances of loans
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-28

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

| | purchased from this bank were $6,448,349 and $5,474,732, respectively. The
     loans are under written by United under substantially the same terms and
     procedures as other loan participations acquired from third party banks.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Banker's Resource Center (BRC) provides data processing services for
     United. United has a 14% ownership interest in BRC, a computer data center.
     The charges for BRC's services were $708,518, $591,395 and $539,392 for the
     years ended December 31, 2003, 2002 and 2001, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As of December 31, 2003 and 2002, the Board of Directors and officers of
     United had approximately $1,116,536 and $583,618, respectively, on deposit
     with subsidiary banks.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At December 31, 2002 and 2001, the Board of Directors and executive
     officers of United (personally and through their respective businesses
     which bank with Heritage Bank) had $1,525,626 and $2,813,671, respectively,
     in outstanding loans with Heritage Bank. These loans were made on
     substantially the same terms, including interest rates and collateral, as
     those prevailing at the time for comparable loans with equivalent risk of
     collectibility.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | A summary of activity with respect to aggregate loans to directors and
     executive officers for the years ended December 31, 2003 and 2002 follows:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------

|                           | 2003 | 2002
|-------------------------- | ---- | ----
|Balance, beginning of year |      |     
|New loans                  |      |     
|Repayments                 |      |     
|                           |      |     
|Balance, end of year       |      |     
|                           |      |     

|(18) |  | Employee
Benefit Plans
|---- |  | ----------------------

| | Heritage
Bank has a savings plan under Section 401(k) of the Internal Revenue Code. Eligible
employees can contribute up to 20% of their monthly wages. Heritage Bank matches an
amount equal to 75% of the employees contribution, up to 4.5% of total wages.
Participants are at all times fully vested in their contributions and are immediately
vested in the employers contributions. Heritage Bank 401(k) contributions and
administrative costs were approximately $197,000, $157,000, and $128,000 during the years
ended December 31, 2003, 2002 and 2001, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Heritage
Bank 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 United by a third party, disability or early retirement, the predetermined
payments are based on years of service. Amounts expensed under this agreement were
approximately $8,500, $7,400 and $6,400, respectively, for the years ended December 31,
2003, 2002 and 2001. Heritage Bank 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 accompanying consolidated statements of financial condition, of
approximately $346,000 and $329,000 at December 31, 2003 and 2002, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
October 1999, Heritage Bank adopted a supplemental retirement agreement with an employee
that provides for salary continuation benefits upon retirement, disability or death. The
employee is vested in
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-29

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

| | the
plan 10% for every plan year of employment and 100% vested after 10 plan years. The
effective date for vesting was 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 for
the amount of Uniteds obligation. The amount expensed under this agreement was
approximately $7,400, $6,900 and $7,400, respectively, for the years ended December 31,
2003, 2002 and 2001.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(19) |  | Stock
Option Plans
|---- |  | ------------------

| | In 2000, the United Financial Corp. 2000 Long-Term Incentive and Stock
     Option Plan (the Plan) was adopted. Uniteds existing stock
     appreciation rights plan, pursuant to which no stock appreciation rights
     were granted, was rescinded by the Board upon approval of the Plan. The
     Plan provides for the grant of incentive stock options (ISOs) and
     non-qualified stock options to certain full and part-time employees of
     Heritage Bank and directors of United. The plan provides for award of
     options for a maximum of 198,000 shares of United common stock. Vesting for
     each award is at the discretion of the Board. The term of the options is 10
     years for ISOs and for non-qualified stock options. The option price for
     all ISOs granted under the Plan shall be determined by the Board, but shall
     not be less than 100% of the fair market value of the common stock at the
     date of grant of such option. The option price for all non-qualified
     options shall also be determined by the Board. A change in control, as
     defined in the Plan, will immediately vest all options upon completion of
     such a change in control.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At December 31, 2003, total shares available for option grants under the
     Plan were 8,042. Changes in options granted by United for the years ended
     December 31, 2003 and 2002, are summarized as follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                       | 2003 | 2002
|-------------------------------------- | ---- | ----
|
|                                       |      |     
|Outstanding options, beginning of year |      |     
|Granted                                |      |     
|Exercised                              |      |     
|Forfeited                              |      |     
|                                       |      |     
|Outstanding options, end of year       |      |     
|                                       |      |     
|Options exercisable at end of year     |      |     
|                                       |      |     
|Weighted-average fair value of options |      |     
|granted during year                    |      |     
|                                       |      |     

F-30

---

UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

| | The
stock options outstanding at December 31, 2003 consist of the following:
| | ----------------------------------------------------------------------------

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

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

|                        | 2003 | 2002 | 2001
|----------------------- | ---- | ---- | ----
|Risk-free interest rate |      |      |     
|Expected life           |      |      |     
|Expected volatility     |      |      |     
|Expected dividend yield |      |      |     

| | Based
on the intrinsic value method, no compensation cost has been recognized for any stock
option grants in the accompanying financial statements. Had United determined
compensation cost based on the estimated fair value at the grant date for its stock
options, Uniteds net income and net income per share would have been as shown in
Note 1.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-31

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UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

|(20) |  | Earnings
Per Share
|---- |  | ------------------

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

|                                              | 2003 | 2002 | 2001
|--------------------------------------------- | ---- | ---- | ----
|Weighted average shares outstanding during    |      |      |     
|the year on which basic earnings per          |      |     
|share is calculated                           |      |      |     
|Add: incremental shares under stock option    |      |     
|plans                                         |      |      |     
|                                              |      |      |     
|Average outstanding shares on which diluted   |      |     
|earnings per share is calculated              |      |      |     
|                                              |      |      |     
|Net income applicable to common stockholders, |      |     
|basic                                         |      |      | $   
|Less: reduction of proportionate share of     |      |     
|Valley net income assuming option             |      |     
|exercises                                     |      |      |     
|                                              |      |      |     
|Net income applicable to common stockholders, |      |     
|diluted                                       |      |      | $   
|                                              |      |      |     
|Basic earnings per share                      |      |     
|Continuing operations                         |      |      | $   
|Discontinuing operations                      |      |      |     
|                                              |      |      |     
|Net Income                                    |      |      | $   
|                                              |      |      |     
|Diluted earnings per share                    |      |     
|Continuing operations                         |      |      | $   
|Discontinuing operations                      |      |      |     
|                                              |      |      |     
|Net income                                    |      |      | $   
|                                              |      |      |     

| | United
had no common stock equivalent that would have been antidilutive for the year ended
December 31, 2003. All per share amounts have been restated to include the effect of the
3 for 2 stock split (effected in the form of a 50% stock dividend) in June 2003 and the
June 2002 10% stock dividend.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(21) |  | Condensed
Quarterly Results of Operations  Unaudited
|---- |  | -----------------------------------------------------

| | Uniteds
condensed quarterly income statements for the years ended December 31, 2003, 2002 and
2001 are summarized as follows:
| | ------------------------------------------------------------------------------------------------------------------------------

F-32

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UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

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

F-33

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UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

|                                    | Year Ended December 31, 2002
|----------------------------------- | ----------------------------
|
|                                    |                             
|Interest income                     |                             
|Interest expense                    |                             
|                                    |                             
|Net interest income                 |                             
|Provision for loan losses           |                             
|Non-interest income                 |                             
|Non-interest expense                |                             
|                                    |                             
|Income from continuing operations   |                             
|before income taxes                 |                             
|Income tax expense                  |                             
|                                    |                             
|Net income from continuing          |                             
|operations                          |                             
|Income from discontinued operations |                             
|                                    |                             
|Net income                          |                             
|                                    |                             
|Net income per share:               |                             
|Basic                               |                             
|Continuing operations               |                             
|Discontinued operations             |                             
|                                    |                             
|                                    |                             
|                                    |                             
|Diluted                             |                             
|Continuing operations               |                             
|Discontinued operations             |                             
|                                    |                             
|                                    |                             
|                                    |                             

F-34

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UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

|                                    | Year Ended December 31, 2001
|----------------------------------- | ----------------------------
|
|                                    |                             
|Interest income                     |                             
|Interest expense                    |                             
|                                    |                             
|Net interest income                 |                             
|Provision for loan losses           |                             
|Non-interest income                 |                             
|Non-interest expense                |                             
|                                    |                             
|Income from continuing operations   |                             
|before income taxes                 |                             
|Income tax expense                  |                             
|                                    |                             
|Net income from continuing          |                             
|operations                          |                             
|Income from discontinued operations |                             
|                                    |                             
|Net income                          |                             
|                                    |                             
|Net income per share:               |                             
|Basic                               |                             
|Continuing operations               |                             
|Discontinued operations             |                             
|                                    |                             
|                                    |                             
|                                    |                             
|Diluted                             |                             
|Continuing operations               |                             
|Discontinued operations             |                             
|                                    |                             
|                                    |                             
|                                    |                             

|(22) |  | Regulatory
Matters
|---- |  | ------------------

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

| | Quantitative
measures established by regulation to ensure capital adequacy require United to maintain
minimum amounts and ratios (set forth in the tables below). As of December 31, 2003,
United met all capital adequacy requirements to which it is subject.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-35

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UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

| | As
of December 31, 2003, the most recent notifications from the federal banking agencies
categorized Heritage Bank as well capitalized under the regulatory framework
for prompt corrective action (PCA). To be categorized as well capitalized the
banks must maintain minimum ratios as set forth in the following tables. There are no
conditions or events that management believes have changed the institutions PCA
category.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                              | Actual | Minimum for capitaladequacy purposes | Minimum to be "wellcapitalized" under PCAprovisions
|----------------------------- | ------ | ------------------------------------ | ---------------------------------------------------
|
|                              |        |                                      |                                                    
|December 31, 2003:            |        |                                      |                                                    
|Total capital                 |        |                                      | $                                                  
|Tier I capital                |        |                                      |                                                    
|Tier I leverage               |        |                                      |                                                    
|December 31, 2002:            |        |                                     
|Total capital                 |        |                                      |                                                    
|Tier I capital                |        |                                      |                                                    
|Tier I leverage               |        |                                      |                                                    
|Heritage Bank: (in thousands) |        |                                     
|December 31, 2003:            |        |                                     
|Total capital                 |        |                                      |                                                    
|Tier I capital                |        |                                      |                                                    
|Tier I leverage               |        |                                      |                                                    
|December 31, 2002:            |        |                                     
|Total capital                 |        |                                      |                                                    
|Tier I capital                |        |                                      |                                                    
|Tier I leverage               |        |                                      |                                                    

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

| | State
banks, such as Heritage Bank, may pay dividends up to the total of the prior two years
earnings without permission of State regulators.
| | ---------------------------------------------------------------------------------------------------------------------------------------------

|(23) |  | Fair
Value of Financial Instruments
|---- |  | -----------------------------------

| | United
is required to disclose the fair value for financial instruments, whether or not
recognized in the statements of financial condition. A financial instrument is defined as
cash, evidence of an ownership interest in an entity, or a contract that both imposes a
contractual obligation on one entity to deliver cash or another financial instrument to a
second entity.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following assumptions and methods were used by United in estimating the fair value of its
financial instruments:
| | --------------------------------------------------------------------------------------------------------------------

| | Financial
Assets. Due to the liquid nature of the instruments, the carrying value of cash and
cash equivalents and time deposits in banks approximates fair value. For all securities
available-for-sale, the fair value is based upon quoted market prices. The fair value of
loans receivable was estimated by
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-36

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UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

| | discounting future cash flow using current rates at which similar loans would be
made. The fair value of loans receivable for Heritage Bank for 2003 and 2002 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 uses assumptions about the size
and timing of expected cash flows and appropriate discount rates. The fair value
of loans held for sale approximates carrying fair, as the carrying value is the
lower of cost or fair value, and United expects the loans to be sold, with no
gain or loss, in the short-term. The fair value of restricted stock approximates
redemption value. The fair value of accrued interest receivable approximates
book value as United expects contractual receipt in the near-term.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Financial
Liabilities. The fair value of NOW, money market accounts, demand accounts
and non-term savings deposits approximates book values as rates are periodically
adjusted to market rates. The fair value of time deposits held by Heritage Bank
for 2003 and 2002 was obtained from an internally generated fair value model.
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
line of credit, fed funds line, and trust preferred securities approximates
Uniteds current long-term borrowing rate, the fair value of these
liabilities approximates the carrying value. The fair value of FHLB advances and
securities sold under agreements to repurchase was obtained from an internally
generated fair value model for 2003 and 2002. 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, fair value approximates the commitment amount.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Limitations. Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering for sale
at one time Uniteds entire holdings of a particular instrument. Because no market
exists for a significant portion of Uniteds financial instruments, fair value
estimates are based on judgments regarding comparable market interest rates, future
expected loss experience, current economic conditions, risk characteristics of various
financial instruments, and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and, therefore, cannot be
determined with precision. Changes in assumptions could significantly affect the
estimates.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

F-37

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UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

| | The
approximate book value and fair value of Uniteds financial instruments as of
December 31 are as follows:
| | -------------------------------------------------------------------------------------------------------------

|                                        | 2003 | 2002
|--------------------------------------- | ---- | ----
|
|                                        |      |     
|Financial assets:                       |      |     
|Cash and cash equivalents               |      |     
|Securities available-for-sale           |      |     
|Restricted stock                        |      |     
|Loans held for sale                     |      |     
|Loans receivable, net                   |      |     
|Accrued interest receivable             |      |     
|Financial liabilities:                  |      |     
|Deposits                                |      |     
|FHLB advances and securities sold under |      |     
|agreements to repurchase                |      |     
|Line of credit                          |      |     
|Accrued interest payable                |      |     
|Trust preferred securities              |      |     

|(24) |  | Commitments
and Contingencies
|---- |  | -----------------------------

| | Heritage
Bank has sold loans to various investors in the secondary market under sales agreements
which contain repurchase provisions. Under the repurchase provisions, Heritage Bank may
be required to repurchase a loan if a borrower fails to make three monthly payments
within 120 days after the sale of the loan. The balance of loans sold with repurchase
provisions remaining at December 31, 2003 is approximately $ 741,000. In 2002, Heritage
Bank was required to repurchase one such loan that had been sold in the amount of
approximately $62,000. The loan is currently in foreclosure. There were no loans
repurchased during 2003.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | United
is a defendant in legal proceedings arising in the normal course of business. In the
opinion of management, the disposition of pending litigation will not have a material
effect on Uniteds consolidated financial position, results of operations, or
liquidity.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
December 31, 2003, Heritage Bank had loan commitments outstanding on 1-4 family fixed
rate mortgages totaling approximately $9,759,000. These loans were approved prior to
December 31, 2003 to be closed and funded in 2004.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-38

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UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

| | In
January 2003, Heritage Bank entered into a contract for the construction of its new
branch bank building in Billings, Montana. At December 31, 2003, the contract sum to date
was approximately $1,187,000, payments made total approximately $821,000, leaving a
balance to finish of approximately $366,000.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(25) |  | Parent
Company Information (Condensed)
|---- |  | --------------------------------------

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

|December 31,                              
|------------------------------------------
|
|Cash and cash equivalents ($6,519,610 and 
|$303,890, respectively, deposited with    
|Heritage Bank)                            
|Securities available-for-sale             
|Investment in subsidiary banks            
|Investment in Valley Bancorp, Inc.        
|Accrued interest receivable               
|Goodwill, net                             
|Other assets                              
|                                          
|Total assets                              
|                                          
|Liabilities and Stockholders' Equity      
|Line of credit                            
|Other liabilities                         
|Trust preferred securities                
|                                          
|Total liabilities                         
|                                          
|Common stock                              
|Retained earnings                         
|Accumulated other comprehensive income    
|                                          
|Total stockholders' equity                
|                                          
|Total liabilities and stockholders' equity
|                                          

F-39

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UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

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

F-40

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UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

|Year Ended December 31,                       
|----------------------------------------------
|
|Cash flows from operating activities:         
|Net income from continuing operations         
|Adjustments to reconcile net income from      
|continuing operations to net cash from        
|operating activities:                         
|Gain on sale of securities                    
|available-for-sale                            
|Equity in undistributed earnings of           
|subsidiaries                                  
|Amortization of goodwill                      
|Increase (decrease) in other assets and       
|liabilities, net                              
|                                              
|Net cash from continuing                      
|operations                                    
|                                              
|Net cash from discontinued                    
|operations                                    
|                                              
|Net cash from operating                       
|activities                                    
|                                              
|Cash flows from investing activities:         
|Purchase of securities available-for sale     
|Proceeds from sales and maturities of         
|securities available-for-sale                 
|Purchase of Valley stock                      
|Acquisition of minority interest in Valley    
|Net decrease in loans receivable              
|                                              
|Net cash from investing activities            
|                                              
|Cash flows from financing activities:         
|Advances on line of credit                    
|Payments on line of credit                    
|Purchase of treasury stock                    
|Issuance of trust preferred securities        
|Proceeds from issuance of common stock        
|Dividends paid to stockholders                
|                                              
|Net cash from financing activities            
|                                              
|Net increase (decrease) in cash and cash      
|equivalents                                   
|Cash and cash equivalents at beginning of year
|                                              
|Cash and cash equivalents at end of year      
|                                              

F-41

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UNITED FINANCIAL CORP.
AND SUBSIDIARIESNotes to Consolidated Financial StatementDecember 31, 2003, 2002 and 2001

|(26) |  | Discontinued
Operations  Sale of Valley Bancorp, Inc.
|---- |  | ------------------------------------------------------

| | On
July 31, 2003, United completed the sale of its majority-owned subsidiary Valley, as a
result of which Valley became a wholly-owned subsidiary of Marquette. At the time of the
sale, and taking into account stock options which were exercised immediately prior to
closing, United owned approximately 62% of Valleys issued and outstanding capital
stock. The net purchase price paid by Marquette for all Valley capital stock outstanding
was approximately $14.6 million.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | For
accounting purposes, in our financial statements for 2002 as reported in our Annual
Report on Form 10-K for the year ended December 31, 2002, we have presented consolidated
financial statements with Valley as a majority-owned subsidiary. Likewise, consolidated
financial statements including Valley were presented in our Form 10-Q for the quarter
ended June 30, 2003.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
balance sheet as of December 31, 2003, as reported in this annual report does not include
any of the assets or liabilities of Valley, as the sale was completed on July 31, 2003.
The December 31, 2002 balance sheet, as reported herein has been restated to report the
previously consolidated assets and liabilities of Valley as net assets and net
liabilities from discontinued operations.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
current and prior year income statements as reported herein for three years ended
December 31, 2003, 2003 and 2001 report the results of operations of Valley in
discontinued operations. The income from discontinued operations presented also includes
the gain on the sale of Valley net of applicable income tax provisions.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | For
further information on this sale, see Uniteds Form 8-K dated August 15, 2003.
| | ----------------------------------------------------------------------------------

F-42

---