<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
AMENDMENT NO. 1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number
December 31, 1993 0-8709
U. S. TRUST CORPORATION
(Exact name of registrant as specified in its charter)
New York 13-2927955
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
114 West 47th Street, New York, New York 10036
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(212) 852-1000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, Par Value $1 Per Share
(Title of Class)
Rights to Purchase Series A Participating Cumulative Preferred Shares
(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 filing requirements for the past 90 days.
Yes X No
----- -----
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<PAGE>
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 registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]
State the aggregate market value of the voting stock held by non-
affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the stock was sold, or the
average bid and asked prices of such stock, as of a specified date
within 60 days prior to the date of filing. (See definition of
affiliate in Rule 405, 17 CFR 230.405.)
$473,420,000 as of February 28, 1994
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
9,374,647 Common Shares, Par Value $1 Per Share, as of February 28,
1994.
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<PAGES>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
Amendment to be signed on its behalf by the undersigned, thereunto duly
authorized.
U. S. TRUST CORPORATION
(Registrant)
By RICHARD E. BRINKMANN
------------------------------
(Signature)
Richard E. Brinkmann
Senior Vice President
and Comptroller
(Principal Accounting Officer)
Dated: August 19, 1994
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<PAGE>
Index of Exhibits
-----------------
Exhibit No. Item
- ----------- -----------------------------------------------------------
3.1 Certificate of Incorporation of the Corporation, as amended
through May 4, 1993, filed as Exhibit 3(i) to the
Corporation's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993. (A)
3.2 By-Laws of the Corporation, as amended through October 28,
1986, filed as Exhibit (3) to the Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31,
1987. (A)
4 Note: The exhibits filed herewith do not include the
instruments with respect to long-term debt of the
registrant and its subsidiaries, inasmuch as the total
amount of debt authorized under any such instrument does
not exceed 10% of the total assets of the registrant and
its subsidiaries on a consolidated basis. The registrant
agrees, pursuant to Item 601(b)(4)(iii) of Regulation S-K,
that it will furnish a copy of any such instrument to the
Securities and Exchange Commission upon request.
4.1 Specimen certificate representing the Corporation's Common
Shares, filed as Exhibit 6.3(a) to the Corporation's
Registration Statement on Form S-14 (Registration
No. 2-60433). (A)
4.2 Form of Rights Agreement, dated as of January 26, 1988,
between the Corporation and Morgan Shareholder Services
Trust Company, as Rights Agent, filed on January 28, 1988
as Exhibit 1 to the Corporation's Registration Statement on
Form 8-A registering Rights to Purchase the Corporation's
Series A Participating Cumulative Preferred Shares. (A)
4.3 Form of Amendment No. 1, dated as of December 12, 1989, to
the Rights Agreement, between the Corporation and First
Chicago Trust Company of New York (formerly Morgan
Shareholder Services Trust Company), as Rights Agent, filed
as Exhibit 4.4 to the Corporation's Current Report on Form
8-K dated December 12, 1989. (A)
- -----------------------------
A) Incorporated by reference.
B) Filed with original submission of Form 10-K.
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<PAGE>
Index of Exhibits
-----------------
(Continued)
Exhibit No. Item
- ----------- -----------------------------------------------------------
4.4 Specimen certificate representing Rights to Purchase the
Corporation's Series A Participating Cumulative Preferred
Shares, filed on January 28, 1988 as Exhibit B to Exhibit 1
to the Corporation's Registration Statement on Form 8-A
registering such Rights. (A)
10.1 Trust Company's Lease, dated June 20, 1980, with New York
Equities, Inc. covering space at 770 Broadway, New York,
New York (the "770 Lease"), filed as Exhibit (10)(b) to the
1990 10-K. (A)
10.2 Amendments to the 770 Lease between the Trust Company and
New York Equities, Inc. dated, respectively, as of April
20, 1981 and as of July 1, 1981; an amendment to the 770
Lease, between the Trust Company and Georgetown 770 Realty
Company, as successor to New York Equities, Inc., dated as
of May 31, 1984; and amendments to the 770 Lease between
the Trust Company and New York Equities Company, as
successor to New York Equities, Inc., dated, respectively,
as of May 15, 1986 and as of December 8, 1988, filed as
Exhibit (10)(c) to the Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1989 (the "1989
10-K"). (A)
10.3 Amendment to the 770 Lease between the Trust Company and
New York Equities Company dated as of June 1, 1990, filed
as Exhibit (10)(d) to the Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991 (the
"1991 10-K"). (A)
10.4 Lease, dated as of September 10, 1987, between 46-47
Associates, as Lessor, and the Trust Company, as Lessee,
covering space at 114 West 47th Street, New York, New York;
letters modifying the terms of such Lease dated,
respectively, September 10, 1987 and October 2, 1989;
Subordination Agreement dated as of September 10, 1987
between the Trust Company and 1133 Building Corp.
subordinating to such Lease a ground lease with respect to
- -----------------------------
A) Incorporated by reference.
B) Filed with original submission of Form 10-K.
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<PAGE>
Index of Exhibits
-----------------
(Continued)
Exhibit No. Item
- ----------- -----------------------------------------------------------
10.4 the property subject to such Lease; Right of First Refusal
(Cont'd.) dated as of September 10, 1987 between the Trust Company
and the Lessor respecting the construction of an annex (at
130 West 47th Street, New York, New York) adjacent to the
property subject to such Lease and which annex is to be
subject to such Lease; and Agreement dated as of September
10, 1987 among the Trust Company, the Lessor and 1155
Office Building Corp. under which the Trust Company and the
Lessor may exercise an option to purchase property (at 132
West 47th Street, New York, New York) contiguous to the
property subject to such Lease, filed as Exhibit (10)(k) to
the 1989 10-K. (A)
10.5 Lease modification agreement, dated December 7, 1987,
between 46-47 Associates, as Lessor, and the Trust Company,
as Lessee; Modification of Annex Agreement, dated December
7, 1987, between 46-47 Associates and the Trust Company;
Modification of Right of First Refusal Agreement, dated
December 7, 1987, between 1133 Building Corp. and the Trust
Company York, New York. (B)
10.6 Confirmation and Clarification Agreement, dated March 10,
1992, between 46-47 Associates, as Lessor, and the Trust
Company, as Lessee, amending the lease agreement dated
September 10, 1987. (B)
10.7 Clarification of Lease Modification Agreement, dated March
24, 1992, between 46-47 Associates, as Lessor, and the
Trust Company, as Lessee; Clarification of Right of First
Refusal Agreement, dated March 24, 1992, between 1133
Building Corp. and the Trust Company; Termination of Annex
Agreement, dated March 24, 1992, between 46-47 Associates
and the Trust Company; Agreement, dated March 24, 1992,
between 46-47 Associates and the Trust Company; Grant of
Easement and Zoning Lot and Development Agreement, dated
March 24, 1992, between 46-47 Associates and 1133 Building
Corp., and Indenture, dated March 24, 1992, between 46-47
Associates and David Puchall. (B)
- -----------------------------
A) Incorporated by reference.
B) Filed with original submission of Form 10-K.
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<PAGE>
Index of Exhibits
-----------------
(Continued)
Exhibit No. Item
- ----------- -----------------------------------------------------------
10.8 Second Lease Modification Agreement, dated May 10, 1993,
between 46-47 Associates, as Lessor, and the Trust Company,
as Lessee, amending the lease agreement dated September 10,
1987. (B)
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
---------------------------------------------
10.9 1981 Incentive Stock Option Plan of the Trust Company
and Affiliated Companies, as amended through January 1,
1983. (B)
10.10 Amendment dated July 27, 1987 to the 1981 Incentive Stock
Option Plan of the Trust Company and affiliated companies,
filed as Exhibit (10)(m) to the 1990 10-K. (A)
10.11 Amendment dated January 26, 1988 to the 1981 Incentive
Stock Option Plan of the Trust Company and affiliated
companies, filed as Exhibit (10)(n) to the 1990 10-K. (A)
10.12 1986 Stock Option Plan of the Trust Company and Affiliated
Companies, as amended through October 24, 1989, filed as
Exhibit (10)(s) to the 1989 10-K. (A)
10.13 Annual Incentive Plan of U.S. Trust Corporation, as
amended, restated and renamed effective as of January 1,
1994. (B)
10.14 1990 Annual Incentive Plan of the Trust Company and
Affiliated Companies, as amended and restated effective as
of January 1, 1994. (B)
10.15 Long-Term Performance Plan of U.S. Trust Corporation, as
amended, restated and renamed effective as of January 1,
1994. (B)
10.16 1988 Long-Term Performance Plan of U.S. Trust Corporation,
as amended, restated and renamed effective as of January 1,
1994. (B)
- -----------------------------
A) Incorporated by reference.
B) Filed with original submission of Form 10-K.
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<PAGE>
Index of Exhibits
-----------------
(Continued)
Exhibit No. Item
- ----------- -----------------------------------------------------------
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS (Cont'd.)
---------------------------------------------
10.17 1989 Stock Compensation Plan of U.S. Trust Corporation, as
amended, restated and renamed effective as of January 1,
1994, included in Exhibit 99 of this Form 10-K as
Appendix A. (B)
10.18 Benefit Equalization Plan of U.S. Trust Corporation, as
amended, restated and renamed effective as of January 1,
1994. (B)
10.19 1990 Change in Control and Severance Policy for Top Tier
Officers of the Trust Company and Affiliated Companies,
as amended and restated effective as of January 1, 1994. (B)
10.20 Agreements re supplemental retirement benefits for Messrs.
Schwarz, Maurer, Roberts, Taylor and Wonham, as amended
and restated as of January 25, 1994. (B)
10.21 Executive Deferred Compensation Plan of U.S. Trust
Corporation, as adopted effective as of January 1, 1994. (B)
10.22 The Corporation's Stock Option Plan for Non-Employee
Directors filed as Exhibit (10)(u) to the 1989 10-K. (A)
10.23 Board Members' Deferred Compensation Plan of U.S. Trust
Corporation, as amended, restated and renamed effective
as of January 1, 1994, included in Exhibit 99 of this
Form 10-K as Appendix B. (B)
10.24 Board Members' Retirement Plan of U.S. Trust Corporation,
as amended, restated and renamed effective as of January 1,
1994. (B)
10.25 Stock Plan for Non-Officer Directors of U.S. Trust
Corporation effective as of February 15, 1992, filed as
Exhibit A to Exhibit 28 to the 1991 10-K. (A)
11 Statement re Computation of Per Share Earnings. (B)
- -----------------------------
A) Incorporated by reference.
B) Filed with original submission of Form 10-K.
-8-
<PAGE>
Index of Exhibits
-----------------
(Continued)
Exhibit No. Item
- ----------- -----------------------------------------------------------
13 1993 Annual Report to Shareholders. (Filed with this
Amendment No. 1.)
22 List of Subsidiaries. (B)
23 Consent of Independent Accountants. (B)
99 Definitive Proxy Statement. (B)
- -----------------------------
A) Incorporated by reference.
B) Filed with original submission of Form 10-K.
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<PAGE>
EXHIBIT 13
U.S. TRUST CORPORATION
1993 ANNUAL REPORT TO SHAREHOLDERS
(Financial Section Only)
Page numbers in this Exhibit 13 do not correspond to the comparable pages
in the Corporation's Annual Report to Shareholders due to differences in
page layout. The following is a cross-reference listing of the pages in
this Exhibit 13 and the appropriate pages in the 1993 Annual Report to
Shareholders.
Annual Report Exhibit 13
Item Page Number Page Number
- ---- ------------- -----------
Selected Financial Data 25 2
Financial Review -
Overview 26 3
Highlights 26 3
Fees and Other Income 26 4
Net Interest Income (Taxable Equivalent
Basis) 28 7
Operating Expenses 29 9
Income Taxes 29 10
Asset Quality 30 10
Asset/Liability Management 31 13
Liquidity and Capital Resources 31 14
Acquisitions and Subsidiaries 32 16
Fair Value of Financial Instruments 33 17
Adoption of New Accounting Standards 34 18
Accounting Standards Not Yet Adopted 34 19
Consolidated Statement of Income 35 20
Consolidated Statement of Condition 36 21
Consolidated Statement of Changes in
Stockholders' Equity 37 22
Consolidated Statement of Cash Flows 38 23
Notes to the Consolidated Financial Statements -
1. Accounting Policies 39 24
2. Acquisitions 40 27
3. Cash and Due from Banks 40 27
4. Securities 41 27
5. Loans 43 30
6. Allowance for Credit Losses 44 32
7. Premises and Equipment 44 32
8. Federal Funds Purchased, Securities Sold
Under Agreements to Repurchase and
Other Borrowings 44 33
9. Income Taxes 45 33
10. Long Term Debt 47 36
11. Stockholders' Equity 47 37
12. Contingencies 47 38
13. Financial Instruments with Off-
Balance-Sheet Risk 48 38
14. Rental Commitments on Premises
and Equipment 49 40
15. Retirement Plan 50 41
16. Incentive Compensation Plans 51 43
17. Health Care and Life Insurance Benefits 52 44
18. Fair Value of Financial Instruments 53 46
19. Parent Company Only 55 49
20. Quarterly Consolidated Statement of
Income (Unaudited) 57 52
Report of Independent Accountants 58 53
Analysis of Change in Net Interest Income 59 54
Three-Year Net Interest Income and Average
Balances 60 55
Statistical Summary -
Securities (Carrying Amount at Year End) 62 58
Maturity Schedule of Securities 62 58
Maturity Schedule of Loans 62 58
Interest Sensitivity of Loans 62 58
Analysis of Average Daily Deposits 63 59
Maturity Distribution of Interest Bearing
Deposits in Amounts of $100,000 or more 63 59
Market Price of the Corporation's Common
Shares and Related Security Holder Matters 63 59
Summary of Credit Loss Experience 64 60
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
- ------------------------
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Years Ended December 31,
(Dollars in Millions, ------------------------------------------------------
Except Per Share Amounts)* 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fiduciary and Other Fees....................................... $264.1 $235.8 $204.9 $184.2 $177.8
Net Interest Income............................................ 116.2 108.9 96.1 89.4 83.3
Provision for Credit Losses.................................... (4.0) (6.0) (6.0) (8.4) (1.6)
Other Income................................................... 11.9 9.7 8.7 13.0 16.6
------ ------ ------ ------ ------
Total Operating Income Net of Interest Expense
and Provision for Credit Losses.............................. 388.2 348.4 303.7 278.2 276.1
Total Operating Expenses....................................... 315.5 289.5 254.9 259.7 232.9
------ ------ ------ ------ ------
Income From Operations Before Income Tax Expense
and Cumulative Effect of Accounting Changes.................. 72.7 58.9 48.8 18.5 43.2
Income Tax Expense............................................. 30.4 22.4 17.4 6.8 12.5
------ ------ ------ ------ ------
Income From Operations Before Cumulative Effect
of Accounting Changes........................................ 42.3 36.5 31.4 11.7 30.7
Cumulative Effect of Changes in Accounting for
Postretirement Benefits and Income Taxes..................... - (7.8) - - -
------ ------ ------ ------ ------
Net Income..................................................... $ 42.3 $ 28.8 $ 31.4 $ 11.7 $ 30.7
====== ====== ====== ====== ======
- -------------------------------------------------------------------------------------------------------------------------
Net Income Per Share:
Primary:
Income From Operations Before Cumulative Effect
of Accounting Changes.................................... $ 4.26 $ 3.76 $ 3.32 $ 1.24 $ 3.08
Cumulative Effect of Changes in Accounting for
Postretirement Benefits and Income Taxes................. - (0.80) - - -
------ ------ ------ ------ ------
Net Income................................................. $ 4.26 $ 2.96 $ 3.32 $ 1.24 $ 3.08
====== ====== ====== ====== ======
Fully Diluted:
Income From Operations Before Cumulative Effect
of Accounting Changes.................................... $ 4.25 $ 3.74 $ 3.27 $ 1.23 $ 3.07
Cumulative Effect of Changes in Accounting for
Postretirement Benefits and Income Taxes................. - (0.80) - - -
------ ------ ------ ------ ------
Net Income................................................. $ 4.25 $ 2.94 $ 3.27 $ 1.23 $ 3.07
====== ====== ====== ====== ======
Cash Dividends Declared Per Share.............................. $ 1.88 $ 1.72 $ 1.60 $ 1.60 $ 1.52
Dividends Per Share as a Percentage of:
Fully Diluted Income From Operations Before Cumulative
Effect of Accounting Changes Per Share..................... 44.24% 45.99% 48.93% 130.08% 49.51%
Fully Diluted Net Income Per Share........................... 44.24 58.50 48.93 130.08 49.51
- -------------------------------------------------------------------------------------------------------------------------
At December 31:
Total Assets................................................. $3,186 $2,951 $2,917 $2,778 $2,526
Total Deposits............................................... 2,487 2,355 2,108 2,040 1,987
Long Term Debt............................................... 65 65 69 71 75
Stockholders' Equity......................................... 229 197 182 166 177
- -------------------------------------------------------------------------------------------------------------------------
As a Percentage of Average Stockholders' Equity:
Income From Operations Before Cumulative Effect
of Accounting Changes...................................... 20.47% 18.64% 18.05% 6.75% 17.29%
Net Income................................................... 20.47 15.28 18.05 6.75 17.29
As a Percentage of Average Total Assets:
Income From Operations Before Cumulative Effect
of Accounting Changes...................................... 1.11 1.05 1.09 0.46 1.26
Net Income................................................... 1.11 0.83 1.09 0.46 1.26
As a Percentage of Risk-Adjusted Period End Total Assets:
Tier 1 Capital............................................... 14.08 13.71 10.81 9.90 9.99
Total Capital................................................ 15.47 15.16 12.03 11.22 11.26
As a Percentage of Risk-Adjusted Average Total Assets:
Tier 1 Capital............................................... 13.52 13.50 13.58 11.94 11.93
Total Capital................................................ 14.85 14.94 15.12 13.52 13.45
Leverage....................................................... 5.60 5.78 6.68 6.72 7.60
Average Stockholders' Equity as a Percentage of
Average Total Assets......................................... 5.43 5.43 6.04 6.77 7.27
- -------------------------------------------------------------------------------------------------------------------------
* Columns may not tally due to roundings.
</TABLE>
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<PAGE>
<PAGE>
U.S. TRUST CORPORATION
- ----------------
FINANCIAL REVIEW
- -------------------------------------------------------------------------
Overview
The Financial Review should be read in conjunction with the Consolidated
Financial Statements. The financial information presented in the
Financial Review has been prepared on a basis consistent with the
policies set forth in the Consolidated Financial Statements. U.S. Trust
Corporation ("the Corporation or Parent") is a financial services company
concentrating on fee-based businesses that provide asset management,
private banking, fiduciary and securities services to affluent
individuals and institutions.
The Corporation has adopted, as of December 31, 1993, Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," ("FAS 115") resulting in
stockholders' equity being increased by $8.7 million. For further
discussion of FAS 115, see the "Adoption of New Accounting Standards"
section of the Financial Review and "Notes to the Consolidated Financial
Statements No. 4." The Corporation also adopted, as of December 31,
1993, Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits," ("FAS 112") which did not have a
significant impact on the results of operations or financial condition of
the Corporation. For further discussion of FAS 112, see the "Adoption of
New Accounting Standards" section of the Financial Review.
In 1992, the Corporation adopted, retroactive to January 1, 1992,
Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," ("FAS 106")
and Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," ("FAS 109"). As a result of adopting these two accounting
standards, a one-time, non-cash net after tax charge of $7.8 million was
incurred. The following discussion of the Corporation's earnings
excludes the impact of this one-time net charge. For further discussion
of FAS 106 and FAS 109, see "Notes to the Consolidated Financial
Statements Nos. 9 and 17."
- -------------------------------------------------------------------------
Highlights
o The Corporation earned a record $42.3 million from operations in
1993, an increase of 15.7% over 1992's results. Fully diluted
income per share from operations was a record $4.25 compared to
$3.74 in 1992.
o The return on average stockholders' equity was 20.47% compared to
18.64% for 1992.
o Assets under management increased 21.8% to $32.2 billion. Total
assets under administration, including assets under management,
increased 11.8% to $393.2 billion.
o The Corporation's Tier 1 Capital ratio, based on period end risk-
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<PAGE>
<PAGE>
U.S. TRUST CORPORATION
adjusted assets was 14.08% at December 31, 1993, compared to 13.71%
at December 31, 1992.
o The Corporation repurchased 157,500 shares of common stock during
1993, making a total of 2,941,787 shares of common stock that have
been repurchased under its 3.7 million common stock repurchase
program, and acquired a trust and investment management firm through
the issuance of 75,831 shares of common stock.
- -------------------------------------------------------------------------
Fees and Other Income
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------
% Change
--------------------
(In Thousands) 1993 1992 1991 93-92 92-91
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Asset Management $152,362 $131,188 $113,031 16.1% 16.1 %
Services to Institutions and Funds:
Funds Services 71,472 66,195 55,936 8.0 18.3
Institutional Services 40,241 38,441 35,981 4.7 6.8
-------- -------- --------
Total Fiduciary Fees 264,075 235,824 204,948 12.0 15.1
Securities Gains, Net 3,025 2,801 1,558 8.0 79.8
Other 8,863 6,939 7,165 27.7 (3.2)
-------- -------- --------
Total Fees and Other Income $275,963 $245,564 $213,671 12.4 14.9
======== ======== ======== ==== ====
Total Fees and Other Income as a Percent of
Taxable Equivalent Operating Income, Net of
Interest Expense and Provision for Credit Losses 70.0% 68.8% 68.1%
======== ======== ========
</TABLE>
Fiduciary Fees are the largest component of revenue and are derived from
the Corporation's two areas of business. The Corporation's reliance on
fee-based services reflects its strategy to be positioned as a financial
services company specializing in asset management, private banking,
fiduciary and securities services. Fee-based services provide a
relatively stable core source of revenues that are less subject to change
in periods of interest rate volatility as compared to net interest
income. The credit loss experience from fee-based activities has been
and continues to be negligible.
Fiduciary Fees are based typically on the market value or par value
-4-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
of assets under management and administration, the volume of securities
transactions, income collection transactions and other services rendered.
Most Asset Management fees are determined on an incremental scale so that
as the value of a client's portfolio grows in size, the Corporation
receives a smaller percentage of the increasing value as fee income.
Therefore, market value or other incremental changes in a portfolio's
size do not necessarily have a proportionate impact on the level of
Fiduciary Fees.
In addition to Fiduciary Fees, certain of the Corporation's
fiduciary businesses provide a substantial and relatively stable source
of predominantly non-interest bearing deposits that are available for
investment. The revenue derived from investing these deposits is
reported as interest income.
The following table provides details of assets under management and
administration for the last six years. Unless otherwise noted, asset
values are measured at their estimated fair value.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------
Compound
Growth
Rate
(In Billions) 1993 1992 1991 1990 1989 1988 88-93
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets Under Management $ 32.2 $ 26.5 $ 21.9 $ 18.1 $ 18.0 $ 15.3 16.01%
Custody and Other Non-Managed Assets:
Personal 7.0 5.8 5.6 4.5 4.5 4.0 11.94
Institutional Services 98.5 93.1 83.0 83.2 68.2 58.1 11.12
Funds Services* 128.5 114.4 103.8 78.0 66.6 60.0 16.46
Corporate and Municipal Trusteeships
and Agency Relationships (Par Value) 127.0 112.0 102.0 94.0 90.0 81.0 9.42
------ ------ ------ ------ ------ ------
Total Assets Under Management and
Administration $393.2 $351.8 $316.3 $277.8 $247.3 $218.4 12.48
====== ====== ====== ====== ====== ====== =====
* Includes UIT and Bond Immobilization assets measured at their par value which is the basis upon which fees
are determined.
</TABLE>
Asset Management Fiduciary Fees are derived mainly from investment
management and related services to individuals and institutions. These
services include investment portfolio management, estate and tax planning
-5-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
and personal custody. Asset Management Fiduciary Fees are based
primarily on the market value of its accounts. The increase in Asset
Management Fiduciary Fees are related to higher market values, new
business and acquisitions. Assets under management as of December 31,
1993 increased by 21.8% from the December 31, 1992 level.
Asset Management Fiduciary Fees in 1993 include revenues from
Capital Trust Company ("Capital Trust"), a trust and investment
management firm acquired in July 1993, and a full year of revenues from
Campbell, Cowperthwait & Co., Inc. ("Campbell"), an investment advisory
company acquired in December 1992. Asset Management Fiduciary Fees in
1992 include revenues from Delafield, Harvey, Tabell ("Delafield"), an
investment advisory company acquired in April 1992. Fiduciary fees from
these acquisitions amounted to less than 5% and 3% of Total Asset
Management Fiduciary Fees in 1993 and 1992, respectively. These
acquisitions accounted for 5.6% and 4.0% of assets under management as of
December 31, 1993 and 1992, respectively. See the "Acquisitions and
Subsidiaries" section of the Financial Review and "Notes to the
Consolidated Financial Statements No. 2" for additional discussion.
Funds Services provides custody administration, fund accounting and
administration and transfer agent activities for open and closed-end
mutual funds and custodian, recordkeeping, income collection and
disbursement, and transfer agent services for taxable and tax-exempt unit
investment trusts.
Funds Services assets under administration increased by 12.3% in
1993 and 10.2% in 1992. This increase in assets is primarily
attributable to expanded business with mutual funds, both open and
closed-end. The par value of bonds held in custody for unit investment
trusts has declined over the past few years since many municipalities
have taken advantage of the prevailing low interest rate environment and
redeemed their higher yielding bonds that were held in various unit
investment trusts. While these redemptions have resulted in a reduction
in fee income earned from unit investment trusts, the redemption activity
has also temporarily increased the volume of non-interest bearing
deposits derived from these accounts that was available for investment.
Institutional Services is comprised of Corporate Trust and Agency
("Corporate Trust") and Institutional Asset Services ("IAS") activities.
Corporate Trust activities include the indenture trustee business for
corporate and municipal debt issues, as well as the non-traditional
processing business. Corporate Trust Fiduciary Fees are affected by the
volume of new debt issuances and redemptions at, or in advance of,
maturity of existing issues. The volume of corporate and municipal
trusteeships and agency relationships (measured by the par value of the
outstanding debt) increased 13.4% in 1993 and 9.8% in 1992.
IAS includes master trust and custody services, securities lending
and global custody services to corporate employee benefit funds, public
funds, financial institutions and endowments and foundations. IAS
Fiduciary Fees are influenced by the market value of its accounts and
transactional activity. IAS assets administered in custody accounts
-6-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
increased 5.8% in 1993 and 12.2% in 1992.
- -------------------------------------------------------------------------
Net Interest Income (Taxable Equivalent Basis)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------
(In Thousands) 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income $169,600 $173,211 $191,354
Taxable Equivalent Adjustment 5,810 8,237 10,228
-------- -------- --------
Total Interest Income 175,410 181,448 201,582
Interest Expense 53,358 64,323 95,256
-------- -------- --------
Net Interest Income $122,052 $117,125 $106,326
======== ======== ========
Percentage Increase From Prior Period 4.2% 10.2% 4.8%
======== ======== ========
</TABLE>
The Corporation's net interest income is a function of the income earned
on interest earning assets, less the cost of interest bearing
liabilities, adjusted to a taxable equivalent basis. The Corporation's
net interest income is impacted by the amount of non-interest bearing and
interest bearing liabilities derived from its fiduciary activities.
These activities provide in excess of 62% of the Corporation's average
total deposits in 1993, representing 80.8% of its non-interest bearing
deposits and 36.8% of its interest bearing deposits. The funds derived
from the fiduciary activities and from other funding sources are invested
in interest earning assets. Such assets principally consist of loans to
private banking customers, securities and short-term interest earning
financial instruments. The components that comprise net interest income
are shown on page 60, "Three-Year Net Interest Income and Average
Balances."
The major influences on the Corporation's net interest income over
the past three years are:
o An increase in the average volume of net non-interest bearing funds
primarily attributable to the Funds Services business.
o A $939 million increase in the average volume of interest earning
assets from 1990 to 1993.
o A widening of the interest rate spread between the average rate
earned on interest earning assets and the average rate paid on
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<PAGE>
U.S. TRUST CORPORATION
interest bearing sources of funds to 254 basis points in 1993 from
231 basis points in 1991.
o A reduction in the average yield on short-term and variable rate
investments and loans.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
Average Volumes (In Millions) 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Earning Assets $3,086 $2,834 $2,447
Interest Bearing Liabilities 1,699 1,674 1,606
------ ------ ------
Net Interest Earning Assets $1,387 $1,160 $ 841
====== ====== ======
Percentage Increase from Prior Period 19.6% 38.0% 12.5%
Non-Interest Bearing Deposits $1,761 $1,508 $1,021
====== ====== ======
Percentage Increase from Prior Period 16.8% 47.7% 11.2%
====== ====== ======
Average Rates (Taxable Equivalent Basis)
- ----------------------------------------
Interest Earning Assets 5.68% 6.40% 8.24%
Cost of Funding Interest Earning Assets 1.73 2.27 3.89
---- ---- ----
Net Yield on Interest Earning Assets 3.95% 4.13% 4.35%
==== ==== ====
</TABLE>
The net yield on interest earning assets is dependent upon the
Corporation's volume of average net non-interest bearing funds ("Free
Funds"), the maturity structure of its interest earning assets and
interest bearing liabilities and the general interest rate environment.
If the average volume of Free Funds is stable, the net yield will
generally be higher in a rising interest rate environment. Conversely,
in a declining interest rate environment, the net yield will be lower.
The Corporation's business philosophy is to enter into private
banking lending relationships with high income professionals and other
affluent individuals and families who either already have other business
relationships with the Corporation, or who might ultimately develop other
relationships. In addition, the Corporation acquires high quality U.S.
Government and Federal Agency securities or mortgage-backed obligations
that are collateralized by Federal Agency securities. These securities
-8-
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<PAGE>
U.S. TRUST CORPORATION
produce an acceptable return without subjecting the Corporation to credit
risk exposure. As of December 31, 1993, all of the Corporation's
securities were investment grade or better, with more than 90% rated AAA.
Temporary inflows of deposits, mainly related to the Funds and
Institutional Services activities, are invested in high quality liquid
short-term financial instruments that ensure the Corporation an adequate
rate of return, while maintaining liquidity and credit quality to satisfy
the eventual outflow of the deposits.
During 1993, average interest earning assets increased mainly by
$148 million of private banking loans and $160 million of short-term
financial instruments. The higher volume of average interest earning
assets was funded primarily by increases in average net non-interest
bearing funds, derived principally from the Funds Services business.
The increase in average interest earning assets in 1992 was
primarily in private banking loans ($168 million) and high quality
securities ($365 million). The volume of average short-term financial
instruments was reduced during this period ($178 million) and replaced by
U.S. Government obligations having an average maturity of less than one
year. The higher volume of average interest earning assets was funded
mainly by increases in average net non-interest bearing funds,
principally related to the Funds Services business.
- -------------------------------------------------------------------------
Operating Expenses
The following table provides details of operating expenses other than
interest expense and provision for credit losses for the last three
years.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
(In Thousands) 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries $120,770 $104,506 $ 93,354
Employee Benefits and Incentive Compensation 68,383 60,426 47,877
Net Occupancy 40,035 37,420 36,939
Equipment 18,536 18,591 19,507
Other 67,796 68,589 57,260
-------- -------- --------
Total $315,520 $289,532 $254,937
======== ======== ========
Percentage Increase (Decrease) From Prior Period 9.0% 13.6% (1.8)%
======== ======== ========
Total Operating Expenses as a Percent of Taxable Equivalent Operating
Income, Net of Interest Expense and Provision for Credit Losses 80.1% 81.2% 81.2 %
======== ======== ========
</TABLE>
-9-
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<PAGE>
U.S. TRUST CORPORATION
Salaries in 1993 increased 15.6% from 1992 and increased 11.9% in 1992
from 1991. The increases were due mainly to staff additions in the Asset
Management and Funds Services businesses. The number of full-time
equivalent employees increased 12.1% to 2,574 at December 31, 1993,
compared to 2,296 at December 31, 1992. During 1992, the number of full-
time equivalent employees increased 8.6% to 2,296 from 2,114. Excluding
the impact of the acquisitions of Delafield, Campbell and Capital Trust,
salaries increased by 13.3% in 1993 and 9.9% in 1992.
Employee benefits and incentive compensation increased 14.7% in 1993
from 1992 and increased 26.2% in 1992 compared with 1991. These changes
were due primarily to incentive award plans, which are determined based
upon the Corporation's financial performance as measured by its return on
stockholders' equity, and to other employee benefits whose expense level
is a function of staffing levels.
Occupancy charges increased 7.0% in 1993 compared with 1992 and 1.3%
in 1992 from 1991. The 1993 and 1992 expense levels reflect the impact
of the Asset Management acquisitions.
Equipment costs decreased 0.3% in 1993 and 4.7% in 1992 due to
reductions in the rates being charged on leased computer equipment.
Other expenses in 1993 decreased 1.2% compared to 1992, while
increasing 19.8% in 1992 compared to 1991. The 1993 decline is a result,
in part, of lower costs related to real estate acquired in debt
restructurings principally associated with the residual corporate loan
portfolio.
Much of the success of the Corporation's fiduciary businesses is due
to its state-of-the-art computer systems. Such systems are costly to
develop and maintain. Expenditures for systems development, including
capitalized costs for purchased computer software from outside
contractors, amounted to 4.71%, 4.03% and 4.44%, respectively, of taxable
equivalent operating income net of interest expense and provision for
credit losses in 1993, 1992 and 1991, respectively.
- -------------------------------------------------------------------------
Income Taxes
The effective tax rates on income before income taxes and cumulative
effect of accounting changes for 1993, 1992 and 1991 were 41.8%, 38.0%
and 35.7%, respectively. The increase in the 1993 effective tax rate is
due to the decline in tax-exempt income as a result of maturities and
redemptions of state and municipal bonds and the impact of the increase
in the federal corporate income tax rate that was retroactive to January
1, 1993. See "Notes to the Consolidated Financial Statements No. 9" for
an analysis of the effective tax rate.
- -------------------------------------------------------------------------
Asset Quality
The Corporation's asset quality is excellent. Its asset mix is
predominantly liquid and low-risk, while its exposure to credit risk from
lending activities is well controlled.
-10-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
<TABLE>
<CAPTION>
Years Ended December 31,
Average Balances --------------------------------------------------------
(Percentage) 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and Due From Banks 8.5% 8.3% 8.7%
Short-Term Financial Instruments 14.7 11.5 20.0
Marketable Securities 37.2 42.5 38.5
----- ----- -----
Total Cash, Short-Term Financial Instruments
and Marketable Securities 60.4 62.3 67.2
Loans, Net of Allowance for Credit Losses 28.5 26.8 25.4
Other Assets 11.1 10.9 7.4
----- ----- -----
Total Assets 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
In excess of 60% of average total assets consist of cash and due from
banks, short-term financial instruments and readily marketable
securities. The securities portfolio is concentrated in investments in
U.S. Government and Federal Agencies securities and collateralized
mortgage obligations. At December 31, 1993, the estimated fair value of
the securities portfolio exceeded the Corporation's amortized cost basis
by $16.8 million. See "Notes to the Consolidated Financial Statements
No. 4" for additional details concerning securities.
The loan portfolio is the second largest category of average total
assets, compared to most other banking institutions where the loan
portfolio is the largest component of interest earning assets. The
Corporation's loan portfolio is comprised primarily of loans to private
banking customers. Average loans increased 16.4%, or approximately
$154.6 million in 1993 to $1,095.7 million, from $941.1 million in 1992.
Average private banking loans, which comprise approximately 90% of total
loans outstanding, grew by $148.4 million, or 17.7% from 1992. In excess
of 60% of average private banking loans are secured by residential
mortgages. Average loans increased by 27.3% in 1992, with average
private banking loans increasing by 25.1%.
The provision for credit losses was $4.0 million in 1993 and $6.0
million in 1992 and 1991. The provision for credit losses reflects the
addition to the allowance for credit losses that management deems
appropriate to maintain the allowance at a level adequate when related to
the risk of loss inherent in the credit portfolio. In assessing
adequacy, management relies on its ongoing review of specific credits, on
past experience, present credit portfolio composition and general
economic and financial considerations. See "Summary of Credit Loss
Experience" on page 64 for a more detailed discussion of the allowance
-11-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
for credit losses.
The following table presents significant credit loss relationships
for the past three years:
<TABLE>
<CAPTION>
(In Thousands) 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $11,676 $ 8,661 $ 8,599
------- ------- -------
Charge-offs (4,100) (3,566) (6,285)
Recoveries 1,817 581 322
------- ------- -------
Net charge-offs (2,283) (2,985) (5,963)
Provision charged to income 4,000 6,000 6,025
------- ------- -------
Balance, December 31 $13,393 $11,676 $ 8,661
======= ======= =======
Ratios:
Allowance to Average Loans 1.22% 1.24% 1.17%
Net Charge-Offs to Average Loans 0.21 0.32 0.81
Allowance to Loans at Year-End 0.96 0.93 0.74
Net Charge-Offs to Loans at Year-End 0.16 0.24 0.51
Allowance to Nonperforming Loans 223.03 135.75 44.42
</TABLE>
The reduction in the 1993 provision for credit losses compared to the
1992 provision for credit losses reflects the credit quality of the
Corporation's loan portfolio. Non-accrual and restructured loans
represent 0.43% of total loans at December 31, 1993, versus 0.68% and
1.68% of total loans at December 31, 1992 and 1991, respectively.
Private banking loans that are secured by residential mortgages amounted
to 50.0% of total loans at December 31, 1993, compared to 48.6% and 38.6%
at December 31, 1992 and 1991, respectively.
At December 31, 1993, the ratio of the allowance for credit losses
to average loans was 1.22%. This ratio reflects the quality of the
Corporation's loan portfolio. All new lending has been concentrated with
private banking customers, mainly in residential real estate mortgage
loans. The Corporation exited the corporate lending business in 1987 and
the residual corporate loan portfolio has been reduced since that time to
its current insignificant level. See "Summary of Credit Loss Experience"
on page 64 for details on loan charge-offs and recoveries.
At December 31, 1993, the loan portfolio included loans to
individuals involved in the financial services industry of approximately
$329 million. The Corporation's credit loss experience with these loans
has been excellent. Net charge-offs from loans to individuals involved
-12-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
in the financial services industry amounted to $237,000 in 1993, $707,000
in 1992 and $807,000 in 1991. Such net charge-offs as a percentage of
average total loans amounted to 2 basis points, 8 basis points and 11
basis points in 1993, 1992 and 1991, respectively.
The following table presents the composition of nonperforming assets
for the private banking business and all other lending businesses, which
includes the corporate loan business that the Corporation exited in 1987.
<TABLE>
<CAPTION>
December 31,
---------------------
(In Thousands) 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Non-accrual and restructured loans:
Private banking non-accrual loans $ 4,929 $ 7,498
All other non-accrual and restructured loans 1,076 1,103
------- -------
6,005 8,601
------- -------
Real estate acquired in debt restructurings:
Private banking 3,101 3,291
All other 8,441 10,386
------- -------
11,542 13,677
------- -------
Total nonperforming assets $17,547 $22,278
======= =======
</TABLE>
The decrease in nonperforming assets reflects a reduction in private
banking non-accrual loans, primarily through charge-offs, and a reduction
in real estate acquired in debt restructurings through the sale of
certain properties and the receipt of cash that was applied against the
carrying amount of the applicable property. The ratio of total
nonperforming assets to the sum of total average loans and real estate
acquired in debt restructurings was 1.58% at December 31, 1993 and 2.33%
at December 31, 1992.
- -------------------------------------------------------------------------
Asset/Liability Management
Asset/Liability management plays an integral part in implementing the
Corporation's strategic goals and objectives. Asset/Liability management
involves the approximate matching of interest sensitive assets and
liabilities within appropriate time periods. The Corporation attempts to
maintain a reasonable balance of rate sensitive assets and liabilities in
order to produce a relatively stable net interest margin over time. This
-13-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
is achieved through both direct matching of assets and liabilities with
similar maturity structures and employing interest rate swaps and forward
rate agreements. At December 31, 1993, the Corporation had $103 million
notional principal amount of interest rate swaps outstanding and $150
million of notional principal amount of forward rate agreements
outstanding. See "Notes to the Consolidated Financial Statements No. 13"
for additional details.
The seasonality of the Funds Services and Institutional Services
businesses results normally in significant increases in total deposits at
the beginning of each calendar quarter, with July 1 and January 1 of each
year being the highest volume dates, as trust accounts collect scheduled
interest and principal payments on their investments. These large
inflows of deposits remain temporarily with the Corporation. While the
management of these deposits is an important element of the Corporation's
asset/liability management, the trust accounts incur overdraft loans at
period-end in anticipation of receiving these deposits at the beginning
of the following month and tend to distort the quarter-end statements of
condition of the Corporation. For this reason, average balances
represent a far more meaningful measure of the Corporation's
asset/liability position.
The Corporation purchases securities with the positive intent to
hold such securities until their maturity. The Corporation also
believes, subject to unforeseeable events, that it has the ability to
hold such securities until their maturity. The Corporation does,
however, from time to time sell certain securities when it is determined
that such transactions are the most appropriate method for achieving the
Corporation's asset/liability management objectives and are typically
made to compensate for an increase in private banking fixed rate
residential mortgage loans. The Corporation adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," ("FAS 115") as of December
31, 1993. Upon adopting FAS 115, the Corporation classified
approximately 90% of its securities as "available for sale" in order to
maintain the requisite flexibility needed to continue to manage its
asset/liability structure.
Under FAS 115 unrealized gains and losses attributable to securities
available for sale are recorded as a separate component of stockholders'
equity. Since the Corporation's capital base will be directly impacted
by short-term changes in interest rates, it is likely that in future
periods the volume of securities transactions will increase. See the
"Adoption of New Accounting Standards" section of the Financial Review
and "Notes to the Consolidated Financial Statements No. 4" for further
discussion of the impact of adopting FAS 115.
- -------------------------------------------------------------------------
Liquidity and Capital Resources
Liquidity management involves the Corporation's ability to raise or gain
access to funds to satisfy the requirements of its customers and the
-14-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
funding of its own interest earning financial instruments and other
assets. Liquidity management is a dynamic concept, the implementation of
which is put into action as the composition of the Corporation's asset
and liability mix changes.
The Corporation maintains a high degree of liquidity. Average core
deposits, consisting primarily of demand, trust and money market deposits
from private banking and fiduciary clients, amounted to 79.0% of total
gross sources of funds in 1993. Certain trust relationships, especially
from the Funds Services area, provide the Corporation with a predictable
long-term source of funds. The predictability of these deposits allows
the Corporation to acquire long-term interest earning assets. These
sources of funds also allow the Corporation to minimize its reliance upon
commercial paper borrowings, Federal funds purchased and the issuance of
large denomination certificates of deposit.
See the composition of assets and liabilities in the "Three-Year Net
Interest Income and Average Balances" on page 60, maturity schedules of
securities, loans and deposits on pages 62 and 63 and interest
sensitivity of loans on page 62 for additional information concerning the
Corporation's liquidity positioning.
The Parent requires access to funds sufficient to pay dividends to
common shareholders, interest and principal to debt holders and for other
corporate purposes, such as loans and capital investments in affiliates
and purchases of treasury stock. The primary source of funds for the
parent is dividends from United States Trust Company of New York ("the
Trust Company"). See "Notes to the Consolidated Financial Statements No.
11" for a discussion of restrictions on the Corporation's banking
affiliates' ability to pay dividends to the Parent. At December 31,
1993, the Corporation's subsidiary banks had the ability, without seeking
regulatory authority, to pay dividends totaling $47.4 million to the
Parent. During 1993, the Parent injected $17.9 million of capital into
the Trust Company and its other non-banking subsidiaries to support
business expansion.
Additional sources of liquidity include a $25.0 million revolving,
unsecured credit arrangement with a major financial institution and,
subject to certain regulatory restrictions, the Parent may borrow on a
collateralized basis from its affiliate banks. At December 31, 1993, the
Parent had no borrowings outstanding under its revolving credit
arrangement.
The Corporation's capital ratios remain strong. The ratio of Tier 1
Capital to period-end risk-adjusted assets amounted to 14.08% at December
31, 1993. The Leverage ratio (defined by the Federal Reserve Board as
Tier 1 Capital divided by quarterly average total assets reduced by
disallowed intangibles) amounted to 5.60%. The Trust Company has also
maintained its strong capital position. At December 31, 1993, the Trust
Company's Tier 1 Risk Adjusted capital ratio was 13.08%. Its Leverage
ratio (as defined by the Federal Reserve Board) was 5.04%. As of
December 31, 1993, the banking regulatory authorities had not determined
the capital treatment of unrealized gains or losses resulting from the
-15-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
adoption of FAS 115. Accordingly, for the purpose of calculating the
various capital ratios, Tier 1 capital, risk-adjusted assets and average
assets exclude the impact of the Corporation's adoption of FAS 115.
The Corporation has maintained its strong capital position while
conducting a stock repurchase program which commenced in 1987. Between
1987 and 1992, the Corporation's Board of Directors approved common stock
repurchases totalling 3.7 million shares. Through December 31, 1993,
2,941,787 shares of common stock have been repurchased at an aggregate
cost of $116.3 million (average cost of $39.54 per share), leaving
758,213 common shares remaining to be repurchased. The Corporation
continues to believe that its level of capital is high for the risks
inherent in its business. Internally generated capital (net income
reduced by dividends declared) increased by $67.4 million for the five
year period 1989 - 1993, representing a 6.42% compound annual growth
rate.
The Corporation believes that its most important asset is its
employees. A significant element for achieving success in the
Corporation's businesses relates to making stock ownership in the
Corporation an integral part of employee compensation. This is
accomplished through the ESOP, purchases of shares of stock through the
401(k) plan and grants of stock options, restricted stock and other
stock-based incentive compensation plans to selected officers of the
Corporation. Non-employee directors of the Corporation also participate
in stock option and stock compensation programs. Employees, officers and
Directors of the Corporation own approximately 23% of the Corporation's
outstanding shares of stock.
The Corporation has a targeted dividend payout ratio of 40 - 50% of
earnings both to control the growth of its capital and to return value to
its shareholders. The 1993 dividend payout ratio, as a percentage of
fully diluted net income per share, was 44.24%. At its January 25, 1994
meeting, the Corporation's Board of Directors increased the quarterly
dividend on the Corporation's common stock to $.50 per share, an increase
of three cents. This represents an annual dividend of $2.00 per common
share.
- -------------------------------------------------------------------------
Acquisitions and Subsidiaries
The Corporation's business strategy calls for expansion of its asset
management customer base in key areas of wealth concentration through the
acquisition of investment advisory firms, the de novo establishment of
subsidiaries and the establishment of branch offices of existing
subsidiaries. A summary of these activities follows.
o In June 1993, U.S. Trust Company of Connecticut ("UST Connecticut")
was opened for business as a limited purpose trust company. At
December 31, 1993, UST Connecticut had approximately $362 million of
assets under management.
-16-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
o In July 1993, the Corporation acquired Capital Trust Company
("Capital Trust"), a Portland, Oregon-based trust and investment
management firm, for 75,831 shares of its common stock valued at
$4 million. The acquisition was accounted for as a pooling-of-
interests. At December 31, 1993, Capital Trust had approximately
$1.4 billion of assets under management and approximately
$672 million of assets under supervision. As of January 1, 1994,
Capital Trust changed its name to U.S. Trust of the Pacific
Northwest and its consulting practice was contributed to a separate
subsidiary, CTC Consulting, Inc.
o In November 1993, U.S. Trust Company of California, N.A., opened a
new full-service branch office in Costa Mesa, California, to serve
the growing affluent region of Orange County.
o Effective March 31, 1992, the Corporation purchased Delafield,
Harvey, Tabell, Inc. ("Delafield"), a Princeton, New Jersey-based
investment advisory and broker/dealer company, for 206,307 shares of
its common stock valued at $9 million. The acquisition was
accounted for as a purchase. In late 1992, U.S. Trust Company of
New Jersey was granted authority to operate as a full-service trust
company and the investment advisory business of Delafield was
contributed to it. At December 31, 1993, U.S. Trust Company of New
Jersey had approximately $613 million of assets under management.
o On December 1, 1992, the Corporation acquired Campbell, Cowperthwait
& Co., Inc. ("Campbell"), a New York City-based investment advisory
company, for 106,541 shares of its common stock valued at
$5 million. The acquisition was accounted for as a pooling-of-
interests. At December 31, 1993, Campbell had approximately
$452 million of assets under management.
o In 1991, the Corporation converted U.S. Trust Company of Florida,
N.A., located in Palm Beach, into a state-chartered savings bank
that has the ability to establish branch locations in selected high
net worth areas in Florida. In 1992, a branch office was opened in
Naples, Florida.
- -------------------------------------------------------------------------
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," ("FAS 107") requires disclosure of
the estimated fair values of the Corporation's financial instruments.
The FAS 107 disclosures and commentary concerning the usefulness of these
disclosures is set forth in "Notes to the Consolidated Financial
Statements No. 18." A discussion of the Corporation's most significant
financial instruments under FAS 107 follows.
The estimated fair value of the Corporation's loan portfolio
-17-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
exceeded its carrying amount ("the fair value spread") by approximately
$19 million at December 31, 1993 and by approximately $11 million at
December 31, 1992. The increase in the fair value spread primarily
reflects the higher value of the Corporation's fixed rate residential
real estate mortgage portfolio ("fixed rate mortgages"). At December 31,
1993, fixed rate mortgages outstanding amounted to $439 million, compared
to $327 million outstanding at December 31, 1992. The estimated fair
value of these loans was derived using a discounted cash flow model that
took into consideration current loan prepayment rates. At December 31,
1993, the Corporation's 15-year fixed rate mortgage portfolio, the
dominant fixed rate mortgage product, yielded 57 basis points more than
the interest rate offered to qualified borrowers at year end. At
December 31, 1992, the spread between the yield on the 15-year fixed rate
mortgage portfolio and the interest rate offered to qualified borrowers
was 34 basis points.
The estimated fair value of the Corporation's securities portfolio
exceeded its amortized cost by approximately $17 million at December 31,
1993 and approximately $26 million at December 31, 1992. This decrease
in the excess of fair value over amortized cost reflects the
Corporation's decision to sell approximately $351 million of fixed rate
securities while realizing a $3.0 million gain during 1993 and an overall
reduction in the weighted average maturity of the Corporation's portfolio
of securities.
The fair value spread for the Corporation's long term debt at
December 31, 1993 was approximately $5 million, compared to approximately
$4 million at December 31, 1992. The increase in the fair value spread
of long term debt reflects an approximate 100 basis point decrease in
interest rates between the two periods.
The estimated fair value of interest rate swaps improved from an
approximate loss of $6.6 million at December 31, 1992 to an approximate
loss of $4.0 million at December 31, 1993. The Corporation is a net
fixed rate payor under its interest rate swap agreements. The reduction
in the loss on interest rate swaps reflects the maturity and amortization
of $15.5 million notional principal amount of high fixed rate interest
rate swaps and their replacement with a $25 million notional principal
amount interest rate swap with a significantly lower fixed interest
obligation.
- -------------------------------------------------------------------------
Adoption of New Accounting Standards
Accounting for Postemployment Benefits
The Corporation has adopted, as of December 31, 1993, Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits," ("FAS 112"). FAS 112 requires employers to
accrue currently the cost of benefits, including salary continuation and
severance benefits, provided to former or inactive employees after
employment but before retirement. The adoption of FAS 112 did not have a
significant impact on the results of operations or financial condition of
-18-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
the Corporation.
Accounting for Debt and Equity Securities
The Corporation has adopted, as of December 31, 1993, Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," ("FAS 115"). FAS 115
requires that investments in debt securities be classified in one of
three categories, each having a different financial accounting method.
The three categories, with their related accounting method, are:
securities held to maturity (carried at amortized cost; unrealized gains
and losses are not recorded); trading securities (carried at estimated
fair value; unrealized gains and losses included in the determination of
net income); and securities available for sale (carried at estimated fair
value; unrealized gains and losses recorded, net of deferred income
taxes, in a separate component of stockholders' equity).
As of December 31, 1993, $837 million of the Corporation's
investment securities portfolio was classified as available for sale; the
remaining $87 million of the investment securities portfolio was
classified as held to maturity. Investment securities classified as
available for sale are carried at their estimated fair value, which
exceeded their amortized cost by $16.5 million. Stockholders' equity has
been increased by $8.7 million (net of $7.8 million of deferred income
taxes).
- -------------------------------------------------------------------------
Accounting Standards Not Yet Adopted
Accounting for Impairment of a Loan
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan," ("FAS 114") was issued in May 1993
and is effective for years beginning after December 15, 1994, with
earlier application encouraged. FAS 114 addresses the accounting by
creditors for impairment of a loan by specifying how allowances for
credit losses related to certain loans should be determined. FAS 114
also addresses the accounting by creditors for all loans that are
restructured in a troubled debt restructuring involving a modification of
terms, including troubled debt restructurings involving a receipt of
assets in partial satisfaction of a loan.
FAS 114 requires that the amount of loan impairment be measured based
on the present value of expected future cash flows discounted at the
loan's effective interest rate or, as a practical expedient, at the
loan's observable market price or the fair value of the collateral if the
loan is collateral dependent. Based upon the initial review of this
standard and the present creditworthiness of the loan portfolio, the
Corporation does not believe that the adoption of FAS 114 will have a
significant impact on the results of operations or financial condition of
the Corporation.
-19-
<PAGE>
<PAGE>
<TABLE>
U.S. TRUST CORPORATION
Consolidated Statement of Income
For the Years Ended December 31,
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
(In Thousands, Except Per Share Amounts) 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans............................................................................... $ 77,204 $ 70,088 $ 69,927
Securities:
Taxable........................................................................... 67,868 77,669 70,401
Exempt from Federal Income Taxes.................................................. 7,267 10,842 15,167
Federal Funds Sold and Securities Purchased Under Agreements to Resell.............. 12,213 8,338 19,099
Deposits with Banks................................................................. 5,048 6,274 16,760
-------- -------- --------
Total Interest Income............................................................... 169,600 173,211 191,354
-------- -------- --------
INTEREST EXPENSE
Deposits............................................................................ 37,478 42,450 68,639
Federal Funds Purchased, Securities Sold Under Agreements to Repurchase
and Other Borrowings.............................................................. 10,509 16,356 20,887
Long Term Debt...................................................................... 5,371 5,517 5,730
-------- -------- --------
Total Interest Expense.............................................................. 53,358 64,323 95,256
-------- -------- --------
NET INTEREST INCOME................................................................. 116,242 108,888 96,098
Provision for Credit Losses......................................................... 4,000 6,000 6,025
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES............................... 112,242 102,888 90,073
-------- -------- --------
FEES AND OTHER INCOME
Fiduciary and Other Fees............................................................ 264,075 235,824 204,948
Securities Gains, Net............................................................... 3,025 2,801 1,558
Other............................................................................... 8,863 6,939 7,165
-------- -------- --------
Total Fees and Other Income......................................................... 275,963 245,564 213,671
-------- -------- --------
Total Operating Income Net of Interest Expense and Provision for Credit Losses...... 388,205 348,452 303,744
-------- -------- --------
OPERATING EXPENSES
Salaries............................................................................ 120,770 104,506 93,354
Employee Benefits and Incentive Compensation........................................ 68,383 60,426 47,877
-------- -------- --------
Total Salaries and Benefits......................................................... 189,153 164,932 141,231
Net Occupancy....................................................................... 40,035 37,420 36,939
Equipment........................................................................... 18,536 18,591 19,507
Other............................................................................... 67,796 68,589 57,260
-------- -------- --------
Total Operating Expenses............................................................ 315,520 289,532 254,937
-------- -------- --------
Income From Operations Before Income Tax Expense and Cumulative Effect
of Accounting Changes............................................................. 72,685 58,920 48,807
Income Tax Expense.................................................................. 30,418 22,389 17,424
-------- -------- --------
Income From Operations Before Cumulative Effect of Accounting Changes............... 42,267 36,531 31,383
Cumulative Effect of Changes in Accounting for Postretirement Benefits and
Income Taxes (Notes 9 and 17)..................................................... - (7,780) -
-------- -------- --------
Net Income.......................................................................... $ 42,267 $ 28,751 $ 31,383
======== ======== ========
Primary Net Income Per Share:
Income From Operations Before Cumulative Effect of Accounting Changes............. $ 4.26 $ 3.76 $ 3.32
Cumulative Effect of Changes in Accounting for Postretirement Benefits
and Income Taxes................................................................ - (0.80) -
-------- -------- --------
Net Income........................................................................ $ 4.26 $ 2.96 $ 3.32
======== ======== ========
Fully Diluted Net Income Per Share:
Income From Operations Before Cumulative Effect of Accounting Changes............. $ 4.25 $ 3.74 $ 3.27
Cumulative Effect of Changes in Accounting for Postretirement Benefits
and Income Taxes................................................................ - (0.80) -
-------- -------- --------
Net Income........................................................................ $ 4.25 $ 2.94 $ 3.27
======== ======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
-20-
<PAGE>
<PAGE>
<TABLE>
U.S. TRUST CORPORATION
Consolidated Statement of Condition
December 31,
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands) 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and Due from Banks....................................................................... $ 179,117 $ 219,709
Interest Bearing Deposits with Banks.......................................................... 61,476 61,860
Securities: Available for Sale, at Estimated Fair Value...................................... 836,532 -
Held to Maturity (Estimated Fair Value $87,069 in 1993)..................................... 86,748 -
Investment (Estimated Fair Value $1,222,349 in 1992)........................................ - 1,196,068
Federal Funds Sold and Securities Purchased Under Agreements to Resell........................ 237,000 -
Loans......................................................................................... 1,398,723 1,260,461
Less: Allowance for Credit Losses............................................................ 13,393 11,676
---------- ----------
Net Loans..................................................................................... 1,385,330 1,248,785
Premises and Equipment........................................................................ 109,767 102,080
Other Assets.................................................................................. 290,382 122,958
---------- ----------
Total Assets.................................................................................. $3,186,352 $2,951,460
========== ==========
LIABILITIES
Deposits:
Non-Interest Bearing........................................................................ $1,241,085 $1,220,677
Interest Bearing............................................................................ 1,245,529 1,134,474
---------- ----------
Total Deposits................................................................................ 2,486,614 2,355,151
Federal Funds Purchased, Securities Sold Under Agreements to Repurchase
and Other Borrowings........................................................................ 258,072 225,295
Accounts Payable and Accrued Liabilities...................................................... 147,979 108,779
Long Term Debt................................................................................ 65,100 65,082
---------- ----------
Total Liabilities............................................................................. 2,957,765 2,754,307
---------- ----------
Commitments and Contingencies
STOCKHOLDERS' EQUITY 1993 1992
---- ----
Common Stock
Par Value................. $1.00 $5.00
Authorized Shares......... 40,000,000 20,000,000
Issued Shares............. 11,436,293 11,301,213 ............................ 11,436 56,506
Capital Surplus................................................................................ 67,898 23,280
Retained Earnings.............................................................................. 242,112 216,839
Treasury Stock, at Cost (2,076,868 Shares in 1993 and 2,028,891 Shares in 1992)................ (82,857) (78,443)
Loan to ESOP................................................................................... (18,697) (21,029)
Unrealized Gain, Net of Taxes, on Securities Available for Sale................................ 8,695 -
---------- ----------
Total Stockholders' Equity..................................................................... 228,587 197,153
---------- ----------
Total Liabilities and Stockholders' Equity..................................................... $3,186,352 $2,951,460
========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
-21-
<PAGE>
<PAGE>
<TABLE>
U.S. TRUST CORPORATION
Consolidated Statement of Changes in Stockholders' Equity
For the Years Ended December 31,
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Amounts) 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK
Balance, Beginning of Year.......................................................... $ 56,506 $ 55,864 $ 55,600
Issuance of Shares Under Employee Benefit Plans (135,080,
128,497 and 52,800 Shares)........................................................ 467 642 264
Change in Par Value of Common Stock................................................. (45,537) - -
-------- -------- --------
Balance, End of Year................................................................ $ 11,436 $ 56,506 $ 55,864
======== ======== ========
CAPITAL SURPLUS
Balance, Beginning of Year.......................................................... $ 23,280 $ 23,385 $ 22,639
Employee Benefit Plans.............................................................. 4,011 2,282 746
Acquisitions........................................................................ (4,930) (2,387) -
Change in Par Value of Common Stock................................................. 45,537 - -
-------- -------- --------
Balance, End of Year................................................................ $ 67,898 $ 23,280 $ 23,385
======== ======== ========
RETAINED EARNINGS
Balance, Beginning of Year.......................................................... $216,839 $203,441 $186,150
Net Income.......................................................................... 42,267 28,751 31,383
Cash Dividends Declared ($1.88, $1.72 and $1.60 Per Share).......................... (17,677) (15,860) (14,598)
Tax Benefit on Dividends Paid to ESOP............................................... 683 507 506
-------- -------- --------
Balance, End of Year................................................................ $242,112 $216,839 $203,441
======== ======== ========
TREASURY STOCK
Balance, Beginning of Year.......................................................... $(78,443) $(77,452) $(73,496)
Purchases (157,500, 292,000 and 96,000 Shares)...................................... (8,485) (13,277) (3,862)
Issuance (Tender) of Shares Under Employee Benefit Plans, Net (33,692,
27,780 and (639) Shares)........................................................ 1,175 821 (94)
Issuance of Shares for Acquisitions (75,831 and 312,848 Shares)................... 2,896 11,465 -
-------- -------- --------
Balance, End of Year.............................................................. $(82,857) $(78,443) $(77,452)
======== ======== ========
LOAN TO ESOP
Balance, Beginning of Year.......................................................... $(21,029) $(23,181) $(25,167)
Principal Payment by ESOP........................................................... 2,332 2,152 1,986
-------- -------- --------
Balance, End of Year................................................................ $(18,697) $(21,029) $(23,181)
======== ======== ========
UNREALIZED GAIN, NET OF TAXES, ON SECURITIES AVAILABLE FOR SALE
Balance, Beginning of Year.......................................................... $ - $ - $ -
Adoption of FAS 115 - Net Unrealized Gain, Net of Taxes, on Securities
Available for Sale,............................................................... 8,695 - -
-------- -------- --------
Balance, End of Year................................................................ $ 8,695 $ - $ -
======== ======== ========
Total Stockholders' Equity.......................................................... $228,587 $197,153 $182,057
======== ======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
-22-
<PAGE>
<PAGE>
<TABLE>
U.S. TRUST CORPORATION
Consolidated Statement of Cash Flows
For the Years Ended December 31,
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
(In Thousands) 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income..................................................................... $ 42,267 $ 28,751 $ 31,383
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses.................................................... 4,000 6,000 6,025
Depreciation and Amortization of Premises and Equipment and Other Assets....... 14,896 13,326 11,167
Deferred Income Taxes.......................................................... 1,820 889 (1,348)
Net Amortization of Premium on Securities...................................... 10,768 9,752 2,091
Net Change in Accrued Interest, Commissions and Other Receivables.............. (28,886) 2,456 (3,384)
Net Change in Accounts Payable and Other Liabilities........................... 39,405 6,019 15,354
Cumulative Effect of Adopting FAS 106 (Before Taxes)........................... - 22,968 -
Cumulative Effect of Adopting FAS 109.......................................... - (4,609) -
Other, Net..................................................................... (2,738) (84) (8,163)
--------- --------- ---------
Net Cash Provided by Operating Activities...................................... 81,532 85,468 53,125
--------- --------- ---------
Cash Flows From Investing Activities:
Net Change in Interest Bearing Deposits with Banks............................. 384 33,480 65,232
Investment Securities:
Proceeds from Sales.......................................................... 202,080 169,968 53,587
Proceeds from Maturities, Calls and Mandatory Redemptions.................... 781,561 607,660 458,981
Purchases.................................................................... (854,446) (961,837) (629,617)
Net Change in Federal Funds Sold and Securities Purchased
Under Agreements to Resell................................................... (237,000) 304,525 (65,586)
Net Change in Loans............................................................ (138,262) (96,816) (103,481)
Expenditures for Premises and Equipment, Net of Retirements.................... (19,405) (7,595) (7,334)
Principal Payment by ESOP...................................................... 2,332 2,152 1,986
Other, Net..................................................................... 3,067 (17,147) (5,357)
--------- --------- ---------
Net Cash Provided (Used) by Investing Activities............................... (259,689) 34,390 (231,589)
--------- --------- ---------
Cash Flows From Financing Activities:
Net Change in Non-Interest Bearing Deposits.................................... 20,408 183,928 67,655
Net Change in Money Market and Other Savings Deposits.......................... 115,971 58,284 37,102
Net Change in Time Deposits.................................................... (4,916) 5,066 (36,747)
Net Change in Federal Funds Purchased, Securities Sold Under
Agreements to Repurchase and Other Borrowings................................ 32,777 (248,486) 46,243
Repurchases/Repayment of Long Term Debt........................................ (5,282) (3,822) (2,031)
Issuance of Common Stock....................................................... 4,297 3,119 684
Purchases of Treasury Stock.................................................... (8,485) (13,277) (3,862)
Dividends Paid................................................................. (17,205) (15,570) (14,618)
--------- --------- ---------
Net Cash Provided (Used) by Financing Activities............................... 137,565 (30,758) 94,426
--------- --------- ---------
Net Change in Cash and Cash Equivalents........................................ (40,592) 89,100 (84,038)
Cash and Cash Equivalents at January 1......................................... 219,709 130,609 214,647
--------- --------- ---------
Cash and Cash Equivalents at December 31....................................... $ 179,117 $ 219,709 $ 130,609
========= ========= =========
Income Taxes Paid.............................................................. $ 29,678 $ 23,670 $ 16,546
Interest Expense Paid.......................................................... 53,536 65,436 99,850
The accompanying notes are an integral part of these financial statements.
</TABLE>
-23-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
- ----------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
1. Accounting Policies
U.S. Trust Corporation ("the Corporation") provides banking and fiduciary
services in the United States through its principal subsidiary, United
States Trust Company of New York ("the Trust Company") and its other
subsidiaries. The accounting and reporting policies of the Corporation
and its subsidiaries conform with generally accepted accounting
principles and general practice within the banking industry.
The following is a summary of the significant policies:
(a) Basis of Presentation - The consolidated financial statements
include the accounts of the Corporation and its majority owned
subsidiaries. All material intercompany accounts and transactions have
been eliminated in consolidation.
(b) Trust Assets - Property (other than cash deposits) held by the Trust
Company or the Corporation's other subsidiaries in a fiduciary or agency
capacity for customers are not assets of the Corporation and are not
included in the consolidated statement of condition.
(c) Securities - Effective December 31, 1993, the Corporation adopted
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," ("FAS 115"). FAS 115
requires that an enterprise classify its investments in debt and readily
marketable equity securities as either securities held to maturity
(carrying amount equals amortized cost), securities available for sale
(carrying amount equals estimated fair value; unrealized gains and losses
recorded in a separate component of stockholders' equity) or trading
securities (carrying amount equals estimated fair value; unrealized gains
and losses included in the determination of net income.).
The Corporation has evaluated all of its investments in debt and
equity securities and has classified them as either held to maturity or
available for sale. Premiums and discounts on these securities are
amortized or accreted in accordance with the policy set forth in "Notes
to the Consolidated Financial Statements No. 1(d)." Realized gains and
losses from sales of securities held to maturity and securities available
for sale are determined on a specific identification cost basis.
Prior to the adoption of FAS 115, the Corporation had classified its
investments in debt and equity securities as investment securities, that
were carried at amortized cost. Premiums and discounts on investment
securities were amortized or accreted in accordance with the policy set
forth in "Notes to the Consolidated Financial Statements No.1(d)."
Realized gains and losses from sales of investment securities were
determined on a specific identification cost basis.
See "Notes to the Consolidated Financial Statements No. 4" for
additional discussion.
-24-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
(d) Interest Bearing Financial Instruments - Interest income/expense is
accrued on interest bearing financial instruments based upon the
contractual terms of the instrument. Premiums and discounts are
amortized or accreted, respectively, on a basis that approximates the
effective yield method.
(e) Nonperforming Assets - Nonperforming assets consist of non-accrual
financial instruments, restructured assets and real estate acquired in
debt restructurings. Interest accruals are discontinued when principal
or interest is contractually past due ninety days or more. In addition,
interest accruals may be discontinued when principal or interest is
contractually past due less than ninety days if in the opinion of
management the amount due is not likely to be paid in accordance with the
terms of the contractual agreement, even though the financial instruments
are currently performing. Any accrued but unpaid interest previously
recorded on a non-accrual financial instrument is reversed against
interest income. Subsequent cash receipts of interest on non-accrual
financial instruments are applied either to the outstanding principal
balance or recorded as interest income, depending on management's
assessment of the ultimate collectibility of principal. Non-accrual
financial instruments are generally returned to accrual status only when
all delinquent principal and interest payments are brought current and
the collectibility of future principal and interest on a timely basis is
reasonably assured.
If a financial instrument is restructured as a result of the
deterioration of a borrower's financial condition, interest will accrue
at the renegotiated or effective rate, as appropriate.
Real estate acquired in debt restructurings ("ORE") is recorded in
other assets at the lower of the carrying amount of the loan or the ORE's
estimated fair value less estimated costs to sell. After the acquisition
date of the ORE, operating expenses and revenue, additional writedowns,
as appropriate, and gains and losses on the ultimate disposition of ORE
are reported in other expenses.
(f) Allowance for Credit Losses - The allowance for credit losses is
established through charges to income based on management's evaluation of
the adequacy of the allowance in meeting present and possible future
losses in the existing credit portfolio, which includes loans,
commitments to extend credit and standby letters of credit. The adequacy
of the allowance is continually reviewed by management, taking into
consideration current economic conditions, past loss experience and the
risks inherent in the credit portfolio.
(g) Premises and Equipment - Premises and equipment, including leasehold
improvements, are stated at cost less accumulated amortization and
depreciation. Amortization and depreciation expenses are computed on a
straight-line method over the lesser of the term of the lease or the
estimated useful lives of the assets. Maintenance and repairs expenses
-25-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
are charged to operating expenses as incurred.
(h) Postretirement Plans - The Corporation has a trusteed,
noncontributory, qualified defined benefit retirement plan that provides
retirement benefits to substantially all employees. The retirement plan
benefit formula is based upon years of service, average compensation over
the final years of service and the social security covered compensation.
The Corporation's funding policy is consistent with the funding
requirements of Federal laws and regulations. Retirement plan assets are
managed by the Trust Company and consist primarily of listed stocks and
commingled debt and international and domestic equity pension trust
funds. The Corporation also maintains an unfunded, non-trusteed,
noncontributory, non-qualified retirement plan for participants whose
retirement benefit payments under the qualified plan are expected to
exceed the limits imposed by Federal tax law.
Effective January 1, 1992, the Corporation adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." See "Notes to the
Consolidated Financial Statements No. 17" for additional discussion.
(i) Income Taxes - The Corporation files a consolidated Federal income
tax return. Applicable taxes of the individual companies are determined
as if they filed a separate return and every subsidiary is charged or
credited for its amount of computed tax.
Deferred income taxes are provided for items that are recognized for
income tax purposes in years other than those in which they are
recognized for financial reporting purposes.
Effective January 1, 1992, the Corporation adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
See "Notes to the Consolidated Financial Statements No. 9" for additional
discussion.
(j) Net Income Per Share - Primary net income per share is computed by
dividing net income by the total weighted average common and common
equivalent shares outstanding. Common equivalent shares include the
dilutive effect of outstanding stock options and the assumed issuance of
deferred stock awards earned from incentive plans. Total common and
common equivalent shares outstanding amounted to 9,968,033 in 1993,
9,697,987 in 1992 and 9,466,686 in 1991.
Fully diluted net income per share is computed under the assumption
that all contingent increases in common stock have occurred to the extent
that they have a dilutive effect on net income per share. Total common
shares outstanding on a fully diluted basis amounted to 9,994,591 in
1993, 9,768,499 in 1992 and 9,592,999 in 1991.
(k) Cash and Cash Equivalents - For purposes of the Consolidated
Statement of Cash Flows, the Corporation considers the Consolidated
-26-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
Statement of Condition caption "Cash and Due from Banks" as cash and cash
equivalents. For purposes of the U.S. Trust Corporation (Parent Company
Only) (See "Notes to the Consolidated Financial Statements No. 19")
Statement of Cash Flows, the Corporation considers the Statement of
Condition caption "Total Due From Banks" as cash and cash equivalents.
- -------------------------------------------------------------------------
2. Acquisitions
On July 7, 1993, the Corporation exchanged 75,831 shares of its common
stock, valued at approximately $4.0 million, for 100% of the shares of
Capital Trust Company ("Capital Trust"), a Portland, Oregon-based trust
and investment management and consulting company. On December 1, 1992,
the Corporation exchanged 106,541 shares of its common stock, valued at
approximately $5.0 million, for 100% of the shares of Campbell,
Cowperthwait & Co., Inc. ("Campbell"), a New York City-based investment
advisory company. These acquisitions were accounted for as poolings-of-
interests. Neither acquisition had a significant effect on the
Corporation's consolidated financial statements. Accordingly, the
results of operations for Capital Trust and Campbell have been recorded
as of their respective dates of acquisition and prior period financial
statements were not restated.
On March 31, 1992, the Corporation purchased 100% of the stock of
Delafield, Harvey, Tabell Inc., an investment advisory company located in
Princeton, New Jersey, for 206,307 shares of the Corporation's common
stock valued at $9.0 million. The acquisition was accounted for as a
purchase. Substantially all of the purchase price was allocated to the
value of investment management contracts that are being amortized on a
straight-line basis over their estimated 10 years life. The acquisition
did not have a material impact on the Corporation's 1992 operating
results.
- -------------------------------------------------------------------------
3. Cash and Due from Banks
The average non-interest earning balances held at the Federal Reserve
Bank for the years ended December 31, 1993 and 1992 were $73 million and
$58 million, respectively. These amounts represent reserve requirements
which must be maintained on deposits. There are no other restrictions on
cash and due from banks.
- -------------------------------------------------------------------------
4. Securities
The Corporation adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities,"
("FAS 115") as of December 31, 1993. Prior to adopting FAS 115, all of
the Corporation's investments in debt and equity securities had been
classified as investment securities that were recorded at their amortized
cost.
A comparison of the amortized cost, estimated fair value and gross
-27-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
unrealized gains and losses as of December 31, 1993 for securities
available for sale and securities held to maturity, and for investment
securities as of December 31, 1992 follows.
<TABLE>
<CAPTION>
Estimated Gross Gross
Amortized Fair Unrealized Unrealized
(In Thousands) Cost Value Gains Losses
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities available for sale:
December 31, 1993:
U.S. Government and Federal Agency obligations:
U.S. Treasury obligations $ 210,265 $ 212,312 $ 2,100 $ 53
Government National Mortgage Association obligations (Ginnie Mae) <F1> 153,239 162,379 9,401 261
U.S. Government Sponsored Agencies and Corporations <F2> 189,755 190,467 784 72
---------- ---------- ------- ------
553,259 565,158 12,285 386
---------- ---------- ------- ------
States and Municipal obligations <F3> 85,341 89,748 4,417 10
Collateralized mortgage obligations <F4> 115,516 115,728 447 235
All other 65,907 65,898 - 9
---------- ---------- ------- ------
Total $ 820,023 $ 836,532 $17,149 $ 640
========== ========== ======= ======
Securities held to maturity:
December 31, 1993:
U.S. Government and Federal Agency obligations:
Government National Mortgage Association
obligations (Ginnie Mae) (1) $ 73,300 $ 73,591 $ 291 $ -
U.S. Government Sponsored Agencies and Corporations (2) 13,448 13,478 32 2
---------- ---------- ------- ------
$ 86,748 $ 87,069 $ 323 $ 2
========== ========== ======= ======
Investment securities:
December 31, 1992:
U.S. Government and Federal Agency obligations:
U.S. Treasury obligations $ 335,549 $ 345,157 $ 9,608 $ -
Government National Mortgage Association obligations (Ginnie Mae) (1) 268,659 279,889 12,695 1,465
U.S. Government Sponsored Agencies and Corporations (2) 154,961 155,195 523 289
---------- ---------- ------- ------
759,169 780,241 22,826 1,754
---------- ---------- ------- ------
States and Municipal obligations (3) 131,453 137,325 5,891 19
Collateralized mortgage obligations (4) 285,184 284,531 723 1,376
All other 20,262 20,252 9 19
---------- ---------- ------- ------
Total $1,196,068 $1,222,349 $29,449 $3,168
========== ========== ======= ======
<FN>
<F1> Backed by the full faith and credit of the U.S. Government.
<F2> Securities available for sale are comprised of Federal National Mortgage Association (Fannie Mae), Federal Home Loan
Mortgage Corporation (Freddie Mac) and Small Business Administration (SBA) obligations. Securities held to maturity
are comprised of SBA obligations. Investment securities are comprised of Fannie Mae and Freddie Mac obligations.
<F3> Comprised mainly of highly rated investment grade general obligation and revenue bonds.
<F4> Collateralized by either Ginnie Mae, Fannie Mae or Freddie Mac obligations.
</TABLE>
-28-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
The amortized cost and estimated fair value of securities available for
sale and securities held to maturity at December 31, 1993, by the earlier
of contractual maturity or call date, follows.
<TABLE>
<CAPTION>
December 31, 1993,
-----------------------------------------------------------------
Securities Available for Sale Securities Held to Maturity
------------------------------ ---------------------------
Estimated Estimated
Amortized Fair Amortized Fair
(In Thousands) Cost Value Cost Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $250,079 $250,469 $ - $ -
Due after one year through two years 34,031 35,853 - -
Due after two years through five years 54,069 57,357 - -
Due after five years through ten years 4,515 4,961 - -
Due after ten years 15,043 15,542 - -
-------- -------- ------- -------
Sub-Total 357,737 364,182 - -
Collateralized mortgage obligations,
mortgage-backed securities and other
asset-backed securities <F1><F2><F3> 458,510 468,574 86,748 87,069
-------- -------- ------- -------
Total <F4> $816,247 $832,756 $86,748 $87,069
======== ======== ======= =======
<FN>
<F1> In excess of 98% and 84% of securities available for sale and securities held to maturity, respectively, are
collateralized mortgage obligations and mortgage-backed securities.
<F2> At December 31, 1993, the Corporation's available for sale collateralized mortgage obligations, mortgage-backed
securities and other asset-backed securities had a weighted-average life of 2.6 years and the Corporation's held to
maturity mortgage-backed securities and other asset-backed securities had a weighted-average life of 7.8 years,
reflecting anticipated future prepayments based on a consensus of dealers in the market.
<F3> Expected maturities for collateralized mortgage obligations, mortgage-backed securities and other asset-backed
securities may differ from contractual maturities because borrowers have the right to prepay obligations with or
without prepayment penalties.
<F4> Excludes $3,776 of Federal Reserve Bank and Federal Home Loan Bank stock.
</TABLE>
The components of securities gains, net for the years ended December 31,
1993, 1992 and 1991 follows.
-29-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
(In Thousands) 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross realized gains from sales $3,347 $2,871 $1,624
Gross realized (losses) from sales (370) (206) (43)
Net gains (losses) on maturities, calls and mandatory redemptions 48 136 (23)
------ ------ ------
Securities gains, net $3,025 $2,801 $1,558
====== ====== ======
</TABLE>
In December 1993, the Corporation sold $351,460,000 of securities, which
created an account receivable from various brokers of $152,358,000. The
entire amount of this receivable was collected in January 1994.
At December 31, 1993 and 1992, securities in the amount of
$285,543,000 and $226,323,000, respectively, were pledged to secure
public deposits, as collateral for borrowings, to qualify for fiduciary
powers and for other purposes.
- -------------------------------------------------------------------------
5. Loans
The following is an analysis of the composition of the loan portfolio.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
(In Thousands) 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Private banking:
Residential real estate mortgages $ 699,193 $ 612,142 $ 449,270 $ 353,663 $ 298,860
Other 416,922 319,233 300,859 308,071 339 028
---------- ---------- ---------- ---------- ----------
Total private banking loans 1,116,115 931,375 750,129 661,734 637,888
---------- ---------- ---------- ---------- ----------
Short-term trust credit facilities<F1> 211,741 259,729 321,270 341,511 337,963
Loans to financial institutions for
purchasing and carrying securities 57,505 52,652 49,982 20,967 28,103
All other 13,362 16,705 42,264 35,952 74,826
---------- ---------- ---------- ---------- ----------
Total $1,398,723 $1,260,461 $1,163,645 $1,060,164 $1,078,780
========== ========== ========== ========== ==========
<FN>
<F1> The Trust Company provides short-term credit facilities to certain of its trust customers in anticipation of
receiving interest and dividends due from investments under administration and custody agreements. The Trust Company
has never experienced a credit loss as a result of these arrangements. Approximately 86% of the December 31, 1993
short-term trust credit facilities were repaid on the next business day.
</TABLE>
-30-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
The aggregate outstanding principal amounts of non-accrual and
restructured loans follow:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------
(In Thousands) 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Private banking non-accrual loans $4,929 $7,498 $ 9,194 $ 5,054 $ 1,356
All other non-accrual and restructured loans 1,076 1,103 10,304 11,058 28,532
------ ------ ------- ------- -------
Total $6,005 $8,601 $19,498 $16,112 $29,888
====== ====== ======= ======= =======
</TABLE>
The effect of these loans on interest income is presented below:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
(In Thousands) 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income which would have been earned under original terms $689 $648 $1,748
Interest income recognized during year 264 276 473
---- ---- ------
Reduction in interest income $425 $372 $1,275
==== ==== ======
</TABLE>
An analysis of real estate acquired in debt restructurings follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
(In Thousands) 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Private banking $ 3,101 $ 3,291 $ 840 $ 240 $ 147
All other 8,441 10,386 8,375 9,108 7,192
------- ------- ------ ------ ------
Total $11,542 $13,677 $9,215 $9,348 $7,339
======= ======= ====== ====== ======
</TABLE>
-31-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
- -------------------------------------------------------------------------
6. Allowance for Credit Losses
An analysis of the allowance for credit losses follows:
<TABLE>
<CAPTION>
(In Thousands) 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $11,676 $ 8,661 $ 8,599
------- ------- -------
Charge-offs (4,100) (3,566) (6,285)
Recoveries 1,817 581 322
------- ------- -------
Net charge-offs (2,283) (2,985) (5,963)
Provision charged to income 4,000 6,000 6,025
------- ------- -------
Balance, December 31 $13,393 $11,676 $ 8,661
======= ======= =======
</TABLE>
- -------------------------------------------------------------------------
7. Premises and Equipment
An analysis of premises and equipment follows:
<TABLE>
<CAPTION>
December 31,
--------------------
(In Thousands) 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 1,000 $ 1,000
Building 12,140 12,127
Leasehold improvements 93,115 88,378
Furniture and equipment 62,776 52,280
-------- --------
169,031 153,785
Less accumulated amortization and depreciation 59,264 51,705
-------- --------
Total $109,767 $102,080
======== ========
Amortization and depreciation expense $ 11,952 $ 10,669
======== ========
</TABLE>
Amortization and depreciation expense amounted to $10,062,000 for 1991.
-32-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
- -------------------------------------------------------------------------
8. Federal Funds Purchased, Securities Sold Under
Agreements to Repurchase and Other Borrowings
An analysis of borrowings follows:
<TABLE>
<CAPTION>
(In Thousands) 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal funds purchased:
Year-end balance $ 31,535 $ 70,945 $ 45,775
Daily average balance 151,005 253,446 147,888
Maximum end-of-month balance 470,325 812,810 257,870
Weighted average interest rate during year 3.12% 3.78% 5.62%
Weighted average interest rate at year-end 3.00 2.04 4.01
Securities sold under agreements to repurchase:
Year-end balance $189,679 $134,473 $387,657
Daily average balance 187,868 192,733 207,662
Maximum end-of-month balance 305,249 378,146 387,657
Weighted average interest rate during year 2.82% 3.26% 5.64%
Weighted average interest rate at year-end 2.86 2.91 3.69
Other borrowings:
Year-end balance $ 36,858 $ 19,877 $ 40,349
Daily average balance 17,326 20,327 16,171
Maximum end-of-month balance 37,716 101,138 40,349
Weighted average interest rate during year 2.88% 2.45% 5.40%
Weighted average interest rate at year-end 2.59 3.97 3.75
</TABLE>
Federal funds purchased and securities sold under agreements to
repurchase generally are overnight borrowing transactions.
- -------------------------------------------------------------------------
9. Income Taxes
The Corporation adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," ("FAS 109") retroactive to January 1,
1992. FAS 109 requires, among other things, that an asset and liability
approach be applied to accounting for income taxes and that the
recognition of deferred tax assets be evaluated using a "more likely than
not" realizability criterion. As a result of adopting FAS 109, first
quarter and full year 1992 net income was increased by $4.6 million ($.47
per share).
Since the Corporation did not restate its 1991 financial statements
for the effects of FAS 109, the following disclosures have been prepared
using two different accounting principles. The disclosures for 1993 and
1992 have been prepared under the provisions of FAS 109. Disclosures for
1991 have been prepared under the guidelines set forth in Accounting
Principles Board Opinion No. 11, the predecessor of FAS 109.
-33-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
The components of the provision for income tax expense that are
attributable to income from operations are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
(In Thousands) 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $16,280 $10,543 $ 9,684
State and local 12,318 10,957 9,088
------- ------- -------
Total current income taxes 28,598 21,500 18,772
------- ------- -------
Deferred:
Federal 2,180 2,205 (1,308)
State and local (360) (1,316) (40)
------- ------- -------
Total deferred income taxes 1,820 889 (1,348)
------- ------- -------
Total $30,418 $22,389 $17,424
======= ======= =======
</TABLE>
Deferred income tax provisions (benefits) that are attributable to income
from operations resulted from:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
(In Thousands) 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alternative minimum tax $ 2,563 $ 3,718 $(1,356)
Depreciation expense 2,999 1,593 2,835
Other real estate 1,554 107 (2,170)
Deferred compensation (3,941) (3,012) (1,432)
Provision for credit losses (706) (1,367) 69
Trust and fiduciary activities (337) (499) (1,081)
Retirement plans 63 (236) 1,651
Federal tax rate change (403) - -
Other, net 28 585 136
------- ------- -------
Total $ 1,820 $ 889 $(1,348)
======= ======= =======
</TABLE>
-34-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
A reconciliation of the Federal statutory income tax rate with the
Corporation's effective income tax rate attributable to income from
operations follows:
<TABLE>
<CAPTION>
Years Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands) 1993 1993 1992 1992 1991 1991
- ------------------------------------------------------------------------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. Federal income tax rate $25,440 35.0 % $20,033 34.0 % $16,594 34.0 %
Increase (decrease) in effective rate resulting from:
Tax-exempt interest income (2,466) (3.4) (3,562) (6.0) (4,846) (9.9)
State and local taxes, net of Federal
income tax benefit 7,773 10.7 6,363 10.8 5,972 12.2
Alternative minimum tax - - - - (1,356) (2.8)
Miscellaneous items (329) (0.5) (445) (0.8) 1,060 2.2
------- ---- ------- ---- ------- ----
$30,418 41.8 % $22,389 38.0 % $17,424 35.7 %
======= ==== ======= ==== ======= ====
</TABLE>
The components of income tax expense for the years ended December 31,
1993 and 1992 that are attributable to income from operations, cumulative
effect of changes in accounting principles and stockholders' equity
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
(In Thousands) 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income from operations $30,418 $ 22,389
Cumulative effect of changes in accounting principles:
Adoption of FAS 106 - (10,579)
Adoption of FAS 109 - (4,609)
Stockholders' equity:
Adoption of FAS 115 7,814 -
Tax benefit on dividends paid to the ESOP on unallocated shares (683) (507)
------- --------
Total $37,549 $ 6,694
======= ========
</TABLE>
-35-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
The components of the net deferred tax (asset) as of December 31, 1993
and 1992 follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
(In Thousands) 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax (assets):
Deferred compensation $(14,880) $(10,751)
Trust and fiduciary activities (9,239) (8,750)
Retirement plans (6,332) (5,863)
Allowance for credit losses (6,186) (5,382)
Leasing transactions (3,400) (3,400)
Other real estate (1,232) (2,793)
Alternative minimum tax - (2,563)
Other (1,427) (1,642)
-------- --------
(42,696) (41,144)
-------- --------
Deferred tax liabilities:
Premises and equipment 18,012 14,757
Other 494 780
-------- --------
Net deferred tax (asset) $(24,190) $(25,607)
======== ========
</TABLE>
The income tax effect of securities gains, net was $1,433,000, $1,304,000
and $725,000 in 1993, 1992 and 1991, respectively.
- -------------------------------------------------------------------------
10. Long Term Debt
Long term debt is comprised of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
(In Thousands) 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
8 1/2% Capital Notes due 2001 $12,453 $14,103
8.35% Senior Unsecured ESOP Notes due 1999 18,697 21,029
8% Notes due 1996 29,950 29,950
Federal Home Loan Bank Borrowings 4,000 -
------- -------
Total $65,100 $65,082
======= =======
</TABLE>
-36-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
The capital notes were issued by the Trust Company, and are subordinated
to deposits and certain other liabilities. The capital notes require
annual sinking fund payments of $1,650,000; and are redeemable in whole
or in part, at the option of the Trust Company, subject to the approval
of any bank supervisory authority having jurisdiction, at an initial
redemption price of 104.25% of the principal amount, decreasing to 100%
of the principal amount in 1996 and thereafter, together with accrued
interest.
The 8.35% Senior Unsecured ESOP Notes due 1999 ("ESOP Notes") are
obligations of the Corporation that require annual payments of principal
and interest. The Corporation loaned the proceeds from the ESOP Notes to
the trust established to administer the 401(k) Plan and ESOP of United
States Trust Company of New York and Affiliated Companies ("401(k) Plan")
on the same terms. The 401(k) Plan used the proceeds to purchase 690,498
shares of common stock from the Corporation's treasury stock holdings for
an Employee Stock Ownership Plan ("the ESOP"). The ESOP Notes are
collateralized by the unallocated shares of the Corporation's common
stock held by the ESOP. The ESOP Notes call for principal repayments
amounting to $2,526,000, $2,737,000, $2,966,000, $3,213,000 and
$3,482,000, payable annually on February 1, 1994, through February 1,
1998. Based upon the anticipated February 1, 1994 loan payment, 69,075
shares of common stock were allocated to ESOP participants as of December
31, 1993, bringing the total number of allocated shares to 345,124.
The 8% notes are unsecured and unsubordinated obligations of the
Corporation. They are not redeemable or callable by, or at the option
of, the Corporation at any time.
The Federal Home Loan Bank ("PHIL") borrowings represent four
separate drawings of $1 million each, with maturity dates between 1995
and 1999. The PHIL borrowings bear interest ranging between 5.56% and
6.43%. Each PHIL borrowing is collateralized by the pledge of qualifying
assets.
- -------------------------------------------------------------------------
11. Stockholders' Equity
At the Annual Meeting of Shareholders on April 27, 1993, the shareholders
approved an amendment to the Certificate of Incorporation which reduced
the par value of the Corporation's common stock from $5.00 per share to
$1.00 per share. Effective as of that date $45,537,000 was transferred
from the Common Stock account to the Capital Surplus account. In
addition, the shareholders approved an increase in the Corporation's
authorized common shares to 40 million from 20 million. Neither of these
actions had any effect on the total amount of Stockholders' Equity.
In April 1992, the Corporation's Board of Directors approved a 1.0
million common stock buyback program. This was in addition to the 2.7
million common stock buyback program that had been previously approved.
Through December 31, 1993, 2,941,787 shares of common stock have been
repurchased in the open market at an average cost of $39.54 per share.
Of the total common shares repurchased, 157,500 common shares were
-37-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
purchased in 1993 at a total cost of $8.5 million.
The Corporation is authorized to issue up to 5.0 million, $1.00 par
value, preferred shares as of December 31, 1993. No preferred shares
have been issued.
The Corporation's banking subsidiaries are subject to limitations on
the amount of dividends they can pay to the Corporation without prior
approval of the bank regulatory authorities. Under this limitation, the
banking subsidiaries can declare, in aggregate, dividends in 1994 without
approval of the regulatory authorities of approximately $27.4 million,
plus an additional amount equal to the banking subsidiaries' net income
for 1994 as of the dividend declaration date. In addition, in 1992 the
Trust Company applied for, and was granted permission by the Federal
Reserve Bank of New York, authority to pay a special dividend to the
Corporation of up to $50.0 million. Under this special authority, the
Trust Company has paid dividends to the Corporation of $5.0 million in
1993 and $25.0 million in 1992.
- -------------------------------------------------------------------------
12. Contingencies
There are various pending and threatened actions and claims against the
Corporation and its subsidiaries in which the Corporation has denied any
liability and which it will vigorously contest. Management, after
consultation with counsel as to the foregoing matters, is of the opinion
that the ultimate resolution of such matters is unlikely to have any
future material effect on the Corporation's financial position.
- -------------------------------------------------------------------------
13. Financial Instruments with Off-Balance-Sheet Risk
In the normal course of business, the Corporation enters into various
transactions involving off-balance sheet financial instruments to meet
the needs of its customers and to reduce its own exposure to fluctuations
in interest rates. These transactions are subject to varying degrees of
market and credit risk. As compensation for the risks assumed, these
instruments generate interest or fee revenue or expense. The controls
used to monitor the credit and market risks of off-balance sheet
financial instruments are consistent with those associated with the
Corporation's on-balance sheet activities.
Credit-Related Financial Instruments
Credit-related financial instruments include firm commitments to extend
credit ("commitments"), standby letters of credit ("standbys") and
indemnifications in connection with securities lending activities
("securities lending"). The credit risk associated with these
instruments varies depending on the creditworthiness of the customer and
the value of the collateral held, if any. Collateral requirements vary
by type of instrument. The contractual amounts of these instruments
represent the amounts at risk should the contract be fully drawn upon and
the client default, with all collateral being worthless.
-38-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
Commitments are legally binding agreements to lend to a customer
that generally have fixed expiration dates or other termination clauses,
may require payment of a fee and are not secured by collateral until
funds are advanced. The Corporation evaluates each customer's
creditworthiness on a case-by-case basis prior to approving a commitment
or advancing funds under a commitment and determining the related
collateral requirement. Collateral held includes marketable securities,
real estate mortgages or other assets. The majority of the Corporation's
commitments are related to mortgage lending to private banking clients
and backup lines or credit for various financial institutions. The
mortgage lending commitments are generally expected to be utilized, while
the backup lines of credit typically expire unused. Commitments totaled
$129.6 million and $153.1 million at December 31, 1993 and 1992,
respectively.
Standbys are conditional commitments issued by the Corporation to
guarantee the performance of a customer to a third party. Those
guaranties are issued to satisfy margin requirements incurred by
investment banking and broker/dealer companies for their activities
conducted on organized exchanges, to guarantee performance under lease
and other agreements by professional business corporations and for other
purposes. The credit risk involved in issuing standbys is essentially
the same as that involved in extending loans. Standbys outstanding at
December 31, 1993 and 1992 amounted to $113.5 million and $122.5 million,
respectively. Collateral is obtained based on management's credit
assessment of the counterparty. At December 31, 1993, $92.7 million of
the standbys outstanding were partially or fully secured by collateral
consisting of cash, marketable equity securities, marketable debt
securities (including corporate and U.S. Treasury debt securities) and
other assets, compared with $82.5 million at December 31, 1992.
Approximately 54% of the standbys outstanding at December 31, 1993 expire
within one year compared with approximately 47% at December 31, 1992.
The Trust Company has established a program through which
participating trust customers may lend their securities to
counterparties. In certain cases, the Trust Company indemnifies the
trust customer for losses if the counterparty defaults and the collateral
received is insufficient to compensate for the loss of the loaned
securities. Collateral value is monitored daily and additional
collateral is obtained when appropriate. Securities lending obligations
subject to the Trust Company's indemnification amounted to $1,231.1
million at December 31, 1993 and $814.7 million at December 31, 1992.
Collateral, principally cash, held against these security lending
obligations totaled $1,253.2 million and $828.2 million, respectively, at
December 31, 1993 and 1992, respectively.
Derivative Financial Instruments
From time to time, the Corporation utilizes derivative financial
instruments, such as interest rate swap agreements ("swap agreements")
and forward rate agreements ("FRAs") to hedge its fixed rate loan
-39-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
portfolio as part of its overall asset and liability management process.
The market values associated with these instruments can vary depending on
movements in interest rates. The measurement of the market risks
associated with these instruments is meaningful only when all related and
offsetting transactions are identified. The notional or contractual
amounts of these instruments are indications of the volume of
transactions and do not necessarily represent amounts at risk. The
amounts at risk upon default are generally limited to the unrealized
market valuation gains of the instruments and will vary based on changes
in interest rates. The risk of default depends on the creditworthiness
of the counterparty to the instrument. The Corporation evaluates the
creditworthiness of its counterparties as part of its normal credit
review procedures.
At December 31, 1993 and 1992, the Corporation was a counterparty to
swap agreements with a total notional principal amount of $103 million
and $94 million, respectively. Swap agreements involve the exchange of
fixed and floating rate interest payment obligations computed on notional
principal amounts. The Corporation enters into swap agreements with
counterparties as a principal. Outstanding swap agreements had a
weighted average maturity of approximately 19 months at December 31, 1993
and 23 months at December 31, 1992.
FRAs involve the exchange of net interest differentials calculated
as the difference between a contractual interest rate and a market
interest rate determined on the contract's settlement date. At December
31, 1993, the Corporation was a party to FRAs with a total notional
principal amount of $150 million, compared with a total notional
principal amount of $175 million outstanding at December 31, 1992.
Outstanding FRAs had a weighted average maturity of approximately 90 days
at both December 31, 1993 and 1992.
- -------------------------------------------------------------------------
14. Rental Commitments on Premises and Equipment
Substantially all of the Corporation's operations are conducted from
premises that are leased. The initial lease periods expire between 1994
and 2016. The lease for the Corporation's headquarters building expires
in 2014 and is renewable at the Corporation's option for two successive
terms of 10 years each at the then current market rate. In addition, the
Corporation leases data processing equipment under leases with expiration
dates ranging from two to seven years. Management expects that in the
normal course of business most leases will be renewed or replaced by
other leases.
Rent expense on operating leases for the years 1993, 1992 and 1991,
net of sublease rentals, was $35,799,000, $35,021,000 and $35,269,000,
respectively. Operating lease rent expense includes adjustments
amounting to $2,584,000 in 1993, $2,222,000 in 1992 and $3,598,000 in
1991 for increases in real estate taxes, labor costs and certain
operating expenses of the landlords, net of similar adjustments applied
on sublease rentals.
-40-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
The following is a schedule of future minimum rental and sublease
payments that have noncancelable lease terms in excess of one year as of
December 31, 1993:
<TABLE>
<CAPTION>
Minimum
Minimum Rentals Net
Minimum Sublease of Sublease
(In Thousands) Rentals Rentals Rentals
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Year Ending December 31:
1994 $ 26,846 $200 $ 26,646
1995 27,581 183 27,398
1996 27,379 - 27,379
1997 25,980 - 25,980
1998 25,302 - 25,302
Later years 272,745 - 272,745
-------- ---- --------
Total minimum payments required $405,833 $383 $405,450
======== ==== ========
</TABLE>
The foregoing minimum rental amounts include, and are subject to
escalations based upon increases in certain operating expenses incurred
by the lessors.
- -------------------------------------------------------------------------
15. Retirement Plan
The following table details the components of pension expense (credit)
and the funded status of the Corporation's qualified and non-qualified
retirement plans and the major assumptions used to determine these
amounts.
-41-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
<TABLE>
<CAPTION>
Qualified Plan Non-Qualified Plan
---------------------------------- -----------------------------------
(In Thousands) 1993 1992 1991 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Components of pension expense (credit):
Service cost $ 5,072 $ 4,267 $ 3,520 $ 260 $ 157 $ 134
Interest cost 9,212 8,313 7,379 355 396 308
Actual return on plan assets (31,233) (15,892) (36,051) - - -
Net amortization and deferral 15,189 821 21,656 110 191 148
-------- -------- -------- ------- ------- -------
Net pension expense (credit) $ (1,760) $ (2,491) $ (3,496) $ 725 $ 744 $ 590
======== ======== ======== ======= ======= =======
Funded status of retirement plans:
Plan assets, at market value $194,141 $167,180 $155,241 $ - $ - $ -
Actuarial present value of benefit
obligations:
Accumulated benefit obligations:
Vested 99,757 78,468 66,265 2,684 1,749 1,185
Non-vested 7,519 6,559 5,816 209 205 159
-------- -------- -------- ------- ------- -------
Total 107,276 85,027 72,081 2,893 1,954 1,344
Provision for future salary increases 18,370 17,916 16,450 2,130 2,626 2,437
-------- -------- -------- ------- ------- -------
Projected benefit obligations 125,646 102,943 88,531 5,023 4,580 3,781
-------- -------- -------- ------- ------- -------
Excess of plan assets over projected
benefit obligations 68,495 64,237 66,710 (5,023) (4,580) (3,781)
Unrecognized cumulative net losses (gains) (32,072) (27,366) (29,207) 1,283 1,459 1,342
Prior service cost not yet recognized
in periodic pension costs 1,786 1,976 1,252 245 270 280
Unrecognized net liability (asset)
at date of initial application (19,189) (21,588) (23,986) 414 466 517
-------- -------- -------- ------- ------- -------
Prepaid (accrued) pension cost $ 19,020 $ 17,259 $ 14,769 $(3,081) $(2,385) $(1,642)
======== ======== ======== ======= ======= =======
Major assumptions at year-end (1):
Discount rate 7.5% 8.5% 9.0% 7.5% 8.5% 9.0%
Rate of increase in compensation 4.5% 5.5% 6% 4.5% 5.5% 6%
Expected rate of return on plan assets 9% 9% 9% 9% 9% 9%
- -------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> The pension expense (credit) is determined using the assumptions as of the beginning of the year. The funded status
is determined using the assumptions as of the end of the year.
</TABLE>
The Corporation uses the projected unit credit cost method to compute the
vested benefit obligation, where the vested benefit obligation is the
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<PAGE>
<PAGE>
U.S. TRUST CORPORATION
actuarial present value of the vested benefits to which the employee is
entitled based on the employee's expected date of separation or
retirement.
- -------------------------------------------------------------------------
16. Incentive Compensation Plans
The Corporation sponsors a 401(k) Plan and ESOP covering all employees
who satisfy a one year service requirement. The 401(k) Plan provides
that, depending upon the Corporation satisfying certain profitability
criteria and other factors, eligible employees receive annual awards
calculated as a percentage of such employees' compensation. Awards to
senior officers are calculated under the provisions of the Annual
Incentive Plan ("AIP"), while awards to non-senior officers and other
employees are governed by the terms of the Incentive Award Plan ("IAP").
Awards under either the AIP or IAP plan are comprised of an ESOP award,
which is mandatorily contributed to the 401(k) Plan, and of an elective
award, which may be taken in cash or, subject to certain limitations,
deferred and contributed to the 401(k) Plan. Total incentive awards were
$26.0 million, $23.8 million and $19.0 million in 1993, 1992 and 1991,
respectively.
The Corporation's 1989 Stock Compensation Plan ("the 1989 Plan")
governs the granting of stock option, restricted common stock and Long-
Term Performance ("LTPP") awards to eligible employees. The 1989 Plan,
as amended in April 1992, authorizes the issuance of a maximum of 1.3
million common shares plus common shares previously authorized but not
utilized under certain predecessor stock compensation plans. At December
31, 1993, the Corporation had 561,307 shares of common stock available
for issuance as restricted stock awards, incentive stock options, non-
qualified stock options and performance share units.
Under the 1989 Plan, the Corporation may award either incentive
stock options or non-qualified stock options. The options expire ten
years from the date of grant and their exercise price is not less than
the fair value of a common share on the date of grant.
In 1989, the shareholders of the Corporation approved the Stock
Option Plan for Non-Employee Directors of U.S. Trust Corporation ("the
Directors Plan"). The Directors Plan provides for the granting of non-
qualified options to non-employee directors, as defined in the Directors
Plan. The Directors Plan authorizes the issuance of a maximum of 125,000
shares of common stock. The options expire ten years from the date of
grant and their exercise price is not less than the fair value of a
common share on the date of grant.
The following is a combined summary of option transactions which
occurred under the 1989 Plan and the Directors Plan during 1993, 1992 and
1991.
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<PAGE>
U.S. TRUST CORPORATION
<TABLE>
<CAPTION>
Shares
Under Option Price
Option Per Share
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, January 1, 1991 1,239,920 $ 9.22 - 42.13
Granted 10,000 29.58 - 35.45
Exercised or cancelled (61,787) 9.22 - 42.13
--------- --------------
Balance, December 31, 1991 1,188,133 16.72 - 42.13
Granted 210,000 44.75 - 49.63
Exercised or cancelled (145,735) 16.72 - 44.75
--------- --------------
Balance, December 31, 1992 1,252,398 16.72 - 49.63
Granted 179,200 53.88
Exercised or cancelled (144,425) 16.72 - 53.88
--------- --------------
Balance, December 31, 1993 1,287,173 $19.00 - 53.88
========= ==============
</TABLE>
Options exercisable at December 31, 1993 and 1992 amounted to 750,121
shares and 668,293 shares, respectively.
Awards of restricted common stock to key executives are contingent
upon their continued employment, generally between two to seven years.
The fair value of the shares at the date of grant is recorded as
compensation expense over the restriction period. At December 31, 1993,
a total of 100,608 shares with an unamortized cost of $1,594,000 were
outstanding with restrictions. During 1993, 28,500 shares with an
aggregate fair value at their date of grant of approximately $1,536,000
were awarded. The expense recognized for the plan amounted to $1,465,000
in 1993, $1,240,000 in 1992 and $1,259,000 in 1991.
LTPP awards are calculated as a percentage of such officers'
compensation to the extent that certain goals defined in the plan are
met. The Corporation provided for awards of $4,222,000, $3,691,000 and
$1,984,000 under the LTPP in the years 1993, 1992 and 1991. LTPP awards
are based upon three-year cycles. Awards are charged to expense over the
three-year cycle based upon earnings projections.
- -------------------------------------------------------------------------
17. Health Care and Life Insurance Benefits
The Corporation provides certain health care and life insurance benefits
for all employees, certain qualifying retired employees and their
dependents.
The Corporation adopted Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," ("FAS 106") retroactive to January 1, 1992, using the
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U.S. TRUST CORPORATION
immediate recognition method. FAS 106 requires that employers accrue,
during the years that the employee renders service, the expected cost of
providing health care and life insurance and other benefits to an
employee upon retirement. Under the immediate recognition transition
method, the accumulated postretirement benefit obligation of $23.0
million, net of deferred taxes of $10.6 million, was charged against
first quarter 1992 net income. In addition, employee benefits expense
was increased by $2.2 million ($1.4 million after taxes) reflecting the
ongoing impact of FAS 106. The increased expense was charged evenly to
each of the four quarters of 1992.
Effective January 1, 1993, the Corporation's postretirement health
care plans were amended to change the health care insurance cost-sharing
formula for retirees and their qualified dependents. Under the revised
cost-sharing formula, the Corporation will not absorb any insurance
premium cost increases after 1999. The impact of this amendment ($8.5
million reduction in the accumulated postretirement benefit obligation)
is being amortized over the estimated remaining service lives of the
affected employee group of 11 years, commencing in 1993.
The following tables detail the components of expense for the
Corporation's unfunded postretirement health care and life insurance
plans and the composition of the accumulated postretirement benefit
obligation.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------
1993 1992
------------------------------ ------------------------------
(In Thousands) Health Life Total Health Life Total
- -------------------------------------------------------------------------------------------------------------------------
<C> <S> <S> <S> <S> <S> <S>
Components of postretirement benefit expense:
Service cost $ 436 $109 $ 545 $ 915 $102 $1,017
Interest cost 1,099 465 1,564 1,704 331 2,035
Amortization of prior service cost (771) - (771) _ - -
Amortization of loss - 97 97 - - -
------ ---- ------ ------ ---- ------
Net postretirement benefit expense $ 764 $671 $1,435 $2,619 $433 $3,052
====== ==== ====== ====== ==== ======
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------
1993 1992
------------------------------ ------------------------------
(In Thousands) Health Life Total Health Life Total
- -------------------------------------------------------------------------------------------------------------------------
<C> <S> <S> <S> <S> <S> <S>
Composition of accumulated postretirement benefit
obligation:
Retirees (including covered dependents) $ 4,252 $ 4,234 $ 8,486 $ 5,390 $1,994 $ 7,384
Fully eligible active employees 3,209 926 4,135 2,381 713 3,094
Other active employees 8,237 2,039 10,276 5,455 1,635 7,090
------- ------- ------- ------- ------ -------
Total obligation 15,698 7,199 22,897 13,226 4,342 17,568
Unrecognized prior service cost amendment 7,713 - 7,713 8,484 - 8,484
Unrecognized net (loss) (1,659) (3,599) (5,258) (123) (725) (848)
------- ------- ------- ------- ------ -------
Accrued (liability) $21,752 $ 3,600 $25,352 $21,587 $3,617 $25,204
======= ======= ======= ======= ====== =======
<FN>
<F1> The postretirement benefit expense is determined using the assumptions as of the beginning of the year. The
accumulated postretirement benefit obligation is determined using the assumptions as of the end of the year.
</TABLE>
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U.S. TRUST CORPORATION
The assumed rate of future increases in per capita cost of health care
benefits (the health care cost trend rate) is 14% in 1994, decreasing
gradually to 6% in the year 2009. An increase in the health care cost
trend rate by 1% will increase the annual net postretirement benefit
expense by approximately $60,000 and the accumulated postretirement
benefit obligation by approximately $890,000.
A weighted average discount rate of 7.5% was used at December 31,
1993 to measure the accumulated postretirement benefit obligation.
- -------------------------------------------------------------------------
18 Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," ("FAS 107") requires the disclosure
of the estimated fair values of financial instruments. Substantially all
of the Corporation's assets, liabilities and off-balance sheet products
are considered financial instruments as defined by FAS 107. Fair value
is defined as the price at which a financial instrument could be
liquidated in an orderly manner over a reasonable time period under
present market conditions.
FAS 107 requires that the fair value of financial instruments be
estimated using various valuation methodologies. Quoted market prices,
when available, are used as the measure of fair value. Where quoted
market prices are not available, fair values have been estimated using
primarily discounted cash flow analyses and other valuation techniques.
These derived fair values are significantly affected by assumptions used,
principally the timing of future cash flows and the discount rate.
Because assumptions are inherently subjective, the estimated fair values
cannot be substantiated by comparison to third party evidence and may not
be indicative of the value that could be realized in a sale or settlement
of the financial instrument.
The relevance of this information is also severely constrained
because FAS 107 provides only a partial estimate of the fair value of the
Corporation. The FAS 107 disclosures do not provide an estimated fair
value of the various ongoing businesses in which the Corporation
operates. For example, FAS 107 specifically excludes the fair value of
certain fee generating businesses, the value of long-term trust
relationships and anticipated future business activities from its scope.
A discussion of the fair value estimation methodologies used for
material financial instruments follows.
Loans
The estimated fair value of the Corporation's performing fixed rate loans
(primarily residential real estate mortgages) was calculated by
discounting contractual cash flows adjusted for current prepayment
estimates. The discount rates were based on the interest rates charged
to current customers for comparable loans. The Corporation's performing
adjustable rate loans reprice frequently at current market rates.
Therefore, the fair value of these loans has been estimated to be
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<PAGE>
U.S. TRUST CORPORATION
approximately equal to their carrying amount. Estimated fair value for
nonperforming loans was based upon a discounted estimated cash flow
method and, for residential real estate mortgage loans, current
appraisals. The discount rate used was commensurate with the risk
associated with the estimated cash flows. See "Notes to the Consolidated
Financial Statements No. 5" for additional discussion of the
Corporation's entire loan portfolio.
Securities
The estimated fair value of securities is based upon quoted bid market
prices, where available, or fair value quotes obtained from third party
pricing services. See "Notes to the Consolidated Financial Statements
No. 4" for additional discussion of securities.
Long Term Debt
The estimated fair value of long term debt was calculated using a
discounted cash flow method, where the estimated cash flows considered
contractual principal and interest payments, as well as required sinking
fund payments. The discount rate used consisted of two components.
First, the credit risk spread was determined for each debt issue i.e.,
the spread that the Corporation paid over the comparable risk-free rate
at the date of issuance. The credit risk spread was added to the current
risk-free market interest rate for the comparable remaining maturity.
See "Notes to the Consolidated Financial Statements No. 10" for
additional discussion of long term debt.
A comparison of the fair value and carrying amounts of the Corporation's
significant on-balance sheet financial instruments follows.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
1993 1992
-------------------- --------------------
Carrying Fair Carrying Fair
(In Millions) Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans $1,385* $1,404 $1,249* $1,260
Securities:
Available for sale 820** 837 - -
Held to maturity 87 87 - -
Investment - - 1,196 1,222
Long term debt 65 70 65 69
* Net of allowance for credit losses.
** Represents the amortized cost of securities available for sale, which is different from the estimated fair
value basis of accounting at which they are reported in the Consolidated Statement of Condition.
</TABLE>
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<PAGE>
<PAGE>
U.S. TRUST CORPORATION
Interest Rate Swap Agreements
The Corporation is a net fixed rate payor under its interest rate swap
agreements ("swap agreements") and at December 31, 1993 and 1992 had a
net payable of $468,000 and $537,000, respectively. Swap agreements are
used as a hedge of the Corporation's funding of various fixed rate
interest earning assets. The estimated fair value of swap agreements are
obtained from dealer quotes. These values represent the estimated amount
that the Corporation would have to pay to terminate the swap agreements,
taking into account current interest rates and, when appropriate, the
current creditworthiness of the counterparties. See "Notes to the
Consolidated Financial Statements No. 13" for additional discussion of
swap agreements.
Forward Rate Agreements
Forward rate agreements ("FRAs") are used as a hedge of the Corporation's
short-term interest earning assets. The estimated fair value of FRAs are
obtained from dealer quotes. The fair value of FRAs at December 31, 1993
and 1992 was nominal. See "Notes to the Consolidated Financial
Statements No. 13" for additional discussion of FRAs.
A comparison of the fair value and notional amounts of the Corporation's
significant off-balance sheet financial instruments follows.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
1993 1992
-------------------- --------------------
Notional Fair Notional Fair
(In Millions) Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate swap agreements $103 $(4.0) $ 94 $(6.6)
Forward rate agreements 150 0.1 175 0.1
</TABLE>
Other Financial Instruments
The Corporation's other financial instruments are generally short-term in
nature and contain very little credit risk. These instruments consist of
cash and due from banks, interest bearing deposits with banks, Federal
funds sold, securities purchased under agreements to resell, accrued
interest receivable and accounts receivable, demand deposit liabilities,
time deposit liabilities, Federal fund purchased, securities sold under
agreements to repurchase, other borrowings and accrued interest payable
and accounts payable. Consequently, carrying amounts of these assets and
liabilities approximate estimated fair value.
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<PAGE>
<PAGE>
U.S. TRUST CORPORATION
- -------------------------------------------------------------------------
19. Parent Company Only
Condensed statements of income, condition and cash flows for U.S. Trust
Corporation (Parent Company Only) follow:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
STATEMENT OF INCOME ---------------------------------
(In Thousands) 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Equity in Net Income (Loss) of Subsidiaries:
Bank $41,746 $34,046 <F1> $30,916
Non-Bank 1,862 (1,358)<F1> (78)
Interest Income 2,658 3,228 3,673
Other Income 1 - 1
------- ------- -------
Total Income 46,267 35,916 34,512
------- ------- -------
Expenses:
Interest Expense 4,131 4,182 4,406
Other Expenses 586 2,240 785
------- ------- -------
Total Expenses 4,717 6,422 5,191
------- ------- -------
Income Before Income Tax Expense (Benefit) 41,550 29,494 29,321
Income Tax Expense (Benefit) (717) 743 (2,062)
------- ------- -------
Net Income $42,267 $28,751 $31,383
======= ======= =======
<FN>
<F1> Equity in Net Income (Loss) of Subsidiaries includes the impact of adopting FAS 106 and FAS 109.
</TABLE>
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U.S. TRUST CORPORATION
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
December 31,
STATEMENT OF CONDITION ----------------------
(In Thousands) 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Due from Subsidiary $ 219 $ 444
Due from Other Banks 14 212
-------- --------
Total Due from Banks 233 656
-------- --------
Securities Purchased from Subsidiary Under Agreements to Resell - 19,289
Investment in Subsidiaries at Equity in Net Assets:
Bank 229,239 207,645
Non-Bank 34,165 18,810
-------- --------
Total Investment in Subsidiaries 263,404 226,455
-------- --------
Loan to Non-Bank Subsidiary - 700
Securities:
Available for Sale, at Estimated Fair Value 24,078 -
Investment (Estimated Fair Value $11,899 in 1992) - 11,136
Other Assets 5,590 7,169
-------- --------
Total Assets $293,305 $265,405
======== ========
LIABILITIES
Short-Term Borrowings $ - $ 5,000
Due to Subsidiary 1,500 -
Other Liabilities 14,571 12,273
Long Term Debt 48,647 50,979
-------- --------
Total Liabilities 64,718 68,252
-------- --------
TOTAL STOCKHOLDERS' EQUITY 228,587 197,153
-------- --------
Total Liabilities and Stockholders' Equity $293,305 $265,405
======== ========
</TABLE>
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<PAGE>
<PAGE>
U.S. TRUST CORPORATION
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
STATEMENT OF CASH FLOWS ---------------------------------
(In Thousands) 1993 1992* 1991*
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 42,267 $ 28,751 $ 31,383
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Equity in Net (Income) of Subsidiaries (43,608) (32,688) (30,838)
Dividends Received from Subsidiaries 30,000 43,836 28,476
Deferred Income Taxes (7,612) 4,572 -
Net Change in Accruals, Receivables and Other Assets 4,307 622 (403)
Net Change in Accruals, Payables and Other Liabilities 6,399 1,193 (1,117)
Other, Net 683 508 506
-------- -------- --------
Net Cash Provided by Operating Activities 32,436 46,794 28,007
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Subsidiaries (17,028) (11,900) (9,756)
Net Change in Securities Purchased Under Agreements to Resell 19,289 (19,289) -
Investment Securities:
Proceeds from Sales - 3,778 -
Proceeds from Maturities, Calls and Mandatory Redemptions 2,234 1,927 -
Purchases (14,517) - (3,188)
Net Change in Loans to Subsidiaries 700 (700) 2,250
Principal Payment by ESOP 2,332 2,152 1,986
-------- -------- --------
Net Cash (Used) by Investing Activities (6,990) (24,032) (306)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Change in Loans from Subsidiaries 1,500 - -
Net Change in Short-Term Borrowings (5,000) 5,000 (8,124)
Repayment of Long Term Debt (2,332) (2,152) (1,986)
Issuance of Common Stock Under Employee Benefit Plans 5,653 3,745 916
Purchases of Treasury Stock (8,485) (13,277) (3,862)
Dividends Paid (17,205) (15,570) (14,618)
-------- -------- --------
Net Cash (Used) by Financing Activities (25,869) (22,254) (27,674)
-------- -------- --------
Net Change in Cash and Cash Equivalents (423) 508 27
Cash and Cash Equivalents at January 1 656 148 121
-------- -------- --------
Cash and Cash Equivalents at December 31 $ 233 $ 656 $ 148
======== ======== ========
Income Taxes Paid (Refund) Received $ 5,285 $ (592) $ 1,607
Interest Expense Paid 4,258 4,392 4,601
* Certain amounts have been reclassified to conform with the 1993 presentation.
</TABLE>
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<PAGE>
U.S. TRUST CORPORATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
20. Quarterly Consolidated Statement of Income (Unaudited)
1993 1992
----------------------------------- --------------------------------------------
(In Thousands, Except Fourth Third Second First Fourth Third Second First
Per Share Amounts) Quarter Quarter Quarter Quarter Quarter Quarter<F1> Quarter<F1> Quarter<F1>
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 27,683 $31,588 $27,284 $29,687 $27,887 $29,638 $23,935 $27,428
Provision for Credit Losses 500 1,000 1,250 1,250 1,500 1,500 1,500 1,500
-------- ------- ------- ------- ------- ------- ------- -------
Net Interest Income After Provision
for Credit Losses 27,183 30,588 26,034 28,437 26,387 28,138 22,435 25,928
Total Fees and Other Income 75,714 68,683 67,353 64,213 63,475 61,735 61,586 58,768
-------- ------- ------- ------- ------- ------- ------- -------
Total Operating Income Net of
Interest Expense and Provision
for Credit Losses 102,897 99,271 93,387 92,650 89,862 89,873 84,021 84,696
Total Operating Expenses 87,711 78,328 76,534 72,947 77,248 72,212 71,131 68,941
-------- ------- ------- ------- ------- ------- ------- -------
Income From Operations Before Income
Tax Expense and Cumulative Effect
of Accounting Changes 15,186 20,943 16,853 19,703 12,614 17,661 12,890 15,755
Income Tax Expense 6,038 9,027 7,078 8,275 4,793 6,711 4,898 5,987
-------- ------- ------- ------- ------- ------- ------- -------
Income From Operations Before Cumulative
Effect of Accounting Changes 9,148 11,916 9,775 11,428 7,821 10,950 7,992 9,768
Cumulative Effect of Changes in
Accounting for Postretirement
Benefits and Income Taxes - - - - - - - (7,780)
-------- ------- ------- ------- ------- ------- ------- -------
Net Income $ 9,148 $11,916 $ 9,775 $11,428 $ 7,821 $10,950 $ 7,992 $ 1,988
======== ======= ======= ======= ======= ======= ======= =======
Primary Net Income Per Share:
Income From Operations Before
Cumulative Effect of Accounting
Changes $ .92 $ 1.20 $ .99 $ 1.16 $ .81 $ 1.13 $ .82 $ 1.02
Cumulative Effect of Changes in
Accounting for Postretirement
Benefits and Income Taxes - - - - - - - (.81)
-------- ------- ------- ------- ------- ------- ------- -------
Net Income $ .92 $ 1.20 $ .99 $ 1.16 $ .81 $ 1.13 $ .82 $ .21
======== ======= ======= ======= ======= ======= ======= =======
Fully Diluted Net Income Per Share:
Income From Operations Before
Cumulative Effect of Accounting
Changes $ .92 $ 1.20 $ .99 $ 1.15 $ .80 $ 1.12 $ .81 $ 1.02
Cumulative Effect of Changes in
Accounting for Postretirement
Benefits and Income Taxes - - - - - - - (.81)
-------- ------- ------- ------- ------- ------- ------- -------
Net Income $ .92 $ 1.20 $ .99 $ 1.15 $ .80 $ 1.12 $ .81 $ .21
======== ======= ======= ======= ======= ======= ======= =======
<FN>
<F1> First, second and third quarter 1992 statements of income have been restated to reflect the Corporation's
adoption of FAS 106 and FAS 109. See Notes 9 and 17 for additional details.
</TABLE>
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<PAGE>
U.S. TRUST CORPORATION
Report of Independent Accountants
To the Board of Directors and Stockholders of U.S. Trust Corporation:
We have audited the accompanying consolidated statements of condition of
U.S. Trust Corporation and Subsidiaries as of December 31, 1993 and 1992,
and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1993. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
U.S. Trust Corporation and Subsidiaries at December 31, 1993 and 1992,
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1993, in
conformity with generally accepted accounting principles.
As discussed in Notes 9 and 17 to the consolidated financial
statements, U.S. Trust Corporation and Subsidiaries has adopted Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
and Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," retroactive
to January 1, 1992.
Coopers & Lybrand
New York, New York
January 19, 1994
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<PAGE>
<PAGE>
U.S. TRUST CORPORATION
Analysis of Change in Net Interest Income
For the Years Ended December 31,
The following table, on a taxable equivalent basis, is an analysis of the
year-to-year changes in the categories of interest income and interest
expense resulting from changes in volume and rate.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
1993 Compared to 1992 1992 Compared to 1991
Increase (Decrease) Due to Change in: Increase (Decrease) Due to Change in:
------------------------------------- -------------------------------------
Average Average Average Average
(In Thousands) Balance Rate Total Balance Rate Total
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Interest Bearing Deposits with Banks.. $ (137) $ (1,089) $ (1,226) $(5,015) $ (5,471) $(10,486)
Loans <F1><F2>........................ 11,112 (4,068) 7,044 18,361 (18,285) 76
Federal Funds Sold and Securities
Purchased Under Agreements to Resell 5,662 (1,787) 3,875 (4,173) (6.588) (10,761)
Securities <F3>:
U.S. Government Obligations......... (7,451) (1,601) (9,052) 14,892 (6,289) 8,603
Federal Agency Obligations.......... 16,368 (8,490) 7,878 7,099 (8,452) (1,353)
State and Municipal Obligations..... (5,056) (421) (5,477) (5,250) (1,308) (6,558)
Collateralized Mortgage Obligations. (4,890) (4,219) (9,109) 8,530 (7,739) 791
Other Securities.................... 339 (310) 29 636 (1,082) (446)
------- -------- -------- ------- -------- --------
Total Securities...................... (690) (15,041) (15,731) 25,907 (24,870) 1,037
------- -------- -------- ------- -------- --------
Total Interest Earning Assets......... 15,947 (21,985) (6,038) 35,080 (55,870) (20,134)
------- -------- -------- ------- -------- --------
Interest Bearing Sources of Funds:
Interest Bearing Deposits............. 5,090 (10,062) (4,972) (1,417) (24,772) (26,189)
Federal Funds Purchased, Securities
Sold Under Agreements to
Repurchase and Other Borrowings..... (3,500) (2,347) (5,847) 5,326 (9,857) (4,531)
Long Term Debt........................ (84) (62) (146) (203) (10) (213)
------- -------- -------- ------- -------- --------
Total Sources on Which Interest
is Paid............................. 1,506 (12,471) (10,965) 3,706 (34,639) (30,933)
------- -------- -------- ------- -------- --------
Change in Net Interest Income......... $14,441 $ (9,514) $ 4,927 $31,374 $(20,575) $ 10,799
======= ======== ======== ======= ======== ========
<FN>
Changes that are not due solely to volume or rate have been allocated ratably to their respective categories.
<F1> The average principal balances of non-accrual and reduced rate loans are included in the above figures.
<F2> Loans include the Loan to ESOP, which had an average balance of $18,902,000 in 1993, $21,211,000 in 1992 and
$23,350,000 in 1991.
<F3> Includes securities classified at December 31, 1993 as available for sale and held to maturity at amortized cost and
securities classified as investment securities in 1992 and 1991. The average balance and average rate for securities
available for sale has been calculated using their amortized cost.
</TABLE>
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<PAGE>
<PAGE>
U.S. TRUST CORPORATION
Three-Year Net Interest Income and Average Balances
For the Years Ended December 31,
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
1993
--------------------------------------------------
Average Average
(Dollars in Thousands) Balance Interest Rate
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Interest Bearing Deposits with Banks............................... $ 154,376 $ 5,048 3.27%
---------- --------
Securities <F1>:
U.S. Government Obligations...................................... 394,717 23,057 5.84
Federal Agency Obligations....................................... 668,951 38,412 5.74
State and Municipal Obligations <F2>............................. 107,463 11,703 10.89
Collateralized Mortgage Obligations <F3>......................... 200,714 6,196 3.09
Other Securities................................................. 41,571 1,517 3.65
---------- --------
Total Securities................................................... 1,413,416 80,885 5.72
---------- --------
Loans <F2><F4><F5>................................................. 1,114,575 77,264 6.93
---------- --------
Federal Funds Sold and Securities Purchased Under
Agreements to Resell............................................. 403,846 12,213 3.02
---------- --------
Total Interest Earning Assets...................................... 3,086,213 175,410 5.68
---------- --------
Allowance for Credit Losses........................................ (13,601)
Cash and Due From Banks............................................ 324,802
Other Assets....................................................... 423,888
----------
Total Assets....................................................... $3,821,302
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest Bearing Deposits.......................................... $1,277,467 37,478 2.93
Federal Funds Purchased, Securities Sold Under Agreements to
Repurchase and Other Borrowings.................................. 356,199 10,509 2.95
Long Term Debt..................................................... 65,619 5,371 8.19
---------- --------
Total Sources on Which Interest is Paid............................ 1,699,285 53,358 3.14
---------- --------
Total Non-Interest Bearing Deposits................................ 1,760,892
Other Liabilities.................................................. 135,749
Stockholders' Equity <F5>.......................................... 225,376
----------
Total Liabilities and Stockholders' Equity......................... $3,821,302
==========
Net Interest Income................................................ $122,052
========
Net Yield on Interest Earning Assets............................... 3.95
- -------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Includes securities classified at December 31, 1993 as available for sale and held to maturity at amortized cost and
securities classified as investment securities in 1992 and 1991. The average balance and average rate for securities
available for sale has been calculated using their amortized cost.
<F2> Yields on state and municipal obligations are stated on a taxable equivalent basis, employing the Federal statutory
income tax rate adjusted for the effect of state and local taxes, resulting in effective tax rate of approximately
47% for 1993, 1992 and 1991.
<F3> Primarily comprised of variable rate collateralized mortgage obligations.
<F4> The average principal balances of non-accrual and reduced rate loans are included in the above figures.
<F5> Loans include the Loan to ESOP, which had an average balance of $18,902,000 in 1993, $21,211,000 in 1992 and
$23,350,000 in 1991.
</TABLE>
-55-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
1992
---------------------------------------------------
Average Average
(Dollars in Thousands) Balance Interest Rate
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Interest Bearing Deposits with Banks............................... $ 157,903 $ 6,274 3.97%
---------- --------
Securities <F1>:
U.S. Government Obligations...................................... 521,049 32,109 6.16
Federal Agency Obligations....................................... 435,502 30,534 7.01
State and Municipal Obligations <F2>............................. 153,795 17,180 11.17
Collateralized Mortgage Obligations <F3>......................... 329,014 15,305 4.65
Other Securities................................................. 33,858 1,488 4.40
---------- --------
Total Securities................................................... 1,473,218 96,616 6.56
---------- --------
Loans <F2><F4><F5>................................................. 962,301 70,220 7.30
---------- --------
Federal Funds Sold and Securities Purchased Under
Agreements to Resell............................................. 240,520 8,338 3.47
---------- --------
Total Interest Earning Assets...................................... 2,833,942 181,448 6.40
---------- --------
Allowance for Credit Losses........................................ (10,446)
Cash and Due From Banks............................................ 286,450
Other Assets....................................................... 378,032
----------
Total Assets....................................................... $3,487,978
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest Bearing Deposits.......................................... $1,140,696 42,450 3.72
Federal Funds Purchased, Securities Sold Under Agreements to
Repurchase and Other Borrowings.................................. 466,506 16,356 3.51
Long Term Debt..................................................... 66,647 5,517 8.28
---------- --------
Total Sources on Which Interest is Paid............................ 1,673,849 64,323 3.84
---------- --------
Total Non-Interest Bearing Deposits................................ 1,507,622
Other Liabilities.................................................. 97,126
Stockholders' Equity <F5>.......................................... 209,381
----------
Total Liabilities and Stockholders' Equity......................... $3,487,978
==========
Net Interest Income................................................ $117,125
========
Net Yield on Interest Earning Assets............................... 4.13
- -------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Includes securities classified at December 31, 1993 as available for sale and held to maturity at amortized cost and
securities classified as investment securities in 1992 and 1991. The average balance and average rate for securities
available for sale has been calculated using their amortized cost.
<F2> Yields on state and municipal obligations are stated on a taxable equivalent basis, employing the Federal statutory
income tax rate adjusted for the effect of state and local taxes, resulting in effective tax rate of approximately
47% for 1993, 1992 and 1991.
<F3> Primarily comprised of variable rate collateralized mortgage obligations.
<F4> The average principal balances of non-accrual and reduced rate loans are included in the above figures.
<F5> Loans include the Loan to ESOP, which had an average balance of $18,902,000 in 1993, $21,211,000 in 1992 and
$23,350,000 in 1991.
</TABLE>
-56-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
1991
---------------------------------------------------
Average Average
(Dollars in Thousands) Balance Interest Rate
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Interest Bearing Deposits with Banks............................... $ 251,072 $ 16,760 6.68%
---------- --------
Securities <F1>:
U.S. Government Obligations...................................... 318,970 23,506 7.37
Federal Agency Obligations....................................... 356,198 31,887 8.95
State and Municipal Obligations <F2>............................. 200,229 23,738 11.86
Collateralized Mortgage Obligations <F3>......................... 207,229 14,514 7.00
Other Securities................................................. 25,478 1,934 7.59
---------- --------
Total Securities................................................... 1,108,104 95,579 8.63
---------- --------
Loans <F2><F4><F5>................................................. 762,666 70,144 9.20
---------- --------
Federal Funds Sold and Securities Purchased Under
Agreements to Resell............................................. 324,944 19,099 5.88
---------- --------
Total Interest Earning Assets...................................... 2,446,786 201,582 8.24
---------- --------
Allowance for Credit Losses........................................ (9,064)
Cash and Due From Banks............................................ 248,241
Other Assets....................................................... 213,712
----------
Total Assets....................................................... $2,899,675
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest Bearing Deposits.......................................... $1,165,239 68,639 5.89
Federal Funds Purchased, Securities Sold Under Agreements to
Repurchase and Other Borrowings.................................. 371,721 20,887 5.62
Long Term Debt..................................................... 69,098 5,730 8.29
---------- --------
Total Sources on Which Interest is Paid............................ 1,606,058 95,256 5.93
---------- --------
Total Non-Interest Bearing Deposits................................ 1,020,599
Other Liabilities.................................................. 75,842
Stockholders' Equity <F5>.......................................... 197,176
----------
Total Liabilities and Stockholders' Equity......................... $2,899,675
==========
Net Interest Income................................................ $106,326
========
Net Yield on Interest Earning Assets............................... 4.35
- -------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Includes securities classified at December 31, 1993 as available for sale and held to maturity at amortized cost and
securities classified as investment securities in 1992 and 1991. The average balance and average rate for securities
available for sale has been calculated using their amortized cost.
<F2> Yields on state and municipal obligations are stated on a taxable equivalent basis, employing the Federal statutory
income tax rate adjusted for the effect of state and local taxes, resulting in effective tax rate of approximately
47% for 1993, 1992 and 1991.
<F3> Primarily comprised of variable rate collateralized mortgage obligations.
<F4> The average principal balances of non-accrual and reduced rate loans are included in the above figures.
<F5> Loans include the Loan to ESOP, which had an average balance of $18,902,000 in 1993, $21,211,000 in 1992 and
$23,350,000 in 1991.
</TABLE>
-57-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
Statistical Summary
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
(In Millions) 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Securities (Carrying Amount at Year End) <F1>:
U.S. Government Obligations..................................................... $212 $ 336 $ 257
Federal Agency Obligations...................................................... 439 424 346
State and Municipal Obligations................................................. 90 131 181
Collateralized Mortgage Obligations............................................. 116 285 187
Other Securities................................................................ 66 20 42
---- ------ ------
Total......................................................................... $923 $1,196 $1,013
==== ====== ======
<FN>
<F1> 1993 amounts include securities available for sale, that are carried at their estimated fair value, and securities
held to maturity, that are carried at their amortized cost. 1992 and 1991 amounts consist of investment securities,
that are carried at their amortized cost.
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Within 1 Year 1 - 5 Years 5 - 10 Years Over 10 Years
--------------- --------------- --------------- ---------------
Weighted Weighted Weighted Weighted
Average Average Average Average
(Dollars in Millions) Amount Yield<F2> Amount Yield<F2> Amount Yield<F2> Amount Yield<F2> Total
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maturity Schedule of Securities Based
on Amortized Cost at December 31, 1993:<F3>
U.S. Government Obligations..... $176 3.51% $ 34 8.02% $ - -% $ - -% $210
Federal Agency Obligations...... - - 226 6.30 121 5.48 83 4.06 430
State and Municipal Obligations. 17 13.64 49 10.68 4 11.66 15 7.49 85
Collateralized Mortgage
Obligations................... 4 2.81 70 3.47 - - 42 10.72 116
Other Securities................ 58 3.17 4 2.89 - - - - 62
---- ---- ---- ---- ----
Total......................... $255 $383 $125 $140 $903
==== ==== ==== ==== ====
<FN>
<F2> Yields have been computed by dividing annualized interest income, on a taxable equivalent basis, by the amortized
cost of the respective securities.
<F3> Includes securities available for sale and securities held to maturity; Excludes Federal Reserve Bank and Federal
Home Loan Bank stock of $3.8 million; Excludes unrealized gains of $16.5 million related to securities available for
sale.
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
(In Thousands) Within 1 Year 1-5 Years Over 5 Years Total
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maturity Schedule of Loans at December 31, 1993:
Private banking:
Residential real estate mortgages <F4>.......... $242,701 $ 99,664 $356,828 $ 699,193
Other........................................... 406,854 5,862 4,206 416,922
-------- -------- -------- ----------
Total private banking loans....................... 649,555 105,526 361,034 1,116,115
-------- -------- -------- ----------
Short-term trust credit facilities................ 211,741 - - 211,741
Loans to financial institutions for purchasing and
carrying securities............................. 57,505 - - 57,505
All other......................................... 9,184 3,690 488 13,362
-------- -------- -------- ----------
Total........................................... $927,985 $109,216 $361,522 $1,398,723
======== ======== ======== ==========
Interest Sensitivity of Loans at December 31, 1993:
Loans with predetermined interest rates........... $ 67,015 $271,518 $ 338,533
Loans with floating or adjustable interest rates.. 42,201 90,004 132,205
-------- -------- ----------
Total........................................... $109,216 $361,522 $ 470,738
======== ======== ==========
<FN>
<F4> Maturities are based upon the contractual terms of the loans.
</TABLE>
-58-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
Statistical Summary
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
1993 1992 1991
---------------- ---------------- ----------------
(Dollars in Millions) Amount Rate Amount Rate Amount Rate
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Analysis of Average Daily Deposits:
Non-Interest Bearing Deposits................. $1,761 $1,508 $1,021
Certificates of Deposit of $100,000 or more... 26 3.04% 33 4.01% 35 6.61%
Money Market and Other Savings Deposits....... 1,251 2.93 1,107 3.71 1,130 5.87
------ ------ ------
Total Deposits.............................. $3,038 $2,648 $2,186
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Certificates Other
(In Millions) of Deposit Deposits
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maturity Distribution of Interest Bearing Deposits in
Amounts of $100,000 or more at December 31, 1993:
Time remaining until maturity:
Three months or less.............................................................. $18 $1,007
Three through six months.......................................................... 3 -
Six through twelve months......................................................... 1 -
Over twelve months................................................................ 6 -
--- ------
Total........................................................................... $28 $1,007
=== ======
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Market Price of the Corporation's Common Shares
and Related Security Holder Matters
The common shares of the Corporation are traded in the over-the-counter
market. Market prices (based on NASDAQ national market prices as
reported in The Wall Street Journal) and dividends declared per share for
the past two years are shown below:
- -------------------------------------------------------------------------
First Second Third Fourth
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For Each Quarter
1993 High.............................................................. $58 1/2 $59 $54 1/2 $54 1/2
Low............................................................... 49 1/4 50 1/4 51 1/4 52
Cash Dividends Declared........................................... 0.47 0.47 0.47 0.47
1992 High.............................................................. $45 1/4 $49 1/4 $50 1/2 $49 1/4
Low............................................................... 42 3/4 42 3/4 46 45 1/2
Cash Dividends Declared........................................... 0.43 0.43 0.43 0.43
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
As of January 1, 1994, there were approximately 2,120 record holders of
the Corporation's common shares.
-59-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
Summary of Credit Loss Experience
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
(In Thousands) 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Analysis of Allowance for Credit Losses:
Balance, January 1....................................... $ 11,676 $ 8,661 $ 8,599 $ 7,300 $ 11,344
---------- -------- -------- -------- --------
Charge-Offs:
Private banking........................................ (3,762) (2,856) (5,776) (1,743) (593)
Residual corporate loans............................... (338) (710) (509) (5,878) (5,292)
Other.................................................. - - - - (17)
---------- -------- -------- -------- --------
Total charge-offs........................................ (4,100) (3,566) (6,285) (7,621) (5,902)
---------- -------- -------- -------- --------
Recoveries:
Private banking........................................ 612 465 133 226 274
Residual corporate loans............................... 1,205 116 189 318 -
---------- -------- -------- -------- --------
Total recoveries......................................... 1,817 581 322 544 274
---------- -------- -------- -------- --------
Net charge-offs.......................................... (2,283) (2,985) (5,963) (7,077) (5,628)
---------- -------- -------- -------- --------
Provision charged to income.............................. 4,000 6,000 6,025 8,376 1,584
---------- -------- -------- -------- --------
Balance, December 31..................................... $ 13,393 $ 11,676 $ 8,661 $ 8,599 $ 7,300
========== ======== ======== ======== ========
Loan Statistics (Dollars in Thousands):
Average total loans...................................... $1,095,673 $941,090 $739,316 $710,715 $680,305
Allowance for credit losses, end of year,
as a percent of average total loans.................... 1.22% 1.24% 1.17% 1.21% 1.07%
Net loans charged off as a percent of
average total loans.................................... 0.21 0.32 0.81 1.00 0.83
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation maintains the allowance for credit losses at a level
deemed to be adequate. The level of the allowance is based on
management's judgment as to the current condition of the credit
portfolio, which includes loans, commitments to extend credit and standby
letters of credit, determined by a continuous surveillance process. In
addition, management looks to past experience, current loan composition
and volume and general economic conditions.
Senior management determines, at least quarterly, which credits are
to be charged off partially or in full. This is based on a review of all
underperforming credits highlighted in the surveillance process. Loan
officers are expected to be the first to identify potential credit
problems. In addition, experienced credit review professionals provide
independent internal oversight of these credits. Credit reviews by the
Federal Reserve and New York State Bank Examiners, as well as our
certified public accounting firm, as part of the regular bank examination
and audit processes, are also considered in the credit surveillance
process.
Since substantially all of the Corporation's loan portfolio relates
to private banking accounts, the Corporation does not attempt to allocate
the allowance among specific credit categories.
-60-
