<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended: SEPTEMBER 30, 1996
Commission file number: 0-20469
U.S. TRUST CORPORATION
(Exact name of registrant as specified in its charter)
New York 13-3818952
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
114 West 47th Street, New York, New York 10036
(Address of principal executive offices) (Zip Code)
(212) 852-1000
(Registrant's telephone number, including area code)
---------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
9,778,590 shares, Common Stock, $1 par value, as of October 31, 1996
Page 1 of 23
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
An index of the financial statements included in this Form 10-Q filing
follows. All page numbers refer to pages within this Form 10-Q.
Title of Financial Statement Page #
- ---------------------------- ------
Condensed Consolidated Statement of Income:
For the Three Month Periods Ended September 30, 1996 and 1995 3
For the Nine Month Periods Ended September 30, 1996 and 1995 4
Condensed Consolidated Statement of Condition as of September 30, 1996 5
and December 31, 1995
Condensed Consolidated Statement of Changes in Stockholders' Equity 6
for the Nine Month Periods Ended September 30, 1996 and 1995
Condensed Consolidated Statement of Cash Flows for the Nine Month 7
Periods Ended September 30, 1996 and 1995
Notes to the Condensed Consolidated Financial Statements 8
Condensed Consolidated Net Interest Revenue and Average Balances:
For the Three Month Periods Ended September 30, 1996 and 1995 20
For the Nine Month Periods Ended September 30, 1996 and 1995 21
In the opinion of management, all adjustments necessary for a fair
presentation of the consolidated financial position and results of operations
for the interim periods have been made. Such adjustments, except for certain
items mentioned in the Notes to the Condensed Consolidated Financial Statements
and/or Management's Discussion and Analysis of Financial Condition and Results
of Operations, are of a normal recurring nature.
2
<PAGE> 3
U.S. TRUST CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30,
---------------------------------------------------------
BETTER (WORSE)
----------------------
1996 1995 $ %
------------ ------------ ------------ -------
<S> <C> <C> <C> <C>
Fee Revenue
Core $ 62,234 $ 55,301 $ 6,933 12.5%
Processing -- 16,627 (16,627) --
--------- --------- --------- -----
62,234 71,928 (9,694) (13.5)
Net Interest Revenue 19,412 26,549 (7,137) (26.9)
Other Income -- 601 (601) --
Securities Gains, Net 4 4,002 (3,998) --
--------- --------- --------- -----
TOTAL REVENUE 81,650 103,080 (21,430) (20.8)
--------- --------- --------- -----
OPERATING EXPENSES
Salaries 23,710 31,662 7,952 25.1
Employee Benefits and Performance
Compensation 14,817 17,914 3,097 17.3
--------- --------- --------- -----
Total Salaries and Benefits 38,527 49,576 11,049 22.3
Net Occupancy 8,926 10,013 1,087 10.9
Other 16,888 29,579 12,691 42.9
Restructuring -- 146,695 146,695 --
--------- --------- --------- -----
TOTAL OPERATING EXPENSES 64,341 235,863 171,522 72.7
--------- --------- --------- -----
Income (Loss) Before Income Taxes 17,309 (132,783) 150,092 --
Income Taxes 7,097 (59,121) (66,218) --
--------- --------- --------- -----
NET INCOME (LOSS) $ 10,212 $ (73,662) $ 83,874 -- %
========= ========= ========= =====
NET INCOME (LOSS) PER SHARE $ 0.97 $ (7.60) $ 8.57 -- %
========= ========= ========= =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 4
U.S. TRUST CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30,
-------------------------------------------------------------
BETTER (WORSE)
--------------------------
1996 1995 $ %
------------ ------------ ------------ --------
<S> <C> <C> <C> <C>
Fee Revenue
Core $ 180,615 $ 158,686 $ 21,929 13.8%
Processing -- 66,153 (66,153) --
--------- --------- -------- -----
180,615 224,839 (44,224) (19.7)
Net Interest Revenue 57,691 79,569 (21,878) (27.5)
Other Income -- 2,284 (2,284) --
Securities Gains, Net 210 4,188 (3,978) --
--------- --------- -------- -----
TOTAL REVENUE 238,516 310,880 (72,364) (23.3)
--------- --------- -------- -----
OPERATING EXPENSES
Salaries 68,630 101,134 32,504 32.1
Employee Benefits and Performance
Compensation 40,424 55,323 14,899 26.9
--------- --------- -------- -----
Total Salaries and Benefits 109,054 156,457 47,403 30.3
Net Occupancy 25,307 30,803 5,496 17.8
Other 53,310 77,489 24,179 31.2
Restructuring -- 155,589 155,589 --
--------- --------- -------- -----
TOTAL OPERATING EXPENSES 187,671 420,338 232,667 55.4
--------- --------- -------- -----
Income (Loss) Before Income Taxes 50,845 (109,458) 160,303 --
Income Taxes 21,182 (49,791) (70,973) --
--------- --------- -------- -----
NET INCOME (LOSS) $ 29,663 $ (59,667) $ 89,330 -- %
========= ========= ======== =====
NET INCOME (LOSS) PER SHARE $ 2.82 $ (6.21) $ 9.03 -- %
========= ========= ======== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 5
U.S. TRUST CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CONDITION
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ---------------
<S> <C> <C>
ASSETS
Cash and Due from Banks $ 41,247 $ 96,785
Interest Earning Securities 1,151,649 764,900
Loans 1,660,691 1,459,695
Less: Allowance for Credit Losses 16,498 16,086
----------- -----------
Net Loans 1,644,193 1,443,609
Other Assets 280,819 267,925
----------- -----------
Total Assets $ 3,117,908 $ 2,573,219
=========== ===========
LIABILITIES
Deposits:
Non-Interest Bearing $ 497,431 $ 489,827
Interest Bearing 1,780,955 1,503,430
----------- -----------
Total Deposits 2,278,386 1,993,257
Short-Term Credit Facilities 376,119 134,815
Accounts Payable and Accrued Liabilities 231,717 233,870
Long-Term Debt 26,468 29,434
----------- -----------
Total Liabilities 2,912,690 2,391,376
----------- -----------
STOCKHOLDERS' EQUITY
Common Stock, $1.00 Par Value; 40,000,000 Shares
Authorized; 9,778,590 Shares Issued in 1996
and 9,739,144 Shares Issued in 1995 9,779 9,739
Capital Surplus 1,172 125
Retained Earnings 206,220 183,804
Loan to ESOP (10,468) (13,434)
Unrealized Gain (Loss), Net of Taxes, on
Securities Available for Sale (1,485) 1,609
----------- -----------
Total Stockholders' Equity 205,218 181,843
----------- -----------
Total Liabilities and Stockholders' Equity $ 3,117,908 $ 2,573,219
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 6
U.S. TRUST CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTH PERIODS
ENDED SEPTEMBER 30,
---------------------------
1996 1995
--------- ---------
<S> <C> <C>
COMMON STOCK
Balance, January 1 $ 9,739 $ 11,581
Issuance of Shares Under Employee Benefit Plans 40 298
Retirement of Treasury Stock -- (2,140)
--------- ---------
Balance, September 30 $ 9,779 $ 9,739
========= =========
CAPITAL SURPLUS
Balance, January 1 $ 125 $ 72,605
Employee Benefit Plans 1,047 11,776
Retirement of Treasury Stock -- (84,256)
--------- ---------
Balance, September 30 $ 1,172 $ 125
========= =========
RETAINED EARNINGS
Balance, January 1 $ 183,804 $ 244,639
Net Income (Loss) 29,663 (59,667)
Dividends Declared ($0.75 Per Share in 1996 and $0.50 Per Share in 1995) (7,334) (4,850)
Tax Benefit on Stock Based Awards 87 2,671
Retirement of Treasury Stock -- (891)
--------- ---------
Balance, September 30 $ 206,220 $ 181,902
========= =========
TREASURY STOCK
Balance, January 1 $ -- $ (86,139)
Issuance (Tender) of Shares Under Employee Benefit Plans -- (1,148)
Retirement of Treasury Stock -- 87,287
--------- ---------
Balance, September 30 $ -- $ --
========= =========
LOAN TO ESOP
Balance, January 1 $ (13,434) $ (16,171)
Principal Payment by ESOP 2,966 2,737
--------- ---------
Balance, September 30 $ (10,468) $ (13,434)
========= =========
UNREALIZED GAIN (LOSS), NET OF TAXES, ON
SECURITIES AVAILABLE FOR SALE
Balance, January 1 $ 1,609 $ (3,192)
Net Change in Fair Value, After Taxes (3,094) 4,141
--------- ---------
Balance, September 30 $ (1,485) $ 949
========= =========
TOTAL STOCKHOLDERS' EQUITY $ 205,218 $ 179,281
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE> 7
U.S. TRUST CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR NINE MONTH PERIODS
ENDED SEPTEMBER 30,
------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net Cash Provided by Operating Activities $ 37,426 $ 25,566
----------- -----------
Cash Flows From Investing Activities:
Interest Earning Securities:
Purchases (1,189,612) (1,913,773)
Sales 124,026 1,017,786
Maturities, Calls and Mandatory Redemptions 674,695 1,275,011
Net Change in Loans (201,050) 233,895
Other, Net (18,253) 18,844
----------- -----------
Net Cash Provided by (Used in) Investing Activities (610,194) 631,763
----------- -----------
Cash Flows From Financing Activities:
Net Change in Non-Interest Bearing Deposits 7,604 (599,960)
Net Change in Interest Bearing Deposits 277,525 108,736
Net Change in Short-Term Credit Facilities 241,304 (137,167)
Repayments of Long-Term Debt, Net (2,966) (41,490)
Other, Net (6,237) 542
----------- -----------
Net Cash Provided by (Used in) Financing Activities 517,230 (669,339)
----------- -----------
Net Change in Cash and Cash Equivalents (55,538) (12,010)
Cash and Cash Equivalents at January 1 96,785 164,610
----------- -----------
Cash and Cash Equivalents at September 30 $ 41,247 $ 152,600
=========== ===========
___________________________________________________________________________________________________________________
Income Taxes Paid $ 15,992 $ 3,596
Interest Expense Paid 67,058 69,817
The Disposition and Merger had the impact of removing the following assets and
liabilities from the Corporation's 1995 statement of condition:
Interest Earning Securities $ 1,153,966
Other Assets 64,837
-----------
$ 1,218,803
===========
Deposits $ 1,143,970
Accounts Payable and Accrued Liabilities 32,869
Long-Term Debt 41,964
-----------
$ 1,218,803
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-7-
<PAGE> 8
U. S. TRUST CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. DISPOSITION AND MERGER TRANSACTION
On November 18, 1994, the former U.S. Trust Corporation ("UST") and The
Chase Manhattan Corporation ("Chase") entered into an agreement under which
Chase acquired UST's institutional custody, mutual funds servicing and unit
trust businesses (the "Processing Business") and certain back office operations
(collectively, the "Chase Acquired Business") for $363.5 million in Chase common
stock. The transaction with Chase was consummated through two almost
simultaneous steps. On September 1, 1995, UST distributed to its shareholders
shares of common stock of a newly-formed entity which assumed the name U.S.
Trust Corporation (the "Corporation" or "Parent") on a share-for-share basis
(the "Disposition"). The Corporation and its subsidiaries included the assets
and operations of UST's asset management, private banking, special fiduciary and
corporate trust businesses (the "Core Businesses"). On September 2, 1995, UST,
which consisted of the assets and liabilities of the Chase Acquired Business,
merged into Chase (the "Merger") and UST shareholders received 0.68 shares of
Chase common stock for each share of UST.
In connection with the Disposition and Merger, Chase agreed to provide
securities processing, custodial, data processing and other services to the
Corporation for a five-year term (the "Services Agreement") at an annual base
fee of $10 million. The Services Agreement may be extended an additional two to
five years beyond its initial term.
2. NET INTEREST REVENUE
Net Interest Revenue for financial reporting purposes consists of
interest income less interest expense and the provision for credit losses. The
following is a detailed analysis of the composition of net interest revenue:
<TABLE>
<CAPTION>
Three Month Periods Nine Month Periods
Ended September 30, Ended September 30,
---------------------------- --------------------------
(In Thousands) 1996 1995 1996 1995
------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Interest Income:
Loans $ 30,233 $ 27,261 $ 86,220 $ 81,836
Securities:
Taxable 13,586 9,207 32,275 36,031
Tax Exempt 847 962 2,313 3,174
Short-Term Investments 158 13,210 3,760 27,184
Deposits with Banks 286 830 1,432 2,082
-------- -------- -------- --------
Total Interest Income 45,110 51,470 126,000 150,307
-------- -------- -------- --------
Interest Expense:
Deposits 21,089 20,610 59,249 56,727
Short-Term Credit Facilities 3,878 3,003 6,854 9,535
Long-Term Debt 481 908 1,456 3,276
-------- -------- -------- --------
Total Interest Expense 25,448 24,521 67,559 69,538
-------- -------- -------- --------
Net Interest Income 19,662 26,949 58,441 80,769
Provision for Credit Losses 250 400 750 1,200
-------- -------- -------- --------
Net Interest Revenue $ 19,412 $ 26,549 $ 57,691 $ 79,569
======== ======== ======== ========
</TABLE>
8
<PAGE> 9
U.S. TRUST CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
3. DIVIDENDS DECLARED
On July 23, 1996, the Board of Directors of the Corporation (the
"Board") declared a quarterly dividend of $0.25 per share payable on October 25,
1996, to shareholders of record as of the close of business on October 10, 1996.
On October 22, 1996, the Board declared a quarterly dividend of $0.25 per share
payable January 24, 1997, to shareholders of record as of the close of business
on January 10, 1997.
4. PLEDGED ASSETS
Financial instruments carried at $114,040,000 on September 30, 1996 and
$66,258,000 on December 31, 1995 were pledged to secure public deposits, as
collateral for borrowings, to qualify for fiduciary powers and for other
purposes.
5. CONTINGENCIES
There are various pending and threatened actions and claims against the
Corporation and its subsidiaries in which the Corporation has denied liability
and which it will vigorously contest. Management, after consultation with
counsel, is of the opinion that the ultimate resolution of such matters is
unlikely to have any future material effect on the Corporation's financial
position or results of operations.
6. RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the
current presentation.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
On November 18, 1994, UST entered into an agreement under which Chase
acquired UST's Processing Business. This transaction was consummated on
September 2, 1995. See "Notes to the Condensed Consolidated Financial Statements
No. 1" for details.
Generally Accepted Accounting Principles and the financial reporting
guidance promulgated by the Securities and Exchange Commission consider the
Corporation as the continuing reporting entity. That is, the financial
statements of the Corporation presented herein include the Processing Business
results up to September 2, 1995. As a result, the comparability of the
Corporation's financial results for 1995 to the current financial and operating
structure of the Corporation is limited. Accordingly, the following discussion
and analysis where relevant compares the 1996 third quarter operating results
with the second quarter of 1996. In addition, where appropriate, relevant
information pertaining to the Processing Business is provided for the third
quarter and first eight months of 1995.
FINANCIAL PERFORMANCE OBJECTIVES
The quarterly period ended September 30, 1996 marks the fourth
consecutive quarter of the Corporation as a focused investment management firm
with fiduciary and private banking powers. The financial performance of the
Corporation through September 30, 1996 has, in management's opinion, confirmed
its decision to focus on the Core Businesses with their superior long-term
growth opportunities. This performance, along with the continuing strategic
assessment of the enterprise, has led management to conclude that its Financial
Performance Objectives should be increased from the levels previously set forth
to more clearly reflect management's present long-term expectations.
The Financial Performance Objectives are not quarterly targets; rather,
they represent management's current assessment of the long-term capabilities of
the Corporation in the present environment. Interim period results may exceed or
fall short of meeting some or all of these Financial Performance Objectives.
Such results may not necessarily be indicative that a change should be made in
the Corporation's long-term Financial Performance Objectives, but more likely
would be indicative of specific transactions or events that occurred within a
given period. However, facts and circumstances, including changes in banking
regulations, may occur and require the Corporation to adjust its long-term
Financial Performance Objectives.
Total Revenues
The growth rate in total revenues is generally expected to increase
between 8% to 12% per year. Management now believes that total revenues should
continue to grow at the upper end of this range over the foreseeable future.
There are several factors that either will contribute to or impede the
Corporation from meeting and maintaining this Financial Performance Objective.
Fee revenue growth will be enhanced through direct sales effort, additions to
existing customer relationships, expansion and further penetration in selected
geographic markets, targeted acquisitions and market appreciation. Fee revenue
growth will be adversely affected by distributions of funds from client
accounts, lost business relationships and market depreciation. Changes in
personal, capital gains or estate tax laws, regulations and other external
factors will also affect the rate of fee revenue growth. The level of net
interest revenue is dependent upon several factors, including, loan demand,
credit quality, regulatory capital requirements, income tax policies and the
Federal Reserve Board's interest rate setting policies.
10
<PAGE> 11
Pre-Tax Margin
The Corporation's pre-tax margin over the past four quarters was 21.4%.
The Corporation had set an objective to improve its pre-tax margin to 25% over
the next several years. Management now believes that a more appropriate
objective is to meet and exceed a 25% pre-tax margin during this period.
Further, management anticipates that achieving this objective will constrain
neither its internal expansion program nor its selective acquisitions of
investment management companies in strategic geographic locations. The
Corporation's ability to achieve this objective will be based upon several
factors, including the growth rate of total revenues and continued control over
recurring operating expenses.
Earnings Per Share
Management concludes that the operating leverage resulting from meeting
its revenue and pre-tax margin objectives will enable it to increase its
objective for earnings per share growth to a range of 15% to 20% annually from
its previously stated target of 10% to 15%. Other factors, including statutory
changes in federal, state and local income tax rates, common stock repurchases,
and the dilutive effect of stock options due to changes in the price of the
Corporation's common stock will affect this Financial Performance Objective.
Return on Stockholders' Equity
The Corporation's Return on Stockholders' Equity ("ROE") was 20.7% for
the twelve month period ended September 30, 1996. Management originally had
established an ROE objective of between 18% and 22%. Management now believes
that the annualized ROE objective should be to reach and exceed 25% over the
next several years.
Dividend Pay Out Ratio
The Corporation's dividend pay out ratio is anticipated to continue to
range between 25% and 35% of annual net income. Retained capital will be
available for acquisitions, business expansion, stock buy back programs and
other management initiatives.
RESULTS OF OPERATIONS
Net income for the third quarter ended September 30, 1996 was $10.2
million, or $0.97 per share. For the third quarter of 1995, the Corporation
reported a net loss of $73.7 million, or $7.60 per share. For the second quarter
of 1996, the Corporation earned $9.9 million, or $0.94 per share. The
Corporation's return on average stockholders' equity was 20.6% for the third
quarter of 1996, compared to 20.9% for the second quarter of 1996.
For the first nine months of 1996, the Corporation earned $29.7
million, or $2.82 per share, compared to a net loss of $59.7 million, or $6.21
per share for the nine month period ended September 30, 1995. The Corporation's
return on average stockholders' equity was 20.8% for the nine month period ended
September 30, 1996.
11
<PAGE> 12
FEE REVENUE
<TABLE>
<CAPTION>
Sept. vs. Sept. vs.
Three Month Periods Ended June Sept.
--------------------------------------------- % %
Sept. 30, June 30, Sept. 30, Better Better
(In Thousands) 1996 1996 1995 (Worse) (Worse)
------------- ------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Investment Management $55,977 $54,135 $49,648 3.4 12.7
Corporate Trust 6,257 6,247 5,653 0.2 10.7
------- ------- ------- --- ----
Total Core Businesses $62,234 60,382 55,301 3.1 12.5
Processing Business -- -- 16,627 -- --
------- ------- ------- --- ----
Total Fee Revenue $62,234 $60,382 $71,928 3.1 (13.5)
======= ======= ======= === ====
Market Related Fees $48,211 $46,475 $41,459 3.7 16.3
Transaction Related Fees 14,023 13,907 13,842 0.8 1.3
------- ------- ------- --- ----
Total Core Businesses $62,234 $60,382 $55,301 3.1 12.5
======= ======= ======= === ====
</TABLE>
<TABLE>
<CAPTION>
Nine Month Periods Ended %
--------------------------
Sept. 30, Sept. 30, Better
(In Thousands) 1996 1995 (Worse)
---------- --------- ---------
<S> <C> <C> <C>
Investment Management $162,829 $141,484 15.1
Corporate Trust 17,786 17,202 3.4
-------- -------- -----
Total Core Businesses 180,615 158,686 13.8
Processing Business -- 66,153 --
-------- -------- -----
Total Fee Revenue $180,615 $224,839 (19.7)
======== ======== =====
Market Related Fees $139,174 $116,773 19.2
Transaction Related Fees 41,441 41,913 (1.1)
-------- -------- -----
Total Core Businesses $180,615 $158,686 13.8
======== ======== =====
</TABLE>
Core Businesses' total fee revenue for the third quarter of 1996
increased approximately $6.9 million to $62.2 million from $55.3 million in the
third quarter of 1995, and $1.9 million from $60.4 million in the second quarter
of 1996. Market-related fee revenue increased by $6.8 million to $48.2 million
from $41.5 million in the third quarter of 1995, and $1.7 million from $46.5
million in the second quarter of 1996.
For the first nine months of 1996, Core Businesses' fee revenue
increased approximately $21.9 million to $180.6 million from $158.7 million in
the first nine months of 1995. Market-related fee revenue increased $22.4
million to $139.2 million from $116.8 million in the first nine months of 1995.
The increase in fee revenue was attributable to a combination of net new
business and net market appreciation.
Market-related fee revenue is based primarily on the market value of
the assets in clients' investment management accounts. Most market-related fee
revenue is determined on a declining incremental scale so that as the value of a
client's portfolio grows in size, the Corporation earns a smaller percentage on
the increasing value. Therefore, market value or other incremental changes in a
portfolio's size do not necessarily have a proportionate impact on the level of
market-related fee revenue.
12
<PAGE> 13
<TABLE>
<CAPTION>
Sept. vs. Sept. vs.
June Sept.
% %
Assets Under Management and Administration Sept. 30, June 30, Sept. 30, Better Better
(In Billions) 1996 1996 1995 (Worse) (Worse)
---------- ---------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Assets Under Management:
Investment Management $ 35.4 $ 35.5 $ 31.7 (0.3) 11.8
Special Fiduciary 14.7 14.8 12.6 (0.6) 16.4
------ ------ ------ ---- ----
Total Assets Under Management 50.1 50.3 44.3 (0.4) 13.1
------ ------ ------ ---- ----
Assets Under Administration:
Personal Custody and Other 15.3 14.6 12.9 4.9 18.0
Corporate and Municipal Trusteeships
and Agency Relationships at Par Value 205.1 199.7 183.0 2.7 12.1
------ ------ ------ ---- ----
Total Assets Under Administration 220.4 214.3 195.9 2.9 12.5
------ ------ ------ ---- ----
Total Assets Under Management and
Administration $270.5 $264.6 $240.2 2.3 12.6
====== ====== ====== ==== ====
</TABLE>
Assets under management were negatively impacted by estate
distributions during the third quarter of 1996 of approximately $900 million.
Investment management assets would have increased approximately 2.3%, excluding
the distributed assets from the 1996 second quarter balance. The following is
the composition of assets under management:
<TABLE>
<CAPTION>
Sept. 30, June 30, March 31,
1996 1996 1996
------------ ------------ ---------------
<S> <C> <C> <C>
Equity 51% 49% 49%
Fixed Income 36% 37% 37%
Short-Term and Other 13% 14% 14%
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
Approximately $4.7 billion of assets under management were invested in
the Corporation's Excelsior Funds at September 30, 1996. At June 30, 1996 and
March 31, 1996, total assets under management invested in the Excelsior Funds
were $4.3 billion and $4.0 billion, respectively.
NET INTEREST REVENUE
<TABLE>
<CAPTION>
Sept. Sept.
vs. vs.
Three Month Periods Ended June Sept.
----------------------------------------- % %
(In Thousands) Sept. 30, June 30, Sept. 30, Better Better
1996 1996 1995 (Worse) (Worse)
------------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Interest Income $45,110 $40,797 $51,470 10.6 (12.4)
Interest Expense 25,448 21,484 24,521 (18.5) (3.8)
------- ------- ------- ---- ----
Net Interest Income 19,662 19,313 26,949 1.8 (27.0)
Provision for Credit Losses 250 250 400 -- 37.5
------- ------- ------- ---- ----
Net Interest Revenue $19,412 $19,063 $26,549 1.8 (26.9)
======= ======= ======= ==== ====
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
Nine Month Periods Ended
------------------------------- %
(In Thousands) Sept. 30, Sept. 30, Better
1996 1995 (Worse)
--------- --------- ----------
<S> <C> <C> <C>
Interest Income $126,000 $150,307 (16.2)
Interest Expense 67,559 69,538 2.8
-------- -------- ----
Net Interest Income 58,441 80,769 (27.6)
Provision for Credit Losses 750 1,200 37.5
-------- -------- ----
Net Interest Revenue $ 57,691 $ 79,569 (27.5)
======== ======== ====
</TABLE>
Net interest revenue for the three and nine month periods ended
September 30, 1996 was significantly impacted in comparison with the 1995
periods by the following events. In connection with the Disposition and Merger,
the Corporation reduced the overall size of the balance sheet, (the average
volume of interest earning assets for the nine month period ended September 30,
1996 was $472 million lower than the corresponding 1995 period) and shortened
the maturity structure of the securities portfolio. In addition, the nine month
period ended September 30, 1995 included eight months of non-interest bearing
deposits generated by the Processing Business.
OPERATING EXPENSES
<TABLE>
<CAPTION>
Sept. Sept.
vs. vs.
Three Month Periods Ended June Sept.
----------------------------------------- % %
(In Thousands) Sept. 30, June 30, Sept. 30, Better Better
1996 1996 1995 (Worse) (Worse)
------------ ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Salaries $ 23,710 $ 23,017 $ 31,662 (3.0) 25.1
Employee Benefits and
Performance Compensation 14,817 13,322 17,914 (11.2) 17.3
-------- -------- -------- ---- ----
Total Salaries and Benefits 38,527 36,339 49,576 (6.0) 22.3
Net Occupancy 8,926 8,142 10,013 (9.6) 10.9
Other 16,888 17,973 29,579 6.0 42.9
Restructuring -- -- 146,695 -- --
-------- -------- -------- ---- ----
Total Operating Expenses $ 64,341 $ 62,454 $235,863 (3.0) 72.7
======== ======== ======== ==== ====
</TABLE>
<TABLE>
<CAPTION>
Nine Month Periods Ended
----------------------------- %
(In Thousands) Sept. 30, Sept. 30, Better
1996 1995 (Worse)
------------ ------------ ---------
<S> <C> <C> <C>
Salaries $ 68,630 $101,134 32.1
Employee Benefits and
Performance Compensation 40,424 55,323 26.9
-------- -------- ----
Total Salaries and Benefits 109,054 156,457 30.3
Net Occupancy 25,307 30,803 17.8
Other 53,310 77,489 31.2
Restructuring -- 155,589 --
-------- -------- ----
Total Operating Expenses $187,671 $420,338 55.4
======== ======== ====
</TABLE>
14
<PAGE> 15
Operating expenses amounted to $64.3 million in the third quarter of
1996, compared to $62.5 million in the second quarter of 1996 and $89.2 million
(excluding $146.7 million of restructuring charges) in the third quarter of
1995. The Corporation's pre-tax margin was 21.2% for the third quarter of 1996
and 21.4% for the second quarter of 1996.
For the first nine months of 1996, operating expenses were $187.7
million, compared to $264.7 million (excluding $155.6 million of restructuring
charges) in the first nine months of 1995. The Corporation's pre-tax margin for
the nine month period ending September 30, 1996, was 21.3%.
The increase in operating expenses for the third quarter of 1996,
versus the second quarter of 1996, primarily relates to increased salaries and
benefits and net occupancy expenses. The increase in salaries and benefits is
principally due to increases in performance compensation based on the
Corporation's operating results. The increase in net occupancy expense is
attributable to rent escalations on certain leases and new offices in Boca
Raton, Florida; Greenwich and West Hartford, Connecticut; and Garden City, Long
Island.
The decrease in total operating expenses from the third quarter and
first nine months of 1995 to the third quarter and first nine months of 1996
reflects the impact of the Disposition and Merger.
The Corporation employed 1,442 full time equivalent employees at
September 30, 1996, compared to 1,412 at September 30, 1995, an increase of
2.1%. This increase is primarily due to the new offices listed above.
INCOME TAXES
The effective tax rate for the 1996 third quarter was 41.0%, compared
to a 42.0% effective tax rate for the 1996 second quarter and a tax benefit of
44.5% for the third quarter of 1995. The effective tax rate for the first nine
months of 1996 was 41.7%, compared to a tax benefit of 45.5% for the first nine
months of 1995.
The decline in the effective tax rate for the third quarter of 1996
compared to the 1996 second quarter is due to lower state and local income taxes
resulting from the geographic distribution of the Corporation's businesses.
CAPITAL AND LIQUIDITY
The Corporation's ratio of Tier 1 Capital to period end risk-adjusted
assets (as defined by the Federal Reserve Board) was 11.3% at September 30, 1996
and 9.5% at September 30, 1995. The ratio of Total Capital to period end
risk-adjusted assets was 12.4% at September 30, 1996 and 10.7% at September 30,
1995. The Tier 1 Leverage (Tier 1 Capital as of the period end divided by
quarterly (3 month) total average assets) was 5.7% at September 30, 1996 and
5.0% at September 30, 1995.
The Corporation requires access to funds sufficient to pay dividends to
common shareholders, interest and principal to debt holders and for other
corporate purposes. The Corporation paid three quarterly dividends of $0.25 per
share in the first nine months of 1996.
At September 30, 1996, the Corporation's banking subsidiaries can
declare, in the aggregate, dividends of approximately $25.0 million without
prior regulatory approval. In addition, the Corporation has a $40.0 million
unsecured revolving credit facility which matures in 1999. At September 30,
1996, the outstanding balance under this facility was $12.0 million.
15
<PAGE> 16
Historically, UST maintained a common stock repurchase program to
provide a supply of common stock for issuance under the Corporation's various
stock-based benefit plans. Such common stock was acquired through systematic
purchases in the open market. As a result of the Disposition and Merger, the
repurchase program was interrupted. In July 1996, the Board of Directors of the
Corporation authorized the continuation of the repurchase program allowing for
the repurchase of up to 500,000 shares of common stock to be used solely to meet
the Corporation's obligations under its stock-based benefit plans. As of
September 30, 1996, no shares of the Corporation's common stock have been
repurchased under the program.
ASSET/LIABILITY MANAGEMENT
The principal functions of asset and liability management are: to
provide for adequate liquidity; to manage interest rate exposure by maintaining
a prudent relationship between interest rate sensitive assets and liabilities;
and, to structure the size and composition of the balance sheet in order to
maximize net interest revenue, while complying with bank regulatory agency
capital standards.
Although the balance sheet is significantly smaller subsequent to the
Disposition and Merger, the Corporation's asset mix continues to be liquid and
low-risk. Approximately 37% of average total assets consist of short-term
financial instruments and readily marketable securities. The securities
portfolio is concentrated in investments in U.S. Government Treasury securities.
The loan portfolio is the largest component of average total assets.
Average loans for the third quarter and first nine months of 1996 were $1.57
billion and $1.48 billion, respectively, compared to $1.36 billion and $1.35
billion for the third quarter and first nine months of 1995, respectively. For
the 1996 third quarter, average loans comprise approximately 53% of average
assets. See the "Asset Quality" section of Management's Discussion and Analysis
for a further discussion of the Corporation's loan portfolio.
Interest Rate Sensitivity
Interest rate risk arises from differences in the timing of repricing
assets and liabilities. One measure of interest rate risk is the difference in
asset and liability repricing on a cumulative basis within a specified time
frame. Gap analysis has inherent limitations as an analytical tool because it
only measures the Corporation's exposure at a single point in time. Exposure to
interest rates is constantly changing as a result of the Corporation's ongoing
business and its management initiatives.
The following table provides the components of the Corporation's
interest rate sensitivity gaps at September 30, 1996. To reflect anticipated
payments, certain asset and liability categories are included in the table based
on estimated rather than contractual maturity or repricing dates. As of
September 30, 1996, the Corporation's interest rate sensitivity gap was
liability sensitive in the short term and asset sensitive over the long term. In
general, when an enterprise is liability sensitive, its net interest revenue
will improve in a declining interest rate environment and will decline in a
rising interest rate environment.
16
<PAGE> 17
<TABLE>
<CAPTION>
0 - 3 4 - 6 7 - 12 1 - 5 Over
(In Thousands) Months Months Months Years 5 Years Total
------------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Interest Earning Securities $ 438,949 $ 154,138 $ 110,244 $ 348,312 $ 100,006 $1,151,649
Loans, Net of Allowance
for Credit Losses 673,247 53,996 101,360 521,607 293,983 1,644,193
---------- ------------ ---------- ---------- ---------- ----------
Total Interest Earning Assets 1,112,196 208,134 211,604 869,919 393,989 2,795,842
---------- ------------ ---------- ---------- ---------- ----------
INTEREST BEARING LIABILITIES:
Interest Bearing Deposits (1,741,988) (3,554) (3,821) (31,592) -- (1,780,955)
Short-Term Credit Facilities (376,119) -- -- -- -- (376,119)
Long-Term Debt -- -- -- (25,468) (1,000) (26,468)
---------- ------------ ---------- ---------- ---------- ----------
Total Interest Bearing Liabilities (2,118,107) (3,554) (3,821) (57,060) (1,000) (2,183,542)
---------- ------------ ---------- ---------- ---------- ----------
Asset/(Liability) Sensitivity Gap (1,005,911) 204,580 207,783 812,859 392,989 612,300
Interest Rate Swaps 649,500 * (20,750) (11,500) (417,250) 200,000 --
---------- ------------ ---------- ---------- ---------- ----------
Interest Rate Sensitivity Gap (356,411) 183,830 196,283 395,609 192,989 612,300
Net Non-Interest Earning Assets,
Non-Interest Bearing Liabilities and
Stockholders' Equity (174,016) -- -- (220,014) (218,270) (612,300)
---------- ------------ ---------- ---------- ---------- ----------
Maturity/Repricing) Gap (530,427) 183,830 196,283 175,595 (25,281) --
---------- ------------ ---------- ---------- ---------- ----------
Cumulative Gap $ (530,427) $ (346,597) $ (150,314) $ 25,281 $ -- $ --
========== ============ ========== ========== ========== ==========
</TABLE>
* Includes $650.3 million of total outstanding notional principal net of
maturing and amortizing Swaps.
In managing its interest rate sensitivity gaps, the Corporation takes
into account the nature of its business operations. The Corporation invests in
fixed rate U.S. Treasury securities, fixed or variable rate residential real
estate mortgage loans and fixed or variable rate mortgage backed securities.
As part of its overall asset and liability management process, the
Corporation uses interest rate swaps ("Swaps") as hedges. Swaps are used
primarily to mitigate the long-term fixed interest rate exposure from
residential real estate mortgage loans. The following table provides details, as
of September 30, 1996, of the notional amounts of Swaps by maturity and the
related average interest rates paid and received. The Corporation is a fixed
rate payor on all of its Swaps. The Corporation's use of Swaps as an
asset/liability management tool has increased since a greater proportion of the
Corporation's fixed rate interest earning assets will be funded with short-term
interest bearing liabilities. Prior to the Disposition and Merger, the
Processing Business' non-interest bearing deposits had provided a long-term
funding source.
<TABLE>
<CAPTION>
Maturing
--------------------------------------------------
Within 1 1 to 5 Over 5
(Dollars In Thousands) Year Years Years Total
--------------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Fixed Pay Swaps $ 33,000 $ 417,250 $200,000 $650,250
Average Rate Paid 6.9340 % 6.7809 % 6.3581 % 6.6124 %
Average Rate Received (1) 5.6185 % 5.6065 % 5.5912 % 5.6024 %
</TABLE>
(1) Represents the average variable rate that will be received by the
Corporation based upon the rate in effect at the latest variable rate reset date
of each Swap.
17
<PAGE> 18
The impact of the Corporation's hedging activities upon net interest
revenue for the quarters and nine month periods ended September 30, 1996 and
1995, are detailed in the following table.
<TABLE>
<CAPTION>
Three Month Periods Ended Nine Month Periods Ended
-------------------------------------- -------------------------------
(Dollars In Thousands) Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30,
1996 1996 1995 1996 1995
------------ ------------ ---------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net Interest Revenue:
As Reported $19,412 $19,063 $26,549 $57,691 $79,569
Excluding Hedging Activities $21,074 $20,505 $27,371 $61,822 $81,240
Net Yield on Interest Earning Assets:
As Reported 3.14% 3.39% 3.66% 3.33% 3.82%
Excluding Hedging Activities 3.39% 3.66% 3.78% 3.57% 3.93%
</TABLE>
The difference between results "As Reported" and "Excluding Hedging
Activities" in each year reflects the cost of utilizing swaps to hedge interest
rate risk.
Interest Earning Securities
Included in interest earning securities are $47.9 million and $4.9
million of interest bearing deposits with banks and $1.06 billion and $760.0
million of securities available for sale at September 30, 1996 and December 31,
1995, respectively. Also included in interest earning securities at September
30, 1996 are $40.0 million of federal funds sold.
During the first nine months of 1996, the Corporation purchased
approximately $1.08 billion (principally U.S. Government agency and Federal
agency) of securities classified as available for sale and sold approximately
$123.8 million of U.S. Government and Federal agency securities classified as
available for sale.
Approximately 78% of the Corporation's portfolio of securities
available for sale is comprised of U.S. Treasury fixed rate obligations (average
duration of 316 days), obligations of the Government National Mortgage
Association ("GNMAs") (average duration of 4.3 years) and other securities
backed by the full faith and credit of the U.S. Government. The remaining
portfolio is primarily comprised of securities of government sponsored
enterprises, variable rate collateralized mortgage obligations ("CMOs") and
obligations of states and municipalities. CMOs are primarily collateralized by
GNMAs.
The amortized cost of interest earning securities exceeded their market
value by $2.4 million at September 30, 1996. The market value of interest
earning securities exceeded their amortized cost by $1.8 million at September
30, 1995.
ASSET QUALITY
The Corporation's loan portfolio is primarily comprised of credit
extensions to private banking customers. Average loans increased 9.2% from $1.35
billion in the first nine months of 1995 to $1.48 billion in the first nine
months of 1996. Residential real estate mortgages comprised over 70% of total
loans at September 30, 1996.
An analysis of the allowance for credit losses follows:
18
<PAGE> 19
<TABLE>
<CAPTION>
Three Month Periods Nine Month Periods
Ended Sept. 30, Ended Sept. 30,
--------------------------- ---------------------------
(In Thousands) 1996 1995 1996 1995
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Balance, Beginning of Period $16,202 $15,871 $16,086 $14,699
Provision for Credit Losses 250 400 750 1,200
Recoveries 400 782 675 2,910
Charge-offs (354) (191) (1,013) (1,947)
------- ------- ------- -------
Net (Charge-Offs) Recoveries 46 591 (338) 963
------- ------- ------- -------
Balance, End of Period $16,498 $16,862 $16,498 $16,862
======= ======= ======= =======
</TABLE>
The provision for credit losses is based upon management's judgment of
the appropriate level of the allowance for credit losses when related to the
risk of loss inherent in the loan portfolio. In assessing the adequacy of the
allowance for credit losses, management relies on its ongoing review of specific
loans, past experience, the present loan portfolio composition and general
economic and financial considerations.
As a percentage of average loans, annualized net loan recoveries were
one basis point for the third quarter of 1996, compared to annualized net loan
recoveries of seventeen basis points for the third quarter of 1995. For the
first nine months of 1996, annualized net loan charge-offs as a percentage of
average loans were three basis points, versus annualized net loan recoveries as
a percentage of average loans of ten basis points for the first nine months of
1995. The allowance for credit losses at September 30, 1996, was 1.05% of
average loans for the quarter. This compares with 1.24% of average loans for the
quarter ended September 30, 1995.
Nonperforming assets, which include non-accrual ("impaired") loans and
real estate acquired through foreclosure or restructurings, for the most recent
five quarters are as follows:
<TABLE>
<CAPTION>
Sept. 30, June 30, March 31, December 31, Sept. 30,
(In Millions) 1996 1996 1996 1995 1995
----------- -------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Non-accrual loans $10.8 $12.2 $12.5 $13.3 $ 9.5
Real estate owned, net 7.0 7.0 9.2 9.6 9.5
----- ----- ----- ----- -----
Total Nonperforming Assets $17.8 $19.2 $21.7 $22.9 $19.0
===== ===== ===== ===== =====
</TABLE>
The decline in other real estate owned in the second and third quarters
of 1996 is due to periodic write-downs to fair value. Other real estate owned is
net of a reserve for selling and disposition costs of $978,000.
The allowance for credit losses as a percentage of nonperforming loans
was 152.86% at September 30, 1996, compared to 178.32% at September 30, 1995.
The ratio of nonperforming assets to average loans and real estate owned for the
quarter was 1.13% at September 30, 1996, compared to 1.39% at September 30,
1995.
ACCOUNTING STANDARDS NOT YET ADOPTED
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", ("FAS 123"), issued in October 1995, establishes
financial accounting and reporting standards for stock-based compensation plans.
FAS 123 allows companies either to continue to account for stock-based employee
compensation plans under existing accounting standards or to adopt a fair value
based method of accounting as defined in FAS 123. The Corporation intends to
continue accounting for its employee stock compensation plans under its current
method and will adopt the disclosure requirements of FAS 123 beginning with its
1996 Form 10-K.
19
<PAGE> 20
U.S. TRUST CORPORATION
CONDENDSED CONSOLIDATED NET INTEREST REVENUE AND
AVERAGE BALANCES (DOLLARS IN THOUSANDS; INTEREST AND
AVERAGE RATES ON A TAXABLE EQUIVALENT BASIS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30,
------------------------------------------------------------------------------------------
1996 1995
---------------------------------------- ---------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
-------------- ----------- --------- -------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Earning Securities (1) (2) $ 1,031,516 $ 15,703 6.06% $ 1,630,777 $ 24,902 6.06%
Loans (3) 1,578,075 30,233 7.62 1,372,939 27,261 7.88
------------- ---------- --------- ------------- --------- ----
Total Interest Earning Assets 2,609,591 45,936 7.02 3,003,716 52,163 6.90
------------- ---------- --------- ------------- --------- ----
Allowance for Credit Losses (16,451) (16,477)
Cash and Due from Banks 64,539 289,747
Other Assets 309,895 390,031
------------- -------------
Total Assets $ 2,967,574 $ 3,667,017
============= =============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest Bearing Deposits $ 1,742,267 21,089 4.82 $ 1,580,794 20,610 5.17
Short-Term Credit Facilities 286,774 3,878 5.38 203,707 3,003 5.85
Long-Term Debt 26,468 481 7.24 44,324 908 8.19
------------- ---------- ------- ------------- -------- -------
Total Sources on Which
Interest is Paid 2,055,509 25,448 4.93 1,828,825 24,521 5.32
------------- ---------- ------- ------------- -------- -------
Total Non-Interest Bearing
Deposits 465,927 1,419,293
Other Liabilities 238,878 172,945
Stockholders' Equity (3) 207,260 245,954
------------- -------------
Total Liabilities and
Stockholders' Equity $ 2,967,574 $ 3,667,017
============= =============
Net Interest Revenue -
Tax Equivalent Basis 20,488 27,642
Credit Loss Provision (250) (400)
Tax Equivalent Adjustment (826) (693)
---------- ---------
Net Interest Revenue $ 19,412 $ 26,549
========== =========
Net Yield on Interest
Earning Assets 3.14% 3.66%
======= =======
Interest Spread 2.09% 1.58%
======= =======
</TABLE>
(1) The average balance and average rate for securities available for sale have
been calculated using their amortized cost.
(2) Yields on obligations of states and political subdivisions are stated on a
fully taxable basis, employing the statutory federal tax rate adjusted for
the effect of state and local taxes, resulting in an effective tax rate of
47%. The amounts of the tax equivalent adjustments to net interest revenue
are related to securities.
(3) Loans and Stockholders' equity have been increased to include the Loan to
ESOP, which had an average balance of $10.5 million in 1996 and $13.4
million in 1995.
20
<PAGE> 21
U.S. TRUST CORPORATION
CONDENSED CONSOLIDATED NET INTEREST REVENUE AND
AVERAGE BALANCES (DOLLARS IN THOUSANDS; INTEREST AND
AVERAGE RATES ON A TAXABLE EQUIVALENT BASIS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30,
------------------------------------------------------------------------------------------
1996 1995
------------------------------------------ ---------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
-------------- ----------- --------- -------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Earning Securities (1) (2) $ 942,849 $ 41,941 5.94% $ 1,539,941 $ 70,978 6.16%
Loans (3) 1,488,256 86,220 7.74 1,366,594 81,836 8.01
------------- ---------- ------- ------------ ---------- ------
Total Interest Earning Assets 2,431,105 128,161 7.04 2,906,535 152,814 7.02
------------- ---------- ------- ------------- ---------- ------
Allowance for Credit Losses (16,331) (15,873)
Cash and Due from Banks 78,776 269,893
Other Assets 302,272 435,408
------------- -------------
Total Assets $ 2,795,822 $ 3,595,963
============= =============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest Bearing Deposits $ 1,676,728 59,249 4.72 $ 1,492,339 56,727 5.08
Short-Term Credit Facilities 173,364 6,854 5.28 220,434 9,535 5.78
Long-Term Debt 26,803 1,456 7.25 53,591 3,276 8.15
-------------- ----------- ------- ------------- ---------- -------
Total Sources on Which
Interest is Paid 1,876,895 67,559 4.81 1,766,364 69,538 5.26
------------- ---------- ------- ------------- ---------- -------
Total Non-Interest Bearing
Deposits 483,353 1,426,838
Other Liabilities 234,284 156,406
Stockholders' Equity (3) 201,290 246,355
------------- -------------
Total Liabilities and
Stockholders' Equity $ 2,795,822 $ 3,595,963
============= =============
Net Interest Revenue -
Tax Equivalent Basis 60,602 83,276
Credit Loss Provision (750) (1,200)
Tax Equivalent Adjustment (2,161) (2,507)
---------- ----------
Net Interest Revenue $ 57,691 $ 79,569
========== ==========
Net Yield on Interest
Earning Assets 3.33% 3.82%
======= =======
Interest Spread 2.23% 1.76%
======= =======
</TABLE>
(1) The average balance and average rate for securities available for sale have
been calculated using their amortized cost.
(2) Yields on obligations of states and political subdivisions are stated on a
fully taxable basis, employing the statutory federal tax rate adjusted for
the effect of state and local taxes, resulting in an effective tax rate of
47%. The amounts of the tax equivalent adjustments to net interest revenue
are related to securities.
(3) Loans and Stockholders' equity have been increased to include the Loan to
ESOP, which had an average balance of $10.8 million in 1996 and $13.7
million in 1995.
21
<PAGE> 22
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 10-Q
(a) EXHIBITS:
2.1 - Agreement and Plan of Merger dated as of November 18, 1994 (as
amended, supplemented or otherwise modified from time to time)
between The Chase Manhattan Corporation ("Chase") and the
former U.S. Trust Corporation ("UST"), filed as Appendix A to
Exhibit 99.1 ("Exhibit 99.1") to UST's Annual Report on Form
10-K (File No. 0-8709) for the fiscal year ended December 31,
1994. (1)(2)
2.2 - Form of Agreement and Plan of Distribution among UST, the
former United States Trust Company of New York ("USTNY"), the
Corporation and New U.S. Trust Company of New York (the "Trust
Company"), filed as Appendix B to Exhibit 99.1. (1)(2)
2.3 - Form of Contribution and Assumption Agreement between USTNY and the
Trust Company, filed as Appendix C to Exhibit 99.1.
(1)(2)
2.4 - Form of Post Closing Covenants Agreement among Chase, UST,
USTNY, the Corporation and the Trust Company, filed as
Appendix D to Exhibit 99.1. (1)
2.5 - Tax Allocation Agreement dated as of September 1, 1995 among
UST, the Corporation and Chase, filed as Exhibit 2.5 to the
Corporation's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995. (1)
2.6 - Services Agreement between USTNY and the Trust Company, dated
September 1, 1995, filed as Exhibit 2.6 to Amendment No. 1,
dated December 27, 1995 to the Corporation's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1995. (1)
3.1 - Restated Certificate of Incorporation of the Corporation,
filed as Exhibit 4(b) to the Corporation's Registration
Statement on Form S-8 (Registration No. 33-62371). (1)
3.2 - By-Laws of the Corporation, filed as Appendix II to the Corporation's
Registration Statement on Form 10 dated February
9, 1995. (1)
4 - Note: The exhibits filed herewith do not include the
instruments with respect to long-term debt of the Corporation
and its subsidiaries, inasmuch as the total amount of debt
authorized under any such instrument does not exceed 10% of
the total assets of the Corporation and its subsidiaries on a
consolidated basis. The Corporation agrees, pursuant to Item
601 (b)(4)(iii) of Regulation S-K, that it will furnish a copy
of any such instrument to the Securities and Exchange
Commission upon request.
11 - Statement re Computation of Net Income Per Share.
27 - Financial Data Schedule.
(1) Incorporated herein by reference.
(2) The copy of this document being incorporated by reference herein does not
include the exhibits and schedules thereto which are identified as being
omitted in the table of contents of this document. The Corporation
undertakes to furnish any such omitted exhibits and schedules to the
Commission upon its request.
(b) REPORTS ON FORM 8-K:
None.
22
<PAGE> 23
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U. S. Trust Corporation
-----------------------------
(Registrant)
Date: November 12, 1996 By: Richard E. Brinkmann
--------------------------
Richard E. Brinkmann
Comptroller and
Chief Planning Officer
(Principal Accounting Officer)
23
<PAGE> 24
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
11 COMPUTATION OF NET INCOME PER SHARE
27 FINANCIAL DATA SCHEDULE
<PAGE> 1
U.S. TRUST CORPORATION
EXHIBIT 11 - COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
THREE MONTH PERIODS NINE MONTH PERIODS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------------------ -------------------------------------
1996 1995 1996 1995
---------------- ---------------- ------------------ ----------------
<C> <C> <C> <C>
PRIMARY NET INCOME PER SHARE:
Net Income $ 10,212,000 $(73,662,000) $ 29,663,000 $(59,667,000)
Plus Dividend Equivalent on Deferred
Long-Term Performance Plan Awards
(After-Tax) 106,576 -- 312,052 --
------------ ----------- ------------ ------------
Adjusted Net Income $ 10,318,576 $(73,662,000) $ 29,975,052 $(59,667,000)
============ ============ ============ ============
Weighted average number of common
shares outstanding 9,778,257 9,689,851 9,770,088 9,603,647
Add average shares issuable under stock-
based benefit plans 839,617 -- 810,941 --
------------ ------------ ------------ ------------
Total Common and Common
Equivalent Shares 10,617,874 9,689,851 10,581,029 9,603,647
============ ============= ============ ============
Primary Net Income Per Share $ 0.97 $ (7.60) $ 2.83 $ (6.21)
FULLY DILUTED NET INCOME PER SHARE:
Net Income $ 10,212,000 $(73,662,000) $ 29,663,000 $(59,667,000)
Plus Dividend Equivalent on Deferred
Long-Term Performance Plan Awards
(After-Tax) 106,576 -- 312,052 --
------------ ------------ ------------ ------------
Adjusted Net Income $ 10,318,576 $(73,662,000) $ 29,975,052 $(59,667,000)
============ ============ ============ ============
Weighted average number of common
shares outstanding 9,778,257 9,689,851 9,770,088 9,603,647
Add maximum dilutive impact of average
shares issuable under stock-based
benefit plans 873,211 -- 864,689 --
------------ ------------ ------------ ------------
Total Dilutive Shares 10,651,468 9,689,851 10,634,777 9,603,647
============ ============ ============ ============
Fully Diluted Net Income Per Share $ 0.97 $ (7.60) $ 2.82 $ (6.21)
============ ============ ============ ============
</TABLE>
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