<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended MARCH 31, 1995
--------------------------------------------
Commission file number 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)
(212) 852-1000
- -----------------------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- -----------------------------------------------------------------------
(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.
9,612,669 shares, Common Stock $1 par value, as of April 28, 1995
Page 1 of 27 Pages
<PAGE>
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 March 31, 1995 and 1994 3
Consolidated Statement of Condition as of March 31,
1995 and December 31, 1994 4
Consolidated Statement of Changes in Stockholders' Equity
for the Three Month Periods Ended March 31, 1995 and 1994 5
Consolidated Statement of Cash Flows for the Three
Month Periods Ended March 31, 1995 and 1994 6
Notes to the Consolidated Financial Statements 7
Consolidated Net Interest Income and Average Balances for
the Three Month Periods Ended March 31, 1995 and 1994 10
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.
-2-
<PAGE>
<TABLE>
U.S. TRUST CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(In Thousands, Except Per Share Amounts)
(UNAUDITED)
For the Three Month Periods Ended March 31,
-------------------------------------------
Better (Worse)
-------------------
1995 1994 $ %
-------- -------- -------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 27,298 $ 20,160 $ 7,138 35.4 %
Securities:
Taxable 16,375 14,250 2,125 14.9
Exempt from Federal Income Taxes 1,127 1,328 (201) (15.1)
Federal Funds Sold and Securities
Purchased Under Agreements to Resell 5,097 5,008 89 1.8
Deposits with Banks 968 582 386 66.3
-------- -------- -------- -------
Total Interest Income 50,865 41,328 9,537 23.1
-------- -------- -------- -------
INTEREST EXPENSE
Deposits 17,362 9,401 (7,961) (84.7)
Federal Funds Purchased, Securities Sold
Under Agreements to Repurchase and
Other Borrowings 3,635 2,607 (1,028) (39.4)
Long Term Debt 1,200 1,290 90 7.0
-------- -------- -------- -------
Total Interest Expense 22,197 13,298 (8,899) (66.9)
-------- -------- -------- -------
NET INTEREST INCOME 28,668 28,030 638 2.3
Provision for Credit Losses 400 500 100 20.0
-------- -------- -------- -------
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 28,268 27,530 738 2.7
-------- -------- -------- -------
FEES AND OTHER INCOME
Fiduciary and Other Fees 73,503 72,921 582 0.8
Securities Gains, Net 186 2,031 (1,845) -
Other 2,441 2,324 117 5.0
-------- -------- -------- -------
Total Fees and Other Income 76,130 77,276 (1,146) (1.5)
-------- -------- -------- -------
Total Operating Income Net of Interest
Expense and Provision for Credit Losses 104,398 104,806 (408) (0.4)
-------- -------- -------- -------
OPERATING EXPENSES
Salaries 34,348 32,735 (1,613) (4.9)
Employee Benefits and Incentive
Compensation 21,442 19,567 (1,875) (9.6)
-------- -------- -------- -------
Total Salaries and Benefits 55,790 52,302 (3,488) (6.7)
Net Occupancy 10,505 9,778 (727) (7.4)
Equipment 4,723 4,247 (476) (11.2)
Other 19,000 16,444 (2,556) (15.5)
-------- -------- -------- -------
Total Operating Expenses 90,018 82,771 (7,247) (8.8)
-------- -------- -------- -------
Income Before Income Tax Expense 14,380 22,035 (7,655) (34.7)
Income Tax Expense 5,752 9,365 3,613 38.6
-------- -------- -------- -------
Net Income $ 8,628 $ 12,670 $ (4,042) (31.9)%
======== ======== ======== =======
Net Income Per Share $ 0.85 $ 1.28 $ (0.43) (33.6)%
======== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
<TABLE>
U.S. TRUST CORPORATION
CONSOLIDATED STATEMENT OF CONDITION
(Dollars In Thousands)
(UNAUDITED)
March 31, December 31,
1995 1994
---------- ------------
<S> <C> <C>
ASSETS
Cash and Due from Banks $ 175,458 $ 164,610
Interest Bearing Deposits with Banks 51,796 21,524
Securities Available for Sale 784,905 1,033,526
Federal Funds Sold and Securities Purchased
Under Agreements to Resell 305,000 120,000
Loans 1,458,004 1,626,898
Less: Allowance for Credit Losses 15,491 14,699
---------- ----------
Net Loans 1,442,513 1,612,199
Premises and Equipment 110,411 109,346
Other Assets 164,161 162,006
---------- ----------
Total Assets $3,034,244 $3,223,211
========== ==========
LIABILITIES
Deposits:
Non-Interest Bearing $1,083,947 $1,031,538
Interest Bearing 1,392,948 1,408,833
---------- ----------
Total Deposits 2,476,895 2,440,371
Federal Funds Purchased, Securities Sold Under
Agreements to Repurchase and Other Borrowings 101,870 350,515
Accounts Payable and Accrued Liabilities 157,842 148,078
Long Term Debt 58,187 60,924
---------- ----------
Total Liabilities 2,794,794 2,999,888
---------- ----------
STOCKHOLDERS' EQUITY
Common Stock, $1.00 Par Value; 40,000,000 Shares
Authorized; 11,703,195 Shares Issued in 1995
and 11,581,373 Shares Issued in 1994 11,703 11,581
Capital Surplus 77,249 72,605
Retained Earnings 249,410 244,639
Treasury Stock, at Cost (2,122,592 Shares in 1995
and 2,129,448 Shares in 1994) (85,987) (86,139)
Loan to ESOP (13,434) (16,171)
Unrealized Gain (Loss), Net of Taxes, on
Securities Available for Sale 509 (3,192)
---------- ----------
Total Stockholders' Equity 239,450 223,323
---------- ----------
Total Liabilities and Stockholders' Equity $3,034,244 $3,223,211
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
<TABLE>
U.S. TRUST CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands, Except Per Share Amounts)
(UNAUDITED)
For the Three Month Periods
Ended March 31,
---------------------------
1995 1994
-------- --------
<S> <C> <C>
COMMON STOCK
Balance, January 1 $ 11,581 $ 11,436
Issuance of Shares Under Employee Benefit Plans 122 32
-------- --------
Balance, March 31 $ 11,703 $ 11,468
======== ========
CAPITAL SURPLUS
Balance, January 1 $ 72,605 $ 67,898
Employee Benefit Plans 4,644 91
-------- --------
Balance, March 31 $ 77,249 $ 67,989
======== ========
RETAINED EARNINGS
Balance, January 1 $244,639 $242,112
Net Income 8,628 12,670
Cash Dividends Declared ($.50 Per Share in 1995 and 1994) (4,792) (4,676)
Tax Benefit on Stock Based Awards 935 73
-------- --------
Balance, March 31 $249,410 $250,179
======== ========
TREASURY STOCK
Balance, January 1 $(86,139) $(82,857)
Purchases - (3,200)
Issuance (Tender) of Shares Under Employee
Benefit Plans, Net 152 1,791
-------- --------
Balance, March 31 $(85,987) $(84,266)
======== ========
LOAN TO ESOP
Balance, January 1 $(16,171) $(18,697)
Principal Payment by ESOP 2,737 2,526
-------- --------
Balance, March 31 $(13,434) $(16,171)
======== ========
UNREALIZED GAIN (LOSS), NET OF TAXES, ON
SECURITIES AVAILABLE FOR SALE
Balance, January 1 $ (3,192) $ 8,695
Net Change in Fair Value, After Taxes 3,701 (8,454)
-------- --------
Balance, March 31 $ 509 $ 241
======== ========
TOTAL STOCKHOLDERS' EQUITY $239,450 $229,440
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
<TABLE>
U.S. TRUST CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
(UNAUDITED)
For Three Month Period
Ended March 31,
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 8,628 $ 12,670
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Credit Losses 400 500
Depreciation and Amortization of Premises and
Equipment and Other Assets 3,984 3,869
Net Amortization of Premium on Securities:
Available for Sale (2,808) 1,134
Held to Maturity - 318
Net Change in Accrued Interest, Commissions and
Other Receivables 3,298 (10,369)
Net Change in Accounts Payable and Other Liabilities 10,138 (14,280)
Other, Net 261 (3,073)
--------- ---------
Net Cash Provided (Used) by Operating Activities 23,901 (9,231)
--------- ---------
Cash Flows From Investing Activities:
Net Change in Interest Bearing Deposits with Banks (30,272) (9,754)
Purchases of Securities:
Available for Sale (547,094) (687,853)
Held to Maturity - (324,261)
Proceeds From Sales of Securities:
Available for Sale 448,153 196,315
Proceeds From Maturities, Calls and Mandatory
Redemptions of Securities:
Available for Sale 357,436 198,542
Held to Maturity - 16,133
Net Change in Federal Funds Sold and Securities
Purchased Under Agreements to Resell (185,000) 237,000
Net Change in Loans 168,875 (22,016)
Expenditures for Premises and Equipment, Net of Retirements (4,370) (2,381)
Principal Payment by ESOP 2,737 2,526
Other, Net (7,990) (5,341)
--------- ---------
Net Cash Provided (Used) by Investing Activities 202,475 (401,090)
--------- ---------
Cash Flows From Financing Activities:
Net Change in Non-Interest Bearing Deposits 52,409 (57,532)
Net Change in Money Market and Other Savings Deposits (52,904) 14,284
Net Change in Time Deposits 37,019 960
Net Change in Federal Funds Purchased, Securities Sold
Under Agreements to Repurchase and Other Borrowings (248,645) 497,149
Repayments of Long Term Debt (2,737) (2,526)
Issuance of Common Stock 4,072 1,076
Purchases of Treasury Stock - (3,200)
Dividends Paid (4,742) (4,400)
--------- ---------
Net Cash Provided (Used) by Financing Activities (215,528) 445,811
--------- ---------
Net Change in Cash and Cash Equivalents 10,848 35,490
Cash and Cash Equivalents at January 1 164,610 179,117
--------- ---------
Cash and Cash Equivalents at March 31 $ 175,458 $ 214,607
========= =========
Income Taxes Paid $ 27,551 $ 1,949
Interest Expense Paid 23,039 13,567
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE>
U. S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Sale of Processing Business
---------------------------
The Corporation and The Chase Manhattan Corporation ("Chase")
announced on November 18, 1994 that they had entered into an
agreement under which Chase will purchase the Corporation's
institutional custody, mutual funds servicing and unit trust
businesses and certain of the Corporation's back office
functions for $363.5 million in Chase common stock (the
"transaction"). At a special meeting of shareholders held
March 22, 1995, the shareholders approved the transaction.
The transaction, which is still subject to bank regulatory
approvals and a favorable ruling from the Internal Revenue
Service regarding its tax-free status, is expected to close
mid-year 1995.
In connection with the transaction, the Corporation may incur
charges of up to $110 million (after-tax) associated with
various downsizing costs and other expenses. In the first
quarter of 1995, the Corporation actually incurred $574,000
(after-tax) of expense, principally related to severance
benefits. Since the announcement of the transaction, the
Corporation has incurred a total of $28.5 million of such
charges. The remaining charges will be recorded as incurred,
and no later than the closing date of the transaction. See
"Pending Disposition and Merger Transaction" in the Management
Discussion and Analysis of Financial Condition and Results of
Operations.
On April 25, 1995, the Corporation announced the decision by
the Board of Directors to defer declaration of the
Corporation's regular second quarter dividend in view of the
pending completion of the transaction.
2. SUBSEQUENT EVENT
----------------
On April 28, 1995, the Corporation purchased the individual
account business of J. & W. Seligman & Co. Inc., and acquired
J. & W. Seligman Trust Company for $10 million in cash, in a
transaction that was accounted for as a purchase. J. & W.
Seligman & Co. Inc., is a privately held investment manager
and advisor located in New York City. Under the terms of the
agreement, the Corporation may pay up to an additional
$11 million in cash for the business acquired, (approximately
$800 million in assets under supervision) subject to certain
business retention and other conditions.
-7-
<PAGE>
U. S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. PLEDGED FINANCIAL INSTRUMENTS
-----------------------------
Financial instruments carried at $152,421,000 on March 31,
1995 and $303,304,000 on December 31, 1994 were pledged to
secure public deposits, as collateral for borrowings, to
qualify for fiduciary powers and for other purposes.
4. ADOPTION OF NEW ACCOUNTING STANDARDS
------------------------------------
As of January 1, 1995, the Corporation adopted Statement of
Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan," ("FAS 114"), 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. 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. The adoption of FAS 114 and FAS 118 had
no impact on the financial condition or results of operations
of the Corporation.
As of March 31, 1995, the carrying amount of impaired loans as
defined in FAS 114, was approximately $5.6 million. The
average balance of impaired loans for the first quarter of
1995 was approximately $6.0 million. Interest income, which
is recognized on a cash basis, related to impaired loans for
the first quarter of 1995 was approximately $39,000.
The Corporation's income recognition policy for impaired loans
is consistent with the existing income recognition policy for
nonperforming loans discussed in "Notes to the Consolidated
Financial Statements No. 2(e)" of the Corporation's 1994
Annual Report to Shareholders (the "Report").
-8-
<PAGE>
U. S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5. 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, 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.
6. RECLASSIFICATIONS
-----------------
Certain prior 1994 amounts have been reclassified to conform
with the current presentation.
-9-
<PAGE>
<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 March 31,
------------------------------------------------------------------------
1995 1994
--------------------------------- ---------------------------------
Average Average Average Average
' Balance Interest Rate Balance Interest Rate
---------- -------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Bearing Deposits
with Banks $ 62,960 $ 968 6.24% $ 71,431 $ 582 3.31%
Securities (1):
U.S. Government Obligations 780,870 10,819 5.54 571,196 5,951 4.17
Federal Agency Obligations 236,352 4,292 7.26 533,979 7,001 5.24
State and Municipal
Obligations (4) 73,634 1,805 9.80 82,399 2,128 10.33
Collateralized Mortgage
Obligations (2) 56,769 905 6.38 103,729 952 3.67
Other Securities 49,754 680 5.46 83,908 686 3.27
---------- -------- ------ ---------- ------ ------
Total Securities $1,197,379 18,501 6.18 $1,375,211 16,718 4.86
---------- -------- ------ ---------- ------ ------
Loans (3) (4) 1,375,010 27,298 8.05 1,222,331 20,168 6.69
---------- -------- ------ ---------- ------ ------
Federal Funds Sold and
Securities Purchased Under
Agreements to Resell 358,839 5,097 5.76 656,217 5,008 3.10
---------- -------- ------ ---------- ------ ------
Total Interest Earning Assets 2,994,188 51,864 6.99 3,325,190 42,476 5.15
---------- -------- ------ ---------- ------ ------
Allowance for Credit Losses (15,225) (13,627)
Cash and Due from Banks 277,482 354,466
Other Assets 445,244 452,763
Total Assets $3,701,689 $4,118,792
========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest Bearing Deposits $1,440,258 17,362 4.89 $1,342,594 9,401 2.84
Federal Funds Purchased,
Securities Sold Under
Agreements to Repurchase
and Other Borrowing 259,768 3,635 5.68 339,038 2,607 3.12
Long Term Debt 59,130 1,200 8.12 63,444 1,290 8.13
---------- -------- ------ ---------- ------ ------
Total Sources on Which
Interest is Paid 1,759,156 22,197 5.11 1,745,076 13,298 3.09
---------- -------- ------ ---------- ------ ------
Total Non-Interest Bearing
Deposits 1,555,465 1,920,126
Other Liabilities 146,947 209,549
Stockholders' Equity 240,121 244,041
Total Liabilities and
Stockholders' Equity $3,701,689 $4,118,792
========== ==========
Net Interest Income $29,667 $29,178
======== =======
Net Yield on Interest
Earning Assets 3.99% 3.53%
====== ======
Interest Spread 1.88% 2.06%
====== ======
(1) Includes securities classified as available for sale in 1995 and
securities classified as available for sale and held to maturity
in 1994. 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 $14,376,000
in 1995 and $17,041,000 in 1994.
(4) Yields on obligations of states and political subdivisions are stated on a
fully taxable basis, employing the statuory 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 $ 999 $1,140
Total Loans $ - $ 8
</TABLE>
-10-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
-----------------------------------------------------------
Pending Disposition and Merger Transaction
- ------------------------------------------
On November 18, 1994, the Corporation announced that it had
entered into an agreement with The Chase Manhattan Corporation
("Chase") under which Chase will acquire the Corporation's
institutional custody, mutual funds servicing and unit trust businesses
(the "Processing Business") and certain of the Corporation's back
office functions (collectively the "Chase Acquired Business"). See
"Notes to the Consolidated Financial Statements No. 1".
At a Special Meeting of Stockholders held March 22, 1995,
U.S. Trust shareholders approved the sale of the Chase Acquired
Business to Chase. The transaction, which is still subject to bank
regulatory approvals and a favorable ruling from the Internal Revenue
Service regarding its tax-free status, is expected to close mid-year
1995.
As discussed in the Report, the transaction will consist of
the following two general steps. First, the Corporation will spin off
to its shareholders the assets not included in the Chase Acquired
Business by establishing a new corporation ("New USTC") to hold such
assets and distributing its shares to shareholders of the Corporation
on a one-for-one basis (the "Disposition"). Second, the Corporation,
which will then include only the assets and liabilities of the Chase
Acquired Business, will be merged into Chase (the "Merger") and the
shareholders of the Corporation will receive shares of Chase common
stock, based upon an exchange formula set forth in the agreement, on a
pro-rata basis. The exchange formula stipulates that the exchange
ratio will be calculated by dividing the purchase price of
$363.5 million by the average of the daily average of the high and low
sales prices of Chase common stock for the ten trading days immediately
before the closing date. The exchange formula also establishes a floor
market value for Chase common stock of $31 per share. Therefore, the
maximum number of Chase common shares that will be issued in this
transaction is 11,725,806 shares even if the market value of Chase
common stock should fall below $31 per share. As of May 5, 1995, the
closing price of Chase common stock, as reported in The Wall Street
Journal, was $44.375 per share.
As part of the agreement, Chase will provide securities
processing, custodial, data processing and other services to New USTC
under the five year term of a servicing agreement at an annual base fee
of $10 million. The servicing agreement may be extended an additional
two to five years beyond its initial term.
-11-
<PAGE>
Pending Disposition and Merger Transaction
- ------------------------------------------
The Corporation expects to incur charges of up to
$110 million (after-tax) associated with various downsizing costs and
other expenses related to the transaction. In the first quarter of
1995, the Corporation incurred $1.1 million ($574,000 after-tax) of
such charges, principally related to severance benefits. Since the
announcement of the transaction, the Corporation has incurred a total
of $28.5 million of such charges.
Pro forma statements have been prepared to present the
estimated effects of the pending Disposition and Merger transaction.
The pro forma condensed statement of condition as of March 31, 1995,
pro forma condensed statement of income for the year ended December 31,
1994 and the three months ended March 31, 1995 and the pro forma
condensed statement of average balances for the three months ended
March 31, 1995 are filed herewith as Exhibit 99.
Results of Operations
- ---------------------
Net income for the first quarter ended March 31, 1995
amounted to $8.6 million, a decrease of 31.9% from the $12.7 million
earned in the first quarter of 1994. Fully diluted net income per
share for the quarter totaled $0.85 in 1995, versus $1.28 in 1994.
The Corporation's return on average stockholders' equity for
the first three months of 1995 was 15.50%, compared to 22.64% for the
first three months of 1994. Its return on average total assets was
0.95% in the three months ended March 31, 1995, versus 1.25% in the
three months ended March 31, 1994.
<TABLE>
Fee Revenue
- -----------
Three Month Periods Ended March 31,
------------------------------------
% Better
(In Thousands) 1995 1994 (Worse)
------- ------- --------
<S> <C> <C> <C>
Core Businesses $48,445 $47,500 2.0 %
Processing Business 25,058 25,421 (1.4)
------- ------- --------
Total $73,503 $72,921 0.8 %
======= ======= ========
</TABLE>
-12-
<PAGE>
Fee Revenue (Cont'd.)
- -----------
Fiduciary and other fees ("Fee Revenue") increased 0.8% to
$73.5 million in the first quarter of 1995. Fee revenue related to the
Processing Business decreased 1.4% to $25.1 million from $25.4 million
in the first quarter of 1994. Fee revenue for the Corporation's asset
management, private banking, special fiduciary and corporate trust
businesses (the "Core Businesses") increased 2.0% to $48.4 million in
the first quarter of 1995 from $47.5 million in the first quarter of
1994. Despite strong new business growth throughout 1994 that has
continued into 1995, first quarter 1995 asset management fees based on
the market value of client assets were adversely impacted by the
decline in domestic equity and fixed-income markets from the fourth
quarter of 1993 to the fourth quarter of 1994.
<TABLE>
March 31, Dec. 31, % Better
(In Billions) 1995 1994 (Worse)
--------- -------- --------
<S> <C> <C> <C>
Assets Under Management:
Core Businesses $ 27.0 $ 26.0 3.8 %
Processing Business 1.9 1.9 -
Special Fiduciary 12.2 5.1 -
------- ------- --------
Total 41.1 33.0 24.5 %
------- ------- --------
Assets Under Administration:
Core Businesses 180.3 167.8 7.4
Processing Business 231.0 223.4 3.4
------- ------- --------
Total 411.3 391.2 5.1 %
------- ------- --------
Total Assets Under Management
and Administration $ 452.2 $ 424.2 6.6 %
======= ======= ========
</TABLE>
Total assets under management increased 24.5% to
$41.1 billion at March 31, 1995, from $33.0 billion at December 31,
1994. Total assets under management at March 31, 1995 and December 31,
1994, include approximately $1.9 billion of funds under management for
clients of the Processing Business, primarily short-term fixed-income
assets, that will no longer be under management following the sale of
that business to Chase. The increase in assets under management is
principally due to an increase in special fiduciary investment
management assets. U.S. Trust is trustee for $6.7 billion of GM-E
stock that General Motors Corporation contributed to its defined
benefit plan during the first quarter of 1995.
-13-
<PAGE>
<TABLE>
Net Interest Income (Taxable Equivalent Basis)
- ----------------------------------------------
Three Month Periods Ended March 31,
-------------------------------------
% Better
(In Thousands) 1995 1994 (Worse)
------- ------- ---------
<S> <C> <C> <C>
Interest Income $50,865 $41,328 23.1 %
Taxable Equivalent Adjustment 999 1,148 (13.0)
------- -------
Total Interest Income 51,864 42,476 22.1
Interest Expense 22,197 13,298 (66.9)
------- -------
Net Interest Income $29,667 $29,178 1.7 %
======= ======= ====
</TABLE>
Net interest income, on a taxable equivalent basis, was
$489,000 higher in the 1995 first quarter, compared to the 1994 period.
For the first quarter of 1995, the net yield on average interest
earning assets was 3.99%, compared to 3.53% in the 1994 period.
The Corporation's net interest income is dependent upon the
average volume of non-interest-bearing deposits ("investable balances")
and the general interest rate environment. The Processing Business
generates a substantial flow of investable balances. The total volume
of the Processing Business's investable balances, however, is generally
inversely related to the level of interest rates. Thus, in periods of
increasing interest rates, the average balance of investable balances
derived from the Processing Business typically declines. In the first
quarter of 1995, the reduction of $365 million in the average volume of
investable balances substantially offset the effect of rising interest
rates. Investable balances attributable to the Processing Business
declined 25.1% to $838 million in the first quarter of 1995, compared
to $1.1 billion in the corresponding 1994 period. In addition, net
interest income was adversely impacted as a result of the Corporation
reducing the maturity structure of its investment security portfolio
due to the anticipated sale of the Processing Business.
Total Revenues
- --------------
Revenues of the Core Businesses and the Processing Business
are allocated in accordance with the allocation methodologies utilized
by the Corporation's internal management reporting system. The amount
of net interest income allocated to the respective businesses is based
upon the average net deposit balances supplied by such businesses
multiplied by an appropriate, internally-generated, interest rate. The
interest rate is based upon the rates earned by the Corporation's long-
and short-term securities for the relevant period. Fee Revenue is
allocated directly to the businesses performing the service from which
the revenue is derived.
-14-
<PAGE>
Total Revenues (Cont'd.)
- --------------
Total revenues, defined as taxable equivalent net interest
income after the provision for credit losses, fee income and other
income, for the Core Businesses and the Processing Business for the
quarters ended March 31, 1995 and March 31, 1994 were as follows:
<TABLE>
Three Month Periods Ended March 31,
--------------------------------------
% Better
(In Thousands) 1995 1994 (Worse)
-------- -------- ---------
<S> <C> <C> <C>
Core Businesses Revenues $ 66,531 $ 64,598 3.0 %
Processing Business Revenues 38,866 41,356 (6.0)
-------- -------- ---------
Total Revenues $105,397 $105,954 (.5)%
======== ======== =========
</TABLE>
The Processing Business accounted for approximately 36.9% of
the Corporation's total revenues, on a taxable equivalent basis, and
approximately 37.0% of profit contribution (defined as taxable
equivalent operating income excluding corporate overhead and income
taxes) for the quarter ended March 31, 1995, compared to 39.0% of total
revenue and 43.9% of profit contribution for the quarter ended March
31, 1994. The reduction in the Processing Business's contribution to
total revenue and profit contribution reflects a curtailment in normal
new business activity, a modest loss of existing client relationships
and the continued decline in the average volume of investable balances
attributable to the unit investment trust (UIT) business. See "Net
Interest Income" for further discussion of investable balances.
Operating Expenses
- ------------------
<TABLE>
Three Month Periods Ended March 31,
--------------------------------------
% Better
(In Thousands) 1995 1994 (Worse)
------- ------- ---------
<S> <C> <C> <C>
Salaries $34,348 $32,735 (4.9)%
Employee Benefits and
Incentive Compensation 21,442 19,567 (9.6)
------- -------
Total Salaries and Benefits 55,790 52,302 (6.7)
Net Occupancy 10,505 9,778 (7.4)
Equipment 4,723 4,247 (11.2)
Other 19,000 16,444 (15.5)
------- -------
Total Operating Expenses $90,018 $82,771 (8.8)%
======= ======= ====
</TABLE>
-15-
<PAGE>
Operating Expenses (Cont'd.)
- ------------------
For the first quarter of 1995, non-interest operating expenses
increased $7.2 million to $90.0 million from the $82.8 million reported
in the first quarter of 1994. Salaries and employee benefit expenses,
including sales incentives and commissions, increased $3.5 million or
6.7%, in the first quarter, including severance-related charges of
$1.1 million incurred in connection with the pending Disposition and
Merger. In the first quarter of 1995, Other expenses increased
$2.6 million to $19.0 million from the $16.4 million reported in the
first quarter of 1994. Total Operating Expenses for the first quarter
of 1994 reflected a $1.6 million reduction due primarily to the
favorable impact of terminating certain lease commitments.
Operating expenses associated with the Core Businesses and
Processing Business are determined by the Corporation's internal
management accounting information system. The Corporation's management
accounting practices and policies have been developed and implemented
with the objective of reflecting the economics of the respective
businesses. Direct costs are those expenses that can be directly
attributable to a specific business activity. Direct expenses include
actual salaries and benefits of the employees of the business, net
occupancy costs based upon actual space utilized and furniture and
equipment specifically employed by the business.
Methodologies have been developed to capture and allocate
expenses that are not directly incurred by the businesses but for which
there is a direct relationship between the level of business activity
and the amount of cost incurred. The guidelines employ volume or
percentage allocation bases or the activity of other expense or balance
sheet accounts. Indirect costs include computer services, securities
clearing and bank operations services transfer charges which are
allocated on the basis of volume statistics, and systems man month
charges.
Corporate overhead consists of unallocated costs not
specifically attributable to the respective businesses, including
financial, legal and other general purpose corporate expenses.
Operating expenses applicable to the Core Businesses and the
Processing Business for the quarters ended March 31, 1995 and 1994 were
as follows.
-16-
<PAGE>
Operating Expenses (Cont'd.)
- ------------------
<TABLE>
Three Month Periods Ended March 31,
--------------------------------------
% Better
(In Thousands) 1995 1994 (Worse)
------- ------- ---------
<S> <C> <C> <C>
Core Businesses:
Salaries and Benefits $31,391 $30,028 (4.5)%
Net Occupancy 5,372 4,903 (9.6)
Other 12,598 12,131 (3.8)
------- -------
Subtotal 49,361 47,062 (4.9)
------- -------
Processing Business:
Salaries and Benefits 18,748 18,815 0.4
Net Occupancy 2,702 2,679 (0.9)
Other 7,658 6,631 (15.5)
------- -------
Subtotal 29,108 28,125 (3.5)
------- -------
Corporate Overhead 11,549 7,584 (52.3)
------- -------
Total Operating Expenses $90,018 $82,771 (8.8)%
======= ======= ====
</TABLE>
Included in Corporate Overhead for the three month period
ended March 31, 1995 is $1.1 million of severance expense attributable
to the pending sale of the Processing Business. Corporate Overhead for
the three month period ended March 31, 1994 included a $1.6 million
reduction in expense primarily due to the termination of certain lease
commitments. Considering both of these items, normalized operating
expenses increased by 5.5% between the two periods.
Income Taxes
- ------------
The Corporation's effective tax rate for the first quarter of
1995 was 40.0%, compared with an effective tax rate of 42.5% for the
first quarter of 1994. The decline in the effective tax rate is due to
the Corporation's lower state and local income taxes.
-17-
<PAGE>
Financial Condition:
- -------------------
Capital
- -------
The Corporation has maintained its strong capital position
in the first quarter of 1995. The ratio of Tier 1 capital at March 31,
1995 to period end risk-adjusted assets (as defined by the Federal
Reserve Board) was 14.9%, compared to 14.2% at March 31, 1994. The
ratio of Total Capital at March 31, 1995 to period end risk-adjusted
assets was 16.3%. At March 31, 1994 this ratio was 15.5%.
The Leverage ratio (defined by the Federal Reserve Board as
Tier 1 capital as of the period end divided by total quarterly (three
month) average assets reduced by goodwill and nonqualifying
intangibles) amounted to 6.3% and 5.4% at March 31, 1995 and 1994,
respectively.
United States Trust Company of New York (the "Trust Company")
has also maintained its strong capital position. At March 31, 1995,
the Trust Company's Tier 1 capital ratio was 13.2% compared to 13.4%
at March 31, 1994. The Trust Company's Leverage ratio (as defined
by the Federal Reserve Board) was 6.2% and 5.04% at March 31, 1994
and 1993, respectively.
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") 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, as of
March 31, 1995, of the notional amounts 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.
-18-
<PAGE>
Asset/Liability Management (Cont'd.)
- --------------------------
<TABLE>
Maturing
-----------------------
Within 1 1 to 5
(Dollars In Thousands) Year Years Total
-------- -------- --------
<S> <C> <C> <C>
Fixed Pay Swaps $ 32,000 $116,750 $148,750
Average Rate Paid 7.8619% 7.0893% 7.2555%
Average Rate Received* 6.3223% 6.2670% 6.2789%
* 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.
</TABLE>
In anticipation of the pending elimination of the Processing
Business' non-interest bearing deposits as a long-term funding source,
the Corporation sold over $800 million of U.S. Government Treasury and
Agency securities in the fourth quarter of 1994, and shortened the
maturity structure of the securities portfolio. The Corporation will
retain most, if not all, of its fixed rate loan portfolio. As a
result, the Corporation's use of swaps as an asset/liability management
tool has increased and is expected to continue to increase, as a
greater proportion of the Corporation's fixed rate assets will be
funded with short-term interest bearing liabilities.
The impact of the Corporation's hedging activities upon net
interest income is detailed in the following table.
<TABLE>
Three Month Periods Ended
March 31,
(Taxable Equivalent Basis; ----------------------------
Dollars In Thousands) 1995 1994
-------- --------
<S> <C> <C>
Net Interest Income:
As Reported $ 29,667 $ 29,178
Excluding Hedging Activities $ 29,963 $ 30,297
Net Yield on Interest Earning Assets:
As Reported 3.99% 3.53%
Excluding Hedging Activities 4.06% 3.70%
</TABLE>
The preceding table presents the impact of the Corporation's
hedging activities on net interest income. The difference between the
results "As Reported" and "Excluding Hedging Activities" reflects the
cost of utilizing swaps to hedge interest rate risk and lock in a
specified level of return.
-19-
<PAGE>
Securities Available for Sale
- -----------------------------
During the first quarter of 1995, the Corporation purchased
approximately $547.1 million of securities available for sale,
primarily U.S. Government and Federal Agency securities
($546.9 million).
The Corporation's portfolio of securities available for sale
is mainly comprised of U.S. Treasury fixed rate obligations (48%),
Government National Mortgage Association ("GNMA") and 15-year fixed
rate mortgage-backed securities and GNMA adjustable rate mortgage-back
securities (28%), obligations of states and municipalities (9%) and
variable rate collateralized mortgage obligations ("CMOs") (7%). The
GNMAs are backed by the full faith and credit of the United States
Government.
The market value of securities available for sale exceeded
their amortized cost by $1.1 million at March 31, 1995. At March 31,
1994, the market value of securities available for sale exceeded their
amortized cost by $508,000.
During the first three months of 1995, the Corporation sold
approximately $448.0 million of U.S. Government and Federal Agency
securities recognizing a $186,000 gain. In addition, during the first
three months of 1995 approximately $357.4 million of available for sale
securities (primarily U.S. Government and Federal Agency securities)
matured. In the first three months of 1994, the Corporation sold
approximately $41.9 million of securities available for sale
($41.7 million of which were U.S. Government and Federal Agency
securities) recognizing a $2.0 million gain. Additionally, during the
first three months of 1994 $198.5 million of securities matured.
Mortgage Securities and Prepayment Risk
- ---------------------------------------
At March 31, 1995, the Corporation held GNMA and CMO
securities ("mortgage securities") having a carrying amount of
approximately $275 million in its available for sale portfolio. 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.
Liquidity
- ---------
The Corporation's asset mix is predominantly liquid and
low-risk. At March 31, 1995, 43.41% of total assets consisted of cash
and securities readily convertible to cash. The comparable percentages
for December 31, 1994 and March 31, 1994 are 41.56% and 53.76%,
respectively.
-20-
<PAGE>
Liquidity (Cont'd.)
- ---------
Historically, the Corporation has maintained strong liquidity
at both the parent and the operating subsidiaries. While the
Disposition and Merger will have a significant effect on capital
resources and the overall asset and liability structure, specifically
the elimination of non-interest bearing deposits as a long-term funding
source (see "Asset/Liability Management" section for further
information), the Corporation believes that New USTC will maintain
sufficient liquidity at the parent and each of its active subsidiaries.
In connection with the Disposition and Merger, the Trust
Company will redeem its outstanding 8.5% Capital Notes Due 2001. The
funds required to redeem the Capital Notes ($10.8 million) will be
obtained through normal business operations.
The Corporation also will satisfy and discharge the
$30 million balance of its 8% Notes due 1996. The funding for such
satisfaction and discharge will be provided by cash on hand and
dividends from subsidiaries.
Additional sources of liquidity will include a new multi-year
$35 million credit facility which the Corporation is currently
negotiating. The Corporation expects that the new facility which will
be finalized prior to the consummation of the Disposition and Merger
will have terms and conditions at least as favorable as the
Corporation's existing credit facility. The Corporation's existing
credit facility is an unsecured $25 million revolving credit
arrangement. At March 31, 1995, the Corporation had no borrowings
outstanding under its revolving credit arrangement.
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
March 31, 1995. Gap analysis has inherent limitations as an analytical
tool because it only measures the Corporation's exposure at a single
point in time. Exposure to interest rates is constantly changing as a
result of the Corporation's ongoing business and its management
initiatives. Accordingly, the gap table cannot be used to predict the
Corporation's interest sensitivity position after the Disposition and
Merger. Certain actions that the Corporation has taken in response to
the transactions have been described in the "Liquidity" section.
-21-
<PAGE>
Interest Rate Sensitivity (Cont'd.)
- -------------------------
As set forth in the following table, as of March 31, 1995, the
Corporation had more assets repricing than liabilities (asset
sensitive) in all categories except the 4-6 month category when more
liabilities reprice than assets, reflecting the impact of the
Disposition and Merger on the anticipated sale of the Processing
Business and the resulting elimination of their non-interest bearing
deposits. In general, when an enterprise is asset sensitive its net
interest income will improve in a rising interest rate environment and
will decline in a declining interest rate environment. Conversely, a
liability sensitive enterprise will realize a benefit in net interest
income if rates are falling and will have lower net interest income in
a rising rate environment.
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. Historically these investments have been funded by a
portion of the non-interest bearing deposits of the Processing Business
and, to a lesser degree, by interest rate swaps, fixed rate long term
debt and stockholders' equity. Following the Disposition and Merger,
New USTC will not have access to non-interest bearing deposits derived
from the Processing Business; the Corporation has taken actions to
rebalance its asset/liability mix through the sale of securities in the
fourth quarter of 1994.
-22-
<PAGE>
Interest Rate Sensitivity (Cont'd.)
- -------------------------
<TABLE>
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 $ 51,796 $ -- $ -- $ -- $ -- $ 51,796
Securities Available for Sale 404,186 71,278 129,600 126,168 53,673 784,905
Federal Funds Sold and
Securities Purchased Under
Agreements to Resell 305,000 -- -- -- -- 305,000
Loans, Net of Allowance for
Credit Losses 804,051 23,263 43,593 253,024 318,582 1,442,513
Cash and Other Non-Interest
Earning Assets 231,074 21,392 30,020 70,055 97,489 450,030
---------- --------- --------- ---------- --------- ----------
Total Assets 1,796,107 115,933 203,213 449,247 469,744 3,034,244
========== ========= ========= ========== ========= ==========
Liabilities and Stockholders' Equity
Non-Interest Bearing Deposits 115,847 737,970 41,268 188,862 -- 1,083,947
Interest Bearing Deposits 1,351,119 11,202 22,125 8,502 -- 1,392,948
Federal Funds Purchased,
Securities Sold Under
Agreements to Repurchase
and Other Borrowings 101,870 -- -- -- -- 101,870
Accounts Payable and Accrued
Liabilities 38,387 49,822 33,096 24,805 11,732 157,842
Long Term Debt 41,753 -- 2,966 13,468 -- 58,187
Stockholders' Equity -- -- -- -- 239,450 239,450
---------- --------- --------- ---------- --------- ----------
Total Liabilities and
Stockholders' Equity 1,648,976 798,994 99,455 235,637 251,182 3,034,244
---------- --------- --------- ---------- --------- ----------
Asset/(Liability) Sensitivity
Gap 147,131 (683,061) 103,758 213,610 218,562 --
---------- --------- --------- ---------- --------- ----------
Interest Rate Swaps * 147,625 (2,125) (28,750) (116,750) -- --
---------- --------- --------- ---------- --------- ----------
Interest Rate Sensitivity Gap 294,756 (685,186) 75,008 96,860 218,562 --
---------- --------- --------- ---------- --------- ----------
Cumulative Interest Rate
Sensitivity Gap $ 294,756 $(390,430) $(315,422) $ (218,562) $ -- $ --
========== ========== ========== ========== ========= ==========
- ---------------
* Includes $148,750 of total outstanding notional principal of Swaps less $1,125 of Swaps maturing or amortizing
within three months.
</TABLE>
-23-
<PAGE>
Asset Quality
- -------------
The Corporation's loan portfolio is comprised primarily of
loans to private banking customers. Average loans increased
$155 million, or 12.9%, to $1.4 billion in the first quarter of 1995,
from $1.2 billion in the first quarter of 1994. Residential real
estate mortgages accounted for more than 85% of the increase in the
portfolio.
An analysis of the allowance for credit losses follows.
<TABLE>
Three Month Periods Ended March 31,
-----------------------------------
(In Thousands) 1995 1994
------- -------
<S> <C> <C>
Balance, Beginning of Period $14,699 $13,393
------- -------
Provision Charged to Income 400 500
------- -------
Recoveries:
Private Banking 654 170
Other 13 53
------- -------
667 223
------- -------
Charge-offs:
Private Banking (275) (468)
------- -------
Net Recoveries/(Charge-offs) 392 (245)
------- -------
Balance, End of Period $15,491 $13,648
======= =======
</TABLE>
The provision for credit losses in the first quarter of 1995
was $400,000, compared to $500,000 in the first quarter of 1994. As a
percentage of average loans for the quarter, net recoveries, on an
annualized basis, were 12 basis points for the first quarter of 1995,
compared to annualized net charge-offs of 8 basis points for the first
quarter of 1994.
The allowance for credit losses at March 31, 1995, was
$15.5 million, or 1.14% of total average loans outstanding for the
quarter. This compares with $14.7 million, or 1.05% of total average
loans outstanding for the quarter ended December 31, 1994, and
$13.6 million, or 1.13% of total average loans outstanding for the
quarter ended March 31, 1994.
-24-
<PAGE>
Asset Quality (Cont'd.)
- -------------
The allowance for credit losses as a percentage of
nonperforming loans was 270.73% at March 31, 1995, compared to 230.72%
at December 31, 1994, and 217.78% at March 31, 1994. The ratio of
nonperforming assets to total average loans and real estate owned for
the quarter was 1.30% at March 31, 1995, compared to 1.32% at
December 31, 1994 and 1.46% at March 31, 1994.
Nonperforming assets, which include non-accrual loans and real
estate acquired in debt restructurings, are as follows:
<TABLE>
March 31, December 31, March 31,
(In Thousands) 1995 1994 1994
--------- ------------ ---------
<S> <C> <C> <C>
Non-accrual loans $ 5,722 $ 6,371 $ 6,267
Real estate acquired in
debt restructurings 12,142 12,362 11,521
--------- ------------ ---------
Total Nonperforming Assets $ 17,864 $ 18,733 $ 17,788
========= ============ =========
</TABLE>
Accounting Standards Not Yet Adopted
- ------------------------------------
Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," ("FAS 121") issued in March 1995,
establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill. FAS 121
requires review for impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Impairment exists if the sum of the
undiscounted expected future cash flows is less than the carrying
amount of the asset. Impairment is measured as the amount by which the
carrying amount exceeds the fair value of the asset. FAS 121 is
effective for fiscal years beginning after December 15, 1995. Based
upon a preliminary review, the Corporation does not believe that the
adoption of FAS 121 will have a significant impact on the financial
condition or results of operations of the Corporation.
-25-
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) The Special Meeting of Stockholders of the registrant was
held March 22, 1995.
(b) Not applicable.
(c) (i) To vote upon a proposal to approve the distribution
described in the Agreement and Plan of Distribution
whereby the Corporation will spin off to its stockholders
all the shares of New USTC Holdings Corporation, which
will own the Core Businesses at the time of the
Distribution; and
(ii) To authorize and adopt the Agreement and Plan of
Merger, whereby the Chase Acquired Business will be
merged with and into Chase.
Matter (i):
Affirmative Votes 7,726,562
Negative Votes 372,946
Abstentions/No Votes 211,373
Matter (ii):
Affirmative Votes 7,901,217
Negative Votes 197,390
Abstentions/No Votes 212,274
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) EXHIBITS:
11 - Statement re Computation of Net Income Per Share.
99 - Pro Forma Condensed Financial Statements as of
March 31, 1995.
(b) REPORTS ON FORM 8-K:
None
-26-
<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: May 12, 1995 Richard E. Brinkmann
------------------ ------------------------------
Richard E. Brinkmann
Senior Vice President
and Comptroller
(Principal Accounting Officer)
-27-
<PAGE>
<PAGE>
<TABLE>
U.S. TRUST CORPORATION
EXHIBIT 11 - COMPUTATION OF NET INCOME PER SHARE
Three Month Periods Ended March 31,
-----------------------------------
1995 1994
------------- -----------
<S> <C> <C>
PRIMARY NET INCOME PER SHARE:
Net Income $ 8,628,000 $12,670,000
Plus Dividend Equivalent on Deferred
Long-Term Performance Plan Awards
(After-Tax) 90,821 68,756
----------- -----------
Adjusted Net Income $ 8,718,821 $12,738,756
=========== ===========
Weighted average number of common
shares outstanding 9,504,347 9,374,684
Add average shares issuable under stock
option and variable stock award plans 775,881 569,752
----------- -----------
Total Common and Common
Equivalent Shares 10,280,228 9,944,436
=========== ===========
Primary Net Income Per Share $ 0.85 $ 1.28
=========== ===========
FULLY DILUTED NET INCOME PER SHARE:
Net Income $ 8,628,000 $12,670,000
Plus Dividend Equivalent on Deferred
Long-Term Performance Plan Awards
(After-Tax) 90,821 68,756
----------- -----------
Adjusted Net Income $ 8,718,821 $12,738,756
=========== ===========
Weighted average number of common
shares outstanding 9,504,347 9,374,684
Add maximum dilutive impact of average
shares issuable under stock option
and variable stock award plans* 800,396 598,599
----------- -----------
Total Dilutive Shares 10,304,743 9,973,283
=========== ===========
Fully Diluted Net Income Per Share $ 0.85 $ 1.28
=========== ===========
* 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> DIANNE TIONGSON
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 175458
<INT-BEARING-DEPOSITS> 51796
<FED-FUNDS-SOLD> 305000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 784905
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1458004
<ALLOWANCE> 15491
<TOTAL-ASSETS> 3034244
<DEPOSITS> 2476895
<SHORT-TERM> 101870
<LIABILITIES-OTHER> 157842
<LONG-TERM> 58187
<COMMON> 11703
0
0
<OTHER-SE> 227747
<TOTAL-LIABILITIES-AND-EQUITY> 3034244
<INTEREST-LOAN> 27298
<INTEREST-INVEST> 17502
<INTEREST-OTHER> 6065
<INTEREST-TOTAL> 50865
<INTEREST-DEPOSIT> 17362
<INTEREST-EXPENSE> 22197
<INTEREST-INCOME-NET> 28668
<LOAN-LOSSES> 400
<SECURITIES-GAINS> 186
<EXPENSE-OTHER> 90018
<INCOME-PRETAX> 14380
<INCOME-PRE-EXTRAORDINARY> 8628
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8628
<EPS-PRIMARY> 0.85
<EPS-DILUTED> 0.85
<YIELD-ACTUAL> 3.99
<LOANS-NON> 5722
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 14699
<CHARGE-OFFS> 275
<RECOVERIES> 667
<ALLOWANCE-CLOSE> 15491
<ALLOWANCE-DOMESTIC> 15491
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 15491
</TABLE>
<PAGE>
U.S. TRUST CORPORATION
EXHIBIT 99 - PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed statement of
condition as of March 31, 1995, unaudited pro forma condensed
statements of income for the year ended December 31, 1994 and the
three month period ended March 31, 1995, and unaudited pro forma
condensed statement of average balances for the three month period
ended March 31, 1995 (collectively, the "Pro Forma Statements"), were
prepared to present the estimated effects of the pending Disposition
and Merger transaction with The Chase Manhattan Corporation, the
related restructuring transactions and the effect of the Services
Agreement as if such transactions had occurred for statement of
condition purposes as of March 31, 1995 and for statement of income
purposes as of January 1, 1994.
The "Disposition Adjustments" column in each of the Pro Forma
Statements includes the reduction in assets and liabilities and the
elimination from operations of the revenue and expenses related to the
merger of the Chase Acquired Business.
The "Other Adjustments" column in each of the Pro Forma
Statements includes the following:
the balance sheet impact of the nonrecurring adjustments as set
forth in footnote (k) of the Notes to Pro Forma Condensed
Financial Statements, and
the ongoing impact on the Corporation's results of operations
arising from the nonrecurring adjustments and the Services
Agreement including the nonrecurring adjustments that have been
incurred during the fourth quarter of 1994 and the first quarter
of 1995.
All of the pro forma adjustments are based upon available
information and upon certain assumptions that the Corporation believes
are appropriate and include only "exit costs" as defined in Emerging
Issues Task Force Issue 94-3 ("EITF 94-3") that are directly related
to the transactions. The information is not intended to be indicative
of the Corporation's actual results had the transactions occurred as
of the dates indicated above nor do they purport to indicate results
which may be attained in the future.
The Pro Forma Statements and accompanying notes should be read in
conjunction with the historical financial statements and other
financial information relating to the Corporation. For financial
reporting purposes, the Company will be a "successor registrant" to
the Corporation and, as a result, the historical information set forth
in the Pro Forma Statements is the historical information of the
Corporation.
The Distribution will be accounted for by the Company as if the
Corporation had continued in existence, with the carrying amounts of
the assets and liabilities being distributed being accounted for in
accordance with generally accepted accounting principles at their
historical values.
-1-
<PAGE>
<TABLE>
PRO FORMA CONDENSED STATEMENT OF CONDITION
March 31, 1995
(Dollars In Thousands)
(UNAUDITED)
Corporation
Disposition Before Other Other Corporation
Historical Adjustments(a) Adjustments Adjustments Pro Forma
---------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and Cash Equivalents $ 227,254 $ (62,033) $ 165,221 $(38,485)(b) $ 126,736
Securities and Short-Term Investments 1,089,905 (341,676) 748,229 - 748,229
Net Loans, After Allowance for
Credit Losses 1,442,513 (99,463) 1,343,050 - 1,343,050
Other Assets 274,572 (57,475) 217,097 45,174 (c) 262,271
---------- --------- ---------- -------- ----------
Total Assets $3,034,244 $(560,647) $2,473,597 $ 6,689 $2,480,286
========== ========= ========== ======== ==========
LIABILITIES
Deposits $2,476,895 $(549,561) $1,927,334 $ - $1,927,334
Short-Term Borrowings 101,870 - 101,870 42,241 (d) 144,111
Accounts Payable and
Accrued Liabilities 157,842 (11,086) 146,756 68,674 (e) 215,430
Long-Term Debt 58,187 - 58,187 (40,753)(f) 17,434
---------- --------- ---------- -------- ----------
Total Liabilities 2,794,794 (560,647) 2,234.147 70,162 2,304,309
---------- --------- ---------- -------- ----------
STOCKHOLDERS' EQUITY
Common Stock - $1.00 Par Value 11,703 - 11,703 (1,995)(g) 9,708
Capital Surplus 77,249 - 77,249 (77,249)(h)
Retained Earnings 249,410 - 249,410 (70,216)(i) 179,194
Treasury Stock at Cost (85,987) - (85,987) 85,987 (j)
Loan to ESOP (13,434) - (13,434) - (13,434)
Unrealized Gain (Loss), Net of Taxes,
on Securities Available for Sale 509 - 509 - 509
---------- --------- ------------ -------- ----------
Total Stockholders' Equity 239,450 - 239,450 (63,473) 175,977
---------- --------- ---------- -------- ----------
Total Liabilities and
Stockholders' Equity $3,034,244 $(560,647) $2,473,597 $ 6,689 $2,480,286
========== ========= ========== ======== ==========
CAPITAL RATIOS
As a Percentage of Risk-Adjusted
Period End Total Assets:
Tier 1 Capital 14.90% 11.69%
Total Capital 16.27 12.82
Tier 1 Leverage 6.28 6.21
</TABLE>
-2-
<PAGE>
<TABLE>
PRO FORMA CONDENSED STATEMENT OF INCOME
Year Ended December 31, 1994
(Dollars In Thousands, Except Per Share Amounts)
(UNAUDITED)
Reversal of
Back Office Corporation
Disposition & Corporate Before Other Other Corporation
Historical Adjustments(l) Staff (m) Adjustments Adjustments Pro Forma(k)
----------- -------------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 108,112 $ (42,133) $ - $ 65,979 $ - $ 65,979
Provision for Credit Losses 2,000 - - 2,000 - 2,000
---------- --------- -------- -------- -------- --------
Net Interest Income After
Provision for Credit Losses 106,112 (42,133) - 63,979 - 63,979
Fees 295,565 (102,704) - 192,861 - 192,861
Securities Gains (Losses), net (42,118) - - (42,118) 44,172 (k) 2,054
Other Income 16,748 (5,447) - 11,301 (1,966)(n) 9,335
---------- --------- -------- -------- -------- --------
Total Revenue 376,307 (150,284) - 226,023 42,206 268,229
---------- --------- -------- -------- -------- --------
Operating Expenses
Salaries and Benefits 207,483 (72,798) 24,691 159,376 (31,696)(o) 127,680
Net Occupancy 40,030 (10,616) 4,659 34,073 (4,763)(o) 29,310
Other 94,422 (30,190) 17,236 81,468 (18,537)(o,k) 62,931
---------- --------- -------- -------- -------- --------
Total Operating Expenses 341,935 (113,604) 46,586 274,917 (54,996) 219,921
---------- --------- -------- -------- -------- --------
Income Before Income Tax
Expense 34,372 (36,680) (46,586) (48,894) 97,202 48,308
Income Tax Expense
(Benefit) (p) 13,405 (16,506) (20,964) (24,065) 43,291 19,226
---------- --------- -------- -------- -------- --------
Net Income $ 20,967 $ (20,174) $(25,622) $(24,829) $ 53,911 $ 29,082
========== ========= ======== ======== ======== ========
Net Income Per Share: (q)
Fully Diluted $ 2.12 $ 2.83
========= ==========
Average Shares Outstanding:
Fully Diluted 10,019,592 10,400,000
========== ==========
</TABLE>
-3-
<PAGE>
<TABLE>
PRO FORMA CONDENSED STATEMENT OF INCOME
Three Months Ended March 31, 1995
(Dollars In Thousands, Except Per Share Amounts)
(UNAUDITED)
Reversal of
Back Office Corporation
Disposition & Corporate Before Other Other Corporation
Historical Adjustments(l) Staff(m) Adjustments Adjustments Pro Forma(k,t)
---------- ------------- ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 28,668 $ (12,306) $ - $ 16,362 $ - $ 16,362
Provision for Credit Losses 400 - - 400 - 400
---------- --------- -------- -------- -------- --------
Net Interest Income After
Provision for Credit Losses 28,268 (12,306) - 15,962 - 15,962
Fees 73,503 (25,058) - 48,445 - 48,445
Other Income 2,627 (1,502) - 1,125 654 (n) 1,779
--------- --------- -------- -------- -------- --------
Total Revenue 104,398 (38,866) - 65,532 654 66,186
---------- --------- -------- -------- -------- --------
Operating Expenses
Salaries and Benefits 55,790 (18,748) 6,048 43,090 (9,410)(o,k) 33,680
Net Occupancy 15,228 (2,702) 191 12,717 (4,921)(o) 7,796
Other 19,000 (7,658) 5,533 16,875 (1,353)(o) 15,522
---------- --------- -------- -------- -------- --------
Total Operating Expenses 90,018 (29,108) 11,772 72,682 (15,684) 56,998
---------- --------- -------- -------- -------- --------
Income Before Income Tax
Expense 14,380 (9,758) (11,772) (7,150) 16,338 9,188
Income Tax Expense
(Benefit) (p) 5,752 (4,391) (5,297) (3,936) 7,593 3,657
---------- --------- -------- -------- -------- --------
Net Income $ 8,628 (5,367) (6,475) $ (3,214) $ 8,745 $ 5,531
========== ========= ======== ======== ======== ========
Net Income Per Share: (q)
Fully Diluted $ 0.85 $ 0.54
========= ==========
Average Shares Outstanding:
Fully Diluted 10,304,743 10,400,000
========== ==========
</TABLE>
-4-
<PAGE>
<TABLE>
PRO FORMA CONDENSED STATEMENT OF AVERAGE BALANCES
For the Three Months Ended March 31, 1995
(In Thousands)
(UNAUDITED)
Disposition Other Corporation
Historical Adjustments Adjustments(s) Pro Forma
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and Cash Equivalents $ 340,442 $ (136,165) $ (38,485) $ 165,792
Securities and Short-Term
Investments 1,554,020 (838,179) - 715,841
Net Loans, After Allowance for
Credit Losses 1,345,409 - - 1,345,409
Other Assets 447,442 (161,455)(r) 45,174 331,161
---------- ----------- ---------- ----------
Total Assets $3,687,313 $(1,135,799) 6,689 $2,558,203
---------- ----------- ---------- ----------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Deposits $2,995,723 $(1,100,032) $ - $1,895,691
Short-Term Borrowings 259,768 - 42,241 302,009
Accounts Payable and
Accrued Liabilities 146,947 (35,767) 68,674 179,854
Long-Term Debt 59,130 (40,753) 18,377
---------- ----------- ---------- ----------
Total Liabilities $3,461,568 $(1,135,799) 70,162 $2,395,931
---------- ----------- ---------- ----------
Stockholders' Equity 225,745 - (63,473) 162,272
---------- ----------- ---------- ----------
Total Liabilities and
Stockholders' Equity $3,687,313 $(1,135,799) 6,689 $2,558,203
========== =========== ========== ==========
</TABLE>
-5-
<PAGE>
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(a) Disposition Adjustments (Pro Forma Condensed Statement of
Condition) -- The Disposition Adjustments presented in the Pro Forma
Condensed Statement of Condition reflect the disposition of the Chase
Acquired Business. The Pro Forma Condensed Statement of Average
Balances presents the Corporation's daily average balance sheet for
the three months ended March 31, 1995 adjusted for the pending
Disposition and Merger and Other Adjustments.
During the three months ended March 31, 1995, the Chase Acquired
Business generated average non-interest bearing deposits of
approximately $1.1 billion. Investable Balances, defined as total
average non-interest bearing deposits less average cash items in the
process of collection and average overdrafts, were approximately
$838 million during the three months ended March 31, 1995.
(b) Cash and Cash Equivalents -- Cash and Cash Equivalents at
March 31, 1995, include approximately $63.0 million of average
interest earning deposits with banks. The $38.5 million adjustment is
comprised of the estimated payments of investment banking, legal,
accounting, consulting and printing professional fees ($6,000,000 --
determined based upon actual invoices and estimates supplied by the
various vendors), the estimated amount of payments necessary to
cash-out holders of outstanding stock options ($37,080,000), and the
estimated amount of cash to be received from the exercise of certain
incentive stock options ($4,595,000 -- assumes the exercise of
approximately 128,000 incentive stock options at an average exercise
price of approximately $36.00 per option).
(c) Other Assets -- The $45.2 million increase in Other Assets
reflects (i) certain tax benefits resulting from the Disposition
Adjustments and the Other Adjustments ($53,478,000) and (ii) the
write-off of the net book value of premises and equipment ($3,795,000)
and computer software ($4,500,000) related to the termination of
various leases.
(d) Short-Term Borrowings -- The $42.2 million increase in
short-term borrowings reflects the borrowings required to replace
accrued interest and long-term debt (see notes (e) and (f)).
-6-
<PAGE>
(e) Accounts Payable and Accrued Liabilities -- The $68.7 million
increase in accounts payable and accrued liabilities includes
estimated severance costs ($22,600,000), the estimated present value
(discounted at 8%) of the cost of terminating leases at discontinued
locations ($9,105,000), the estimated cost of terminating computer
hardware leases, software licenses and contracts ($29,700,000), the
estimated cost of terminating certain incentive compensation plans
($8,800,000) and an amount to record the reversal in accrued interest
payable related to the redemption and satisfaction and discharge of
certain issues of long-term debt ($1,488,000). The estimated
severance costs consist of $13,100,000 of cash severance payments and
the impact of curtailment gains, enhanced pension credits and cost of
living adjustments with respect to the Corporation's defined benefit
pension and post-retirement benefit plans for specifically identified
employees and $9,500,000 of payments of transition bonuses to certain
of the Corporation's employees associated with the Chase Acquired
Business.
(f) Long-Term Debt -- The $40.8 million reduction in long-term
debt reflects the redemption of the Trust Company's 8.5% Capital Notes
Due 2001 and the satisfaction and discharge of the Corporation's 8%
Notes Due 1996. The cost of redeeming and defeasing this long-term
debt is insignificant to the Corporation's pro forma results of
operations.
(g) Common Stock -- The $1,995,000 decrease in the Corporation's
Common Stock reflects the retirement of treasury stock ($2,123,000)
offset by the aggregate par value amount of the shares to be issued
pursuant to the exercise of an estimated 128,000 incentive stock
options at an estimated average exercise price of $36.00 per share
($128,000).
(h) Capital Surplus -- The $77.2 million adjustment reflects the
retirement of treasury stock ($81,716,000) offset, in part, by the
amount of cash proceeds in excess of the par value received in
connection with the expected exercise of 128,000 incentive stock
options ($4,467,000).
(i) Retained Earnings -- The $70.2 million adjustment reflects
the after-tax impact of the nonrecurring adjustments presented in note
(k) below ($68,100,000) and the amount by which the book value of
treasury stock retired exceeds capital surplus ($2,148,000).
(j) Treasury Stock at Cost -- The adjustment of $86.0 million
reflects the retirement of treasury stock.
-7-
<PAGE>
(k) The objective of the pro forma financial statements is to
provide information concerning the impact of the transaction by
showing how it might have affected historical financial statements if
the transaction had been consummated as of an earlier date.
Accordingly, the analysis begins with the historical financial
statements of the Corporation, deletes the Processing Business and
reflects other pro forma adjustments, as permitted, to present the
pro forma results of the surviving entity.
Therefore, the Pro Forma Statements of Income for the three
months ended March 31, 1995 and the year ended December 31, 1994,
report net income before material nonrecurring charges and credits and
related tax effects, as presented below, which result directly from
the Disposition and Merger.
Corporation Pro Forma net income is computed assuming the
transaction was consummated at the beginning of the period presented
and includes adjustments which give effect to events that are directly
attributable to the transaction and that are expected to have a
continuing impact on the Corporation. The Disposition and Merger is
expected to occur within the next six months.
<TABLE>
(Millions)
----------
<S> <C>
Severance, post-retirement benefits and related
costs (see note (e)) $ 22.6
Professional fees (see note (b)) 6.0
Cost of terminating leases for premises
(see notes (c) and (e)) 12.9
Cost of terminating computer hardware leases,
computer software licenses, contracts and
capitalized software (see notes (c) and (e)) 34.2
Cost of incentive compensation plans that are
being terminated (see note (e)) 8.8
Payout for stock options (see note (b)) 37.1
------
121.6
Applicable tax benefits 53.5
------
Total $ 68.1
======
</TABLE>
In addition to the costs enumerated in the preceding table, the
Corporation has already incurred (since the announcement of the
transaction) and reflected in it historical statements of income for
the year ended December 31, 1994 and the three months ended March 31,
1995, the following charges.
-8-
<PAGE>
<TABLE>
(Millions)
----------
<S> <C>
Charges incurred in 1994:
Loss on sale of securities $ 44.2
Professional fees 6.0
------
50.2
------
Charges incurred in 1995:
Severance, post-retirement benefits
and related costs 1.1
------
Subtotal 51.3
Applicable tax benefits 22.8
------
Total $ 28.5
======
</TABLE>
These charges are eliminated in the Other Adjustments columns so
that the Corporation Pro Forma results excludes the one-time
nonrecurring effect of these charges.
Of the total $96.6 million of restructuring charges on an
after-tax basis, $68.1 million is expected to be accrued or paid
within the next six months, and $28.5 million has already been
incurred in the fourth quarter of 1994 or the first three months of
1995.
In conjunction with the announcement of the Distribution and the
Merger, the Corporation disclosed that it may incur up to $110 million
of restructuring charges on an after-tax basis in connection with the
Distribution and the Merger. The difference between the $110 million
and the charges described above represents charges that do not
presently meet the definition of "exit costs" as defined by EITF 94-3.
While the amounts set forth above represent the Corporation's
best estimate of the restructuring costs that will be incurred, the
ultimate level of such charges will not be precisely determinable
until the Closing Date.
The cost of terminating computer hardware leases takes into
consideration the estimated residual value of the equipment when it is
returned to the lessor. Such residual values could be severely
impacted and the cost of terminating the leases increased if the
manufacturer releases upgraded versions of the equipment prior to the
lease termination date.
The Corporation continues to review its staffing requirements.
This review will be completed by the Closing Date and may result in
lower staffing levels. Accordingly, the cost of severance and related
benefits may range from the above listed $22.6 million to
approximately $27.0 million.
-9-
<PAGE>
The payout for stock options is based upon various assumptions,
including the Determined Value (as defined under "Effect of
Transactions on UST Employees and UST Benefit Plans - Retained Plans"
in the Proxy Statement/Prospectus dated February 9, 1995, relating to
the Special Meeting of the Corporation's Stockholders held on
March 22, 1995 and filed with the Securities and Exchange Commission
on February 28, 1995) of the shares of the Corporation's common stock,
the number of stock options that are outstanding as of the Closing
Date and the average exercise price of such outstanding options. As a
result, the actual amount of the cash payment to be made in respect of
stock options will not be determinable until the Closing Date. During
the three month period ended March 31, 1995, approximately 36,000
options were exercised and approximately 1.1 million options remain
outstanding.
In a similar manner, the other exit costs listed above are
subject to change based upon events and circumstances that will not be
finalized until the consummation of the transaction.
Pursuant to the Post Closing Covenants Agreement, the Corporation
has agreed to maintain a minimum net worth for four years following
the Distribution. See "The Distribution -- Terms of the Post Closing
Covenants Agreement -- Minimum Net Worth" included in the Proxy
Statement/Prospectus dated February 9, 1995, relating to the Special
Meeting of the Corporation's Stockholders held on March 22, 1995 and
filed with the Securities and Exchange Commission on February 28,
1995). The Corporation believes that New USTC's initial annual
dividend will be $1.00 per share. See "Special Factors -- Dividends
and Dividend Policy" included in the Proxy Statement/Prospectus dated
February 9, 1995, relating to the Special Meeting of the Corporation's
Stockholders held on March 22, 1995 and filed with the Securities and
Exchange Commission on February 28, 1995).
(l) Disposition Adjustments (Pro Forma Condensed Statements of
Income) -- The Disposition Adjustments reflect the disposition of the
Chase Acquired Business pursuant to the Disposition and Merger. The
Disposition Adjustments include the revenues and expenses of the Chase
Acquired Business as allocated in accordance with the methodologies
utilized by the Corporation's internal management reporting system.
The amount of net interest income is based upon the average Investable
Balances multiplied by an internally calculated interest rate. The
rate is based upon the rates earned by the Corporation's long- and
short-term securities. The blended rates were 5.95% for the three
months ended March 31, 1995, and 5.43% for the year ended December 31,
1994.
-10-
<PAGE>
While the average Investable Balances for the three months ended
March 31, 1995 were approximately $838 million for the Chase Acquired
Business, the Investable Balances generated by the Chase Acquired
Business are subject to seasonal fluctuation. Historically,
Investable Balances are higher in the first and third quarters than in
the second and fourth quarters. The average Investable Balances for
the first and third quarters of 1994 were $1,119 million and
$833 million, respectively. The Investable Balances for the second
and fourth quarters of 1994 were $555 million and $602 million,
respectively. As a result of the Investable Balances' seasonality,
the Chase Acquired Business' relative contribution of net interest
income to the Corporation is significantly greater during the first
and third quarters than in the second and fourth quarters. The
disposition of the Chase Acquired Business substantially eliminates
the seasonal fluctuations in the Corporation's net interest income.
Fees and Other Income represent amounts earned by the Chase
Acquired Business. In addition, fees earned by the Corporation's
asset management business from customers of the Chase Acquired
Business are included in Fees and Other Income, which fees are
expected to be earned by Chase following the Disposition and Merger.
Expenses reflect direct costs incurred and allocations of other costs
in accordance with the Corporation's internal management reporting
system.
(m) Back Office and Corporate Staff -- The $46.6 million of back
office and corporate staff charges for the year ended December 31,
1994, and $11.8 million for the three months ended March 31, 1995, are
derived from the Corporation's internal management accounting system
and represent the amounts allocated to the Chase Acquired Business for
services provided. Back office support costs include securities
processing and custody, check clearance and computer services
processing and support services while the corporate staff cost
allocations include financial, personnel, legal and general services
support functions. Such back office support and corporate staff costs
have been added to the expenses of the Corporation Before Other
Adjustments because such costs were not eliminated in connection with
the disposition of the Chase Acquired Business. The estimated
downsizing of the corporate staff and the impact of the Services
Agreement are reflected in the Other Adjustments.
(n) Other Income -- The $2.0 million and $654,000 adjustments for
the year ended December 31, 1994 and the three months ended March 31,
1995, respectively, reflect the elimination of certain revenues
generated from computer processing activities conducted for third
parties which will no longer be provided following the Disposition and
Merger.
-11-
<PAGE>
(o) Salaries and Benefits, Net Occupancy and Other Expenses --
Reflects the reduction of personnel (including $1.1 million of
severance charges incurred in the three month period ended March 31,
1995), net occupancy costs and other expenses, as indicated, resulting
from the Disposition and Merger, the downsizing of the Corporation's
corporate staff and the Services Agreement.
(p) Income Taxes -- Income taxes reflected in the Pro Forma
Statements of Income are recorded at the statutory Federal tax rate of
35%, adjusted for the impact of state and local taxes and
nondeductible items. The resulting effective tax rate for the
Corporation was approximately 40% for both periods presented.
Taxes have been calculated on the "Other Adjustments" in the Pro
Forma Statement of Condition at the statutory Federal tax rate of 35%,
adjusted for state and local taxes and nondeductible items. The
resulting effective tax benefit was approximately 45%. The
Corporation anticipates realizing these tax benefits in the periods in
which the adjustments are reported in the Corporation's tax returns.
(q) Pro Forma Net Income Per Share -- Net income per share has
been calculated on a basis consistent with the Corporation's past
practices and was determined by dividing "Net Income -- Corporation
Pro Forma" by the estimated fully diluted average shares outstanding
for the each period. For the three month period ended March 31, 1995,
estimated fully diluted average shares outstanding include the actual
average shares outstanding, the assumed exercise of approximately
128,000 stock options and the dilutive effects of approximately
700,000 phantom shares granted under the Corporation's variable stock
award plans. For the year ended December 31, 1994, estimated fully
diluted average shares outstanding include the actual average shares
outstanding, the assumed exercise of approximately 220,000 stock
options and the dilutive effects of approximately 800,000 phantom
shares. For both periods, dividends paid on phantom shares have been
added back to net income on an after-tax basis. For both periods, the
primary and fully diluted net income per share amounts are the same.
(r) For the purposes of determining the Pro Forma Condensed
Statement of Average Balances, the Chase Acquired Business average
overdrafts are included in Other Assets.
(s) For the purposes of determining the Pro Forma Condensed
Statement of Average Balances, all Other Adjustments are assumed to
have occurred as of January 1, 1995.
(t) The following table summarizes the pro forma effects of the
Disposition and Merger on net income and net income per share for the
three month periods ended March 31, 1995 and March 31, 1994. The
methodologies employed in preparing the pro forma results for the
three month period ended March 31, 1994 were consistent with the 1995
period.
-12-
<PAGE>
<TABLE>
March 31,
---------------------------
1995 1994
(In Thousands, Except Per Share Amounts) -------- --------
<S> <C> <C>
Net Income $ 8,628 $12,670
Net Effect of Disposition and Merger (3,097) (6,371)
-------- --------
Pro Forma Net Income $ 5,531 $ 6,299
======== ========
Per Common Share:
Net Income $ 0.85 $ 1.28
Net Effect of Disposition and Merger (0.31) (0.67)
-------- --------
Pro Forma Net Income $ 0.54 $ 0.61
======== ========
</TABLE>
Net income for the first quarter of 1994, includes $2.0 million
of net securities gains from the sale of U.S. Government Treasury
obligations. Net securities gains were insignificant for the first
quarter of 1995. Net income for the first quarter of 1994 also
includes a $1.6 million reduction in operating expense primarily due
to the termination of certain lease commitments. Considering both of
these items, normalized pro forma net income and net income per share
for the quarter ended March 31, 1994 was $4.1 million and $0.41 per
share, respectively.
As indicated in footnote (k), the Corporation expects to incur up
to $110 million of restructuring charges on an after-tax basis. The
above pro forma tables reflect the effects of $96.6 million of such
charges. Since not all of the $110 million of restructuring charges
have been recorded in the pro forma balance sheet, the benefits that
are anticipated to be derived therefrom are not fully reflected in the
pro forma net income and earnings per share amounts. If the entire
$110 million of restructuring charges had been reflected, the pro
forma net income and earnings per share amounts for both periods would
have been higher.
-13-
<PAGE>
