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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE #0-9623
UST CORP.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2436093
(State or other (I.R.S.
jurisdiction Employer
of incorporation or Identification
organization) No.)
40 Court Street
Boston, Massachusetts 02108
(Address of principal (Zip Code)
executive offices)
(617) 726-7000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.625
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by Reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The number of shares of common stock held by nonaffiliates of the registrant
as of March 2, 1998 was 25,328,467 for an aggregate market value of
$687,034,667.
At March 2, 1998, there were issued and outstanding 29,812,477 shares of
common stock, par value $0.625 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement for the 1998 Annual Meeting are
incorporated by reference in Items 10, 11, 12 and 13 of Part III.
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PART I
ITEM 1. Business
General Description of Business
UST Corp. (the "Company"), a bank holding company registered with the Board
of Governors of the Federal Reserve System (the "Federal Reserve Board"), was
organized as a Massachusetts business corporation in 1967. The Company is also
subject to examination by, and is required to file reports with, the
Commissioner of Banks of the Commonwealth of Massachusetts (the "Massachusetts
Commissioner"). As of December 31, 1997, the Company's banking subsidiaries were
USTrust and United States Trust Company ("USTC"), each headquartered in Boston
and chartered under Massachusetts law. USTrust and USTC are sometimes hereafter
collectively referred to as the "Subsidiary Banks". All of the capital stock of
the Subsidiary Banks is owned directly or indirectly by the Company. In
addition, the Company owns, indirectly through its Subsidiary Banks, all of the
outstanding stock of five active nonbanking subsidiaries: Firestone Financial
Corp. (and its Canadian subsidiary, Firestone Financial Canada Ltd.), UST
Leasing Corporation, UST Capital Corp., UST Realty Trust, Inc. and UST Auto
Lease Corp., as well as eight subsidiaries which hold foreclosed real estate and
four subsidiaries which are passive holders of securities. All of the
subsidiaries, except Firestone Financial Canada Ltd. (which was organized under
the laws of the Canadian province of Ontario) were organized under Massachusetts
law.
The Company engages in one line of business, that of providing financial
services through its banking and nonbanking subsidiaries. A broad range of
financial services is provided principally to individuals and small- and
medium-sized companies in New England including those located in low- and
moderate-income neighborhoods within the Company's defined Community
Reinvestment Act assessment area. In addition, an important component of the
Company's financial services is the provision of trust and money management
services to professionals, corporate executives, nonprofit organizations, labor
unions, foundations, mutual funds and owners of closely-held businesses, most of
which are located in the New England region.
As of the close of business on December 31, 1997, the Company's total assets
were approximately $3.84 billion and USTrust, the lead bank, had over $3.8
billion, or 99 percent of the Company's consolidated assets.
The Subsidiary Banks
The Subsidiary Banks are engaged in a general banking business and accept
deposits which are insured by the Federal Deposit Insurance Corporation
("FDIC"). USTrust provides a full range of commercial and consumer financial
services. USTC, which has full banking powers and accepts deposits which are
insured by the FDIC, focuses its activity on trust and money management, venture
capital and other fee-generating businesses.
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Recent Developments
Acquisition of Firestone Financial Corp.
On October 15, 1997, the Company consummated its acquisition of Firestone
Financial Corp. ("Firestone"), an $85 million small business equipment finance
company headquartered in Newton, Massachusetts. The transaction was accounted
for as a pooling of interests and was structured as a tax-free exchange of
1,180,000 shares of the Company's Common Stock for the 2,000,000 closely held
shares of Firestone common stock. Firestone has one subsidiary, Firestone
Financial Canada Ltd., a Canadian entity which offers similar business equipment
finance services to small business entities in Canada.
Pending Acquisition of Somerset Savings Bank
On December 9, 1997, the Company executed an Affiliation Agreement and Plan
of Reorganization (the "Somerset Agreement") with Somerset Savings Bank of
Somerville, Massachusetts ("Somerset"), pursuant to which Somerset will be
merged with and into USTrust. Somerset, a Massachusetts savings bank which at
December 31, 1997 had consolidated assets of $540 million, serves the consumer
and small business banking needs of its customers through its five branch
offices located in the communities of Somerville and Burlington. The Somerset
transaction, which is structured to qualify as a pooling of interests for
accounting purposes, is subject to the approval of the shareholders of Somerset
as well as to the receipt of federal and state regulatory banking approvals.
Subject to the foregoing conditions, the Somerset transaction is expected to
close during the second or third quarter of 1998.
The Somerset transaction is structured as a tax-free exchange of 0.19 shares
of UST Corp. Common Stock for each share of Somerset common stock outstanding.
At the Company's closing stock price of $29.625 on December 9, 1997, the
Somerset transaction would be valued at approximately $94 million, and Somerset
shareholders would receive a value of $5.63 in the Company's Common Stock for
each share of Somerset common stock. The purchase price represents a multiple of
2.3 times stated book value of Somerset at September 30, 1997. The Company
expects to record a one-time, pre-tax charge of approximately $7.5 million in
acquisition-related costs in connection with the Somerset transaction.
Immediately after execution of the Somerset Agreement on December 9, 1997,
the Company entered into a Stock Option Agreement with Somerset pursuant to
which Somerset granted the Company the option to purchase, under certain
circumstances, up to 2,777,000 shares (or approximately 16.7%) of its
outstanding stock for $4.875 per share and has also agreed to pay the Company
certain additional consideration related to the option.
Following the consummation of the Somerset transaction, Mr. James F. Drew, a
current director of Somerset, will become a director of the Company and Mr.
Nicholas P. Salerno, a current director of Somerset, will become a director of
USTrust. Additionally, pursuant to the terms of an Employment Agreement dated as
of December 9, 1997, Mr. Thomas J. Kelly, currently President and Chief
Executive Officer of Somerset, will become an Executive Vice President of
USTrust.
Pending Acquisition of Affiliated Community Bancorp., Inc.
On December 15, 1997, the Company executed an Affiliation Agreement and Plan
of Reorganization (the "Affiliated Agreement") with Affiliated Community
Bancorp., Inc. of Waltham, Massachusetts ("Affiliated"), pursuant to which the
Company will acquire Affiliated. Affiliated is a $1.2 billion Massachusetts bank
holding company for three community banks, Lexington Savings Bank, The Federal
Savings Bank and Middlesex Bank & Trust Company ("Middlesex") (together, the
"Affiliated Banks") which serve consumer and small business banking needs
through 13 branch offices located in eastern Middlesex County. In the Affiliated
Agreement, the Company has permitted Affiliated to sell all of the shares of
capital stock of Middlesex for not less than
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$8,000,000 prior to the effective date of the Affiliated transaction, which
sale, if consummated, would not have a material effect on Affiliated. At
December 31, 1997, Middlesex has assets of approximately $18.9 million and a net
worth of approximately $7.7 million. The Affiliated transaction, which is
structured to qualify as a pooling of interests for accounting purposes, is
subject to the approval of the shareholders of the Company and Affiliated as
well as to the receipt of federal and state regulatory banking approvals and is
expected to close during the second or third quarter of 1998. While the Company
will first acquire Affiliated, thereby making the Affiliated Banks subsidiaries
of the Company, the Company anticipates merging the Affiliated Banks into
USTrust in 1998.
The Affiliated transaction is structured as a tax-free exchange of 1.41
shares of UST Corp. Common Stock for each share of Affiliated common stock
outstanding. At the Company's closing stock price of $28.3125 on December 12,
1997, the Affiliated transaction would be valued at approximately $259 million,
and Affiliated shareholders would receive a value of $39.92 in UST Corp. Common
Stock for each share of Affiliated common stock. The Company expects to record a
one-time, pre-tax charge of approximately $12 million in acquisition-related
costs in connection with the Affiliated transaction. If the Company's average
stock price during a specified period prior to closing is less than $24.06 per
share and the Company's stock price has declined by more than 15% relative to a
certain bank stock index, Affiliated can terminate the agreement, subject to the
right of the Company to issue additional shares to ensure a per share value of
$33.92 in stock of the Company.
Immediately after execution of the Affiliated Agreement on December 15,
1997, the Company entered into a Stock Option Agreement with Affiliated pursuant
to which Affiliated granted to the Company the option to purchase, under certain
circumstances, up to 1,300,078 shares (or approximately 19.9%) of its
outstanding stock for $32.937 per share.
Following consummation of the Affiliated transaction, Mr. Neal F. Finnegan,
currently President and Chief Executive Officer of the Company and USTrust, will
serve as President and Chief Executive Officer of the Company and Chairman and
Chief Executive Officer of USTrust, and Mr. Timothy J. Hansberry, currently
President and Chief Executive Officer of Affiliated, will serve as Vice Chairman
and Chief Operating Officer of the Company and President and Chief Operating
Officer of USTrust. Additionally, five of the current directors of Affiliated,
including Mr. Hansberry (or such lesser number as may be agreed to by the
Company and Affiliated, and as will represent approximately 20% of the then
existing Board of Directors of the Company) will become directors of the Company
Business Services
The Subsidiary Banks provide a broad range of banking services including
deposit, investment, cash management, payroll, wire transfer, leasing, merchant
credit card and lending services throughout New England. Commercial and
industrial lending takes the form primarily of direct loans and includes lines
of credit, revolving credits, domestic and foreign letters of credit, term
loans, mortgage loans, receivable, inventory and equipment loans and other
specialized lending services. Furthermore, the Company provides additional
services to small business customers through utilization of government sponsored
and assisted loan programs. USTrust is certified by the SBA as a "Small Business
Administration Lender." USTC provides deposit services and other banking
services, but focuses its activities on money management, venture capital and
other fee-generating services. Through Firestone, the Company provides small
business equipment finance services. The Company intends to begin providing a
broader range of cash management services to a larger number of municipalities
during 1998. At December 31, 1997, the combined lending limit to a single
borrower of USTrust was approximately $47 million.
Consumer Services
Consumer services are provided by the Subsidiary Banks to customers in their
geographic areas. These services include savings and checking accounts, NOW and
money market accounts, consumer loans, credit cards (through a private label
arrangement), ATM and debit cards, safe deposit box facilities, travelers'
checks and foreign exchange into several major foreign currencies. Consumer
loans include home equity loans
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and lines of credit, automobile loans, personal loans and loans to finance
education costs as well as open-ended credit. The Company expects to reenter the
residential mortgage origination business in 1998. USTrust also maintains a
residential mortgage servicing capacity for its own portfolio and for third
parties. As of December 31, 1997, the aggregate principal amount of residential
mortgages serviced by the Company for its own account was approximately $698
million. In 1997 the Company began offering automobile leasing services to
customers through UST Auto Lease Corp. Automobile loan and lease volume
increased substantially in 1997 and reached a level of approximately $637
million as of December 31, 1997. The Company's Subsidiary Banks currently have
an aggregate of 66 offices which maintain an automated teller machine system
which, through membership in various networks, provides the Company's customers
with access to their accounts at locations throughout the world. Most of the
Company's proprietary ATM machines provide information to customers in English,
Spanish and Portuguese, and also provide information adapted for the visually
impaired.
Investment Services
The Investment Group located at USTrust was formed in 1994. The Investment
Group, a service of Essex National Securities, Inc. and Essex Insurance Agency
of Massachusetts, Inc., an unaffiliated, licensed broker-dealer, offers mutual
funds (whose investments are managed by nonaffiliated third parties), Treasury
Bills, Treasury Notes, corporate bonds, state, federal and municipal bonds and
discount brokerage services to the customers of USTrust. The Essex Insurance
Agency of Massachusetts, Inc. also offers annuities to USTrust customers at
branch locations.
Real Estate Services
The Subsidiary Banks provide a broad range of industrial and commercial real
estate lending services and other related financial services. In 1998, the
Company intends to begin providing small real estate construction loans to
developers of projects in the cities and towns served by USTrust's branch
system. In addition, as noted above under the caption, "Consumer Services,"
USTrust is engaged in residential mortgage servicing and intends to reenter the
residential mortgage origination business in 1998.
Asset and Money Management and Trust Services
Asset and money management, custodial and trust services are provided by USTC.
In addition, USTC provides services as executor, administrator and trustee of
estates and acts, under the terms of agreements, in various capacities such as
escrow agent, bond trustee and trustee and agent of pension, profit sharing and
other employee benefit trusts. At December 31, 1997, the total assets under
management of USTC were approximately $3.1 billion. Approximately one quarter of
total assets under management are those of clients who have requested that their
assets be managed with specified social as well as financial investment
objectives in mind. USTC also serves as investment adviser to a balanced mutual
fund, the Boston Balanced Fund.
Securities Portfolios Maintained by the Company
The Subsidiary Banks, both directly and through wholly-owned Massachusetts
securities corporations, maintain securities portfolios consisting primarily of
U.S. Treasury, U.S. Government Agency, and corporate and municipal securities.
The Subsidiary Banks own an aggregate of four Massachusetts securities
corporations. As Massachusetts securities corporations, these subsidiaries make
exclusively passive investments and serve by buying, selling, dealing in and
holding securities.
All of the Company's securities are deemed "available-for-sale" which
enhances the liquidity position of the Company and allows for flexibility in
management of interest rate risk. The securities portfolios of the Subsidiary
Banks also include certain other equity investments as allowed within limits
prescribed by Massachusetts and federal law. Such investments currently include,
among others, equity interests in the Massachusetts Housing Investment
Corporation's Limited Partnership Equity Fund for Affordable Housing. The
Treasury Division of the Company provides securities portfolio advisory services
to the Company's Subsidiary Banks. USTrust is also a member of the Federal Home
Loan Bank of Boston. This membership
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provides USTrust with access to an additional source of funds. In February 1998,
USTrust also established UST Realty Trust, Inc., a real estate investment trust.
Principal Nonbanking Subsidiaries
Firestone Financial Corp., organized in 1965 and acquired as a subsidiary of
USTrust in 1997, provides small business equipment financing services to
companies headquartered throughout the United States. Firestone's principal
market consists of small businesses that maintain various types of coin-operated
amusement equipment and vending machines, as well as owners/operators of
dry-cleaning stores and coin operated laundry equipment. Firestone also provides
similar services to Canadian companies through its wholly-owned subsidiary,
Firestone Financial Canada Ltd., a Canadian entity. As of December 31, 1997,
Firestone's total assets were approximately $86 million.
UST Leasing Corporation, a subsidiary of USTrust organized in 1987, provides
a broad range of equipment leasing services to corporations headquartered
throughout the United States. UST Leasing Corporation offers a line of leasing
products designed to meet the needs of the Company's small business customers
and other business entities with similar needs. As of December 31, 1997, UST
Leasing Corporation's total assets were approximately $63 million.
UST Auto Lease Corp., a subsidiary of USTrust organized in 1997, provides
automobile leasing services to consumers and corporations headquartered
throughout New England. As of December 31, 1997, UST Auto Lease Corp.'s total
assets were approximately $27 million.
UST Realty Trust, Inc., an indirect subsidiary of USTrust, was organized in
February of 1998. It functions as a real estate investment trust which holds,
and may from time to time originate, real estate loans and participations in
such loans.
UST Capital Corp., organized in 1961 and acquired by the Company in 1969, is
a subsidiary of USTC and is a licensed Small Business Investment Company. It
specializes in equity and long-term debt financing for growth-oriented
companies.
Competitive Conditions
The Company's banking and nonbanking subsidiaries face substantial
competition throughout Massachusetts. This competition is provided by commercial
banks, savings banks, credit unions, consumer finance companies, insurance
companies, mutual funds, government agencies, investment management companies,
investment advisors, brokers and investment bankers. Most of these entities are
actively engaged in marketing various types of loans, deposits, investment
products and other financial services. Quality of service to customers, price of
products, breadth of its range of products and services and ease of
accessibility to facilities are among the principal methods of meeting
competition in the banking and financial services industries.
Supervision and Regulation of the Company and its Subsidiaries
General
As a bank holding company registered under the Bank Holding Company Act of
1956, as amended (the "BHC Act"), the Company is subject to substantial
regulation and supervision by the Federal Reserve Board. As state-chartered
banks, the Subsidiary Banks are subject to substantial regulation and
supervision by the FDIC and the applicable state bank regulatory agencies. Such
activities are often intended primarily for the protection of depositors or are
aimed at carrying out broad public policy goals that may not be directly related
to the financial services provided by the Company and its subsidiaries.
Supervision, regulation and examination of the Subsidiary Banks by the bank
regulatory agencies is not intended for the protection of the Company's security
holders. Federal and state banking and other laws impose a number of
requirements and restrictions on the business operations, investments and other
activities of depository institutions and their affiliates.
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General Supervision and Regulation
The Company, as a bank holding company under the BHC Act, is registered with
the Federal Reserve Board and is regulated under the provisions of the BHC Act.
Under the BHC Act the Company is prohibited, with certain exceptions, from
acquiring direct or indirect ownership or control of more than 5 percent of the
voting shares of any company which is not a bank and from engaging in any
business other than that of banking, managing or controlling banks or furnishing
services to, or acquiring premises for, its Subsidiary Banks, except that the
Company may engage in and own voting shares of companies engaging in certain
activities determined by the Federal Reserve Board, by order or by regulation,
to be so closely related to banking or to managing or controlling banks "as to
be a proper incident thereto."
The Company is required by the BHC Act to file with the Federal Reserve
Board an annual report and such additional reports and notices as the Federal
Reserve Board may require. The Federal Reserve Board also makes periodic
inspections of the Company and its subsidiaries. The BHC Act requires every bank
holding company to obtain the prior approval of the Federal Reserve Board before
it may acquire substantially all of the assets of any bank, or ownership or
control of any voting shares of any bank, if, after such acquisition, it would
own or control, directly or indirectly, more than 5 percent of the voting shares
of such bank.
Because the Company is also a bank holding company under the Massachusetts
General Laws, the Massachusetts Commissioner has authority to require certain
reports from the Company from time to time and to examine the Company and each
of its subsidiaries. The Massachusetts Commissioner also has enforcement powers
designed to prevent banks from engaging in unfair methods of competition or
unfair or deceptive acts or practices involving consumer transactions. Prior
approval of the Massachusetts Board of Bank Incorporation is also required
before the Company may acquire any additional banks located in Massachusetts or
in other jurisdictions.
The location of nonbank subsidiaries of the Company is not restricted
geographically under the BHC Act. The Riegle-Neal Interstate Banking and
Branching Act of 1994 (the "Riegle-Neal Act"), enacted in 1995, permits
adequately capitalized and managed bank holding companies to acquire control of
banks in any state. Additionally, as of June 1, 1997, the Riegle-Neal Act allows
for banks to branch across state lines, but individual states were given the
right, prior to June 1, 1997, to elect to "opt out" of interstate banking
entirely. In 1996, Massachusetts adopted legislation (the "Massachusetts
Interstate Act") pursuant to which Massachusetts "opted in" to interstate
banking. The Massachusetts Interstate Act also allows Massachusetts banks to
establish and maintain branches through a merger or consolidation with or by the
purchase of the whole or any part of the assets or stock of any out-of-state
bank or through de novo branch establishment in any state other than
Massachusetts.
The Subsidiary Banks, whose deposits are insured by the FDIC, and the
subsidiaries of such banks are subject to a number of regulatory restrictions,
including certain restrictions upon: (i) extensions of credit to the Company and
the Company's nonbanking affiliates (collectively with the Company, the
"Affiliates"); (ii) the purchase of assets from Affiliates; (iii) the issuance
of a guarantee or acceptance of a letter of credit on behalf of Affiliates; and
(iv) investments in stock or other securities issued by Affiliates or acceptance
thereof as collateral for an extension of credit. In addition, all transactions
among the Company and its direct and indirect subsidiaries must be made on an
arm's length basis and valued on fair market terms. The Subsidiary Banks pay
deposit insurance premiums to the FDIC.
Federal Reserve Board policy requires bank holding companies to serve as a
source of strength to their subsidiary banks by standing ready to use available
resources to provide adequate capital funds to subsidiary banks during periods
of financial stress or adversity. A bank holding company also can be liable
under certain provisions of the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") for the capital deficiencies of an
undercapitalized bank subsidiary. In the event of a bank holding company's
bankruptcy under Chapter 11 of the U.S. Bankruptcy Code, the trustee will be
deemed to have assumed and is required to cure immediately any deficit under any
commitment by the debtor to any of the federal banking agencies to maintain the
capital of an insured depository institution, and any claim for breach of such
obligation will generally have
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priority over most other unsecured claims. Under the cross-guarantee provisions
of the Federal Deposit Insurance Act, if any or all of the Subsidiary Banks were
placed in conservatorship or receivership, the Company, as sole stockholder,
would likely lose its investment in the applicable Subsidiary Bank or Subsidiary
Banks, and, in addition, its investment in its other Subsidiary Bank or
Subsidiary Banks would be at risk.
In addition, under both Section 106 of the 1970 Amendments to the BHC Act
and regulations which have been issued by the Federal Reserve Board, the Company
and its subsidiaries are prohibited from engaging in certain tie-in arrangements
in connection with any extension of credit, lease or sale of any property or the
furnishing of any service. Various consumer laws and regulations also affect the
operations of the Subsidiary Banks.
The Subsidiary Banks, which are chartered under Massachusetts law, are
subject to federal requirements to maintain cash reserves against deposits, and
to state mandated restrictions upon the nature and amount of loans which may be
made by the banks (including restrictions upon loans to "insiders" of the
Company and its Subsidiary Banks) as well as to restrictions relating to
dividends, investments, branching and other bank activities.
FDICIA prescribes the supervisory and regulatory actions that will be taken
against undercapitalized insured depository institutions for the purposes of
promptly resolving problems at such institutions at the least possible long-term
loss to the FDIC. Five categories of depository institutions have been
established by FDICIA in accordance with their capital levels: "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized." The federal banking
agencies have adopted uniform regulations to implement the prompt regulatory
action provisions of FDICIA.
FDICIA requires the appropriate regulatory agencies to take specific actions
against significantly undercapitalized institutions and undercapitalized
institutions that fail to submit acceptable capital restoration plans. An
undercapitalized institution is required to submit a capital restoration plan
for acceptance by the appropriate federal banking agency and will be subject to
close monitoring of both its condition and compliance with, and progress made
pursuant to, its capital restoration plan. An institution that fails to submit
an acceptable plan may be placed into conservatorship or receivership unless its
capital restoration plan is accepted. An undercapitalized institution will also
be subject to restrictions on asset growth, acquisitions, branching, new
activities, capital distributions and the payment of management fees. As of
December 31, 1997, USTrust was "adequately capitalized" and USTC was "well
capitalized". (For further information regarding capitalization, please refer to
Note 15 to Consolidated Financial Statements of this Form 10-K).
An insured institution that receives a less-than-satisfactory rating for
asset quality, management, earnings, liquidity or sensitivity to market risk may
be deemed by its appropriate federal banking regulator to be engaging in an
unsafe or unsound practice for purposes of issuing an order to cease and desist
or to take certain affirmative actions. If the unsafe or unsound practice is
likely to weaken the institution, cause insolvency or substantial dissipation of
assets or earnings or otherwise seriously prejudice the interest of depositors
or the FDIC, a receiver or conservator could be appointed. Finally, subject to
certain exceptions, FDICIA requires critically undercapitalized institutions to
be placed into receivership or conservatorship within 90 days after becoming
critically undercapitalized.
The status of the Company as a registered bank holding company does not
exempt it from certain federal and state laws and regulations applicable to
corporations generally, including, without limitation, certain provisions of the
federal securities laws and the Massachusetts corporate laws. Federal bank
regulatory agencies, including the Federal Reserve Board and the FDIC, have
broad enforcement powers to restrict the activities of financial institutions
and to impose or seek the imposition of civil and/or criminal penalties upon
financial institutions, the individuals who manage or control such institutions
and "institution affiliated parties" of such entities.
Pursuant to the Community Reinvestment Act ("CRA") and similar provisions of
Massachusetts law, regulatory authorities review the performance of the Company
and its Subsidiary Banks in meeting the credit needs of the communities served
by the Subsidiary Banks. The applicable regulatory authorities consider
compliance with this law in connection with applications for, among other
things, approval of branches, branch
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relocations and acquisitions of banks and bank holding companies. Currently the
FDIC's CRA rating of USTrust is "outstanding"; FDIC does not rate USTC which it
regards as a "special purpose" bank. The Massachusetts Commissioner currently
has given each of USTrust and USTC a CRA rating of "satisfactory."
From time to time various proposals are made in the United States Congress,
as well as state legislatures, which would alter the powers of, and place
restrictions on, different types of bank organizations as well as bank and
nonbank activities. Such legislative proposals include proposals related to
expansion of bank powers and increased consumer compliance disclosure
requirements. From time to time, federal legislation is proposed which, if
adopted, would grant bank holding companies broader powers with respect to
insurance and securities activities. Under proposed federal legislation, broader
cross-ownership would be authorized among banking, insurance and securities
companies. At this time it seems unlikely that such legislation (in any form)
will be adopted in the near term.
In 1997 and early 1998, the federal banking regulatory agencies jointly
issued guidance to the banking industry with respect to appropriate measures
which financial institutions should take to address risks associated with the
so-called "Year 2000" issue. In 1998, the agencies are performing on-site
visitations to determine each financial institution's Year 2000 readiness.
Failure to address any Year 2000 risks and concerns raised by the federal bank
regulatory agencies as a result of their visitation could have material adverse
consequences to the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Year 2000" for a further
discussion of these matters.
Governmental Policies, Economic Conditions and Credit Risk Concentration
The earnings and business of the Company's subsidiaries are and will be
affected by a number of external influences, including general economic
conditions in the United States and particularly in New England and the policies
of various regulatory authorities of the United States, including the Federal
Reserve Board. The Federal Reserve Board regulates the supply of money and of
bank credit to influence general economic conditions within the United States
and throughout the world. From time to time, the Federal Reserve Board takes
specific steps to dampen domestic inflation and to control the country's money
supply. The instruments of monetary policy employed by the Federal Reserve Board
for these purposes (including the level of cash reserves banks, including
nonmember banks such as the Company's Subsidiary Banks, are required to maintain
against deposits) influence in various ways the interest rates paid on
interest-bearing liabilities and the interest received on earning assets, and
the overall level of bank loans, investments and deposits. During 1997, the
Massachusetts economy was extremely robust: employment levels remained high;
interest rates were at historically low levels; levels of disposable income were
high and capital expenditures were strong. There can be no assurance that these
strong local economic conditions will continue. In addition, the impact upon the
future business and earnings of the Company of prospective economic conditions
throughout the United States, and of the policies of the Federal Reserve Board
as well as other federal regulatory authorities, cannot be predicted accurately.
Most of the Company's loans outstanding are from borrowers located in
Community Reinvestment Act delineated communities in Massachusetts and a
substantial portion of these loans are various types of real estate loans; still
others have real estate as additional collateral. At year-end 1997, the
Company's exposure to credit risk from borrowers who had real estate as their
primary collateral support included $1.1 billion of loans. The Base Lending Rate
used by the Company's Subsidiary Banks and the costs they paid for major sources
of funds remained relatively stable in 1996 and 1997.
General
No significant portion of the loans or deposits of any of the Company's
banking subsidiaries results from one or several accounts, the loss of which
would materially affect its business. The Company does not experience
significant seasonal fluctuations in its business.
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Employees
As of December 31, 1997, the Company and its subsidiaries had approximately
1,550 full-time and part-time employees. The Company regards its relations with
its employees as good.
11
<PAGE> 11
(e) Financial Statement Schedules included in Financial Statements.
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
<TABLE>
<CAPTION>
<S> <C>
By /s/ NEAL F. FINNEGAN By /s/ JAMES K. HUNT
Neal F. Finnegan James K. Hunt
President and Chief Executive Officer Executive Vice President and Treasurer
(Principal Executive Officer) (Principal Financial Officer and Principal
Date: March 17, 1998 Accounting Officer)
Date: March 17, 1998
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By /s/ CHESTER G. ATKINS By /s/ MICHAEL A. MILLER
Chester G. Atkins, Director Michael A. Miller, Director
Date: March 17, 1998 Date: March 17, 1998
By /s/ DAVID E. BRADBURY By /s/ SYDNEY L. MILLER
David E. Bradbury, Director Sydney L. Miller, Director
Date: March 17, 1998 Date: March 17, 1998
By /s/ ROBERT M. COARD By
Robert M. Coard, Director Vikki L. Pryor, Director
Date: March 17, 1998 Date: March , 1998
By /s/ ROBERT L. CULVER By /s/ GERALD M. RIDGE
Robert L. Culver, Director Gerald M. Ridge, Director
Date: March 17, 1998 Date: March 17, 1998
By /s/ ALAN K. DERKAZARIAN By /s/ WILLIAM SCHWARTZ
Alan K. Derkazarian, Director William Schwartz, Director
Date: March 17, 1998 Date: March 17, 1998
By By /s/ BARBARA C. SIDELL
Donald C. Dolben, Director Barbara C. Sidell, Director
Date: March , 1998 Date: March 17, 1998
By /s/ NEAL F. FINNEGAN By /s/ JAMES V. SIDELL
Neal F. Finnegan, Director James V. Sidell, Director
President and Chief Executive Date: March 17, 1998
Officer
Date: March 17, 1998
By /s/ EDWARD GUZOVSKY By /s/ PAUL D. SLATER
Edward Guzovsky, Director Paul D. Slater, Director
Date: March 17, 1998 Date: March 17, 1998
By /s/ EDWARD J. SULLIVAN
Edward J. Sullivan, Director
Date: March 17, 1998
74
<PAGE> 12
By By /s/ G. ROBERT TOD
Wallace M. Haselton, Director G. Robert Tod, Director
Date: March , 1998 Date: March 17, 1998
By /s/ BRIAN W. HOTAREK By /s/ MICHAEL J. VERROCHI
Brian W. Hotarek, Director Michael J. Verrochi, Director
Date: March 17, 1998 Date: March 17, 1998
By /s/ FRANCIS X. MESSINA By /s/ GORDON M. WEINER
Francis X. Messina, Director Gordon M. Weiner, Director
Date: March 17, 1998 Date: March 17, 1998
75
