<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended SEPTEMBER 30, 1994
---------------------------------------------
Commission file number 0-8709
-------------------------------------------------
U. S. TRUST CORPORATION
- -----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-2927955
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
114 West 47th Street, New York, New York 10036
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(Address of principal executive offices) (Zip Code)
(212) 852-1000
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if
changed since last report.)
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
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
9,389,296 shares, Common Stock $1 par value, as of October 31, 1994
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PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
--------------------
An index of the financial statements included in this Form 10-Q
filing follows. All page numbers refer to pages within this Form 10-Q.
Title of Financial Statement Page #
- ---------------------------- ------
Consolidated Statement of Income for the Three Month
Periods Ended September 30, 1994 and 1993 3
Consolidated Statement of Income for the Nine Month
Periods Ended September 30, 1994 and 1993 4
Consolidated Statement of Condition as of September 30,
1994 and December 31, 1993 5
Consolidated Statement of Changes in Stockholders' Equity
for the Nine Month Periods Ended September 30, 1994 and 1993 6
Consolidated Statement of Cash Flows for the Nine
Month Periods Ended September 30, 1994 and 1993 7
Notes to the Consolidated Financial Statements 8
Consolidated Net Interest Income and Average Balances for
the Three Month Periods Ended September 30, 1994 and 1993 11
Consolidated Net Interest Income and Average Balances for
the Nine Month Periods Ended September 30, 1994 and 1993 12
In the opinion of management, all adjustments necessary for a
fair presentation of financial position and results of operations for
the interim periods have been made. Such adjustments, except for the
items mentioned in the Notes to the Consolidated Financial Statements
and/or Management's Discussion and Analysis of Financial Condition and
Results of Operations, are of a normal recurring nature.
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<TABLE>
U.S. TRUST CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(In Thousands, Except Per Share Amounts)
(UNAUDITED)
For the Three Month Periods Ended September 30,
-----------------------------------------------------
Better (Worse)
-----------------------
1994 1993 $ %
--------- --------- --------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 24,846 $ 19,729 $ 5,117 25.9 %
Securities:
Taxable 21,761 18,515 3,246 17.5
Exempt from Federal Income Taxes 1,224 1,679 (455) (27.1)
Federal Funds Sold and Securities
Purchased Under Agreements to Resell 789 3,598 (2,809) (78.1)
Deposits with Banks 1,758 1,976 (218) (11.0)
--------- --------- ---------
Total Interest Income 50,378 45,497 4,881 10.7
--------- --------- ---------
INTEREST EXPENSE
Deposits 12,892 9,875 (3,017) (30.6)
Federal Funds Purchased, Securities Sold
Under Agreements to Repurchase and
Other Borrowings 8,201 2,672 (5,529) -
Long Term Debt 1,272 1,362 90 6.6
--------- --------- ---------
Total Interest Expense 22,365 13,909 (8,456) (60.8)
--------- --------- ---------
NET INTEREST INCOME 28,013 31,588 (3,575) (11.3)
Provision for Credit Losses 500 1,000 500 50.0
--------- --------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 27,513 30,588 (3,075) (10.1)
--------- --------- ---------
FEES AND OTHER INCOME
Fiduciary and Other Fees 73,813 66,563 7,250 10.9
Securities Gains (Losses), Net 25 (3) 28 -
Other 3,138 2,123 1,015 47.8
--------- --------- ---------
Total Fees and Other Income 76,976 68,683 8,293 12.1
--------- --------- ---------
Total Operating Income Net of Interest
Expense and Provision for Credit Losses 104,489 99,271 5,218 5.3
--------- --------- ---------
OPERATING EXPENSES
Salaries 34,253 30,895 (3,358) (10.9)
Employee Benefits and Incentive
Compensation 15,787 16,722 935 5.6
--------- --------- ---------
Total Salaries and Benefits 50,040 47,617 (2,423) (5.1)
Net Occupancy 10,312 9,947 (365) (3.7)
Equipment 4,794 4,420 (374) (8.5)
Other 17,376 16,344 (1,032) (6.3)
--------- --------- ---------
Total Operating Expenses 82,522 78,328 (4,194) (5.4)
--------- --------- ---------
Income Before Income Tax Expense 21,967 20,943 1,024 4.9
Income Tax Expense 9,022 9,027 5 0.1
--------- --------- ---------
Net Income $ 12,945 $ 11,916 $ 1,029 8.6
========= ========= ========= =======
Net Income Per Share $ 1.30 $ 1.20 $ 0.10 8.3 %
========= ========= ========= =======
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
U.S. TRUST CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(In Thousands, Except Per Share Amounts)
(UNAUDITED)
For the Nine Month Periods Ended September 30,
-----------------------------------------------------
Better (Worse)
-----------------------
1994 1993 $ %
--------- --------- --------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 67,562 $ 56,784 $ 10,778 19.0 %
Securities:
Taxable 55,991 52,586 3,405 6.5
Exempt from Federal Income Taxes 3,843 5,767 (1,924) (33.4)
Federal Funds Sold and Securities
Purchased Under Agreements to Resell 6,315 9,165 (2,850) (31.1)
Deposits with Banks 3,051 4,372 (1,321) (30.2)
--------- --------- ---------
Total Interest Income 136,762 128,674 8,088 6.3
--------- --------- ---------
INTEREST EXPENSE
Deposits 32,525 28,047 (4,478) (16.0)
Federal Funds Purchased, Securities Sold
Under Agreements to Repurchase and
Other Borrowings 18,011 8,034 (9,977) (124.2)
Long Term Debt 3,835 4,034 199 4.9
--------- --------- ---------
Total Interest Expense 54,371 40,115 (14,256) (35.5)
--------- --------- ---------
NET INTEREST INCOME 82,391 88,559 (6,168) (7.0)
Provision for Credit Losses 1,500 3,500 2,000 57.1
--------- --------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 80,891 85,059 (4,168) (4.9)
--------- --------- ---------
FEES AND OTHER INCOME
Fiduciary and Other Fees 219,965 193,741 26,224 13.5
Securities Gains, Net 2,059 22 2,037 -
Other 7,661 6,486 1,175 18.1
--------- --------- ---------
Total Fees and Other Income 229,685 200,249 29,436 14.7
--------- --------- ---------
Total Operating Income Net of Interest
Expense and Provision for Credit Losses 310,576 285,308 25,268 8.9
--------- --------- ---------
OPERATING EXPENSES
Salaries 100,530 88,311 (12,219) (13.8)
Employee Benefits and Incentive
Compensation 52,550 50,729 (1,821) (3.6)
--------- --------- ---------
Total Salaries and Benefits 153,080 139,040 (14,040) (10.1)
Net Occupancy 29,445 29,442 (3) 0.0
Equipment 13,541 13,044 (497) (3.8)
Other 51,556 46,283 (5,273) (11.4)
--------- --------- ---------
Total Operating Expenses 247,622 227,809 (19,813) (8.7)
--------- --------- ---------
Income Before Income Tax Expense 62,954 57,499 5,455 9.5
Income Tax Expense 26,441 24,380 (2,061) (8.5)
--------- --------- ---------
Net Income $ 36,513 $ 33,119 $ 3,394 10.2
========= ========= ========= =======
Net Income Per Share $ 3.68 $ 3.34 $ 0.34 10.2 %
========= ========= ========= =======
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
U.S. TRUST CORPORATION
CONSOLIDATED STATEMENT OF CONDITION
(Dollars In Thousands)
(UNAUDITED)
September 30, December 31,
ASSETS 1994 1993
------------- -------------
<S> <C> <C>
Cash and Due from Banks $ 358,934 $ 179,117
Interest Bearing Deposits with Banks 74,885 61,476
Securities:
Available for Sale 1,283,886 836,532
Held to Maturity (Estimated Fair Value
$424,966 in 1994 and $87,069 in 1993) 448,004 86,748
Federal Funds Sold and Securities Purchased
Under Agreements to Resell 6,000 237,000
Loans 1,569,618 1,398,723
Less: Allowance for Credit Losses 14,427 13,393
------------- ------------
Net Loans 1,555,191 1,385,330
Premises and Equipment 108,159 109,767
Other Assets 183,472 290,382
------------- ------------
Total Assets $ 4,018,531 $ 3,186,352
============= ============
LIABILITIES
Deposits:
Non-Interest Bearing $ 1,110,948 $ 1,241,085
Interest Bearing 1,272,261 1,245,529
------------- ------------
Total Deposits 2,383,209 2,486,614
Federal Funds Purchased, Securities Sold Under
Agreements to Repurchase and Other Borrowings 1,187,958 258,072
Accounts Payable and Accrued Liabilities 145,153 147,979
Long Term Debt 62,574 65,100
------------- ------------
Total Liabilities 3,778,894 2,957,765
------------- ------------
STOCKHOLDERS' EQUITY
Common Stock, $1.00 Par Value; 40,000,000 Shares
Authorized; 11,511,750 Shares Issued in 1994
and 11,436,293 Shares Issued in 1993 11,512 11,436
Capital Surplus 70,190 67,898
Retained Earnings 264,806 242,112
Treasury Stock at Cost (2,125,530 Shares in 1994
and 2,076,868 Shares in 1993) (85,895) (82,857)
Loan to ESOP (16,171) (18,697)
Unrealized Gain (Loss), Net of Taxes, on
Securities Available for Sale (4,805) 8,695
------------- ------------
Total Stockholders' Equity 239,637 228,587
------------- ------------
Total Liabilities and Stockholders' Equity $ 4,018,531 $ 3,186,352
============= ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
U.S. TRUST CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands, Except Per Share Amounts)
(UNAUDITED)
For the Nine Month Periods
Ended September 30,
-----------------------------
1994 1993
--------- ---------
<S> <C> <C>
COMMON STOCK
Balance, January 1 $ 11,436 $ 56,506
Issuance of Shares Under Employee Benefit Plans 76 448
Change in Par Value of Common Stock - (45,537)
--------- ---------
Balance, September 30 $ 11,512 $ 11,417
========= =========
CAPITAL SURPLUS
Balance, January 1 $ 67,898 $ 23,280
Employee Benefit Plans 2,292 3,156
Change in Par Value of Common Stock - 45,537
--------- ---------
Balance, September 30 $ 70,190 $ 71,973
========= =========
RETAINED EARNINGS
Balance, January 1 $ 242,112 $ 216,839
Net Income 36,513 33,119
Cash Dividends Declared ($1.50 and $1.41 Per Share) (14,052) (13,257)
Tax Benefit on Dividends Paid to ESOP 233 595
--------- ---------
Balance, September 30 $ 264,806 $ 237,296
========= =========
TREASURY STOCK
Balance, January 1 $ (82,857) $ (78,443)
Purchases (4,729) (5,967)
Issuance (Tender) of Shares Under Employee
Benefit Plans, Net - 2,896
--------- ---------
Balance, September 30 $ (87,586) $ (81,514)
========= =========
LOAN TO ESOP
Balance, January 1 $ (18,697) $ (21,029)
Principal Payment by ESOP 2,526 2,332
--------- ---------
Balance, September 30 $ (16,171) $ (18,697)
========= =========
UNREALIZED GAIN (LOSS), NET OF TAXES, ON
SECURITIES AVAILABLE FOR SALE
Balance, January 1 $ 8,695 $ -
Net Change in Fair Value, After Taxes (13,500) -
--------- ---------
Balance, September 30 $ (4,805) $ -
========= =========
TOTAL STOCKHOLDERS' EQUITY $ 237,946 $ 220,475
========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
U.S. TRUST CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
(UNAUDITED)
For Nine Month Periods
Ended September 30,
-------------------------------
1994 1993
---------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 36,513 $ 33,119
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Credit Losses 1,500 3,500
Depreciation and Amortization of Premises and
Equipment and Other Assets 10,597 10,566
Net Amortization of Premium on Securities:
Available for Sale 2,614 -
Held to Maturity 1,618 -
Investment - 7,188
Net Change in Accrued Interest, Commissions and
Other Receivables 134,651 (32,760)
Net Change in Accounts Payable and Other Liabilities (1,919) 22,538
Other, Net (4,537) (2,011)
---------- ----------
Net Cash Provided by Operating Activities 181,037 42,140
---------- ----------
Cash Flows From Investing Activities:
Net Change in Interest Bearing Deposits with Banks (13,409) (198,917)
Purchases of Securities:
Available for Sale (1,062,448) -
Held to Maturity (402,051) -
Investment - (692,614)
Proceeds From Sales of Securities:
Available for Sale 43,957 -
Held to Maturity - -
Investment - -
Proceeds From Maturities, Calls and Mandatory
Redemptions of Securities:
Available for Sale 545,144 -
Held to Maturity 39,177 -
Investment - 447,901
Net Change in Federal Funds Sold and Securities
Purchased Under Agreements to Resell 231,000 -
Net Change in Loans (170,895) (59,744)
Expenditures for Premises and Equipment, Net of Retirements (7,956) (11,356)
Principal Payment by ESOP 2,526 2,332
Other, Net (14,289) 3,387
---------- ----------
Net Cash (Used) by Investing Activities (809,244) (509,011)
---------- ----------
Cash Flows From Financing Activities:
Net Change in Non-Interest Bearing Deposits (130,137) 129,350
Net Change in Money Market and Other Savings Deposits 5,652 81,497
Net Change in Time Deposits 21,080 (11,659)
Net Change in Federal Funds Purchased, Securities Sold
Under Agreements to Repurchase and Other Borrowings 929,886 495,482
Issuance of Long Term Debt - 4,000
Repayments of Long Term Debt (2,526) (7,632)
Issuance of Common Stock 2,572 3,672
Purchases of Treasury Stock (4,729) (5,967)
Dividends Paid (13,774) (12,793)
---------- ----------
Net Cash Provided by Financing Activities 808,024 675,950
---------- ----------
Net Change in Cash and Cash Equivalents 179,817 209,079
Cash and Cash Equivalents at January 1 179,117 219,709
---------- ----------
Cash and Cash Equivalents at September 30 $ 358,934 $ 428,788
========== ==========
Income Taxes Paid $ 27,283 $ 22,952
Interest Expense Paid 53,590 39,616
The accompanying notes are an integral part of these financial statements.
</TABLE>
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U. S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. PLEDGED ASSETS
--------------
Assets carried at $266,810,000 on September 30, 1994 and
$285,543,000 on December 31, 1993 were pledged to secure
public deposits, as collateral for borrowings, to qualify
for fiduciary powers and for other purposes.
2. CONTINGENCIES
-------------
There are various pending and threatened actions and claims
against the Corporation and its subsidiaries in which the
Corporation has denied liability and which it will vigorously
contest. Management, after consultation with counsel, 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 or results of operations.
3. CHANGE IN ACCOUNTING PRINCIPLES
-------------------------------
In the fourth quarter of 1993, the Corporation adopted
Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits,"
("FAS 112"). FAS 112 requires employers to accrue, in
certain circumstances, the cost of 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 the
Corporation.
In addition, the Corporation also adopted as of December 31,
1993, Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities," ("FAS 115"). In accordance with the provisions
of FAS 115, debt securities that the Corporation has both the
positive intent and ability to hold to maturity are classified
as Securities Held to Maturity and carried at historical cost,
adjusted for amortization of premiums and accretion of
discounts ("amortized cost"). Gains and losses related to
Securities Held to Maturity are not recorded until realized.
-8-<PAGE>
<PAGE>
U. S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. CHANGE IN ACCOUNTING PRINCIPLES (Cont'd.)
-------------------------------
Debt securities that may be sold prior to maturity as part of
asset/liability management or in response to other factors are
classified as Securities Available for Sale and carried at
their estimated fair value with unrealized gains and losses
reported in a separate component of stockholders' equity, net
of deferred taxes. In prior years, the Corporation accounted
for all of its investment securities portfolio using the
amortized cost method.
As of September 30, 1994, $1,284 million of securities were
classified as available for sale. The unrealized loss
in market value amounted to $8,930,000. Stockholders' equity
has been decreased by $4,805,000 (net of $4,125,000 of deferred
income taxes). The carrying amount of investment securities
classified as held to maturity was $448 million. The estimated
fair value of these securities was $425 million.
The consolidated statement of cash flows excludes the impact of
the unrealized loss on securities classified as available for
sale.
4. ACQUISITION
-----------
On July 7, 1993, U.S. Trust Corporation acquired Capital Trust
Company, a Portland, Oregon-based trust and investment
management firm, for 75,831 shares of its common stock, valued
at approximately $4 million, in a transaction that was
accounted for as a pooling-of-interests. Since the effect of
this acquisition was not significant, the results of operations
for Capital Trust Company have been included in the
Corporation's consolidated financial statements from the date
of acquisition and, accordingly, prior period financial
statements have not been restated. As of January 1, 1994,
Capital Trust changed its name to U.S. Trust Company of the
Pacific Northwest and its consulting practice was contributed
to a separate subsidiary, CTC Consulting, Inc.
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U. S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5. OTHER MATTERS
-------------
At the Annual Meeting of Shareholders on April 27, 1993, the
shareholders approved an amendment to the Certificate of
Incorporation which had the effect of reducing the par value
of the Corporation's Common Stock from $5 per share to $1 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.
6. SUBSEQUENT EVENT
----------------
On October 24, 1994, the Corporation announced that it is in
negotiations for sale to a third party of its institutional
custody, mutual funds servicing and unit trust businesses.
See Exhibit 99.
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<TABLE>
U.S. TRUST CORPORATION
CONSOLIDATED NET INTEREST INCOME AND AVERAGE BALANCES
(Dollars in Thousands; Interest and Average Rates on a Taxable Equivalent Basis)
(UNAUDITED)
For the Three Month Periods Ended September 30,
---------------------------------------------------------------------------------
1994 1993
------------------------------------- -------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
---------- -------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Bearing
Deposits with Banks $ 148,224 $ 1,758 4.71 % $ 243,325 $ 1,976 3.22 %
---------- -------- ---------- --------
Securities (1):
U.S. Government
Obligations 906,130 10,339 4.56 481,883 6,596 5.48
Federal Agency
Obligations 683,676 10,569 6.18 753,495 10,627 5.64
State and Municipal
Obligations 80,914 1,963 9.70 97,985 2,656 10.84
Collateralized
Mortgage
Obligations (2) 69,960 860 4.92 173,291 1,329 3.07
Other Securities 38,714 430 4.44 34,968 335 3.83
---------- -------- ---------- --------
Total Securities 1,779,394 24,161 5.43 1,541,622 21,543 5.59
---------- -------- ---------- --------
Loans (3) 1,358,874 24,853 7.26 1,139,460 19,744 6.87
---------- -------- ---------- --------
Federal Funds Sold and
Securities Purchased
Under Agreements to
Resell 71,309 789 4.39 466,656 3,598 3.06
---------- -------- ---------- --------
Total Interest Earning
Assets 3,357,801 51,561 6.12 3,391,063 46,861 5.50
---------- -------- ---------- --------
Allowance for Credit
Losses (14,225) (14,404)
Cash and Due from Banks 378,656 331,776
Other Assets 436,752 396,506
---------- ----------
Total Assets $4,158,984 $4,104,941
========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest Bearing
Deposits $1,382,817 $ 12,892 3.70 $1,358,616 9,875 2.88
Federal Funds Purchased,
Securities Sold Under
Agreements to Re-
purchase and Other
Borrowings 707,691 8,201 4.60 350,149 2,672 3.03
Long Term Debt 62,574 1,272 8.13 66,750 1,362 8.16
---------- -------- ---------- --------
Total Sources on Which
Interest is Paid 2,153,082 22,365 4.12 1,775,515 13,909 3.11
---------- -------- ---------- --------
Total Non-Interest
Bearing Deposits 1,607,475 1,963,454
Other Liabilities 151,682 138,836
Stockholders' Equity (3) 246,745 227,136
---------- ----------
Total Liabilities and
Stockholders' Equity $4,158,984 $4,104,941
========== ==========
Net Interest Income $ 29,196 $ 32,952
======== ========
Net Yield on Interest
Earning Assets 3.47 3.87
==== =====
Interest Spread 2.00 2.39
==== =====
(1) Includes securities classified at September 30, 1994 as available for sale and held to maturity at amortized
cost and securities classified as investment securities in 1993. The average balance and average rate for
securities available for sale have been calculated using their amortized cost.
(2) Primarily comprised of variable rate collateralized mortgage obligations.
(3) Loans include the Loan to ESOP, which had an average balance of $16,171,000 in 1994 and $18,697,000 in 1993.
(4) Yields on obligations of states and political subdivisions are stated on a fully taxable basis, employing the
statutory federal tax rate adjusted for the effect of state and local taxes, resulting in an effective tax rate
of 47%. The amounts of the tax equivalent adjustments to net interest income are as follows:
Total Securities $ 1,176 $ 1,349
Total Loans $ 7 $ 15
</TABLE>
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<TABLE>
U.S. TRUST CORPORATION
CONSOLIDATED NET INTEREST INCOME AND AVERAGE BALANCES
(Dollars in Thousands; Interest and Average Rates on a Taxable Equivalent Basis)
(UNAUDITED)
For the Nine Month Periods Ended September 30,
-------------------------------------------------------------------------------
1994 1993
------------------------------------ -------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
---------- -------- ------- ---------- -------- -------
<C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Bearing
Deposits with Banks $ 97,486 $ 3,051 4.18 % $ 178,170 $ 4,372 3.28 %
---------- -------- ---------- --------
Securities (1):
U.S. Government
Obligations 759,313 25,090 4.41 398,969 17,670 5.91
Federal Agency
Obligations 637,563 27,831 5.82 671,589 29,166 5.79
State and Municipal
Obligations 81,928 6,154 10.02 113,605 9,138 10.73
Collateralized
Mortgage
Obligations (2) 86,011 2,672 4.14 223,418 5,654 3.37
Other Securities 56,732 1,618 3.80 39,334 1,097 3.72
---------- -------- ---------- --------
Total Securities 1,621,547 63,365 5.21 1,446,915 62,725 5.78
---------- -------- ---------- --------
Loans (3) 1,291,170 67,585 7.00 1,085,251 56,832 7.00
---------- -------- ---------- --------
Federal Funds Sold and
Securities Purchased
Under Agreements to
Resell 258,305 6,315 3.27 403,569 9,165 3.04
---------- -------- ---------- --------
Total Interest Earning
Assets 3,268,508 140,316 5.73 3,113,905 133,094 5.71
---------- -------- ---------- --------
Allowance for Credit
Losses (13,919) (13,217)
Cash and Due from Banks 344,565 318,583
Other Assets 452,918 405,230
---------- ----------
Total Assets $4,052,072 $3,824,501
========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest Bearing
Deposits $1,346,418 $ 32,525 3.23 $1,266,020 28,047 2.96
Federal Funds Purchased,
Securities Sold Under
Agreements to Re-
purchase and Other
Borrowings 591,500 18,011 4.07 359,744 8,034 2.99
Long Term Debt 62,861 3,835 8.14 65,601 4,034 8.20
---------- -------- ---------- --------
Total Sources on Which
Interest is Paid 2,000,779 54,371 3.63 1,691,365 40,115 3.17
---------- -------- ---------- --------
Total Non-Interest
Bearing Deposits 1,638,770 1,776,356
Other Liabilities 168,846 133,432
Stockholders' Equity (3) 243,677 223,348
---------- ----------
Total Liabilities and
Stockholders' Equity $4,052,072 $3,824,501
========== ==========
Net Interest Income $ 85,945 $ 92,979
======== ========
Net Yield on Interest
Earning Assets 3.51 3.99
===== =====
Interest Spread 2.10 2.54
===== =====
(1)Includes securities classified at September 30, 1994 as available for sale and held to maturity at amortized
cost and securities classified as investment securities in 1993. The average balance and average rate for
securities available for sale have been calculated using their amortized cost.
(2)Primarily comprised of variable rate collateralized mortgage obligations.
(3)Loans include the Loan to ESOP, which had an average balance of $16,458,000 in 1994 and $18,970,000 in 1993.
(4)Yields on obligations of states and political subdivisions are stated on a fully taxable basis, employing
the statutory federal tax rate adjusted for the effect of state and local taxes, resulting in an effective
tax rate of 47%. The amounts of the tax equivalent adjustments to net interest income are as follows:
Total Securities $ 3,531 $ 4,372
Total Loans $ 23 $ 48
</TABLE>
-12-
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
-----------------------------------------------------------
Results of Operations:
- ---------------------
Net income for the third quarter ended September 30, 1994
amounted to $12.9 million, an increase of 8.6% over the $11.9 million
earned in the third quarter of 1993. Fully diluted net income per
share for the quarter totaled $1.30, an 8.3% increase over the $1.20
earned in the third quarter of 1993. For the nine month period ended
September 30, 1994, net income amounted to $36.5 million, a 10.2%
improvement over the $33.1 million achieved in the 1993 period.
Fully diluted net income per share was $3.68 for the 1994 nine months,
compared to $3.34 in the 1993 period, an increase of 10.2%.
The Corporation's return on average stockholders' equity for
the first nine months of 1994 was 21.5%, compared to 21.7% for the
first nine months of 1993. Its return on average total assets was
1.21% in the nine months ended September 30, 1994, versus 1.16% in the
nine months ended September 30, 1993.
<TABLE>
Net Interest Income (Taxable Equivalent Basis)
- ----------------------------------------------
Three Month Periods Nine Month Periods
Ended September 30, % Ended September 30, %
------------------- Better -------------------- Better
(Dollars In Thousands) 1994 1993 (Worse) 1994 1993 (Worse)
------- ------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Interest Income $50,378 $45,497 10.7 % $136,762 $128,674 6.3 %
Taxable Equivalent
Adjustment 1,183 1,364 (13.3) 3,554 4,420 (19.6)
------- ------- -------- --------
Total Interest Income 51,561 46,861 10.0 140,316 133,094 5.4
Interest Expense 22,365 13,909 (60.8) 54,371 40,115 (35.5)
------- ------- -------- --------
Net Interest Income $29,196 $32,952 (11.4)% $ 85,945 $ 92,979 (7.6)%
======= ======= ==== ======== ======== ====
</TABLE>
Net interest income, on a taxable equivalent basis, was
$3.8 million lower in the third quarter of 1994, compared to the third
quarter of 1993. For the nine months, net interest income, on a taxable
equivalent basis, was $7.0 million lower in 1994 than the comparable
1993 period.
-13-
<PAGE>
<PAGE>
Net Interest Income (Taxable Equivalent Basis) (Cont'd.)
- ----------------------------------------------
The Corporation's net interest income is sensitive to its
average volume of non-interest-bearing deposits and to the level of
interest rates on interest-earning assets. The Corporation's average
volume of non-interest-bearing sources of funds (primarily non-interest
bearing deposits) in the third quarter of 1994 decreased 25.4%
($411 million) from the comparable 1993 period. For the first nine
months of 1994, the Corporation's average volume of non-interest-bearing
sources of funds declined 10.9% ($155 million) from the same period of
1993. These declines were principally a result of a reduction in the
amount of the funds services division's non-interest-bearing deposit
balances.
The funds services division generates a substantial flow of
non-interest-bearing deposits. The total volume of the division's non-
interest-bearing deposits is generally inversely sensitive to the level
of interest rates. In periods of falling interest rates, the average
balance of non-interest-bearing deposits tends to increase, whereas in
periods of rising interest rates, the average balance typically
declines. Interest rates were historically very low in 1993 and the
funds services business experienced higher than normal deposit balances.
The Corporation's consolidated average volume of non-interest-bearing
sources of funds in the third quarter 1993 was $1,616 million, compared
to the 1992 and 1994 quarterly averages of $1,362 million and
$1,205 million, respectively.
The net yield on average interest-earning assets was 3.47% for
the third quarter and 3.51% for the nine months ended September 30,
1994, compared to 3.87% and 3.99% in the respective 1993 periods. The
average interest rate earned on the Corporation's securities portfolio
was 5.43% for the third quarter of 1994, compared to 5.59% in 1993. For
the first nine months of 1994, the average interest rate earned in the
Corporation's securities portfolio was 5.21% versus 5.78% in 1993. The
lower average interest rate earned in the 1994 quarter and nine month
periods reflects the reinvestment of the funds obtained from maturities
and sales of securities at lower interest rates and with shorter
maturities.
-14-
<PAGE>
<PAGE>
<TABLE>
Fees and Other Income
- ---------------------
Three Month Periods Nine Month Periods
Ended September 30, % Ended September 30, %
-------------------- Better --------------------- Better
(Dollars In Thousands) 1994 1993 (Worse) 1994 1993 (Worse)
------- ------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Fiduciary and Other Fees $73,813 $66,563 10.9% $219,965 $193,741 13.5%
Securities Gains (Losses), Net 25 (3) - 2,059 22 -
Other 3,138 2,123 47.8 7,661 6,486 18.1
------- ------- -------- --------
Total $76,976 $68,683 12.1% $229,685 $200,249 14.7%
======= ======= ==== ======== ======== ====
</TABLE>
Fiduciary and other fees increased $7.3 million in the third
quarter of 1994. For the first nine months of 1994, fiduciary and other
fees increased $26.2 million. The growth in fee income for both the
quarter and nine months is attributable to all lines of business. Total
assets under management increased 5.5% to $32.4 billion at September 30,
1994, from $30.7 billion at September 30, 1993. Total assets under
management and administration increased 7.5% to $419.3 billion at
September 30, 1994, from $390.1 billion at September 30, 1993.
<TABLE>
September 30, %
----------------------------- Better
1994 1993 (Worse)
(Dollars In Billions) -------- -------- -------
<S> <C> <C> <C>
Assets Under Management $ 32.4 $ 30.7 5.5 %
Custody and Other Non-Managed Assets:
Personal 6.9 7.6 (10.2)
Institutional Services 116.8 101.2 15.5
Funds Services* 137.0 127.8 7.2
Corporate and Municipal Trusteeships
and Agency Relationships (Par Value) 126.2 122.8 2.8
-------- -------- -------
Total Assets Under Management and
Administration $ 419.3 $ 390.1 7.5 %
======== ======== =======
* Includes UIT and Bond Immobilization assets measured at their par
value which is the basis upon which fees are determined.
</TABLE>
Net securities gains in the third quarter of 1994 and both the
third quarter and first nine months of 1993 were negligible. Net
securities gains totaled $2.1 million for the first nine months of 1994,
as various securities classified as available for sale, mainly U.S.
Government Treasury obligations, were sold in the first quarter.
-15-
<PAGE>
<PAGE>
<TABLE>
Operating Expenses
- ------------------
Three Month Periods Nine Month Periods
Ended September 30, % Ended September 30, %
------------------- Better --------------------- Better
(Dollars In Thousands) 1994 1993 (Worse) 1994 1993 (Worse)
------- ------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Salaries $34,253 $30,895 (10.9)% $100,530 $ 88,311 (13.8)%
Employee Benefits and
Incentive Compensation 15,787 16,722 5.6 52,550 50,729 (3.6)
------- ------- -------- --------
Total Salaries and Benefits 50,040 47,617 (5.1) 153,080 139,040 (10.1)
Net Occupancy 10,312 9,947 (3.7) 29,445 29,442 -
Equipment 4,794 4,420 (8.5) 13,541 13,044 (3.8)
Other 17,376 16,344 (6.3) 51,556 46,283 (11.4)
------- ------- -------- --------
Total Operating Expenses $82,522 $78,328 (5.4)% $247,622 $227,809 (8.7)%
======= ======= ==== ======== ======== ======
</TABLE>
Non-interest operating expenses in the third quarter of 1994
increased $4.2 million to $82.5 million from the $78.3 million reported
in the third quarter of 1993. For the nine months ended September 30,
1994, non-interest operating expenses amounted to $247.6 million,
$19.8 million higher than the $227.8 million incurred in the 1993
period. Salaries and employee benefit expenses, including sales
incentives and commissions, increased $2.4 million in the third quarter
and $14.0 million for the first nine months, reflecting increases in the
asset management and mutual funds services division's professional
staffs and related employee benefit expense. For the third quarter of
1994, the ratio of total operating expenses to taxable equivalent total
operating income, net of interest expense and provision for credit
losses, was 78.1%, compared to 77.8% for the third quarter of 1993. For
the nine months ended September 30, 1994, the ratio of total operating
expenses to taxable equivalent total operating income, net of interest
expense and provision for credit losses, was 78.8%, versus 78.6% for the
first nine months of 1993.
Income Taxes
- ------------
The Corporation's effective tax rate for the third quarter was
41.1 %, compared with an effective tax rate of 43.1% for the 1993
period. The 1993 tax rate included the impact of the increase in the
federal corporate income tax rate that was retroactive to January 1,
1993. For the nine months ended September 30, 1994, the effective tax
rate was 42.0% versus 42.4% in 1993.
-16-
<PAGE>
<PAGE>
Financial Condition:
- -------------------
Capital
- -------
The Corporation has maintained its strong capital position
throughout the first nine months of 1994. The ratio of Tier 1 capital
at September 30, 1994 to period end risk-adjusted assets (as defined by
the Federal Reserve Board) was 14.19%, compared to 13.23% at September
30, 1993. The ratio of Total Capital at September 30, 1994 to period end
risk-adjusted assets (as defined by the Federal Reserve Board) was
15.51%. At September 30, 1993 this ratio was 14.71%.
The Leverage ratio (defined by the Federal Reserve Board as
Tier 1 capital as of the period end divided by quarterly (3 month) total
average assets reduced by goodwill and nonqualifying intangibles)
amounted to 5.70% and 5.11% at September 30, 1994 and 1993,
respectively.
United States Trust Company of New York ("Trust Company") has
also maintained its strong capital position. At September 30, 1994, the
Trust Company's Tier 1 capital ratio was 13.72% compared to 13.31% at
September 30, 1993. The Trust Company's leverage ratio (as defined by
the Federal Reserve Board) was 5.59% and 5.03% at September 30, 1994 and
1993, respectively.
For the nine month period ended September 30, 1994, 90,000
shares of common stock were acquired under the Corporation's share
repurchase program at an average price of $50.81 per share. For the
comparable 1993 period, 110,500 shares were repurchased at an average
cost of $54.00 per share. The Corporation's Board of Directors has
authorized the repurchase of an aggregate of 3.7 million of its common
shares under plans initiated in 1987, 1988 and 1992. Under its common
stock repurchase program, the Corporation has authority to repurchase up
to an additional 668,213 shares of common stock.
One of the principal purposes of the Corporation's common stock
repurchase program is to provide a supply of common shares for issuance
under the Corporation's various common stock incentive and compensation
plans. Such common shares are obtained through systematic purchases in
the open market in amounts deemed sufficient to satisfy the
Corporation's immediate and near-term (i.e., less than two years)
obligations to issue common shares under its benefit plans. During the
first nine months of 1994, the Corporation issued 116,795 common shares
under its various stock-based plans.
-17-
<PAGE>
<PAGE>
Asset/Liability Management
- --------------------------
The principal functions of asset and liability management are
to provide for adequate liquidity, to manage interest rate exposure by
maintaining a prudent relationship between interest rate sensitive
assets and liabilities and to manage the size and composition of the
balance sheet so as to maximize net interest income, while complying
with bank regulatory agency capital standards.
As part of its overall asset and liability management process,
the Corporation uses interest rate swaps ("swaps") and forward rate
agreements ("FRAs") as hedges. Swaps are used to hedge the net yield
earned on pools of fixed rate residential real estate mortgage loans
originated in the year of the swap's inception. The following table
provides details of swaps by maturity and the related average interest
rates paid and received. The Corporation is a fixed rate payor on
all of its swaps.
<TABLE>
Maturing
----------------------
Within 1 1 to 5
(Dollars In Thousands) Year Years Total
-------- ------- -------
<S> <C> <C> <C>
Fixed Pay Swaps $22,000 $45,875 $67,875
Average Rate Paid 8.2949% 6.9952% 7.4165%
Average Rate Received* 4.9744% 4.9513% 4.9588%
</TABLE>
* Represents the average variable rate that will be received
by the Corporation based upon the rate in effect at the latest variable
rate reset date of each swap.
The Corporation's trust businesses generate a relatively
predictable pattern of non-interest bearing deposit flows. FRAs are
used to hedge either the rate earned from the investment of a portion of
these non-interest bearing deposit flows in pools of short term
investments, such as U.S. Treasury Bills and short term interest bearing
deposits with banks, or the rate earned on other anticipated short term
investments that are funded by other sources.
The impact of the Corporation's hedging activities upon net
interest income is detailed in the following table.
-18-
<PAGE>
<TABLE>
Asset/Liability Management (Cont'd.)
- --------------------------
Three Month Periods Nine Month Periods
Ended September 30, Ended September 30,
------------------- -------------------
(Dollars In Thousands) 1994 1993 1994 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Interest Income:
As Reported $29,196 $32,952 $85,945 $92,979
Excluding Hedging
Activities $29,484 $33,388 $88,812 $96,781
Net Yield on Interest
Earning Assets:
As Reported 3.47% 3.87% 3.51% 3.99%
Excluding Hedging
Activities 3.51% 3.94% 3.62% 4.14%
</TABLE>
The preceding table presents the impact of the Corporation's
hedging activities on net interest income using a static approach to
asset and liability management. It assumes that the Corporation would
have managed its asset and liability position exactly the same, both
with and without using derivative financial instruments as hedges. It
does not take into account the dynamic nature of asset and liability
management. The Corporation had other options available to it for
managing its asset and liability positions in addition to using
derivative financial instruments, including repositioning the maturity
structure of its other assets or liabilities to balance its asset and
liability positions or not entering into the asset positions that
created the imbalanced asset and liability position. These alternatives
to the use of derivative financial instruments are not reflected in the
table.
-19-
<PAGE>
Liquidity:
- ----------
The Corporation's balance sheet is highly liquid. At
September 30, 1994, 54.04% of total assets consisted of cash and
securities readily convertible to cash. The comparable percentages for
December 31, 1993 and September 30, 1993 are 43.96% and 57.54%,
respectively.
At September 30, 1994, the Corporation held approximately
$717 million (carrying amount) of GNMA and CMO securities ("mortgage
securities") in its available for sale and held to maturity securities'
portfolios. While these mortgage securities, as well as the
Corporation's residential real estate mortgage loans ("mortgage loans"),
are subject to prepayment risk, management believes that these are
appropriate investments for the Corporation. The underlying nature of
the Corporation's business and its balance sheet structure serve to
mitigate the prepayment risk. The Corporation's funds services division
generates a substantial amount of non-interest bearing deposits that, on
average, remain available to fund long-term investments. Consequently,
if the Corporation's prepayment experience is adverse, the funding of
these investments through long-term non-interest bearing deposits
lessens the Corporation's net interest exposure. The Corporation
also has invested in a large portfolio of U.S. Treasury obligations
("Treasuries") with an approximate weighted average maturity of
1.5 years. The relatively short term maturity structure of these
Treasuries enables the Corporation to take advantage of rising interest
rates while holding its mortgage securities and loans (See "Interest
Rate Sensitivity").
Securities Available for Sale
- ----------------------------
During the first nine months of 1994, the Corporation purchased
$1,062.4 million of securities available for sale, primarily U.S.
Government and Treasury securities ($936.5 million).
The Corporation's portfolio of securities available for sale is
mainly comprised of U.S. Treasury fixed rate obligations with weighted
average original maturities of one and one half years (68%), Government
National Mortgage Association ("GNMA") 15-year fixed rate
mortgage-backed securities and GNMA adjustable rate mortgage-backed
securities (18%), obligations of states and municipalities (5%) and
variable rate collateralized mortgage obligations ("CMOs") (5%). The
GNMAs are backed by the full faith and credit of the United States
Government, while the CMOs are collateralized by GNMAs.
-20-
<PAGE>
Securities Available for Sale (Cont'd.)
- ----------------------------
The market value of securities available for sale exceeded
their amortized cost by $16.5 million at December 31, 1993. At
September 30, 1994, the amortized cost of securities available for sale
exceeded their market value by $8.9 million. The decrease in market
value reflected several factors. First, in the first quarter of 1994,
high yielding available for sale securities (mainly Treasuries) were
sold for a $2.0 million dollar gain. Also in the first quarter of 1994,
the proceeds from sales, maturities, calls and mandatory redemption of
securities of $258.6 million were reinvested (mainly in Treasuries), at
lower prevailing interest rates. Second, since the beginning of 1994,
interest rates have gradually increased (evidenced by actions by the
Federal Reserve Board that caused the Federal funds interest rate to
increase 175 basis points), reducing the market value of fixed rate
securities.
In January 1994, the Corporation sold $41.9 million of
securities available for sale. There were no sales of securities for the
three month period ended September 30, 1994.
Securities Held to Maturity
- ---------------------------
During the first nine months of 1994, the Corporation purchased
$402.1 million of securities held to maturity, primarily consisting of
U.S. Government Agency securities ($375.3 million).
In excess of 93% of the Corporation's securities classified as
held to maturity consist of GNMA 15-year fixed rate mortgage-backed
securities ("Fixed rate GNMAs") and GNMA adjustable rate mortgage-backed
securities ("GNMA ARMs"). These securities are backed by the full faith
and credit of the United States Government. All of the fixed rate GNMAs
were acquired in 1994, with approximately 75% of them being purchased in
the first three months of the year. At September 30, 1994, the
portfolio of fixed rate GNMAs had an approximate average duration of 4.4
years. Approximately 50% of the GNMA ARMs were acquired in 1992 and 50%
in the first three months of 1994. At September 30, 1994, the portfolio
of GNMA ARMs had an approximate average duration of 1.3 years.
The market value of securities held to maturity at
September 30, 1994 was $425.0 million, which was $23.0 million less than
their carrying amount. At December 31, 1993, the fair value of
securities held to maturity was $87.1 million, which exceeded their
carrying amount by $300,000. The decline in market value reflects the
increase in interest rates during the period December 31, 1993 through
September 30, 1994.
-21-
<PAGE>
Interest Rate Sensitivity
- -------------------------
Interest rate risk arises from differences in the timing of
repricing assets and liabilities. One measure of interest rate risk is
the difference in asset and liability repricing on a cumulative basis
within a specified time frame. The following table provides the
components of the Corporation's interest rate sensitivity gaps at
September 30, 1994. Gap analysis has inherent limitations as an
analytical tool because it only measures the Corporation's exposure at a
single point in time. This exposure to interest rates is constantly
changing as a result of the Corporation's ongoing business and its
management initiatives.
As set forth in the following table, the Corporation had more
liabilities repricing than assets (liability sensitive) through one
year. In general, when an enterprise is liability sensitive, it's net
interest income will improve in a declining interest rate environment
and will decline in a rising interest rate environment. Conversely, an
asset sensitive enterprise, which the Corporation is in the 1 - 5 year
time period, will realize a benefit in net interest income if rates are
rising and will have lower net interest income in a falling rate
environment.
-22-
<PAGE>
<PAGE>
<TABLE>
Interest Sensitivity (Cont'd.)
- --------------------
0 - 3 4 - 6 7 - 12 1 - 5 Over
(Dollars In Thousands) Months Months Months Years 5 Years Total
---------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets
- ------
Interest Bearing Deposits
with Banks $ 74,885 $ - $ - $ - $ - $ 74,885
Securities Available for
Sale and Held to Maturity 406,389 145,139 234,504 756,599 189,259 1,731,890
Federal Funds Sold and
Securities Purchased
Under Agreements to Resell 6,000 - - - - 6,000
Loans, Net of Allowance
for Credit Losses 955,188 30,089 55,402 299,556 214,956 1,555,191
Other Assets 421,298 26,299 28,679 69,447 104,842 650,565
---------- ---------- -------- ---------- -------- ----------
Total Assets 1,863,760 201,527 318,585 1,125,602 509,057 4,018,531
---------- ---------- -------- ---------- -------- ----------
Liabilities and Stockholders' Equity
- ------------------------------------
Non-Interest Bearing Deposits 190,948 31,251 62,501 375,748 450,500 1,110,948
Interest Bearing Deposits 1,246,101 7,414 11,331 7,415 - 1,272,261
Federal Funds Purchased,
Securities Sold Under
Agreements to Repurchase
and Other Borrowings 1,187,958 - - - - 1,187,958
Accounts Payable and
Accrued Liabilities 34,790 25,450 23,591 29,059 32,263 145,153
Long Term Debt 1,650 2,737 1,000 52,984 4,203 62,574
Stockholders' Equity - - - - 239,637 239,637
---------- --------- --------- ---------- -------- ----------
Total Liabilities and
Stockholders' Equity 2,661,447 66,852 98,423 465,206 726,603 4,018,531
---------- --------- --------- ---------- -------- ----------
Asset/(Liability)
Sensitivity Gap (797,687) 134,675 220,162 660,396 (217,546) -
---------- --------- --------- ---------- -------- ----------
Interest Rate Swaps 61,750 (12,125) (3,750) (45,875) - -
---------- --------- --------- ---------- -------- ----------
Interest Rate Sensitivity Gap (735,937) 122,550 216,412 614,521 (217,546) -
---------- --------- --------- ---------- -------- ----------
Cumulative Interest Rate
Sensitivity Gap $ (735,937) $(613,387) $(396,975) $ 217,546 $ - $ -
========== ========= ========= ========== ======== ==========
</TABLE>
-23-
<PAGE>
<PAGE>
Interest Sensitivity (Cont'd.)
- --------------------
In managing its interest sensitivity gaps, the Corporation
takes into account the nature of its business operations. The
Corporation invests in fixed rate U.S. Treasury securities, fixed rate
GNMA mortgage-backed securities and fixed rate residential real estate
mortgage loans. These investments are funded by a portion of the non-
interest bearing deposits obtained through its trust divisions that are
considered to be a stable source of long term funds and, to a lesser
degree, by interest rate swaps, fixed rate long term debt and
stockholders' equity. Investments in short-term and variable rate
instruments, which are largely indexed to LIBOR, and investments in
variable rate loans that are indexed to the prime rate are funded by
money market deposits mainly derived from private banking clients and
other short-term interest bearing liabilities.
It is difficult to predict the impact of a change in the term
structure of interest rates on the Corporation because of the nature of
the Corporation's business. The Corporation's trust business exhibits
seasonal fluctuations in the flow of non-interest bearing deposits over
fairly regular semi-annual periods. Non-interest bearing deposit
balances tend to be at their highest levels in the first and third
quarters of the year and at their lowest levels in the second and fourth
quarters. During periods of high non-interest bearing deposit levels,
the Corporation will sell excess funds in the Federal funds and
Eurodollar markets. During periods of seasonal deposit outflows, the
Corporation will raise funds in the Federal funds, repurchase agreement
and Eurodollar markets. From time to time, the Corporation will use
forward rate agreements and other derivative products to either hedge
its seasonal non-interest bearing deposit variations or to hedge
anticipated short-term future investments.
Asset Quality
- -------------
The Corporation's loan portfolio is comprised primarily of
loans to private banking customers. Average loans increased
$222 million, or 19.8%, to $1.3 billion in the third quarter of 1994,
from $1.1 billion in the third quarter of 1993. Residential real
estate mortgages accounted for approximately 70% of the increase in the
portfolio.
-24-
<PAGE>
<PAGE>
Asset Quality (Cont'd.)
- -------------
An analysis of the allowance for credit losses follows.
<TABLE>
Three Month Periods Nine Month Periods
Ended September 30, Ended September 30,
----------------------- -----------------------
(In Thousands) 1994 1993 1994 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
Balance, Beginning of Period $14,017 $14,052 $13,393 $11,676
------- ------- ------- -------
Provision Charged to Income 500 1,000 1,500 3,500
------- ------- ------- -------
Recoveries 308 16 742 1,513
Charge-offs (398) (801) (1,208) (2,422)
------- ------- ------- -------
Net (Charge Offs) (90) (785) (466) (909)
------- ------- ------- -------
Balance, End of Period $14,427 $14,267 $14,427 $14,267
======= ======= ======= =======
</TABLE>
The provision for credit losses in the third quarter of 1994
was $500,000, compared to $1.0 million in the third quarter of 1993.
As a percentage of average loans for the quarter, net charge-offs, on an
annualized basis, were 3 basis points for the third quarter of 1994,
compared to 28 basis points for the third quarter of 1993.
The allowance for credit losses at September 30, 1994, was
$14.4 million, or 1.07% of average loans outstanding for the quarter.
This compares with $13.4 million, or 1.13% of average loans outstanding
for the quarter ended December 31, 1993, and $14.3 million, or 1.27% of
average loans outstanding for the quarter ended September 30, 1993.
The allowance for credit losses as a percentage of
nonperforming loans was 268.71% at September 30, 1994, compared to
223.03% at December 31, 1993, and 286.60% at September 30, 1993. The
ratio of nonperforming assets to average loans and real estate owned for
the quarter was 1.27% at September 30, 1994, compared to 1.47% at
December 31, 1993 and 1.51% at September 30, 1993. The improvement in
these ratios when comparing September 30, 1994 with December 31, 1993,
reflects a net addition to the allowance for credit losses since
December 31, 1993 as the provision has exceeded net loan charge-offs and
a modest reduction in nonperforming loans and nonperforming assets.
-25-
<PAGE>
<PAGE>
Asset Quality (Cont'd.)
- -------------
Nonperforming assets, which include non-accrual and
restructured loans and real estate acquired in debt restructurings, are
as follows:
<TABLE>
September 30, December 31, September 30,
(In Millions) 1994 1993 1993
------------- ------------ -------------
<S> <C> <C> <C>
Non-accrual and
restructured loans $ 5.4 $ 6.0 $ 5.0
Real estate acquired in
debt restructurings 11.9 11.5 12.1
----- ----- -----
Total Nonperforming Assets $17.3 $17.5 $17.1
===== ===== =====
</TABLE>
Accounting Standards Not Yet Adopted
- ------------------------------------
Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan," ("FAS 114")," issued
in May 1993, and Statement of Financial Accounting Standards No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures," ("FAS 118")," an amendment of FAS 114, issued in
October 1994, address the accounting by creditors for impairment of
certain loans. FAS 114 requires that impaired loans 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. FAS 118 amends the disclosure
requirements of FAS 114 to require information about the recorded
investment in certain impaired loans and amends the income recognition
criteria in FAS 114. FAS 114 and FAS 118 are effective for fiscal years
beginning after December 15, 1994, with earlier adoption encouraged.
Based upon a preliminary review, the Corporation does not believe that
the adoption of FAS 114 and FAS 118 will have a significant impact on
the financial condition or results of operations of the Corporation.
Statement of Financial Accounting Standards No. 119,
"Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments," ("FAS 119")," issued in October 1994, requires
new disclosures about derivative financial instruments and amends
certain existing disclosure requirements. FAS 119 is effective for
fiscal years ending after December 15, 1994. Since FAS 119 is a
disclosure requirement only, its adoption will not have any effect on
either the Corporation's financial condition or its results of
operations.
-26-
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) EXHIBITS:
11 - Statement re Computation of Net Income Per Share.
27 - Financial Data Schedule
99 - News Release re U.S. Trust's Possible Sale of
Securites Processing Business
(b) REPORTS ON FORM 8-K:
None
-27-
<PAGE>
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
U. S. Trust Corporation
------------------------------
(Registrant)
Date: November 14, 1994 Richard E. Brinkmann
----------------- ------------------------------
Richard E. Brinkmann
Senior Vice President
and Comptroller
(Principal Accounting Officer)
-28-
<PAGE>
<PAGE>
<TABLE>
U.S. TRUST CORPORATION
EXHIBIT 11 - COMPUTATION OF NET INCOME PER SHARE
Three Month Periods Nine Month Periods
Ended September 30, Ended September 30,
---------------------------- ----------------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY NET INCOME PER SHARE:
Net Income $12,945,000 $11,916,000 $36,513,000 $33,119,000
Plus Dividend Equivalent on
Deferred Long-Term Performance
Plan Awards (After-Tax) 82,737 54,539 222,102 161,940
----------- ----------- ----------- -----------
Adjusted Net Income $13,027,737 $11,970,539 $36,735,102 $33,280,940
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 9,380,437 9,371,517 9,375,036 9,334,213
Add average shares issuable
under stock option and
variable stock award plans 585,407 595,524 589,271 607,188
----------- ----------- ----------- -----------
Total Common and Common
Equivalent Shares 9,965,844 9,967,041 9,964,307 9,941,401
=========== =========== =========== ===========
Primary Net Income Per Share $ 1.31 $ 1.20 $ 3.69 $ 3.35
FULLY DILUTED NET INCOME PER SHARE:
Net Income $12,945,000 $11,916,000 $36,513,000 $33,119,000
Plus Dividend Equivalent on
Deferred Long-Term Performance
Plan Awards (After-Tax) 82,737 54,539 222,102 161,940
----------- ----------- ----------- -----------
Adjusted Net Income $13,027,737 $11,970,539 $36,735,102 $33,280,940
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 9,380,437 9,371,517 9,375,036 9,334,213
Add maximum dilutive impact
of average shares issuable
under stock option and
variable stock award plans* 620,292 638,896 618,215 638,484
----------- ----------- ----------- -----------
Total Dilutive Shares 10,000,729 10,010,413 9,993,251 9,972,697
=========== =========== =========== ===========
Fully Diluted Net Income Per Share $ 1.30 $ 1.20 $ 3.68 $ 3.34
* Assumes issuance of the maximum number of shares calculated as follows:
Stock option plans - computed using the higher of the average market price
or period-end market price of the Corporation's common stock.
Variable stock award plans - computed assuming the issuance of performance
stock awards that have been awarded but not yet vested.
</TABLE>
-1-
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000225971
<NAME> U.S.TRUST CORPORATION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 358,934
<INT-BEARING-DEPOSITS> 74,885
<FED-FUNDS-SOLD> 6,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,283,886
<INVESTMENTS-CARRYING> 448,004
<INVESTMENTS-MARKET> 424,967
<LOANS> 1,569,618
<ALLOWANCE> 14,427
<TOTAL-ASSETS> 4,018,531
<DEPOSITS> 2,383,209
<SHORT-TERM> 1,187,958
<LIABILITIES-OTHER> 145,513
<LONG-TERM> 62,574
<COMMON> 11,512
0
0
<OTHER-SE> 228,125
<TOTAL-LIABILITIES-AND-EQUITY> 4,018,531
<INTEREST-LOAN> 67,562
<INTEREST-INVEST> 59,834
<INTEREST-OTHER> 9,366
<INTEREST-TOTAL> 136,762
<INTEREST-DEPOSIT> 32,525
<INTEREST-EXPENSE> 54,371
<INTEREST-INCOME-NET> 82,391
<LOAN-LOSSES> 1,500
<SECURITIES-GAINS> 2,059
<EXPENSE-OTHER> 247,622
<INCOME-PRETAX> 62,954
<INCOME-PRE-EXTRAORDINARY> 62,954
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,513
<EPS-PRIMARY> 3.69
<EPS-DILUTED> 3.68
<YIELD-ACTUAL> 3.51
<LOANS-NON> 5,369
<LOANS-PAST> 85
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 13,393
<CHARGE-OFFS> 1,208
<RECOVERIES> 742
<ALLOWANCE-CLOSE> 14,427
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 14,427
</TABLE>
<PAGE>
Exhibit 99
Contact: Allison Cooke Kellogg
(212) 852-1127
For Release: IMMEDIATE
U.S. TRUST EXPLORES POSSIBLE SALE OF
SECURITIES PROCESSING BUSINESSES
New York, N.Y., October 24, 1994 -- H. Marshall Schwarz, chairman and chief
executive officer of U.S. Trust Corporation, today announced that the company
is in negotiations for sale to a third party of its institutional custody,
mutual funds servicing and unit trust businesses. There can be no assurance
that U.S. Trust will determine to proceed with any such transaction, which
would in any event be subject to approval by U.S. Trust's Board of Directors,
according to Mr. Schwarz.
"This action is part of a strategy to focus on U.S. Trust's core
businesses -- asset management services for individuals, institutions and
mutual funds, private banking and corporate trust -- none of which would
be included in any such transaction," Mr. Schwarz said.
U.S. Trust is a financial services company, specializing in asset management,
private banking, fiduciary and securities services, with over $32 billion in
assets under management and more than $419 billion in total assets under
administration. Through its principal subsidiary, United States Trust Company
of New York, and selected offices nationwide, U.S. Trust serves affluent
individuals, families and institutions.
