<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE #0-9623
-------------
UST CORP.
(Exact Name of Registrant as Specified in its Charter)
MASSACHUSETTS 04-2436093
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
40 COURT STREET
BOSTON, MASSACHUSETTS 02108
(Address of principal executive offices) (Zip Code)
(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 April 30, 1997,
there were 28,413,078 shares of common stock outstanding, par value $.625 per
share.
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<PAGE> 2
UST CORP.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets -- March 31, 1997 and December 31, 1996.............................................. 3
Consolidated Statements of Income -- Three Months Ended March 31, 1997 and 1996.................................. 4
Consolidated Statements of Changes in Stockholders' Investment -- Three Months Ended
March 31, 1997 ................................................................................................ 5
Consolidated Statements of Cash Flows -- Three Months Ended March 31, 1997 and 1996.............................. 6
Notes to Consolidated Financial Statements....................................................................... 7
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 9
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.........................................................................................20
ITEM 6. Exhibits and Reports on Form 8-K..........................................................................20
SIGNATURES ........................................................................................................21
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UST CORP.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash, due from banks and interest-bearing deposits ............................. $ 140,776 $ 140,069
Federal funds sold and other short-term investments ............................ 68,293 142,901
Securities:
Securities available-for-sale:
Mortgage-backed securities ................................................. 390,716 267,726
U.S. Treasury and federal agencies and other securities .................... 352,819 414,077
----------- -----------
Total securities available-for-sale ................................. 743,535 681,803
Securities held-to-maturity (Note 5) ......................................... 145,564
----------- -----------
Total securities .................................................... 743,535 827,367
Loans:
Loans -- net of unearned discount of $17,224,000 in 1997 and
$18,721,000 in 1996 (Note 2) ............................................... 2,472,828 2,452,813
Reserve for possible loan losses (Note 2) .................................... (50,155) (50,204)
----------- -----------
Total loans, net .................................................... 2,422,673 2,402,609
Premises, furniture and equipment, net ......................................... 57,760 53,439
Intangible assets, net ......................................................... 60,165 66,826
Other real estate owned, net ................................................... 1,638 1,792
Loans held-for-sale ............................................................ 12,446
Other assets ................................................................... 44,461 50,793
----------- -----------
Total assets ........................................................ $ 3,539,301 $ 3,698,242
=========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Deposits:
Noninterest-bearing ......................................................... $ 568,329 $ 599,927
Interest-bearing:
NOW ...................................................................... 127,544 381,782
Money market ............................................................. 556,369 313,548
Regular savings .......................................................... 648,247 649,974
Time:
Certificates of deposit over $100 thousand ............................... 141,670 168,081
Other .................................................................... 746,020 742,500
----------- -----------
Total deposits ...................................................... 2,788,179 2,855,812
Short-term and other borrowings ................................................ 424,109 478,422
Other liabilities .............................................................. 36,742 68,419
----------- -----------
Total liabilities ................................................... 3,249,030 3,402,653
Commitments and contingencies (Note 3)
Stockholders' investment (Note 4):
Preferred stock $1 par value; Authorized -- 4,000,000 shares;
Outstanding -- none
Common stock $.625 par value; Authorized -- 45,000,000 shares;
Issued -- 28,407,178 and 28,020,645 shares in 1997 and 1996, respectively .. 17,754 17,590
Additional paid-in capital ................................................... 112,763 110,644
Retained earnings ............................................................ 166,986 169,465
Unrealized loss on securities available-for-sale, net of tax ................. (7,261) (2,576)
Deferred compensation and other .............................................. 29 466
----------- -----------
Total stockholders' investment ...................................... 290,271 295,589
----------- -----------
Total liabilities and stockholders' investment ...................... $ 3,539,301 $ 3,698,242
=========== ===========
</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 MARCH 31,
----------------------------
1997 1996
---- ----
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C>
Interest income:
Interest and fees on loans ................................... $ 52,479 $ 42,769
Interest and dividends on securities:
Taxable .................................................... 11,887 13,075
Non-taxable ................................................ 117 145
Interest on federal funds sold and other short-term
investments ................................................ 1,006 280
----------- -----------
Total interest income ................................ 65,489 56,269
----------- -----------
Interest expense:
Interest on deposits ......................................... 20,137 17,792
Interest on borrowings ....................................... 5,690 5,523
----------- -----------
Total interest expense ............................... 25,827 23,315
----------- -----------
Net interest income .......................................... 39,662 32,954
Provision for possible loan losses (Note 2) .................... 1,876
----------- -----------
Net interest income after provision for possible loan losses.. 39,662 31,078
----------- -----------
Noninterest income:
Asset management fees ........................................ 3,157 3,270
Corporate services income .................................... 3,150 2,306
Service charges on deposit accounts .......................... 2,249 1,565
Gain on sale of loans held-for-sale .......................... 1,804 3
Securities gains, net ........................................ 11 47
Other ........................................................ 2,062 1,429
----------- -----------
Total noninterest income ............................. 12,433 8,620
----------- -----------
Noninterest expense:
Salary and employee benefits ................................. 17,702 14,692
Restructuring charges ........................................ 11,752
Occupancy and equipment expense .............................. 5,048 4,009
Acquisition and merger-related expense ....................... 2,850
Credit card processing expense ............................... 1,775 1,215
Deposit insurance assessment ................................. 219 312
Foreclosed asset and workout expense ......................... 142 627
Other ........................................................ 10,515 6,998
----------- -----------
Total noninterest expense ............................ 50,003 27,853
----------- -----------
Income before income taxes ..................................... 2,092 11,845
Income tax provision ......................................... 1,730 4,459
----------- -----------
Net income ........................................... $ 362 $ 7,386
=========== ===========
Per share data:
Net income (Note 4) .......................................... $ 0.01 $ 0.26
Cash dividends declared ...................................... $ 0.10 $ 0.06
Weighted average number of common shares (Note 4) ............ 28,696,730 28,522,595
</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>
ADDITIONAL UNREALIZED DEFERRED
COMMON PAID-IN RETAINED GAIN/(LOSS) COMPENSATION
STOCK CAPITAL EARNINGS ON SECURITIES AND OTHER TOTAL
----- ------- -------- ------------- --------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1996, as
previously reported..................... $11,262 $75,710 $112,975 $(2,453) $ 466 $197,960
Adjustments for the Walden Bancorp, Inc.
pooling of interests.................... 6,328 34,934 56,490 (123) 97,629
------- -------- -------- ------- ------- --------
Balance December 31, 1996, as restated... 17,590 110,644 169,465 (2,576) 466 295,589
Net income............................... 362 362
Cash dividends declared.................. (2,841) (2,841)
Stock issued under stock option,
restricted stock and stock
purchase plans......................... 164 2,119 2,283
Change in unrealized loss on securities
available-for-sale, net of tax......... (4,685) (4,685)
Activity in Directors Deferred
Compensation Program and
other, net............................. (437) (437)
------- -------- -------- ------- ------- --------
Balance March 31, 1997................... $17,754 $112,763 $166,986 $(7,261) $ 29 $ 290,271
======= ======== ======== ======= ======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
UST CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
Cash flows from operating activities:
<S> <C> <C>
Net income ...................................................................... $ 362 $ 7,386
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for possible loan losses ............................................ 1,876
Depreciation and amortization ................................................. 4,053 1,855
(Accretion) amortization of securities discount or premium, net ............... (22) 184
Securities gains, net ......................................................... (11) (47)
Gain on sale of other real estate owned, net .................................. (160) (52)
Gain on sale of loans held-for-sale ........................................... (1,804) (3)
Writedowns of other real estate owned ......................................... 115
Writedowns of fixed assets .................................................... 1,255
Deferred income tax expense ................................................... 999
Decrease (increase) in other assets ........................................... 14,030 (12,553)
Decrease in other liabilities ................................................. (32,443) (17,365)
--------- ---------
Net cash used by operating activities ................................... (14,740) (17,605)
Cash flows from investing activities:
Proceeds from sales of securities available-for-sale ............................ 90,890 33,014
Proceeds from maturities of securities available-for-sale ....................... 61,632 25,318
Proceeds from maturities of securities held-to-maturity ......................... 12,546
Purchases of securities available-for-sale ...................................... (75,984) (125,699)
Purchases of securities held-to-maturity ........................................ (14,397)
Net decrease in federal funds sold and other
short-term investments ........................................................ 74,608 14,057
Net (increase) decrease in loans ................................................ (21,123) 32,542
Proceeds from other real estate owned ........................................... 1,374 1,350
Proceeds from loans held-for-sale ............................................... 14,250 9,050
Purchases of premises and equipment ............................................. (7,760) (1,499)
--------- ---------
Net cash provided (used) by investing activities ........................ 137,887 (13,718)
Cash flows from financing activities:
Net decrease in nontime deposits ................................................ (44,742) (59,185)
Net decrease in certificates of deposit ......................................... (22,891) (7,026)
Net (decrease) increase in borrowings ........................................... (54,313) 71,621
Cash dividends paid ............................................................. (2,294) (741)
Treasury stock acquired ......................................................... (1,018)
Issuance of common stock for cash, net .......................................... 1,800 1,080
--------- ---------
Net cash (used) provided by financing activities ........................ (122,440) 4,731
--------- ---------
Increase (decrease) in cash and cash equivalents ................................ 707 (26,592)
Cash and cash equivalents at beginning of year .................................. 140,069 152,686
--------- ---------
Cash and cash equivalents at end of period ...................................... $ 140,776 $ 126,094
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ...................................................................... $ 25,689 $ 21,839
========= =========
Income taxes .................................................................. $ 3,881 $ 13,219
========= =========
Noncash transactions:
Transfers from other assets to securities available-for-sale ....................
Transfers from securities held-to-maturity to available-for-sale ................ $ 145,564 $ 4,180
========= =========
Transfers from loans to other real estate owned, net ............................ $ 1,564 $ 2,257
========= =========
Common stock issuance ........................................................... $ 483 $ 199
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE> 7
UST CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The consolidated financial statements of UST Corp. and its
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. All prior
period amounts included in this Form 10-Q have been restated to
reflect the January 3, 1997 acquisition of Walden Bancorp, Inc. as a
pooling of interests. Refer to Note 5 for a further discussion of
acquisitions. The amounts shown reflect, in the opinion of
management, all adjustments necessary for a fair presentation of the
financial statements for the periods reported. These financial
statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
The results of operations for the three-months ended March 31, 1997
and 1996 are not necessarily indicative of the results of operations
for the full year or any other interim period.
(2) RESERVE FOR POSSIBLE LOAN LOSSES
Analysis of the reserve for possible loan losses for the three months
ended March 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance at beginning of period ............. $50,204 $68,120
Chargeoffs/transfers ....................... 860 2,950
Recoveries on loans previously charged-off.. 811 923
------- -------
Net chargeoffs ............................. 49 2,027
Provided from operations ................... 1,876
------- -------
Balance at end of period ................... $50,155 $67,969
======= =======
</TABLE>
The reserve for possible loan losses is determined 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 Losses" in Management's Discussion and
Analysis of Financial Condition and Results of Operations herein.
7
<PAGE> 8
UST CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) COMMITMENTS AND CONTINGENCIES
At March 31, 1997, the Company had the following off-balance sheet
financial instruments whose contract amounts represent credit risk:
<TABLE>
<CAPTION>
CONTRACT OR NOTIONAL AMOUNT
(DOLLARS IN THOUSANDS)
<S> <C>
Commitments to extend credit.................. $754,000
Standby letters of credit and
financial guarantees written................ 58,000
Commercial letters of credit.................. 3,000
Foreign exchange contracts.................... 3,000
</TABLE>
(4) NET INCOME PER SHARE CALCULATION
Net income per share is computed using the weighted average number of
shares of common stock and common stock equivalents outstanding.
Common stock equivalents consist primarily of dilutive stock options
computed under the treasury stock method. Average dilutive common
stock equivalents totaled 433,825 and 484,885 for the three-month
periods ended March 31, 1997 and 1996, respectively.
On March 3, 1997, the FASB issued SFAS No. 128, "Earnings Per Share."
This Statement supersedes APB Opinion No. 15 regarding the
presentation of earnings per share ("EPS") on the face of the income
statement. SFAS No. 128 replaces the presentation of Primary EPS with
a Basic EPS calculation that excludes the dilutive effect to common
stock equivalents. The Statement requires a dual presentation of
Basic and Diluted EPS, which is computed similarly to Fully Diluted
EPS pursuant to APB Opinion No. 15, for all entities with complex
capital structures. This Statement is effective for fiscal years
ending after December 15, 1997 and requires restatement of all
prior-period EPS data presented. The net income per share for the
three months ended March 31, 1997 would not change under SFAS No 128.
(5) ACQUISITIONS
On January 3, 1997, the Company completed its acquisition of Walden
Bancorp, Inc. ("Walden"), a $1.0 billion multi-bank holding company
headquartered in Acton, Massachusetts. The transaction was accounted
for as a pooling of interests and was structured as a tax-free
exchange of 1.9 shares of the Company's common stock for each share
of Walden common stock. The Company's outstanding stock increased by
10,125,540 shares to a total of 28,144,163 shares on the date of
acquisition. Based on the closing price of the Company's stock as of
January 3, 1997, the market value of the shares exchanged totaled
$207 million. Walden's two subsidiary banks, The Braintree Savings
Bank and The Co-operative Bank of Concord operated a total of
seventeen branches located in the Massachusetts counties of
Middlesex, Norfolk and Plymouth. On April 18, 1997 The Co-operative
Bank of Concord was merged into USTrust, the Company's principal
banking subsidiary. The Braintree Savings Bank will be merged
into USTrust on May 16, 1997. The following presentation reflects the
line items on a historical basis for Walden and UST Corp. and on a
pro forma combined basis assuming the merger was in effect for the
periods presented.
<TABLE>
<CAPTION>
UST Corp. Walden
as originally as originally UST Corp.
reported reported Restated
------------- ------------- ---------
(Dollars in thousands, except share amounts)
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Net interest income $ 96,126 $ 39,129 $ 135,255
Net income 32,662 10,519 43,181
Net income per share 1.79 1.97 1.52
Assets 2,706,614 995,628 3,702,242
Deposits 2,105,866 749,946 2,855,812
Shareholders' investment 197,960 97,629 295,589
THREE MONTHS ENDED MARCH 31, 1996
Net interest income $ 23,375 $ 9,579 $ 32,954
Net income 4,537 2,849 7,386
Net income per share 0.25 0.53 0.26
Assets 1,963,847 1,019,288 2,983,135
Deposits 1,445,833 770,257 2,216,090
Shareholders' investment 172,449 95,494 267,943
</TABLE>
Upon the completion of the Walden acquisition, the Company redesignated
$146 million of former Walden securities from held-to-maturity to securities
available-for-sale.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements, notes, and tables included in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996. The discussion contains
certain forward-looking statements regarding the future performance of the
Company. All forward-looking information is inherently uncertain and actual
results may differ materially from the assumptions, estimates or expectations
reflected or contained in the forward-looking information. Please refer to
"Cautionary Statement Regarding Forward-looking Information" of this Form 10-Q
for a further discussion. All 1996 financial data included in this discussion
has been restated to reflect the January 3, 1997 acquisition of Walden Bancorp,
Inc. as a pooling of interests.
HIGHLIGHTS
Net income for the quarter ended March 31, 1997, was $362 thousand, or
$0.01 per share, compared with $7.4 million, or $0.26 per share, for the same
period in 1996. First quarter 1997 results included a nonrecurring charge of
$2.8 million for certain nondeductible merger-related expenses and a pre-tax
charge of $11.8 million for restructuring expenses associated with the
acquisition of Walden Bancorp, Inc. ("Walden") completed during the quarter.
First quarter 1997 results were positively affected by the fourth quarter 1996
acquisition of 20 banking branches resulting in the assumption of $508 million
in loans and $744 million in deposit and other liabilities from two banking
subsidiaries of BankBoston Corp. ("the Branch Purchase"). Also included in
first quarter 1997 earnings was a $1.8 million realized gain from the loans
held-for-sale portfolio. Excluding the effects of the nonrecurring charges,
net income for the 1997 first quarter was $10.3 million, or $0.36 per share.
The aforementioned nonrecurring items reduced the return on average
equity and return on average assets to .49 percent and .04 percent,
respectively, from 11.00 percent and 1.01 percent, respectively, last year.
Excluding the nonrecurring charges of $14.6 million this quarter, return on
average equity and return on average assets were 13.9 percent and 1.18 percent,
respectively.
NET INTEREST INCOME ANALYSIS
Net interest income on a fully taxable equivalent basis was $39.8 million
for the three months ended March 31, 1997, compared with $33.2 million in the
same quarter of 1996. The $6.6 million increase was largely due to the
additional volume of interest-earning assets and interest-bearing liabilities
acquired in the Branch Purchase.
Average earning assets for the quarter were $3.309 billion, $526 million
higher than the same period a year ago. Average loan volume increased $544
million over the same quarter last year reflecting the loans acquired in the
Branch Purchase and loan growth over the past year. As shown in the table below,
the increase in loans and an increase in federal funds sold, partially reduced
by a $68 million decline in average securities, resulted in a $11.0 million
increase in interest income. Average interest-bearing liabilities increased $450
million to $2.722 billion primarily reflecting deposits acquired in the Branch
Purchase. This increase in liabilities added $3.2 million in volume-related
interest expense in the quarter. The net effect on net interest income from
changes in volume of interest-earning assets and interest-bearing liabilities
was an increase of $7.8 million for the three months ended March 31, 1997.
9
<PAGE> 10
The yield on average-earning assets decreased to 8.05 percent from 8.16
percent for the same quarter last year reflecting the effect on loan yield of
lower market interest rates and external pressure on loan pricing. Yield on
loans decreased 38 basis points from last year to 8.78 percent. The net effect
on interest income from a lower earning asset yield was a decrease of $1.8
million. The average cost of funds decreased 28 basis points to 3.85 percent.
This decrease reflects the favorable impact of low-cost deposits acquired in the
Branch Purchase. Rates on new deposit products have remained relatively level
since a year ago. The effect on total interest expense from changes in average
cost of funds from a year ago was a decrease of $673 thousand.
This quarter's interest rate margin and spread increased to 4.88 percent
and 4.20 percent, respectively, from 4.79 percent and 4.03 percent,
respectively, in the first quarter of last year. The improvement was largely
attributed to the positive effect of higher loan volumes and low-cost deposits
acquired in the Branch Purchase which was only partially offset by the decrease
in loan yield. The net effect of rate changes on net interest income for the
three-month period ending March 31, 1997 compared to the same quarter last year
was a decrease of $1.1 million.
The following table attributes changes in interest income and interest
expense to changes in interest rates and changes in the volume of
interest-earning assets and interest-bearing liabilities for the three months
ended March 31, 1997 when compared with the three months ended March 31, 1996.
Changes attributable to both rate and volume are allocated on a weighted basis.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 COMPARED WITH 1996
INCREASE (DECREASE) DUE TO CHANGE IN:
-------------------------------------
AVERAGE AVERAGE
VOLUME RATE TOTAL
------ ---- -----
(DOLLARS IN THOUSANDS)
Interest income:
<S> <C> <C> <C>
Interest and fees on loans* ...... $ 11,532 $ (1,861) $ 9,671
Interest and dividends on securities:
Taxable .................... (1,234) 46 (1,188)
Nontaxable* ................ (23) (18) (41)
Interest on federal funds sold
and other ..................... 703 23 726
-------- -------- --------
Total interest income* ..... 10,978 (1,810) 9,168
-------- -------- --------
Interest expense:
Interest on regular savings, NOW and
money market deposits .......... 2,173 154 2,327
Interest on time deposits ........ 889 (872) 17
Interest on borrowings ........... 123 45 168
-------- -------- --------
Total interest expense ..... 3,185 (673) 2,512
-------- -------- --------
Net interest income ................ $ 7,793 $ (1,137) $ 6,656
======== ======== ========
</TABLE>
- -----------
* Fully taxable equivalent at the federal income tax rate of 35 percent,
and includes applicable state taxes, net of federal benefit. The tax
equivalent adjustments were $98 thousand and $57 thousand on loans and
nontaxable securities for the three months ended March 31, 1997,
respectively.
10
<PAGE> 11
NONINTEREST INCOME
Noninterest income for the quarter increased $3.8 million to $12.4
million compared to the same period a year ago. This quarter reflects realized
gains on the loans held-for-sale portfolio of $1.8 million compared to a nominal
gain last year. Service charges on deposit accounts increased $684 thousand and
corporate services income, which includes merchant credit card income, increased
$844 thousand reflecting the favorable effect of the Branch Purchase and fee
income growth.
NONINTEREST EXPENSE
Total noninterest expense increased $22.2 million compared to the same
quarter last year to $50.0 million. This quarter's nonrecurring acquisition and
merger-related expense and restructuring charges account for $14.6 million of
the increase. Merger expense of $2.8 million was primarily for professional
services paid in connection with the Walden acquisition transaction.
Restructuring charges of $11.8 million included expenses paid and provisions for
severance payments to former Walden executives and staff, write-offs of certain
Walden assets and contract buyouts, system conversion costs, and certain other
expenses associated with the integration of the Walden banking subsidiaries.
Salary and employee benefits expense and occupancy and equipment expense
increased $3.0 million and $1.0 million, respectively, to support the addition
of the twenty banking branches acquired in the fourth quarter of 1996. Merchant
credit card expense increased $560 thousand consistent with the increase in
merchant card income described above, and other noninterest expense, which is
detailed below, increased $3.5 million. Partially offsetting these expense
increases was a decrease of $485 thousand in foreclosed asset and workout
expense reflecting the reduced level of problem assets.
As displayed in the table below, other noninterest expense increased $3.5
million to $10.5 million from the same quarter last year. Amortization of
intangibles increased $1.5 million reflecting the amortization of the premium
incurred in the Branch Purchase. Advertising and promotion increased $378
thousand reflecting the continuation of the fourth quarter 1996 product
promotions and the beginning of this year's advertising campaign, "THE other
BIG BANK." Service bureau and data processing costs increased $526 thousand
largely as a result of higher use of ATM's of nonaffiliated banks by the
acquired customers in the Branch Purchase. All other noninterest expense
increased $1.5 million reflecting replacement stationery and supplies with the
Company's new logo, increased checkbook expense due to free replacements
offered to deposit customers acquired in the Branch Purchase and increases in
other miscellaneous categories due to the operation of twenty additional
banking branches.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
---- ----
<S> <C> <C>
Amortization of intangibles ............ 2,113 571
Service bureau and other data processing 1,204 678
Advertising and promotion .............. 1,176 798
Legal and consulting ................... 701 639
Litigation provisions .................. 470
All other .............................. 5,321 3,842
------- -------
Total other noninterest expense ... $10,515 $ 6,998
======= =======
</TABLE>
INCOME TAXES
The Company recorded income taxes of $1.7 million compared with $4.5
million for the same quarter last year. The effective tax rate for the quarter
was 82.7 percent compared with 37.6 percent a year ago, the result of $2.8
million of merger-related charges included in noninterest expense that were
not deductible for tax purposes. Excluding these expenses, the effective tax
rate would have approximated 39 percent.
11
<PAGE> 12
Included in other assets as of March 31, 1997, was a deferred tax asset
of approximately $16 million. The Company believes that it is more likely than
not that the benefit of this deferred asset will be realized.
ASSETS
Total assets at March 31, 1997 were $3.539 billion, a decrease of $159
million from $3.698 billion at December 31, 1996. This decrease in asset size
was largely attributed to the restructuring of the securities portfolio
principally at the acquired Walden banks. Total securities decreased $84 million
to $744 million at March 31, 1997. Also, during the quarter, all of the $146
million in securities held-to-maturity at December 31, 1996 was redesignated as
securities available-for-sale. Federal funds sold decreased approximately $75
million and the entire $12 million loans held-for-sale portfolio at year-end
1996 was sold during the quarter. Intangible assets decreased $7 million as a
result of amortization during the quarter and a reallocation of the Branch
Purchase price based upon receipt of appraisals of certain assets acquired.
Total loans increased $20 million to $2.473 billion.
The following table presents the composition of the loan portfolio:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1997 1996 1996
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Commercial and financial ............. $ 811,454 $ 820,540 $ 660,482
Commercial real estate:
Construction ....................... 30,895 29,624 15,579
Developer, investor and land ....... 317,050 305,056 342,077
Consumer:
Residential mortgage ............... 779,464 804,109 481,463
Home equity ........................ 108,820 107,310 99,821
Indirect automobile installment .... 336,672 301,072 218,080
Other consumer ..................... 41,280 41,433 33,875
Lease financing ...................... 47,193 43,669 32,680
---------- ---------- ----------
Total loans .................. $2,472,828 $2,452,813 $1,884,057
========== ========== ==========
</TABLE>
The Company's commercial loan portfolios listed above totaled $1.159
billion at March 31, 1997, reflecting a small net increase of $4 million.
Excluding overdraft activity, commercial loans increased a net of $13 million
during the quarter. Commercial loans increased $141 million from a year ago.
Commercial loans acquired in the 1996 Branch Purchase totaled $111 million while
commercial loans sold in the fourth quarter 1996 sale of UST Bank/Connecticut,
a former banking subsidiary, were approximately $19 million. Excluding these
events, the commercial loan portfolios grew $49 million over the past year.
Residential loans decreased $25 million during the quarter to $779
million due to normal amortization. Since the Company does not originate
residential mortgage loans, growth in this portfolio is not expected unless
through acquisition. The increase in residential loans from a year ago reflects
loans acquired in the 1996 Branch Purchase.
The indirect automobile loan portfolio continues to experience strong
growth as planned. This portfolio grew 12 percent or $36 million this quarter to
$337 million. In comparison to a year ago, the portfolio has grown 54 percent,
or $119 million. These loans are subjected to the Company's credit quality
standards and are not what is referred to in the industry as "subprime" or high
risk automobile loans.
12
<PAGE> 13
LIQUIDITY AND FUNDING
Liquidity involves the Company's ability to raise or gain access to funds
in order to fulfill its existing and anticipated financial obligations. It may
be provided through amortization, maturity or sale of assets such as loans and
securities, liability sources such as increased deposits, utilization of the
Federal Home Loan Bank credit facility, purchased or other borrowed funds, and
access to the capital markets. The Company's securities portfolio is classified
entirely as available-for-sale, which provides the flexibility to sell certain
securities based upon changes in economic or market conditions, interest rate
risk and the Company's financial position and liquidity.
At March 31, 1997, liquidity, which includes excess cash, funds sold and
unpledged securities, totaled approximately $417 million, or 12 percent of total
assets.
The funds needed to support the Company's loan and securities portfolios
are provided through a combination of commercial and retail deposits and
short-term borrowings. Total deposits decreased $68 million during the quarter
to $2.788 billion. Noninterest-bearing deposits decreased $32 million since the
beginning of the year due to seasonal fluctuations which have normally occurred
during the first quarter of the year. Savings deposits, including NOW, money
market and regular savings, decreased $13 million to $1.332 billion. The savings
deposit balance also reflects a shift from NOW to money market deposits of
approximately $214 million this quarter. This was a result of an overnight
deposit sweep process recently implemented by the Company's subsidiary bank,
USTrust, which transfers certain NOW account balances to money market accounts
on a nightly basis then returns the balances to a NOW account status the
following morning. The effect of this process, which has no impact on an
individual customer's account status, is a reduction of the cash reserve
balances that are required to be maintained at the Federal Reserve Bank. This
process has become a customary procedure for most large institutions and has
Federal Reserve Board approval. Time certificates of deposit decreased $23
million during the quarter to $888 million. Short-term borrowings also
decreased during the quarter, $54 million to $424 million, consistent with the
reduction in federal funds sold and lower securities balance.
As shown in the Consolidated Statements of Cash Flows, cash and cash
equivalents increased $707 thousand during the three-month period ended
March 31, 1997. Cash used by operations resulted largely from the net increase
in other liabilities partially offset by the aggregate of operating income
items. Cash provided by investing activities was due to an excess of maturities
and sales of securities over cash used for securities purchases and increased
loan volume. Net cash used by financing activities was primarily due to
decreases in nontime and certificates of deposit and borrowings.
At March 31, 1997, the parent Company had $3.4 million in cash and $4
million in short-term securities purchased under agreement to resell compared
with $.8 million and $14.0 million, respectively, at year end. The decrease in
excess funds was primarily due to the net of a $20 million capital contribution
to USTrust and the receipt of $12 million in dividends from the Walden banks
during the quarter.
INTEREST RATE RISK
Volatility in interest rates requires the Company to manage interest rate
risk which arises from differences in the timing of repricing of assets and
liabilities. Management monitors and adjusts the difference between
interest-sensitive assets and interest-sensitive liabilities ("GAP" position)
within various time frames. An institution with more assets repricing than
liabilities within a given time frame is considered asset sensitive ("positive
GAP") and in time frames 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 20 percent of total assets. The Company manages its interest rate
GAP primarily by lengthening or shortening the maturity structure of its
securities portfolio.
13
<PAGE> 14
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 and to a lesser extent the London Interbank Offered Rate
("LIBOR"). The following table summarizes the Company's GAP position at March
31, 1997. The majority of loans are included in 0-30 days as they reprice in
response to changes in the interest rate environment. Interest-bearing deposits
are classified according to their expected interest rate sensitivity. Actual
sensitivity of these deposits is reviewed periodically and adjustments are made
in the Company's GAP analysis that management deems appropriate. Securities and
noninterest-bearing deposits are categorized according to their expected lives
based on published industry prepayment estimates in the case of securities and
current management estimates for noninterest bearing deposits. Securities are
evaluated in conjunction with the Company's asset/liability management strategy
and may be purchased or sold in response to expected or actual changes in
interest rates, credit risk, prepayment risk, loan growth and similar factors.
The reserve for possible loan losses is included in the "Over 1 Year" category
of loans. At March 31, 1997, the one-year cumulative GAP position was negative
at $49 million, or approximately 1 percent of total assets.
<TABLE>
<CAPTION>
INTEREST SENSITIVE PERIODS
---------------------------------------------------------------
0-30 DAYS 31-90 DAYS 91-365 DAYS OVER 1 YEAR TOTAL
--------- ---------- ----------- ----------- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Loans, net of reserve ........................ $ 916 $ 93 $ 254 $1,160 $2,423
Federal funds sold and other ................. 68 68
Securities ................................... 46 55 105 538 744
Other assets ................................. 17 3 284 304
------ ------ ------ ------ ------
Total assets .......................... $1,047 $ 148 $ 362 $1,982 $3,539
====== ====== ====== ====== ======
Interest-bearing deposits .................... $ 544 $ 137 $ 422 $1,117 $2,220
Borrowed funds ............................... 332 37 55 424
Noninterest-bearing deposits ................. 134 434 568
Other liabilities and stockholders' equity.... 327 327
------ ------ ------ ------ ------
Total liabilities and equity .......... $1,010 $ 137 $ 459 $1,933 $3,539
====== ====== ====== ====== ======
GAP for period ............................... $ 37 $ 11 $ (97) $ 49
====== ====== ====== ======
Cumulative GAP ............................... $ 48 $ (49) $ 0
====== ====== ======
As a percent of total assets ................. 1.05% 1.36% (1.38%)
</TABLE>
CREDIT QUALITY AND RESERVE FOR POSSIBLE LOAN LOSSES
At March 31, 1997 substandard loans were $26.5 million compared with
$37.7 million at December 31, 1996. Loans reported as substandard include loans
classified as Substandard or Doubtful as determined by the Company in its
internal credit risk rating profile. Under the Company's definition, Substandard
loans, which include nonaccruals, are characterized by the distinct possibility
that some loss will be sustained if the credit deficiencies are not corrected.
The Substandard classification, however, does not necessarily imply ultimate
loss for each individual loan so classified. Loans classified as Doubtful have
all the weaknesses inherent in Substandard loans with the added characteristic
that the weaknesses make collection of 100 percent of the assets questionable
and improbable.
14
<PAGE> 15
The following table displays the Company's total nonperforming assets and
measures performance regarding certain key indicators of asset quality:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1997 1996 1996
------- ------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonperforming assets:
Nonaccrual loans ........................... $25,755 $33,710 $25,470
Accruing loans 90 days or more past due .... 524 997 881
Other real estate owned ("OREO"), net ...... 1,638 1,792 4,307
Restructured loans ......................... 754 1,264 67
------- ------- -------
Total nonperforming assets .................... $28,671 $37,763 $30,725
======= ======= =======
Reserve for possible loan losses .............. $50,155 $50,204 $67,969
Net chargeoffs for the quarter ................ 49 809 2,027
OREO reserve .................................. 320 320 682
Ratios:
Reserve to nonaccrual loans ................ 194.7% 148.9% 266.9%
Reserve to total of nonaccrual loans,
accruing loans 90 days or more past due,
and restructured loans ................... 185.5% 139.6% 257.3%
Reserve to period-end loans ................ 2.0% 2.0% 3.6%
Nonaccrual loans and accruing loans over
90 days past due to period-end loans
and OREO ................................. 1.1% 1.4% 1.4%
Annualized net chargeoffs to
average loans ............................ nil .1% .4%
OREO reserve to OREO ....................... 16.3% 15.2% 13.7%
</TABLE>
As shown in the table above, total nonperforming assets decreased $9.1
million since December 31, 1996 and $2.1 million from a year ago to $28.7
million. The level of nonperforming assets at quarter end continues to be within
the range of industry norms relative to the Company's size and total volume of
loans. The reserve for possible loan losses was relatively unchanged since year
end at $50.2 million. There was no provision for loan loss this quarter and net
chargeoffs were a nominal $49 thousand. The reserve coverage on nonaccrual loans
improved this quarter to 194.7 percent. The reserve to total period-end loans
remains at 2.0 percent.
At March 31, 1997, total impaired loans were $18.4 million, comprised of
$.3 million that required a reserve for possible loan losses of $.3 million and
$18.1 million that did not require a related reserve. Impaired loans, as defined
in Statement of Financial Accounting Standards No. 114 ("SFAS No. 114"),
"Accounting by Creditors for Impairment of a Loan," are commercial and
commercial real estate loans recognized by the Company as nonaccrual and
restructured.
15
<PAGE> 16
The Company maintains a reserve for possible loan losses to absorb future
chargeoffs of loans and leases in the existing portfolio. The reserve is
increased when a loan loss provision is recorded in the income statement. When a
loan, or portion thereof, is considered uncollectible, it is charged against the
reserve. Recoveries on amounts previously charged off are added to the reserve
when collected. Adequacy of the reserve for possible loan losses is determined
using a consistent, systematic methodology which analyzes the size and risk of
the loan and lease portfolio on a monthly basis. Factors in this analysis
include historical loss experience and asset quality, as reflected by
delinquency trends, nonaccrual and restructured loans and the Company's credit
risk rating profile. 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 using a combination of numerical and qualitative analysis and
includes sensitivity testing and a written conclusion.
No portion of the reserve is restricted to any loan or group of loans,
and the entire reserve is available to absorb future realized losses. The amount
and timing of realized losses and future reserve allocations may vary from
current estimates. An allocation of the reserve for possible loan losses to each
category of loans is presented below:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1997 1996 1996
------- ------- -------
<S> <C> <C> <C>
Reserve for possible loan losses allocation
to loans outstanding:
Commercial and financial .................... $17,501 $16,473 $19,501
Commercial real estate:
Construction ............................. 622 556 427
Developer, investor and land ............. 5,215 4,638 7,981
Consumer* ................................... 15,737 15,836 10,332
Lease financing ............................. 590 589 400
Unallocated ................................. 10,490 12,112 29,328
------- ------- -------
Total loan loss reserve ............... $50,155 $50,204 $67,969
======= ======= =======
</TABLE>
- ----------
* Consumer loans include indirect automobile installment loans, residential
mortgages, home equity lines of credit, credit cards, check credit and other
consumer loans.
The reserve for possible loan losses was $50.2 million at March 31,
1997, consistent with the December 1996 year-end balance. The reserve was $18
million lower than March 31, 1996 balance as a result of earnings credits
recorded through the provision for possible loan losses in the second and third
quarters of 1996. The unallocated portion of the reserve was 20 percent at
March 31, 1997 compared with 24 percent at year end. The decrease of 4
percentage points, or $1.6 million, reflects a reallocation of the reserve to
commercial loan categories at the Walden banks during the quarter.
16
<PAGE> 17
CAPITAL AND DIVIDENDS
The Company and its banking subsidiaries are subject to various
regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory--and
possibly additional discretionary--actions by regulators that, if undertaken,
could have a direct material effect on the Company's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company and its subsidiary banks must meet specific capital
guidelines that involve quantitative measures of assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting
practices. The capital amounts and classifications are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and its banking subsidiaries to maintain minimum
amounts and ratios (set forth in the table below) of Total and Tier I capital
(as defined in the regulations) to risk-weighted assets (as defined), and of
Tier I capital (as defined) to average assets (as defined). Management believes,
as of March 31, 1997, that the Company and its subsidiary banks meet all of
their respective capital adequacy requirements.
As a condition to Federal Deposit Insurance Corporation approval of
USTrust's fourth quarter 1996 Branch Purchase, USTrust was required to have a
Tier I leverage capital ratio of not less than: (i) 4.8 percent, no later than
ten days after consummation of the acquisition of the sixteen BayBank branches;
and (ii) 5 percent, no later than three months after consummation of the
acquisition of the BayBank branches and for a period of six months thereafter.
As of March 31, 1997, USTrust continued to be in compliance with the foregoing
provisions and the Company expects that these conditions will not have a
material adverse impact on the future operations of USTrust. During a period
from the consummation of the Branch Purchase in December 1996 until March 5,
1997, USTrust's Total capital to total risk-based assets ratio temporarily fell
below the requirement of an adequately capitalized bank. The parent Company
effected a $20 million capital contribution to USTrust on March 5, 1997 in
order to meet this requirement.
17
<PAGE> 18
The actual capital amounts and ratios of the Company and its banking
subsidiaries are presented in the following summary:
<TABLE>
<CAPTION>
MARCH 31, 1997
---------------------------------------------------------------------------
AMOUNT PERCENT
---------------------------------------------------------------------------
ADEQUATELY WELL ADEQUATELY WELL
CAPITALIZED CAPITALIZED CAPITALIZED CAPITALIZED
ACTUAL MINIMUMS MINIMUMS ACTUAL MINIMUMS MINIMUMS
---------------------------------------------------------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
UST Corp. Consolidated:
Tier 1 leverage capital ............ $235.7 $139.2 N/A 6.77% 4.00% N/A
Tier 1 capital ..................... 235.7 104.7 N/A 9.00% 4.00% N/A
Total (Tier 1 and Tier 2) capital... 268.4 208.1 N/A 10.32% 8.00% N/A
USTrust:
Tier 1 leverage capital ............ 156.2 129.6 $129.6 6.03% 5.00% 5.00%
Tier 1 capital ..................... 156.2 84.9 127.4 7.36% 4.00% 6.00%
Total (Tier 1 and Tier 2) capital... 182.8 169.0 211.3 8.66% 8.00% 10.00%
United States Trust Company:
Tier 1 leverage capital ............ 2.7 .5 .7 19.80% 4.00% 5.00%
Tier 1 capital ..................... 2.7 .3 .5 34.72% 4.00% 6.00%
Total (Tier 1 and Tier 2) capital... 2.7 .7 .8 34.77% 8.00% 10.00%
The Co-operative Bank of Concord:
Tier 1 leverage capital ............ 34.0 18.5 23.2 7.35% 4.00% 5.00%
Tier 1 capital ..................... 34.0 9.3 14.0 14.57% 4.00% 6.00%
Total (Tier 1 and Tier 2) capital... 37.0 18.7 23.4 15.84% 8.00% 10.00%
The Braintree Savings Bank:
Tier 1 leverage capital ............ 30.4 20.4 25.5 5.95% 4.00% 5.00%
Tier 1 capital ..................... 30.4 11.6 17.4 10.50% 4.00% 6.00%
Total (Tier 1 and Tier 2) capital... 34.0 23.0 28.7 11.83% 8.00% 10.00%
</TABLE>
The Company paid a cash dividend to stockholders in the first quarter
in the amount $2.3 million. On March 18, 1997, a regular quarterly dividend
to stockholders was declared of $0.10 per share for a total of $2.8 million
payable on April 25, 1997. The Company received cash dividends from subsidiaries
during the first quarter of 1997 of $12 million.
18
<PAGE> 19
RECENT ACCOUNTING DEVELOPMENTS
On June 30, 1996, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS No. 125"), "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." This statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities.
The standards are based on consistent application of a financial components
approach that focuses on control. After a transfer of financial assets, an
entity recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. This statement
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. This statement is
effective for transactions occurring after December 31, 1996, and is to be
applied prospectively. This statement was adopted on January 1, 1997 and did not
have a material impact on the Company's financial condition or
results of operations.
On March 3, 1997, the FASB issued SFAS No. 128, "Earnings Per Share."
This Statement supersedes APB Opinion No. 15 regarding the presentation of
earnings per share ("EPS") on the face of the income statement. Refer to Note 4
to the Notes to Consolidated Financial Statements for a further discussion.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
The preceding Management's discussion contains certain forward-looking
statements. Moreover, the Company may from time to time, in both written reports
and oral statements by Company management, express its expectations regarding
future performance of the Company. These forward-looking statements are
inherently uncertain, and actual results may differ from Company expectations.
The Company disclaims any obligation to announce publicly future events or
developments which affect forward-looking statements. Risk factors that could
impact current and future performance include but are not limited to: (i)
changes in asset quality and resulting credit risk-related losses and expense;
(ii) adverse changes in the economy of the New England region, the Company's
primary market, which could further accentuate credit-related losses and
expenses; (iii) adverse changes in the local real estate market can also
negatively affect credit risk since most of the Company's loans are concentrated
in Eastern Massachusetts and a substantial portion of these loans have real
estate as primary and secondary collateral; (iv) an increasingly competitive New
England financial services marketplace, where a large number of bank
acquisitions and mergers has resulted in fewer but much larger and financially
stronger competitors which could alter Company expectations; (v) fluctuations in
market rates and prices can negatively affect net interest margin, asset
valuations and expense expectations; and (vi) changing regulatory requirements
of federal and state agencies could materially impact future operations of the
Company.
19
<PAGE> 20
PART II. OTHER INFORMATION
For the quarter ended March 31, 1997, Items 2, 3, 4 and 5 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 is likely to result in a material
adverse change in the financial condition or results of operations of the
Company and its subsidiaries.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K or 8-K/A
(i) Purchase of Twenty (20) Branches from The First National Bank of
Boston and BayBank, N.A.. The Company filed a Current Report on Form 8-K/A with
the Commission on February 6, 1997, regarding the consummation of an agreement
with The First National Bank of Boston to purchase certain assets and assume
certain deposits and other liabilities assigned to twenty (20) branches in the
greater Boston, Massachusetts area. Sixteen (16) of the branches were former
branches of BayBank, N.A. and four (4) were operated as branches of The First
National Bank of Boston. The transaction was consummated in December, 1996.
(ii) (a) Acquisition of Walden Bancorp, Inc. The Company filed a Current
Report on Form 8-K/A with the Commission on February 6, 1997, regarding the
consummation of the acquisition by the Company of Walden Bancorp, Inc.
("Walden"), and its two banking subsidiaries, The Braintree Savings Bank and The
Co-operative Bank of Concord. The acquisition was consummated on January 3,
1997. In connection with the acquisition of Walden, the Company also named three
former Directors of Walden to the Boards of Directors of the Company and
USTrust, the Company's principal banking subsidiary. The individuals so elected
are David E. Bradbury, G. Robert Tod and Chester G. Atkins. Mr. John C. Doody,
also a former Director of Walden, was elected to serve on the Board of Directors
of United States Trust Company.
(b) Acquisition of Walden Bancorp, Inc. The Company filed a Current
Report on Form 8-K/A with the Commission on March 4, 1997, regarding the
acquisition of Walden and its two banking subsidiaries, The Braintree Savings
Bank and The Co-operative Bank of Concord. The Current Report provided Unaudited
Pro Forma Combined Financial Statements and Notes for the Company as of December
31, 1996, reflecting the acquisition of Walden.
20
<PAGE> 21
In accordance with the requirements of the Securities Exchange Act of
1934, the Company has caused this report to be signed on its behalf by the
undersigned duly authorized officers of the Company.
Date: May 13, 1997 By: /s/ Neal F. Finnegan
------------------------------------
Neal F. Finnegan, President and
Chief Executive Officer
Date: May 13, 1997 By: /s/ James K. Hunt
------------------------------------
James K. Hunt, Executive Vice
President, Treasurer, and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
21
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF UST CORP. AT OR FOR THE THREE MONTHS ENDED MARCH 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
OF FORM 10-Q
</LEGEND>
MULTIPLIER 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1.00
<CASH> 140,719
<INT-BEARING-DEPOSITS> 57
<FED-FUNDS-SOLD> 66,451
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 743,535
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 2,472,828
<ALLOWANCE> 50,155
<TOTAL-ASSETS> 3,539,301
<DEPOSITS> 2,788,179
<SHORT-TERM> 424,109
<LIABILITIES-OTHER> 36,742
<LONG-TERM> 0
0
0
<COMMON> 17,754
<OTHER-SE> 272,517
<TOTAL-LIABILITIES-AND-EQUITY> 3,539,301
<INTEREST-LOAN> 52,479
<INTEREST-INVEST> 12,004
<INTEREST-OTHER> 1,006
<INTEREST-TOTAL> 65,489
<INTEREST-DEPOSIT> 20,137
<INTEREST-EXPENSE> 25,827
<INTEREST-INCOME-NET> 39,662
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 11
<EXPENSE-OTHER> 50,003
<INCOME-PRETAX> 2,092
<INCOME-PRE-EXTRAORDINARY> 2,092
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 362
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
<YIELD-ACTUAL> 8.05
<LOANS-NON> 25,755
<LOANS-PAST> 524
<LOANS-TROUBLED> 754
<LOANS-PROBLEM> 36,300
<ALLOWANCE-OPEN> 50,204
<CHARGE-OFFS> 860
<RECOVERIES> 811
<ALLOWANCE-CLOSE> 50,155
<ALLOWANCE-DOMESTIC> 50,155
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 10,490
</TABLE>
