<PAGE> 1
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 QUARTER ENDED JUNE 30, 1994 COMMISSION FILE #0-9623
------------------------
UST CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MASSACHUSETTS 04-2436093
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
</TABLE>
40 COURT STREET, BOSTON, MASSACHUSETTS 02108
(Address of principal executive offices)
(617) 726-7000
(Registrant's telephone number, including area code)
NO CHANGE
(Former name, former address and former fiscal year, if changed since last year)
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 registrant's
classes of common stock, as of the latest practicable date. At July 31, 1994,
there were issued and outstanding 17,381,904 shares of common stock, par value
$0.625 per share.
<PAGE> 2
UST CORP.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -- June 30, 1994 and December 31, 1993............. 3
Consolidated Statements of Income -- Three and Six Months Ended June 30, 1994
and 1993..................................................................... 4
Consolidated Statements of Changes in Stockholders' Investment -- Six Months
Ended
June 30, 1994 and 1993....................................................... 5
Consolidated Statements of Cash Flows -- Six Months Ended June 30, 1994 and
1993.......................................................................... 6
Notes to Consolidated Financial Statements..................................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................ 18
Item 4. Submission of Matters to a Vote of Security Holders...................... 18
Item 5. Other Information........................................................ 19
Item 6. Exhibits and Reports on Form 8-K......................................... 19
SIGNATURES.......................................................................... 19
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UST CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER
JUNE 30, 31,
1994 1993
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
(UNAUDITED)
ASSETS
Cash, due from banks and interest-bearing deposits.............. $ 74,173 $ 90,198
Excess funds sold to banks and other short-term investments..... 50,162 96,647
Securities available-for-sale:
Mortgage-backed securities................................. 213,822 263,435
U.S. Treasury, corporate notes, and other.................. 206,416 210,474
----------- -----------
Total securities available-for-sale................... 420,238 473,909
Loans:
Loans-net of unearned discount of $7,438,000 in 1994 and
$7,026,000 in 1993....................................... 1,287,676 1,338,807
Reserve for possible loan losses (Note 2).................. (61,041) (62,547)
----------- -----------
1,226,635 1,276,260
Premises, furniture and equipment, net.......................... 31,800 32,661
Goodwill........................................................ 2,132 2,192
Other real estate owned......................................... 10,138 19,468
Other assets.................................................... 46,162 52,931
----------- -----------
Total Assets.......................................... $1,861,440 $2,044,266
=========== ============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Deposits:
Demand:
Noninterest bearing........................................ $ 342,616 $ 373,793
Interest bearing........................................... 162,295 170,642
Savings:
Money market............................................... 277,514 323,979
Other...................................................... 319,626 320,924
Time:
Certificates of deposit over $100,000...................... 69,343 72,911
Other...................................................... 344,702 378,549
----------- -----------
Total deposits............................................. 1,516,096 1,640,798
Short-term borrowings........................................... 181,434 226,268
Other borrowings................................................ 14,286 14,286
Other liabilities............................................... 11,675 10,095
----------- -----------
Total liabilities..................................... 1,723,491 1,891,447
Commitments and contingencies (Note 3)
Stockholders' investment:
Preferred stock $1 par value; Authorized -- 4,000,000
shares; Outstanding--None
Common stock $0.625 par value; Authorized--30,000,000
shares; Outstanding--17,378,704 and 17,304,795 shares in
1994 and 1993, respectively.............................. 10,862 10,815
Additional paid-in capital................................. 70,116 69,694
Retained earnings.......................................... 70,763 68,437
Unrealized gain (loss) on securities available-for-sale,
net of tax............................................... (14,372) 3,335
Deferred compensation, net................................. 580 538
----------- -----------
Total stockholders' investment........................ 137,949 152,819
----------- -----------
Total Liabilities and Stockholders' Investment........ $1,861,440 $2,044,266
=========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
UST CORP.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1994 1993 1994 1993
------- -------- ------- --------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Interest income:
Interest and fees on loans............... $25,212 $ 28,154 $49,730 $ 56,192
Interest and dividends on securities:
Taxable............................. 6,903 7,003 13,624 14,823
Nontaxable.......................... 53 66 105 138
Dividends........................... 42 107 78 148
Interest on overnight funds and
deposits............................... 505 80 1,066 102
------- -------- ------- --------
Total interest income.......... 32,715 35,410 64,603 71,403
------- -------- ------- --------
Interest expense:
Interest on deposits..................... 8,203 10,193 16,656 21,122
Interest on short-term borrowings........ 1,511 1,649 2,819 3,461
Interest on other borrowings............. 322 387 644 774
------- -------- ------- --------
Total interest expense......... 10,036 12,229 20,119 25,357
------- -------- ------- --------
Net interest income...................... 22,679 23,181 44,484 46,046
Provision for possible loan losses............ 6,575 42,650 12,025 53,033
------- -------- ------- --------
16,104 (19,469) 32,459 (6,987)
------- -------- ------- --------
Noninterest income:
Asset management fees.................... 3,383 4,220 7,696 8,878
Service charges on deposit accounts...... 1,232 1,362 2,466 2,743
Gain on sale of securities, net.......... 496 102 518 3,646
Corporate services income................ 1,901 2,172 3,921 4,150
Other.................................... 604 1,001 916 1,982
------- -------- ------- --------
Total noninterest income....... 7,616 8,857 15,517 21,399
------- -------- ------- --------
Noninterest expense:
Salary and employee benefits............. 10,289 9,237 20,429 18,489
Net occupancy expense.................... 1,914 1,947 4,290 3,982
Credit card processing expense........... 904 948 1,834 1,841
Deposit insurance assessment............. 1,174 1,268 2,348 2,587
Foreclosed asset and workout expense..... 1,552 9,685 4,145 15,444
Other.................................... 6,188 4,802 11,575 9,362
------- -------- ------- --------
Total noninterest expense...... 22,021 27,887 44,621 51,705
------- -------- ------- --------
Income (loss) before income taxes............. 1,699 (38,499) 3,355 (37,293)
Income tax provision (benefit)........... 376 (13,567) 1,029 (12,885)
------- -------- ------- --------
Net income (loss) before change in accounting
method...................................... 1,323 (24,932) 2,326 (24,408)
Cumulative effect of change in method of
accounting for income taxes (Note 4)........ 750
------- -------- ------- --------
Net income (loss)............................. $ 1,323 $(24,932) $ 2,326 $(23,658)
======= ======== ======= ========
Per Share Data:
Net income (loss)........................ $ .07 $ (1.76) $ .13 $ (1.68)
Cash dividends declared.................. -- -- -- --
Weighted average number of common shares (Note
5).......................................... 17,864,532 14,148,280 17,820,022 14,098,522
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
UST CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
---------------------
1994 1993
--------- ---------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Balance, January 1,................................................... $152,819 $143,880
Net income (loss)................................................ 2,326 (23,658)
Exercise of stock options and vesting of restricted stock........ 469 334
Proceeds from stock sold through private placement............... 2,040
Change in deferred compensation.................................. 41 1,278
Change from unrealized gain to loss on securities
available-for-sale.............................................. (17,706)
Change in unrealized loss on marketable equity securities........ 17
-------- --------
Balance, June 30,..................................................... $137,949 $123,891
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
5
<PAGE> 6
UST CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------
1994 1993
------------- -------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Cash flows from operating activities:
Net income (loss)..................................... $ 2,326 $ (23,658)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Cumulative effect of change in accounting
method......................................... (750)
Provision for possible loan losses............... 12,025 53,033
Depreciation and amortization.................... 2,688 2,688
Amortization of gain on sale/leaseback........... (192) (192)
Amortization of security premiums, net........... 296 682
Gain on sale of securities available-for-sale,
net............................................ (518) (3,646)
(Gain)/loss on sale of other real estate owned,
net............................................ (399) 1,503
Writedowns of other real estate owned............ 2,558 11,093
Deferred income tax benefit...................... (251) (10,806)
Increase in accruals and other, net.............. 14,338 5,268
----------- -----------
Net cash provided by operating activities.................. 32,871 35,215
Cash flows provided by investing activities:
Proceeds from sales of securities
available-for-sale.................................. 50,585 151,654
Proceeds from maturities of securities
available-for-sale.................................. 105,205 23,599
Purchases of securities available-for-sale............ (125,690) (91,878)
Net decrease in short-term investments................ 46,485 252
Net loans paid........................................ 39,124 21,118
Sale of other real estate owned....................... 5,652 8,170
Purchases of premises and equipment................... (1,143) (499)
----------- -----------
Net cash provided by investing activities.................. 120,218 112,416
Cash flows used by financing activities:
Net decrease in nontime deposits...................... (87,287) (143,433)
Net payments on certificates of deposit............... (37,415) (33,218)
Net (payments) proceeds on short-term borrowings...... (44,834) 18,688
Issuance of common stock for cash, net................ 422 2,264
----------- -----------
Net cash used by financing activities...................... (169,114) (155,699)
----------- -----------
Decrease in cash and cash equivalents................. (16,025) (8,068)
Cash and cash equivalents at beginning of year........ 90,198 116,529
----------- -----------
Cash and cash equivalents at end of period............ $ 74,173 $ 108,461
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest......................................... $ 20,103 $ 25,691
Income taxes..................................... $ 1,902 $ 1,748
Noncash transactions:
Transfers from investment portfolio to securities
held for sale.................................. $ 453
Transfers from loans to other real estate
owned.......................................... $ 2,999 $ 28,473
Financed other real estate owned sales........... $ 4,523 $ 9,511
Stock issuance................................... $ 46 $ 109
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
6
<PAGE> 7
UST CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: The consolidated financial statements of UST Corp. and Subsidiaries (the
"Company") included herein have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The Company, however, believes
that the disclosures are adequate to make the information presented not
misleading. Certain prior period amounts have been reclassified to
conform to current classifications. The amounts shown reflect, in the
opinion of management, all adjustments necessary for a fair presentation
of the financial statements for the periods reported. All such
adjustments were of a normal recurring nature, except as disclosed
herein. It is suggested that these financial statements be read in
conjunction with the financial statements and the notes thereto included
in the Company's Report on Form 10-K for the fiscal year ended December
31, 1993. The results of operations for the three-and six-month periods
ended June 30, 1994 are not necessarily indicative of the results of
operations for the full year or any other interim period.
NOTE 2: An analysis of the reserve for possible loan losses for the six months
ended June 30, 1994 and 1993 follows:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance at beginning of period.................... $ 62,547 $ 50,126
Loans charged off................................. (15,629) (29,628)
Recoveries on loans previously charged off........ 2,098 1,344
-------- --------
Net chargeoffs.................................... (13,531) (28,284)
Provided from operations.......................... 12,025 53,033
-------- --------
Balance at end of period.......................... $ 61,041 $ 74,875
======== ========
</TABLE>
The reserve for possible loan loss is based on a consistent, systematic
method which analyzes the size and risk of the loan portfolio on a
monthly basis. See Credit Quality and Reserve for Possible Loan Loss in
Management's Discussion and Analysis of Financial Condition and Results
of Operations herein. The increase in the reserve for 1993 resulted
from a change in the second quarter in the Company's strategy regarding
the management of problem assets. As a result, a $30 million special
provision for loan losses was recorded in June 1993.
NOTE 3: At June 30, 1994, the Company had the following off-balance sheet
financial instruments whose contract amounts represent credit risk:
<TABLE>
<CAPTION>
AMOUNT
--------------------
<S> <C>
(DOLLARS IN
THOUSANDS)
Commitments to extend credit......................... $277,000
Standby letters of credit and financial guarantees... 66,000
Commercial letters of credit......................... 5,000
</TABLE>
NOTE 4: Cumulative effect of accounting change: See "Income Taxes" in
Management's Discussion and Analysis of Financial Condition and Results
of Operations herein for information.
NOTE 5: The weighted average number of common shares for calculating earnings
per share includes shares related to the directors deferred compensation
plan and dilutive options totaling 505,258 and 479,498 for the three and
six month periods ended June 30, 1994, respectively. For the periods
with net losses, three and six months ended June 30, 1993, shares
related to the directors deferred compensation plan and options have
been excluded from the earnings per share calculations due to their
antidilutive effect.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION AT JUNE 30, 1994
INTRODUCTION
The Company's primary loan market, the New England region, continues to
experience an uneven and slow recovery from the weak economic environment of
1990 to 1993. A majority of the Company's outstanding loans are collateralized
by real estate located in Eastern Massachusetts. While the economic climate
contributed to a decline in real estate values, there is recent evidence that
these values are stabilizing. Generally, real estate prices and activity have
both improved from earlier levels. The economic environment over the last few
years has also adversely affected both the net worth of certain borrowing
customers of the Company's subsidiary banks and the Company's collateral
position with respect to certain loans. The New England region has seen both an
exodus and failure of a number of businesses. However, recently there have been
indicators that show improvement in the local economy as evidenced by an
unemployment rate for the region that is below the national average, growth in
the housing market in response to lower interest rates and pockets of growth in
certain industries.
The foregoing factors continued to influence the Company's financial
results for both the second quarter and first six months of 1994, particularly
with regard to the provision for possible loan losses and expenses associated
with foreclosed asset and workout expense, and may continue to influence future
results.
The recent rise in interest rates has had a positive impact on interest
margins. Securities holdings have and will continue to depreciate in value
should rates continue upward with the resultant unrealized loss on securities
reported as a reduction in shareholders' investment. Moreover, a continued rise
in interest rates could adversely affect the cash flow on some real estate
loans.
Management of the Company has identified the reduction of the aggregate
amount of nonperforming and classified assets as a high priority. Regulations
covering standards for safety and soundness at banks and bank holding companies
have been proposed by the Company's primary federal banking regulators and
continue to be monitored by the Company. Included in the proposal are standards
which would, in effect, limit the amount of the Company's "classified assets"
and establish a minimum earnings amount. If the proposed regulations were to be
adopted in their present form, the Company believes it would have been in
compliance as of June 30, 1994.
At June 30, 1994 the Company's "classified assets" under the proposed
regulations would have been approximately $190 million, while the maximum amount
permitted at that date under the proposed regulations would have been $209
million. Management of the Company is unable at this time to determine whether
it would be required to take any actions out of the ordinary course of business
if and when the proposed new standards are adopted. That would depend not only
upon the level of the Company's "classified assets" at that time but also on the
terms of the final regulations, including any transition/implementation period
allowed, which may differ from the proposed regulations. "Classified assets"
include $10.1 million of Other Real Estate Owned with the remainder consisting
of loans, essentially all of which are collateralized. As of June 30, 1994,
approximately 80 percent of classified loans were collateralized with real
estate, most of which is located in Eastern Massachusetts, and the remainder
were collateralized with accounts receivable, inventory, equipment and other
business assets. Of the loans secured by real estate, approximately 60 percent
were collateralized by commercial real estate development, approximately 20
percent by owner occupied commercial properties and approximately 15 percent by
residential real estate. The remainder were collateralized by real estate
construction and raw land.
This discussion should be read in conjunction with the financial
statements, notes, and tables included in the Company's Report on Form 10-K for
the fiscal year ended December 31, 1993.
ASSETS
Total assets at June 30, 1994 were $1.9 billion compared with $2.0 billion
at December 31, 1993. The Company's loan portfolio decreased by 4%, or $51
million, since December 31, 1993, but remained unchanged from March 31, 1994.
The decrease is primarily due to the continued weak demand in the Company's
market
8
<PAGE> 9
area consistent with the economic conditions noted above, along with repayments
and increased competition for the small-to-middle market credits. Another factor
in the reduction of the portfolio was the chargeoffs of certain credits. See
"Credit Quality and Reserve for Loan Loss" herein.
Securities available-for-sale totaled $420 million at June 30, 1994,
compared with $474 million at December 31, 1993, a decrease of 11%, reflecting
the maturity of short-term U.S. Treasury securities. At June 30, 1994,
securities available-for-sale were comprised of mortgage-backed securities, U.S.
Treasury and Agency securities, and corporate notes.
On December 31, 1993, the Company adopted Statement of Financial Accounting
Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments in Debt and
Equity Securities," issued by the Financial Accounting Standards Board. This
Standard addresses the accounting and reporting for debt and equity securities
that have readily determinable market values. According to SFAS 115, these
securities must be classified as either held-to-maturity, available-for-sale, or
trading and are reported at either amortized cost or fair value, depending upon
the classification. At both June 30, 1994 and December 31, 1993, all securities
in the Company's portfolio were classified in the available-for-sale category.
Between December 31, 1993 and June 30, 1994, the application of SFAS 115
resulted in a decrease of $17.7 million in stockholders' investment,
representing the change from an unrealized gain of $3.3 million after tax at
December 31, 1993 to an unrealized loss of $14.4 million after tax at June 30,
1994. In light of the size of the unrealized loss and projections for future
income, the Company has concluded that $3.7 million, net of valuation allowance,
is the appropriate deferred tax asset related to unrealized loss to be recorded
at June 30, 1994. The decline in value reflects the rapid increase in interest
rates during the first half of 1994 and corresponding decline in market prices
for bonds.
LIQUIDITY AND FUNDING
Liquidity is defined as a Company's ability to fulfill its existing and
anticipated financial obligations. It is provided through the maturity or sale
of an entity's assets, such as loans and securities, liability sources such as
increased deposits and purchased or borrowed funds, and access to the capital
markets. While the Company's securities portfolio is classified as
available-for-sale, the Company has no present intention to sell any of its
existing loan portfolio, other than an insignificant aggregate principal amount
of originated residential mortgage loans to be sold to investors as they are
originated.
At June 30, 1994, liquidity, which includes excess cash, excess funds sold
and unpledged securities, totaled approximately $273 million, or 15% of
quarter-end assets. That percentage is unchanged from December 31, 1993.
The funds needed to support the Company's loan and securities portfolios
are provided primarily by retail deposits, which are relatively low cost and
account for 73% of total deposits. Total deposits decreased $124.7 million, or
7.6%, since December 31, 1993. Approximately 68% of the decline occurred in
savings and time deposits as the average yield has fallen from 2.91% for the
fourth quarter of 1993 to 2.74% for the second quarter of 1994. Generally,
investors are increasingly utilizing mutual funds and other nonbank vehicles to
obtain higher rates of return.
As shown in the Consolidated Statements of Cash Flows, cash and cash
equivalents decreased by approximately $16 million during the six-month period
ended June 30, 1994. Cash provided by operations resulted largely from net
interest income from loans and securities, less the net difference of
noninterest expense over noninterest income. Net cash provided by investing
activities was due principally to the net decreases in short-term investments,
loans through repayment, and by the excess of proceeds from sales and maturities
of securities over securities purchases. Net cash used for financing activities
was primarily the result of decreases in both nontime deposits and certificates
of deposit and a net decrease in short-term borrowings.
At June 30, 1994, the parent company had $12.5 million in cash and due from
banks and $20.0 million in short-term investments. The cash and due from banks
balance is largely due to a federal tax refund. During July, applicable refunds
were distributed to the Company's subsidiaries, and at July 31, 1994, the parent
had approximately $2.2 million in cash. The balance in short-term investments
results from the August 1993 sale of 2.87 million shares of the Company's common
stock to more than sixty institutional investors in a European offering made
under Regulation S of the United States Securities and Exchange Commission.
These
9
<PAGE> 10
investments were later reduced to $16 million as the Company paid its third
annual principal installment of $4 million on its 8.5% senior notes on July 31,
1994.
For the six months ended June 30, 1994, the Company received a total of
$2.0 million in dividends from United States Trust Company ("USTC"). During the
same period $2.9 million was contributed as capital to to UST Bank/Connecticut
("UST/Conn") and $500 thousand was contributed to USTrust by the Company.
INTEREST RATE RISK
Volatility in interest rates requires the Company to manage interest rate
risk. Interest rate risk arises from mismatches between the repricing or
maturity characteristics of assets and the liabilities which fund them.
Management monitors and adjusts the difference between interest-sensitive assets
and interest-sensitive liabilities ("GAP" position) within various time
horizons. An institution with more assets repricing than liabilities within a
given time horizon is considered asset sensitive ("positive GAP") and in time
horizons with more liabilities repricing than assets it is liability sensitive
("negative GAP"). Within GAP limits established by the Board of Directors, the
Company seeks to balance the objective of insulating the net interest margin
from rate exposure with that of taking advantage of anticipated changes in rates
in order to enhance income. The Company's policy is to limit its one-year
cumulative GAP position to 2.5 times equity, presently equal to approximately
18% of total assets. The Company manages its interest rate GAP primarily by
lengthening or shortening the maturity structure of the Company's securities
portfolio.
The Company's GAP presentation may not reflect the degrees to which
interest-earning assets and core deposit costs respond to changes in market
interest rates. The Company's rate-sensitive assets consist primarily of loans
tied to the prime rate. As interest rates rose during the first half of 1994,
the prime rate and, therefore, the Company's yield on earning assets increased
faster than the rate paid on interest-bearing liabilities.
The following table summarizes the Company's GAP position at June 30, 1994.
The majority of loans are included in 0-30 days as they reprice in response to
changes in the interest rate environment. Securities and demand deposits are
categorized according to their expected lives. They are evaluated in conjunction
with the Company's asset/liability management strategy and securities may be
purchased or sold in response to expected or actual changes in interest rates,
prepayment risk, loan growth and similar factors. The reserve for possible loan
losses is included in the "Over 1 Year" category of loans. At June 30, 1994, the
one-year cumulative GAP position was slightly negative at $57 million, or
approximately 3% of total assets.
INTEREST SENSITIVITY PERIODS
<TABLE>
<CAPTION>
0-30 DAYS 31-90 DAYS 91-365 DAYS OVER 1 YEAR TOTAL
--------- ---------- ----------- ----------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Loans............................ $ 834 $ 21 $ 92 $ 341 $1,288
Short-term investments........... 30 30
Securities....................... 8 11 58 343 420
Other assets..................... 2 121 123
------- -------- -------- -------- ------
Total assets..................... 872 32 152 805 $1,861
======
------- -------- -------- --------
Interest-bearing deposits........ 640 76 176 281 1,773
Borrowed funds................... 180 4 2 9 195
Demand deposits.................. 10 333 343
Other liabilities and
stockholders' equity........... 25 125 150
------- -------- -------- -------- ------
Total liabilities and equity..... 855 80 178 748 $1,861
======
------- -------- -------- --------
GAP for period................... $ 17 $ (48) $ (26) $ 57
======= ======== ======== ========
Cumulative GAP................... $ 17 $ (31) $ (57) $ 0
======= ======== ======== ========
As a percent of total assets..... .91% (1.67)% (3.06)%
======= ======== ========
</TABLE>
10
<PAGE> 11
CREDIT QUALITY AND RESERVE FOR POSSIBLE LOAN LOSS
The Company maintains a reserve for possible loan losses to reduce the
carrying value of its loans to an amount estimated to be collectible. Adequacy
of the reserve for possible loan losses is determined using a consistent,
systematic methodology which analyzes the size and risk of the loan portfolio on
a monthly basis. Factors in this analysis include historical loan loss
experience and asset quality, as reflected by delinquency trends, nonaccrual and
restructured loans and the Company's credit risk rating profile. The Company's
credit risk rating profile uses categories of risk based on those currently used
by its primary regulators while accuracy of the ratings is monitored by an
ongoing evaluation by the Company's Loan Review Department. Consideration is
also given to the current and expected economic conditions and in particular how
such conditions affect the types of credits in the portfolio and the market area
in general. This analysis is documented monthly using a combination of
numerical, statistical and qualitative analysis (including sensitivity tests)
and a written conclusion discussing the rationale supporting the monthly
adequacy of the loan loss reserve.
The following table measures the Company's performance regarding some key
indicators of asset quality:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31 DECEMBER 31, JUNE 30,
1994 1994 1993 1993
-------- --------- ----------- --------
<S> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
Nonperforming assets:
Nonaccrual loans................................ $ 63.2 $48.6 $ 49.3 $ 61.7
Accruing loans 90 days or more past due......... 1.0 1.3 .5 .8
Other real estate owned (OREO), net............. 10.1 16.2 19.5 41.4
Restructured loans.............................. 18.4 25.8 41.5 31.8
-------- --------- ----------- --------
Total nonperforming assets................. $ 92.7 $91.9 $ 110.8 $135.7
======= ========= =========== =======
Reserve for loan losses.............................. $ 61.0 $60.9 $ 62.5 $ 74.9
Net chargeoffs for quarter........................... 6.5 7.1 51.8** 22.8
OREO reserve......................................... 3.1 6.6 6.6 9.2
Ratios:
Reserve to nonaccrual loans..................... 96.6% 125.2% 127.0% 121.4%
Reserve to total of nonaccrual loans, accruing
loans 90 days or more past due and
restructured loans............................ 74.0% 80.5% 68.5% 79.4%
Reserve to period-end loans..................... 4.7% 4.7% 4.7% 5.3%
Nonaccrual loans to period-end loans............ 4.9% 3.8% 3.7% 4.3%
Nonaccrual and accruing loans over 90 days past
due to period-end loans....................... 5.0% 3.9% 3.8% 4.4%
Nonperforming assets to period-end loans, and
OREO.......................................... 7.1% 7.1% 8.3% 9.3%
Nonperforming assets to total assets............ 5.0% 4.6% 5.4% 6.8%
Net chargeoffs to average loans................. 2.0%* 2.2%* 3.7%** 6.3%*
OREO reserve to OREO............................ 23.4% 28.9% 25.2% 18.2%
</TABLE>
- - ---------------
* Quarter annualized
** Full year 1993
Toward the end of the second quarter of 1993, a strategy was adopted which
recognized that many troubled credit situations would require resolution in an
expeditious manner (including the possibility of bulk sales) in order to reduce
the management and staff involvement and associated carrying costs. This
strategy would increase the up-front cost of the workouts, but would allow the
Company's resources to be redirected toward new business. One result of this
change in strategy was to record a $30 million special loan loss provision in
the second quarter of 1993 to reflect management's estimate of possible losses
based upon the level of classified and nonperforming assets.
Total nonperforming assets at June 30, 1994 have decreased $18.1 million,
or 16%, to $92.7 million since December 31, 1993, and have increased slightly
from the $91.9 million reported at March 31, 1994.
11
<PAGE> 12
Nonperforming assets have declined $43 million, or 32%, from the second quarter
of 1993 due primarily to paydowns, OREO sales, and chargeoffs.
Future economic conditions could result in further deterioration of the
Company's loan portfolio and the value of its OREO portfolio. Adverse
developments could produce increases in delinquencies, nonperforming assets,
restructured loans, and OREO writedowns which individually or collectively could
have a material negative effect on future earnings. These factors could
negatively affect the Company's income statement through reduced interest
income, increased provisions for loan losses, and higher costs to collect loans
and maintain repossessed collateral.
CAPITAL AND REGULATORY AGREEMENTS
There are three capital requirements which bank and bank holding companies
must meet. Two requirements take into consideration varying risk inherent in
assets for both on-balance and off-balance sheet items on a weighted basis
("risk-based assets"). Under these requirements, the Company must meet minimum
Tier 1 and Total risk-based capital ratios (capital, as defined in the
regulations, divided by risk-based assets) of 4% and 8%, respectively. Tier 1
capital is essentially shareholders' investment, net of intangible assets and
Tier 2 capital is the allowable portion of the loan loss reserve (as defined)
and discounted subordinated debt. Total capital is the combination of Tier 1 and
Tier 2. The Company's risk-based assets were $1.55 billion at June 30, 1994 and
$1.64 billion at December 31, 1993.
The third requirement is a leverage capital ratio, defined as Tier 1
capital divided by total average assets, net of intangibles. It requires a
minimum of 3% for the highest regulatory rated institutions and higher
percentages for others.
At June 30, 1994 and December 31, 1993, the Company's ratios and the
regulatory minimum requirements applicable to the Company were:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, 1994 1993
---------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
Tier 1 capital:
Actual.............................................. $145.2 9.40% $141.7 8.68%
Minimum required.................................... 61.8 4.00 65.3 4.00
Total (Tier 1 and Tier 2) capital:
Actual.............................................. 166.9 11.11 164.5 10.35
Minimum required.................................... 120.3 8.00 130.6 8.00
Tier 1 leverage capital:*................................ 145.2 7.65 141.7 7.06
</TABLE>
- - ---------------
* See discussion below. The Company has not been notified of a specific minimum
requirement above the 3% for highest rated institutions. However, two of the
Company's banking subsidiaries, comprising almost all of the consolidated
assets, have a 6% Tier 1 leverage capital requirement.
Capital ratios have been calculated consistent with current regulatory
policy which excludes the impact of SFAS 115 and the recording of an unrealized
gain/loss on securities available-for-sale.
The Company understands that a modification to current regulations is under
consideration which would disallow, for regulatory capital calculations, the
amount of deferred tax assets that are dependent upon future taxable income for
a period greater than one year. If adopted, Tier 1, Total capital and Tier 1
leverage capital ratios at June 30, 1994 would be 9.30%, 11.01%, and 7.57%,
respectively.
The Company further understands that a new proposal by Federal regulators
would reduce capital by the unrealized loss resulting from SFAS 115. If adopted,
Tier 1, Total capital and Tier 1 leverage capital ratios at June 30, 1994 would
be 8.46%, 10.14% and 6.93%, respectively.
In February 1992, the Company's two Massachusetts-based banking
subsidiaries, USTC and USTrust, each entered into a Consent Agreement and Order
with the Federal Deposit Insurance Corporation ("FDIC") and the Commissioner of
Banks in the Commonwealth of Massachusetts ("Massachusetts
12
<PAGE> 13
Commissioner"). In accordance with these agreements, the banks agreed to, among
other things, maintain a Tier 1 leverage capital ratio at or in excess of 6% by
February 1993. At June 30, 1994 the Tier 1 leverage capital ratio of USTrust was
6.99% and was 23.31% for USTC. This compares with 6.49 and 23.75%, respectively,
at December 31, 1993. In February 1994 the FDIC and Massachusetts Commissioner
terminated and lifted the Consent Agreement and Order with USTC.
Since June 1991, the Company's Connecticut-based banking subsidiary,
UST/Conn has been operating under a Stipulation and Agreement with the
Commissioner of Banks for the State of Connecticut. This agreement was amended
in August 1992, November 1993, and July 1994 and requires UST/Conn to maintain a
6% Tier 1 leverage capital ratio. During the second quarter of 1994, regulators
for UST/Conn required that a portion of its deferred tax asset not be included
in capital calculations. UST/Conn's Tier 1 leverage capital ratio as modified in
the preceding sentence at June 30, 1994 was 6.22% compared with 6.21% at
December 31, 1993.
Effective August 3, 1992, the Company entered into a written agreement with
the Federal Reserve Bank of Boston and the Massachusetts Commissioner which
requires the Company to maintain Tier 1, Total risk-based and Tier 1 leverage
capital ratios which conform to the Capital Adequacy Guidelines of the Board of
Governors of the Federal Reserve Board, and which take into account the current
and future capital requirements of the subsidiary banks, without specifying a
numeric minimum for the Tier 1 leverage capital ratio. The Company believes its
consolidated ratios meet the required minimums.
Additionally, per these agreements, the Company has agreed not to pay any
dividends to stockholders, nor take any dividends from its banking subsidiaries,
without prior regulatory approval. Similarly, the banking subsidiaries have
agreed to refrain from transferring funds in the form of dividends to the
Company without prior regulatory approval. The FDIC and Massachusetts
Commissioner terminated and lifted the Consent Agreement and Order with USTC in
February 1994; however, USTC has agreed to continue to request regulatory
consent prior to the payment of dividends.
The Company and each of its subsidiary banks is currently in compliance
with its respective capital requirements under these regulatory agreements. The
Company and each of its subsidiary banks is also in satisfactory compliance with
the other terms of the respective regulatory agreements. See Part II, item 1.
RESULTS OF OPERATIONS
COMPARISON OF 1994 WITH 1993
The Company reported net income of $1.3 million, or $.07 per share, in the
second quarter of 1994 and $2.3 million, or $.13 per share in the first six
months of 1994. This compares with net loss of $24.9 million, or $1.76 and $23.7
million, or $1.68 per share, for the same periods in 1993. The results for both
the second quarter and first six months of 1993 include the aforementioned $30
million special provision for possible loan loss resulting from the change in
the Company's strategy regarding problem asset resolution. The results for both
the second quarter and first six months of 1994 reflect declines in net interest
income and noninterest income from the second quarter and first six months of
1993, which were more than offset by lower loan loss provisions and decreases in
foreclosed asset and workout expense.
The Company's net interest income on a fully taxable equivalent basis was
$22.9 million in the second quarter of 1994 compared with $22.0 million in the
first quarter of 1994 and $23.5 million for the same period in 1993. For the
first six months of 1994, net interest income on a fully taxable basis was $45.0
million compared with $46.6 million for the same period in 1993. The Company's
interest rate spread and margin increased from the first quarter of 1994, and
were equal to both the second quarter and first six months of 1993. The improved
interest rate spread and margin this quarter was due primarily to the yield on
earning assets rising faster than the yield on interest-bearing liabilities. See
"Net Interest Income Analysis" below. Although net interest income increased in
the second quarter of 1994 from the first, a continued decline in the volume of
interest earning assets may not allow net interest income to continue to
increase.
13
<PAGE> 14
NET INTEREST INCOME ANALYSIS
Due to the recent rise in interest rates, increases occurred in yields on
the Company's interest-earning assets which outpaced increases in the cost of
interest-bearing liabilities. Specifically, the yield on interest-earning assets
increased to 7.38% for the second quarter of 1994 compared with 7.10% for the
first quarter of 1994. The cost of interest-bearing liabilities increased from
2.79% last quarter to 2.89% this quarter. The rise in interest rates was the
primary reason net interest income increased $872 thousand on a fully taxable
basis from the first quarter of 1994 to the second quarter. Although rates have
risen recently, they are lower than both the second quarter and first six months
of 1993. The yield on interest-earning assets for the first six months of 1994
was 7.24% compared to 7.65% in 1993, and the cost of interest-bearing
liabilities was 2.84% compared to 3.23% in 1993.
Average loans outstanding decreased $33 million this quarter compared to
first quarter of 1994 and interest-bearing deposits have decreased $46 million.
For the first six months of 1994 as compared to 1993, average loans outstanding
decreased $149 million and interest-bearing deposits decreased $83 million.
The continued rise in interest rates which pushed loan yields upward while
deposit rates remained relatively stable, resulted in an increase in the
interest rate spread and margin this quarter as compared to the first quarter of
1994. There was little change in the margin or spread in 1994 as compared to
1993. However, the spread in the second quarter of 1994 was 4.50% compared with
4.25% for the first quarter of 1994. The margin was 5.13% in the second quarter
of 1994 compared with 4.87% last quarter. The spread was 4.40% and the margin
was 5.00% for the first six months of 1994. See "Financial Condition" above for
a discussion regarding loans and deposits.
14
<PAGE> 15
The following tables attribute changes in interest income, interest expense
and the related net interest income for the quarter and six months ended June
30, 1994 when compared with the three and six month periods ended June 30, 1993,
either to changes in average balances or to changes in average rates on
interest-bearing assets and liabilities. In this table, changes attributable to
both rate and volume are allocated on a weighted basis.
<TABLE>
<CAPTION>
INCREASE (DECREASE) FROM
THREE MONTHS ENDED
THREE JUNE 30, 1993
MONTHS ---------------------------
ENDED AMOUNTS DUE TO
JUNE CHANGES IN
30, TOTAL -----------------
1994 CHANGE VOLUME RATE
------- ------- ------- -------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Interest income:
Interest and fees on loans*.......................... $25,412 $(2,976) $(3,123) $ 147
Interest and dividends on securities:
Taxable.................................... 6,915 (108) 966 (1,074 )
Nontaxable*................................ 123 (103) (44) (59 )
Income on overnight funds and deposits..... 505 425 406 19
------- ------- ------- -------
Total interest income*.......................... 32,955 (2,762) (1,795) (967 )
------- ------- ------- -------
Interest expense:
Interest on deposits................................. 8,203 (1,990) (590) (1,400 )
Interest on short-term borrowings.................... 1,511 (138) (379) 241
Interest on other borrowings......................... 322 (65) (88) 23
------- ------- ------- -------
Total interest expense.......................... 10,036 (2,193) (1,058) (1,135 )
------- ------- ------- -------
Net interest income*...................................... $22,919 $ (569) $ (737) $ 168
======= ======= ======= =======
</TABLE>
- - ---------------
* Fully taxable equivalent at the Federal income tax rate of 35% and includes
applicable state taxes net of Federal benefit.
<TABLE>
<CAPTION>
INCREASE (DECREASE) FROM
SIX MONTHS ENDED JUNE 30, 1993
-----------------------------------
SIX MONTHS AMOUNTS DUE TO
ENDED CHANGES IN
JUNE 30, TOTAL -------------------
1994 CHANGE VOLUME RATE
---------- ------- ------- -------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Interest income:
Interest and fees on loans*.............. $ 50,134 $(6,528) $(5,776) $ (752)
Interest and dividends on securities:
Taxable........................ 13,647 (1,202) 804 (2,006)
Nontaxable*.................... 235 (147) (84) (63)
Income on overnight funds and
deposits..................... 1,066 964 956 8
--------- ------- ------- -------
Total interest income*.............. 65,082 (6,913) (4,100) (2,813)
--------- ------- ------- -------
Interest expense:
Interest on deposits..................... 16,656 (4,466) (1,277) (3,189)
Interest on short-term borrowings........ 2,819 (642) (774) 132
Interest on other borrowings............. 644 (130) (177) 47
--------- ------- ------- -------
Total interest expense.............. 20,119 (5,238) (2,228) (3,010)
--------- ------- ------- -------
Net interest income*.......................... $ 44,963 $(1,675) $(1,872) $ 197
========= ======= ======= =======
</TABLE>
- - ---------------
* Fully taxable equivalent at the Federal income tax rate of 35% and includes
applicable state taxes net of Federal benefit.
15
<PAGE> 16
NONINTEREST INCOME
Total noninterest income decreased $1.2 million in the second quarter of
1994 compared with the same period in 1993. For the six-month comparison the
decrease is $5.9 million. The decreases in the three and six month periods are
primarily due to fluctuations and variances in asset management fee-based income
contingent on transaction volume and other factors. In addition, a decline in
securities gains from $3.6 million in 1993 to $.5 million in 1994 contributed to
the decrease in noninterest income for the six-month period. Sales of securities
were lower in 1994 compared with 1993 when sales were made in response to
decrease in deposits in the first quarter.
Other noninterest income decreased $397 thousand in the second quarter and
$1.1 million in the first six months of 1994 compared with the same periods in
1993, and the following are the more significant reasons: Lease income decreased
$122 thousand for the quarter and $499 thousand for the six-month period due to
a decline in residuals on completed leases. Income from home equity loans
purchased from the Resolution Trust Corporation at a substantial discount in
late 1991 decreased $108 thousand in the second quarter and $319 thousand in the
six-month period compared with the same period in 1993. All other miscellaneous
noninterest income declined $167 thousand in the quarter and $248 thousand in
the six-month comparisons.
NONINTEREST EXPENSE
Total noninterest expense for the second quarter of 1994 decreased to $22.0
million from $27.9 million for the same period in 1993. For the six-month
comparison the decrease is $7.1 million. Foreclosed asset and workout expense
declined $8.1 million and $11.3 million in the quarter and six-month comparisons
due primarily to decreases in writedowns to fair value minus estimated costs to
sell foreclosed real estate properties. As previously discussed under "Credit
Quality and Reserve for Loan Loss," local economic or market conditions may
prevent this reduction from continuing. Personnel-related costs increased $1.1
million for the quarter and $1.9 million for the six months due to additional
staffing, severance payments and merit increases. Net occupancy expense in the
first half of 1994 includes a writedown of $300 thousand to market value on one
of the Company's branch buildings which is being offered for sale. Other
noninterest expense increased $1.4 million in the second quarter and $2.2
million in the six-month comparisons. These increases were due in large part to
an increase of $272 thousand in the quarter and $781 thousand in the first six
months in fees paid for consulting services on a number of planning and
operational improvement initiatives and for consulting services by certain
former Company executives. Appraisal fees increased $239 thousand in the quarter
and $506 thousand in the six months as the Company ordered new appraisals on a
large number of collateral-based loans. Advertising expense increased $473
thousand in the quarter and $482 thousand in the six-month comparisons due to
the Spring 1994 advertising campaign.
INCOME TAXES
The Company had a tax provision of $376 thousand in the second quarter, and
$1.0 million for the first half of 1994. This compares with a tax benefit of
$13.6 million in the second quarter of 1993. For the first half of 1993, the tax
benefit was also $13.6 million, including the effect of SFAS No. 109 noted
below. The variations in operating income taxes are attributable to the level
and composition of pretax income or loss.
In February 1992 the Financial Accounting Standards Board issued a new
standard, SFAS No. 109 "Accounting for Income Taxes," a modification of SFAS No.
96, which changes the accounting for deferred income tax to the "liability
method." The Company adopted SFAS No. 109 on January 1, 1993. This change
increased net income $750 thousand in January 1993. This represented the
cumulative effect of the new standard on the balance sheet.
As of June 30, 1994, the Company had recorded net deferred tax assets of
approximately $11.2 million. Of that amount, approximately $3.7 million may be
recovered against taxes paid in carryback periods, while the remainder is
expected to be realized against future taxable income. Management believes that
it is more likely than not that the Company will realize the benefit of these
deferred tax assets.
16
<PAGE> 17
RECENT ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board (FASB) has issued Statement No.
112, "Employers' Accounting for Postemployment Benefits," which requires accrual
of a liability for all types of benefits paid to former or inactive employees
after employment but before retirement. The Company has determined that this
FASB statement will have no material effect on its financial statements.
Adoption of the statement is required for fiscal years beginning after December
15, 1993.
FASB has issued Statement No. 114, "Accounting by Creditors for Impairment
of a Loan," which requires that all creditors value all loans for which it is
probable that the creditor will be unable to collect all amounts due according
to the terms of the loan agreement at 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. This statement would apply for
fiscal years beginning after December 15, 1994. The effect on the Company's
results of operations has not yet been determined.
17
<PAGE> 18
PART II. OTHER INFORMATION
For the quarter ended June 30, 1994, Items 2 and 3 of Part II are either
inapplicable or would elicit a response of "NONE" and therefore no reference
thereto has been made herein.
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of operations, the Company and its subsidiaries
become defendants in a variety of judicial and administrative proceedings. In
the opinion of management, however, there is no proceeding pending, or to the
knowledge of management threatened, which in the event of an adverse decision
would be likely to result in a material adverse change in the financial
condition or results of operations of the Company and its subsidiaries. With
respect to the potential regulatory penalties referred to under Item 1 -- Recent
Developments -- Potential Regulatory Sanctions of the Company's Annual Report on
Form 10-K for its fiscal year ended December 31, 1993, while the Company does
not know whether the FDIC will attempt to assess any penalties with respect to
this matter, the person or persons upon whom any penalty would be assessed or
the amounts of any such penalties, were they to be assessed, management of the
Company believes that it is unlikely that this matter will have a material
adverse effect on its financial condition or results of operations.
Consequently, no provision in respect of penalties has been made in the
Company's Consolidated Financial Statements. In the event penalties are imposed,
the Company and its legal counsel will evaluate the grounds upon which the
penalties are based, consider the size of such penalties, note upon which
entities or individuals such penalties are imposed and determine whether it will
independently (or jointly with the directly affected entity or individual)
contest the imposition of the penalty.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) the Annual Meeting of Stockholders of the Company was held on May 17,
1994.
(b) the following matters were submitted to a vote of the Stockholders of
the Company; (a) to amend the Company's Stock Compensation Plan, to increase the
number of shares of the Company's Common Stock that may be granted under the
Plan in 1994 by 350,000 additional shares; and (b) the election of each of the
following four (4) directors:
Domenic Colasacco
Francis X. Messina
Samuel B. Sheldon
James V. Sidell
The following votes were cast in connection with the amending of the
Company's Stock Compensation Plan, to increase the number of shares of the
Company's Common Stock that may be granted under the Plan in 1994 by 350,000
additional shares:
<TABLE>
<S> <C>
IN FAVOR...................................... 10,363,721.054
--------------
AGAINST....................................... 1,928,908.233
--------------
ABSTAIN....................................... 926,233.306
--------------
DELIVERED, NOT VOTED.......................... - 0 -
--------------
</TABLE>
The following votes were cost with respect to the election of directors:
<TABLE>
<CAPTION>
WITHHOLD
NOMINEES FOR AUTHORITY
- - -------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Domenic Colasacco............................................. 12,788,321.326 430,531.268
Francis X. Messina............................................ 12,537,357.399 681,495.194
Samuel B. Sheldon............................................. 12,744,943.235 473,909.358
James V. Sidell............................................... 12,106,998.244 1,111,854.349
</TABLE>
18
<PAGE> 19
The following is a list of the ten (10) additional directors of the Company
whose term of office as a director continued after the meeting:
James M. Breiner Gerald M. Ridge
Robert L. Culver William Schwartz
Neal F. Finnegan Paul M. Siskind
Walter A. Guleserian Paul D. Slater
Wallace M. Haselton Michael J. Verrochi, Jr.
As of May 17, 1994, Mr. Louis T. Falcone resigned as a Director.
Accordingly, as of the date of this Report, four vacancies exist on the
Board of Directors.
ITEM 5. OTHER INFORMATION
(a) SEPARATION AGREEMENT WITH MR. SHEDIAC
The Company entered into a Separation Agreement with Theodore M. Shediac,
former Chairman of the Board of the Company's principal banking subsidiary,
USTrust which become effective on June 30, 1994. Under the Separation Agreement,
Mr. Shediac receives salary continuation and other benefits in an aggregate
value of approximately $369,000. The Board of Directors also accelerated vesting
of options to acquire 7,675 shares of the Company's Common Stock and of 5,433
shares of the Company's Restricted Common Stock.
(b) APPOINTMENT OF MR. HUNT AS NEW CHIEF FINANCIAL OFFICER
As of July 8, 1994, James K. Hunt was appointed Executive Vice President,
Treasurer and Chief Financial Officer of the Company and of USTrust.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Material Contracts (each filed herewith)
(i) Separation Agreement, effective as of June 30, 1994, between the
Company and Theodore M. Shediac, former Chairman of the Board of the
Company's principal banking subsidiary, USTrust.
(ii) Press Release, dated July 13, 1994, concerning the appointment of
James K. Hunt as Executive Vice President, Treasurer and Chief Financial
Officer of the Company.
(b) REPORTS ON FORM 8-K. -- None.
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.
UST CORP.
August 15, 1994 /S/ NEAL F. FINNEGAN
Date:............................... By:...............................
NEAL F. FINNEGAN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
August 15, 1994 /S/ JAMES K. HUNT
Date:............................... By:...............................
JAMES K. HUNT, EXECUTIVE VICE
PRESIDENT, TREASURER AND CHIEF
FINANCIAL OFFICER
19
<PAGE> 1
UST [LOGO]
Separation Agreement for Theodore Shediac
-----------------------------------------
Mr. Theodore M. Shediac April 6, 1994
52 Old Nugent Rd.
Gloucester, MA 01930
Dear Ted:
As we have discussed and agreed, your employment with UST Corp., and
its affiliated companies (collectively "UST") will terminate on June 30, 1994
and you will be paid through UST's payroll system through that date. The
purpose of this letter agreement is to set forth the terms and conditions
related to your separation from UST.
1. Salary continuation: Salary will continue for 12 months after June 30,
1994. The form of payment will be in one lump sum of $268,500 payable
to you during the first week of July 1994.
2. Continuation of benefits: USTrust will continue to pay the life
insurance premiums on your current policy through June 30, 1994.
Thereafter, if coverage is to continue, you will have to convert
the policy to an individual contract.
Disability insurance provided through USTrust will cease as of your
termination date.
Medical insurance premiums will continue to be paid to provide coverage
for you and your family under the Baystate Health Care plan, through
June 30, 1994. During this period, you will continue to pay normal
monthly contributions of $128.65. Effective July 1, 1994, you will be
able to continue medical insurance coverage through COBRA for up to 18
months.
3. Vested profit sharing: You will be paid the account balance credited
to you under the company's profit sharing plan after the 6/30/94
valuation. It is understood that as of 6/30/93 your vested balance
was $214,520.33. It is further understood that at the time of the
valuation and payout, these amounts may be higher or lower depending on
the valuation.
4. Vested ESOP: You will be paid out the value of your vested ESOP
account after the 6/30/94 valuation. It is undertood that as of
6/30/93 your vested balance was 6,028.9514 shares plus a cash
balance of $79.26. It is further understood that at the time of the
valuation and payout, these amounts may be higher or lower depending
on the valuation.
5. It is understood that you are 100% vested in the USTrust qualified
retirement plan. A schedule has been provided to you, indicating the
projected pay-out amounts at age 65.
UST CORP.
40 Court Street, Boston, Massachusetts 02108
(617) 726-7000
Telex 951494 UST BSN
<PAGE> 2
6a. Incentive stock options (ISO): You will receive acceleration of
unvested Incentive Stock Options so that as of June 30, 1994, you will
be fully vested in 18,375 shares at a purchase price of $6.0714
and 5,000 shares at a purchase price of $8.625. Your options expire 3
months after your termination date.
6b. Restricted stock: As of June 30, 1994, you will be vested in 5,433
shares of restricted stock.
The value of the vested shares, determined as of the vesting date, will
be includible in your income for federal income tax and Massachusetts
tax purposes, and will be treated as "wages" subject to withholding
for employment tax (including FICA) purposes, as of the time of
vesting. A certificate representing the vested shares will be
delivered to you once you have made arrangements satisfactory to the
Company to pay all required withholding taxes. You may satisfy this
withholding obligation by: (i) providing a certified or bank check to
the Company for the required withholding taxes, or (ii) delivering
stock powers to the Company authorizing the sale of sufficient shares
to pay the withholding taxes.
It is further understood that there are limitations on your ability to
sell these newly acquired shares in UST Corp. stock. Shares must be
held for six months after the date of termination (i.e. after 6/30/94).
7. The above matter was presented to the UST Corp. Board of Directors on
March 15, 1994 and was preliminarily approved. Pending a third party
certification by The Wyatt Co. and a definitive vote scheduled for April
19, 1994 of Board approval based upon the Wyatt certificate, the above
matters will be subject only to the written approval of the Federal
Reserve Bank of Boston and the Massachusetts Commissioner of Banks.
8. Attached to this letter agreement as EXHIBIT A is a General and Specific
Release signed by you which releases UST Corp. and its successors,
assigns, subsidiaries, and its and their respective officers,
directors, employees, agents and representatives from various
liabilities and claims. The foregoing Release, attached as EXHIBIT A,
is incorporated into this letter agreement and made a part hereof.
If the foregoing is agreeable to you and you wish to accept the terms
and conditions of this letter agreement, please indicate your
assent and agreement by signing this letter agreement below and by
attaching a signed and notorized copy of EXHIBIT A.
Very truly yours,
/s/ NEAL F. FINNEGAN
--------------------
Neal F. Finnegan
ACCEPTED AND AGREED:
/s/ THEODORE SHEDIAC
- - --------------------
Theodore Shediac
<PAGE> 3
EXHIBIT A
---------
General and Specific Release
----------------------------
FOR AND IN CONSIDERATION of payments to be made to me in connection with my
separation of employment, as set out in the Separation Agreement between UST
Corp. and me, dated March 31, 1994, I, Theodore M. Shediac, hereby release UST
Corp. ("UST") and its successors, assigns, subsidiaries and its and their
respective officers, directors, employees, agents and representatives (all
collectively, "Releasees") from any and all liability, claims, demands, actions,
causes of action of any type by reason of any matter, cause, act or omission
arising out of or in connection with my employment or separation from
employment with UST Corp. and/or its subsidiaries, including without
limitation, claims, demands or actions under Title VII of Civil Rights Act of
1964, as amended, the Rehabilitation Act of 1973, the Civil Rights Act of 1866,
the Massachusetts Fair Employment Practices Act, and any other Federal, state or
local statute or regulation regarding employment, discrimination in employment
or termination of employment; and I, Theodore M. Shediac, shall at no time
take any action that I am aware is inconsistent with this Release; provided
that I am not releasing and shall not be deemed to have released (i) any claim
arising under the terms of the Separation Agreement or the terms of UST's
employee pension plan, profit sharing plan, or stock ownership plan, each as
amended to the effective time of my termination of employment, or (ii) any
right of indemnification or contribution that may exist at or may arise after
such effective time and that I am or may be entitled to enforce against UST if
any claim is asserted or proceedings are brought against me by any governmental
or regulatory agency, or by any customer, creditor, employee or shareholder of
UST, or any self-regulatory organization, stock exchange or the like, related
or alledgedly related to my having been an officer or employee of UST, or to
any of my activities as an officer or employee of UST. By acceptance of or
reliance upon this Release, UST promises that neither it nor any other of the
Releases affiliated with UST, will take any action that is designed,
specifically with respect to me or with respect to a class of similarly
situated former employees, to reduce or abrogate, or may reasonably be expected
to result in an abridgement or elimination of, any rights of indemnification or
contribution available to me under state law or pursuant to the Articles of
Organization or Bylaws of UST, or under any policy or policies of directors and
officers liability insurance affording coverage to former officers and in effect
from time to time.
IN WITNESS WHEREOF, I Theodore M. Shediac, have set my and seal this 20th day
of April, 1994.
/s/ THEODORE M. SHEDIAC
-----------------------
Theodore M. Shediac
<PAGE> 1
UST CORP. [LOGO] N E W S R E L E A S E
For: Immediate Release
Contact: Sheila Celata (617) 726-7120
UST CORP. APPOINTS JAMES K. HUNT CHIEF FINANCIAL OFFICER
BOSTON, MASS.... JULY 13, 1994... Neal F. Finnegan, President and Chief
Executive Officer of UST Corp. (NASDAQ:USTB), parent company of USTrust and
United States Trust Company in Boston and UST Bank/Connecticut in Bridgeport,
today announced the appointment of James K. Hunt as Executive Vice President,
Treasurer and Chief Financial Officer of the Company.
Mr. Hunt brings 27 years of experience to his new position. He joins
UST Corp. from Peoples Bancorp of Worcester, Inc., where he served as Executive
Vice President since 1987. Mr. Hunt began his career in 1967 at Depositors
Corporation, a bank holding company headquartered in Augusta, Maine.
"We are delighted to welcome Jim Hunt to UST Corp.," notes Mr.
Finnegan. "His depth of experience in financial, regulatory and investor
activities is a tremendous asset, and we look forward to the benefit of his
insight and expertise as we guide UST in the years ahead."
Comments Mr. Hunt: "I have followed UST Corp. for many years and
watched its evolution as a major presence in the small and medium-sized
business market. I welcome the challenge and opportunity to serve as chief
financial officer and to help the Company grow and prosper. I look forward to
working with Neal Finnegan to achieve those goals."
Mr. Hunt is a native of Hanover, Massachusetts and a graduate of Husson
College in Bangor, Maine, where he earned a degree in accounting. He and his
wife reside in Shrewsbury, Massachusetts.
UST Corp. is a $2 billion bank holding company headquartered in Boston.
