<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended: SEPTEMBER 30, 1997
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.
19,141,578 shares, Common Stock, $1 par value, as of October 31, 1997
Page 1 of 25
<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 Months Ended September 30, 1997 and 1996 3
For the Nine Months Ended September 30, 1997 and 1996 4
Condensed Consolidated Statement of Condition as of September 30, 1997
and December 31, 1996 5
Condensed Consolidated Statement of Changes in Stockholders' Equity
for the Nine Months Ended September 30, 1997 and 1996 6
Condensed Consolidated Statement of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996 7
Notes to the Condensed Consolidated Financial Statements 8
Condensed Consolidated Net Interest Revenue and Average Balances:
For the Three Months Ended September 30, 1997 and 1996 22
For the Nine Months Ended September 30, 1997 and 1996 23
2
<PAGE> 3
U.S. TRUST CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------
BETTER (WORSE)
---------------------
1997 1996 $ %
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Fee Revenue $ 71,182 $ 62,234 $ 8,948 14.4 %
Net Interest Revenue 22,858 19,412 3,446 17.8
Securities Gains, Net -- 4 (4) --
-------- -------- -------- --------
TOTAL REVENUE 94,040 81,650 12,390 15.2
-------- -------- -------- --------
OPERATING EXPENSES
Salaries 25,862 23,710 (2,152) (9.1)
Employee Benefits and Performance
Compensation 17,540 14,817 (2,723) (18.4)
-------- -------- -------- --------
Total Salaries and Benefits 43,402 38,527 (4,875) (12.7)
Net Occupancy 10,226 8,926 (1,300) (14.6)
Other 19,006 16,888 (2,118) (12.5)
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 72,634 64,341 (8,293) (12.9)
-------- -------- -------- --------
Income Before Income Tax Expense 21,406 17,309 4,097 23.7
Income Tax Expense 8,349 7,097 (1,252) (17.6)
-------- -------- -------- --------
NET INCOME $ 13,057 $ 10,212 $ 2,845 27.9 %
======== ======== ======== ========
NET INCOME PER SHARE $ 0.61 $ 0.49 $ 0.12 24.5 %
======== ======== ======== ========
</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 MONTHS ENDED SEPTEMBER 30,
---------------------------------------------
BETTER (WORSE)
---------------------
1997 1996 $ %
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Fee Revenue $205,791 $180,615 $ 25,176 13.9 %
Net Interest Revenue 66,773 57,691 9,082 15.7
Securities Gains, Net 9 210 (201) (95.7)
-------- -------- -------- --------
TOTAL REVENUE 272,573 238,516 34,057 14.3
-------- -------- -------- --------
OPERATING EXPENSES
Salaries 74,668 68,630 (6,038) (8.8)
Employee Benefits and Performance
Compensation 50,903 40,424 (10,479) (25.9)
-------- -------- -------- --------
Total Salaries and Benefits 125,571 109,054 (16,517) (15.1)
Net Occupancy 28,622 25,307 (3,315) (13.1)
Other 57,040 53,310 (3,730) (7.0)
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 211,233 187,671 (23,562) (12.6)
-------- -------- -------- --------
Income Before Income Tax Expense 61,340 50,845 10,495 20.6
Income Tax Expense 23,923 21,182 (2,741) (12.9)
-------- -------- -------- --------
NET INCOME $ 37,417 $ 29,663 $ 7,754 26.1 %
======== ======== ======== ========
NET INCOME PER SHARE $ 1.73 $ 1.41 $ 0.32 22.7 %
======== ======== ======== ========
</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,
ASSETS 1997 1996
----------- -----------
<S> <C> <C>
Cash and Due from Banks $ 120,152 $ 78,566
Interest Earning Securities 1,325,239 1,451,869
Loans, Net of Allowance for Credit Losses
($18,050 in 1997 and $16,693 in 1996) 1,798,126 1,671,448
Other Assets 300,359 275,435
----------- -----------
Total Assets $ 3,543,876 $ 3,477,318
=========== ===========
LIABILITIES
Deposits:
Non-Interest Bearing $ 608,833 $ 687,942
Interest Bearing 2,120,361 2,075,847
----------- -----------
Total Deposits 2,729,194 2,763,789
Short-Term Credit Facilities 267,340 240,283
Accounts Payable and Accrued Liabilities 244,122 232,680
Long-Term Debt 23,254 26,468
----------- -----------
Total Deposits and Other Liabilities 3,263,910 3,263,220
Trust Preferred Capital Securities 50,000 --
----------- -----------
Total Liabilities 3,313,910 3,263,220
----------- -----------
STOCKHOLDERS' EQUITY
Common Stock, $1.00 Par Value; 40,000,000 Shares
Authorized; 19,885,110 Shares Issued in 1997
and 19,629,562 Shares Issued in 1996 19,885 19,630
Capital Surplus 10,540 3,575
Retained Earnings 235,444 205,384
Treasury Stock, at Cost (706,657 Shares in 1997
and 124,000 Shares in 1996) (32,449) (4,728)
Loan to ESOP (7,254) (10,468)
Unrealized Gain, Net of Taxes, on
Securities Available for Sale 3,800 705
----------- -----------
Total Stockholders' Equity 229,966 214,098
----------- -----------
Total Liabilities and Stockholders' Equity $ 3,543,876 $ 3,477,318
=========== ===========
</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 MONTHS
ENDED SEPTEMBER 30,
-----------------------
1997 1996
--------- ---------
<S> <C> <C>
COMMON STOCK
Balance, January 1 $ 19,630 $ 9,739
Effect of Two-For-One Stock Split -- 9,739
Acquisition 204 --
Issuance of Shares Under Employee Benefit Plans 51 79
--------- ---------
Balance, September 30 $ 19,885 $ 19,557
--------- ---------
CAPITAL SURPLUS
Balance, January 1 $ 3,575 $ 125
Effect of Two-For-One Stock Split -- (125)
Acquisition 6,943 --
Employee Benefit Plans 22 1,047
--------- ---------
Balance, September 30 $ 10,540 $ 1,047
--------- ---------
RETAINED EARNINGS
Balance, January 1 $ 205,384 $ 183,804
Effect of Two-For-One Stock Split -- (9,653)
Net Income 37,417 29,663
Cash Dividends Declared ($0.45 Per Share in 1997
and $0.375 Per Share in 1996) (8,722) (7,334)
Tax Benefit on Stock Based Awards 1,365 87
--------- ---------
Balance, September 30 $ 235,444 $ 196,567
--------- ---------
TREASURY STOCK
Balance, January 1 $ (4,728) $ --
Purchases (30,376) --
Issuance of Shares Under Employee Benefit Plans, Net 2,655 --
--------- ---------
Balance, September 30 $ (32,449) $ --
--------- ---------
LOAN TO ESOP
Balance, January 1 $ (10,468) $ (13,434)
Principal Payment by ESOP 3,214 2,966
--------- ---------
Balance, September 30 $ (7,254) $ (10,468)
--------- ---------
UNREALIZED GAIN (LOSS), NET OF TAXES, ON
SECURITIES AVAILABLE FOR SALE
Balance, January 1 $ 705 $ 1,609
Net Change in Fair Value, After Taxes 3,095 (3,094)
--------- ---------
Balance, September 30 $ 3,800 $ (1,485)
--------- ---------
Total Stockholders' Equity $ 229,966 $ 205,218
========= =========
</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 THE NINE MONTHS
ENDED SEPTEMBER 30,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net Cash Provided by Operating Activities $ 56,951 $ 37,426
----------- -----------
Cash Flows From Investing Activities:
Interest Earning Securities:
Purchases (509,331) (1,189,612)
Sales 104,999 124,026
Maturities, Calls and Mandatory Redemptions 534,156 674,695
Net Change in Loans (128,086) (201,050)
Other, Net (18,315) (18,253)
----------- -----------
Net Cash (Used in) Investing Activities (16,577) (610,194)
----------- -----------
Cash Flows From Financing Activities:
Net Change in Non-Interest Bearing Deposits (79,109) 7,604
Net Change in Interest Bearing Deposits 44,514 277,525
Net Change in Short-Term Credit Facilities 27,057 241,304
Repayments of Long-Term Debt (3,214) (2,966)
Issuance of Trust Preferred Capital Securities 50,000 --
Purchases of Treasury Stock (30,376) --
Other, Net (7,660) (6,237)
----------- -----------
Net Cash Provided by Financing Activities 1,212 517,230
----------- -----------
Net Change in Cash and Cash Equivalents 41,586 (55,538)
Cash and Cash Equivalents at January 1 78,566 96,785
----------- -----------
Cash and Cash Equivalents at September 30 $ 120,152 $ 41,247
=========== ===========
- -----------------------------------------------------------------------------------
Income Taxes Paid $ 24,968 $ 15,992
Interest Expense Paid 89,394 67,058
Noncash Item:
Issuance of stock for employee benefit plans $ 3,283 $ 944
</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. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
U.S. Trust Corporation (the "Corporation" or "Parent") and its majority owned
subsidiaries. All material intercompany accounts and transactions have been
eliminated in consolidation.
The accounting and reporting policies of the Corporation and its
subsidiaries conform with generally accepted accounting principles and general
practice within the investment management and banking industries. The
preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities as of the financial statement
dates and the reported amounts of revenues and expenses during the reported
periods. Since management's judgment involves making estimates concerning the
likelihood of future events, the actual results could differ from those
estimates which will have a positive or negative effect on future period
results.
The financial statements have been prepared in accordance with the
rules of the Securities and Exchange Commission. Pursuant to such rules certain
disclosures have not been included. The financial statements should be read in
connection with the Corporation's audited financial statements for the year
ended December 31, 1996. Interim results are not necessarily indicative of the
full year results.
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, unless otherwise noted
in these 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. TRUST PREFERRED CAPITAL SECURITIES
On January 28, 1997, U.S. Trust Capital A (the "Trust"), a statutory
business trust, which for financial reporting purposes is reflected as a
subsidiary and included in the consolidated financial statements of the
Corporation, issued $50.0 million of 8.414% Capital Securities ("Trust Preferred
Capital Securities") with a stated value and liquidation preference of $1,000
per share. The Corporation has unconditionally guaranteed performance of all of
the Trust's obligations under the Trust Preferred Capital Securities. The
proceeds from the sale of the Trust Preferred Capital Securities were utilized
by the Trust to purchase $51.5 million of 8.414% Junior Subordinated Debt
Securities from the Corporation. The Junior Subordinated Debt Securities are
unsecured and subordinated to all senior debt of the Corporation and are the
sole assets of the Trust. The Trust Preferred Capital Securities qualify as Tier
1 Capital under Federal Reserve Board guidelines, and have no voting rights.
Holders of the Trust Preferred Capital Securities will be entitled to receive
cumulative cash distributions semi-annually. The Corporation's proceeds from the
issuance of the Junior Subordinated Debt Securities were used for general
corporate purposes, including the acquisition of common stock of the
Corporation.
The Trust Preferred Capital Securities are subject to mandatory
redemption, in whole or in part, upon repayment of the Junior Subordinated Debt
Securities. The Corporation has the right to redeem the Junior Subordinated Debt
Securities prior to their stated maturity of February 1, 2027, on or after
February 1, 2007, upon approval (if then required) of the Federal Reserve Board.
8
<PAGE> 9
U.S. TRUST CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. ACQUISITIONS
On January 16, 1997, the Corporation acquired the assets and
liabilities of Florence Fearrington, Inc., a New York investment advisory firm
that managed approximately $400 million in assets, for approximately $7.2
million of the Corporation's common stock. The transaction was accounted for as
a purchase.
On December 31, 1996, the Corporation acquired Lilienthal Associates, a
California based investment advisory firm that managed approximately $270
million in assets, for approximately $2.4 million of the Corporation's common
stock. The transaction was accounted for as a purchase.
4. ACCOUNTING CHANGES AND DEVELOPMENTS
As of January 1, 1997, the Corporation adopted the required provisions
of Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
("FAS 125"). FAS 125 establishes rules distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings. The adoption
of FAS 125 had no impact on the financial condition or results of operations of
the Corporation.
In February 1997, the Securities and Exchange Commission issued Release
No. 34-38223 which requires (i) quantitative and qualitative disclosures outside
the financial statements about market risk inherent in derivatives and other
financial instruments and (ii) enhanced descriptions of accounting policies for
derivatives in the footnotes to the financial statements (see Notes to the
Condensed Consolidated Financial Statements No. 5). The market risk disclosure
requirements of this release will be applicable to the Corporation commencing
with its 1997 Annual Report on Form 10-K. Since this release relates to
disclosure requirements only, adoption will not affect either the Corporation's
financial condition or results of operations.
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings per Share," ("FAS 128") was issued, effective for interim and annual
periods ending after December 15, 1997 and requires the restatement of prior
period data. FAS 128 supersedes Accounting Principles Board Opinion No. 15,
"Earnings Per Share," ("APB 15") and replaces Primary and Fully Diluted earnings
per share with Basic Earnings Per Share ("BEPS") and Diluted Earnings Per Share
("DEPS"). The determinants of BEPS may be expressed in equation form as follows:
- The equation for computing BEPS is:
Income Available to Common Stockholders
--------------------------------------------------------------
Weighted Average Shares Outstanding During the Reported Period
Income available to common stockholders is net income less dividends on
preferred stock. The denominator used in the calculation of BEPS does
not include the dilutive effect of stock options or other common stock
equivalents that were included in the calculation of primary earnings
per share under APB 15. Accordingly, BEPS will typically be higher than
primary earnings per share required by APB 15.
9
<PAGE> 10
U.S. TRUST CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. ACCOUNTING CHANGES AND DEVELOPMENTS (CONTINUED)
- DEPS reflects the total amount of potential dilution that would occur
if securities or other commitments to issue common stock that have a
dilutive effect on earnings per share were exercised or converted
into common stock. DEPS is computed similarly to Fully Diluted
earnings per share pursuant to APB 15. The equation for computing
DEPS is:
Income Available to Common Stockholders + Effect of Assumed Conversions
-----------------------------------------------------------------------
Weighted Average Shares Outstanding During the Reported Period +
Dilutive Potential Common Shares
The following table includes the quarterly and annual earnings per
share data for the Corporation under both APB 15 and FAS 128:
<TABLE>
<CAPTION>
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1996:
APB 15
Primary $ 0.46 $ 0.47 $ 0.49 $ 0.53 $ 1.94
Fully Diluted $ 0.46 $ 0.47 $ 0.49 $ 0.53 $ 1.92
FAS 128
Basic $ 0.49 $ 0.50 $ 0.52 $ 0.58 $ 2.09
Assuming Dilution $ 0.46 $ 0.47 $ 0.49 $ 0.53 $ 1.95
1997:
APB 15
Primary $ 0.55 $ 0.58 $ 0.61 -- --
Fully Diluted $ 0.55 $ 0.58 $ 0.61 -- --
FAS 128
Basic $ 0.61 $ 0.64 $ 0.68 -- --
Assuming Dilution $ 0.55 $ 0.58 $ 0.61 -- --
</TABLE>
Details of the Corporation's current computation of earnings per share
are presented in Exhibit 11.
The following Statements of Financial Accounting Standards were issued
in June 1997. Both of these statements relate to disclosure requirements only,
thus adoption will not affect either the Corporations financial condition or
results of operations.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," ("FAS 130") was issued, effective for periods beginning
after December 15, 1997. FAS 130 requires that changes in comprehensive income
(changes in equity from transactions, events and circumstances from "non-owner
sources", as defined) items be shown in a primary financial statement.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," ("FAS 131") was issued,
effective for periods beginning after December 15, 1997. FAS 131 requires
disclosure of financial and descriptive information about its reportable
operating segments.
The Corporation is currently reviewing the requirements of FAS 130 and
FAS 131, which will be adopted as of January 1, 1998. FAS 131 need not be
applied to interim periods during 1998.
10
<PAGE> 11
U.S. TRUST CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. DERIVATIVE FINANCIAL INSTRUMENTS
As part of its asset and liability management activities, the
Corporation employs interest rate swaps ("Swaps") to ameliorate the interest
rate characteristics of nontrading-related balance sheet instruments.
Specifically, Swaps are used to mitigate interest rate exposure created by
financing fixed rate residential real estate mortgage loans with short-term
interest bearing deposits. The Corporation utilizes Swaps solely as hedging
instruments. The specific criteria required for Swaps used for such purposes are
described below.
Swaps used as hedges must be effective at reducing the risk associated
with the exposure being hedged and must be designated as a hedge at the
inception of the derivative contract. Swaps must be linked to the related asset
or liability, whereby the terms of the Swap generally equal the terms of the
related asset or liability, at the inception and throughout the term of the
derivative contract.
Swaps that qualify as hedges are accounted for under the accrual
method; the interest component associated with Swaps is recognized over the life
of the contract in net interest revenue and there is no recognition of
unrealized gains and losses on the Swap in the statement of financial condition.
It has been the Corporation's practice not to terminate its Swaps or sell the
underlying financial instruments that are being hedged by the Swaps. However, if
the Corporation terminates a Swap, any amounts received from (a gain) or paid to
(a loss) the counterparty would be deferred and amortized over the shorter of
the remaining original life of the hedged item or the terminated Swap in other
income or expense. In instances when the hedged item is sold, the cumulative
change in the value of the associated Swap is recognized immediately as an
adjustment to the gain or loss of the hedged item.
6. 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:
11
<PAGE> 12
U.S. TRUST CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Three Month Periods Nine Month Periods
Ended September 30, Ended September 30,
-------------------- --------------------
(In Thousands) 1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest Income:
Loans $ 34,039 $ 30,233 $ 98,137 $ 86,220
Securities:
Taxable 16,865 13,586 51,939 32,275
Tax Exempt 966 847 2,968 2,313
Short-Term Investments 1,189 158 3,950 3,760
Deposits with Banks 448 286 1,141 1,432
-------- -------- -------- --------
Total Interest Income 53,507 45,110 158,135 126,000
-------- -------- -------- --------
Interest Expense:
Deposits 24,528 21,089 74,321 59,249
Short-Term Credit Facilities 4,508 3,878 12,385 6,854
Long-Term Debt 414 481 1,256 1,456
Trust Preferred Capital Securities 1,049 -- 2,800 --
-------- -------- -------- --------
Total Interest Expense 30,499 25,448 90,762 67,559
-------- -------- -------- --------
Net Interest Income 23,008 19,662 67,373 58,441
Provision for Credit Losses 150 250 600 750
-------- -------- -------- --------
Net Interest Revenue $ 22,858 $ 19,412 $ 66,773 $ 57,691
======== ======== ======== ========
</TABLE>
7. PLEDGED ASSETS
Financial instruments carried at $213.9 million on September 30, 1997
and $154.2 million on December 31, 1996 were pledged to secure public deposits,
as collateral for borrowings, to qualify for fiduciary powers and for other
purposes.
8. 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, results of operations or cash flows.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL REPORTING MATTERS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements to encourage companies to provide
prospective information about their companies. Except for the historical
information contained herein, matters discussed in this report may be
forward-looking statements which involve risks and uncertainties and actual
results may differ materially from those set forth in any such forward-looking
statements. Further, such forward-looking statements speak only as of the date
on which such statements are made, and the Corporation undertakes no obligation
to update forward-looking statements to reflect events or circumstances after
the date on which such statements are made or to reflect the occurrence of
unanticipated events. Please refer to the Corporation's 1996 Annual Report on
Form 10-K for a detailed description of the Corporation's Financial Performance
Objectives.
RESULTS OF OPERATIONS
Net income for the third quarter of 1997 was $13.1 million, compared to
$10.2 million earned in the third quarter of 1996. On a fully diluted per share
basis, net income was $0.61 in the third quarter of 1997, versus $0.49 in the
third quarter of 1996. The Corporation's return on average stockholders' equity
was 23.1% for the third quarter of 1997, compared to 20.6% for the third quarter
of 1996.
FEE REVENUE
<TABLE>
<CAPTION>
Three Month Periods Ended %
-----------------------------
September 30, September 30, Better
(In Thousands) 1997 1996 (Worse)
------------- ------------- -------
<S> <C> <C> <C>
Investment Management
and Related Services $64,765 $55,977 15.7
Corporate Trust 6,417 6,257 2.6
------- ------- -------
Total Fee Revenue $71,182 $62,234 14.4
======= ======= =======
Market Related Fees $57,977 $48,211 20.3
Transaction Related Fees 13,205 14,023 (5.8)
------- ------- -------
Total Fee Revenue $71,182 $62,234 14.4
======= ======= =======
<CAPTION>
Nine Month Periods Ended %
-----------------------------
September 30, September 30, Better
(In Thousands) 1997 1996 (Worse)
------------- ------------- -------
<S> <C> <C> <C>
Investment Management
and Related Services $187,435 $162,829 15.1
Corporate Trust 18,356 17,786 3.2
-------- -------- -------
Total Fee Revenue $205,791 $180,615 13.9
======== ======== =======
Market Related Fees $165,398 $139,174 18.8
Transaction Related Fees 40,393 41,441 (2.5)
-------- -------- -------
Total Fee Revenue $205,791 $180,615 13.9
======== ======== =======
</TABLE>
13
<PAGE> 14
Total fee revenue for the third quarter of 1997 increased approximately
$8.9 million to $71.2 million from $62.2 million in the third quarter of 1996.
Market related fee revenue increased by $9.8 million to $58.0 million from $48.2
million in the third quarter of 1996.
Market related fee revenue is based primarily on the market value of
the assets in clients' investment management accounts. In general, market
related fee revenue is influenced by a variety of factors, including growth or
decline of stock and bond market levels, new business, acquisitions, fee
increases and revenue from new services, but offset by the outflow of investment
management assets due to terminating trusts, disbursements and lost business.
The increase in fee revenue in the third quarter of 1997 is attributable to a
combination of strong new business and the overall appreciation in the financial
markets.
Most market related fee revenue is determined on a sliding scale so
that as the value of a client's portfolio grows in size, the Corporation
receives a smaller percentage of the increasing value. Therefore, market value
or other incremental changes in a portfolio's size do not typically have a
proportionate impact on the level of market related fee revenue. Another
important factor in the determination of the level of market related fee revenue
is the composition of assets under management. Depending on how assets under
management are invested, fluctuations in any one market will not necessarily
have a proportionate impact on the level of fee revenue. The following is a
comparative analysis of the composition of assets under management.
<TABLE>
<CAPTION>
September 30, June 30, September 30,
1997 1997 1996
------------- -------- -------------
<S> <C> <C> <C>
Equity 51% 55% 51%
Fixed Income 33 33 36
Short-Term and Other 16 12 13
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
The carrying amount of assets under management was $58.6 billion at
September 30, 1997, increasing $8.5 billion from September 30, 1996. Investment
management assets at September 30, 1997, increased approximately $9.6 billion
from September 30, 1996.
<TABLE>
<CAPTION>
Sept. vs. Sept. vs.
June Sept.
% %
Assets Under Management and Administration Sept. 30, June 30, Sept. 30, Better Better
(In Billions) 1997 1997 1996 (Worse) (Worse)
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Assets Under Management:
Investment Management $ 45.0 $ 42.3 $ 35.4 6.5 27.1
Special Fiduciary 13.6 15.4 14.7 (12.3) (7.7)
------ ------ ------ ------ ------
Total Assets Under Management 58.6 57.7 50.1 1.5 16.9
------ ------ ------ ------ ------
Assets Under Administration:
Personal Custody and Other 20.1 19.2 15.3 4.6 31.6
Corporate and Municipal Trusteeships
and Agency Relationships at Par Value 239.7 234.8 205.1 2.1 16.8
------ ------ ------ ------ ------
Total Assets Under Administration 259.8 254.0 220.4 2.3 17.9
------ ------ ------ ------ ------
Total Assets Under Management and
Administration $318.4 $311.7 $270.5 2.1 17.7
====== ====== ====== ====== ======
</TABLE>
14
<PAGE> 15
Approximately $5.7 billion of assets under management were invested in
the Corporation's Excelsior Funds at September 30, 1997. At June 30, 1997 and
September 30, 1996, total assets under management invested in the Excelsior
Funds were $5.3 billion and $4.7 billion, respectively.
NET INTEREST REVENUE
<TABLE>
<CAPTION>
Three Month Periods Ended %
-----------------------------
September 30, September 30, Better
(In Thousands) 1997 1996 (Worse)
------------- ------------- -------
<S> <C> <C> <C>
Interest Income $53,507 $45,110 18.6
Interest Expense 30,499 25,448 (19.8)
------- ------- -------
Net Interest Income 23,008 19,662 17.0
Provision for Credit Losses 150 250 40.0
------- ------- -------
Net Interest Revenue $22,858 $19,412 17.8
======= ======= =======
<CAPTION>
Nine Month Periods Ended %
-----------------------------
September 30, September 30, Better
(In Thousands) 1997 1996 (Worse)
------------- ------------- -------
<S> <C> <C> <C>
Interest Income $158,135 $126,000 25.5
Interest Expense 90,762 67,559 (34.3)
-------- -------- -------
Net Interest Income 67,373 58,441 15.3
Provision for Credit Losses 600 750 20.0
-------- -------- -------
Net Interest Revenue $ 66,773 $ 57,691 15.7
======== ======== =======
</TABLE>
Net interest revenue is affected by changes in interest rates, funding
strategies, and the impact that changes in the credit quality of the loan
portfolio have on the provision for credit losses. Although the net yield on
interest earning assets has remained flat at 3.14% for the quarters ended
September 30, 1997 and September 30, 1996, the average volume of interest
earning assets has increased by 16.3% to $3.0 billion for the third quarter of
1997, from $2.6 billion for the third quarter of 1996.
OPERATING EXPENSES
<TABLE>
<CAPTION>
Three Month Periods Ended %
-----------------------------
September 30, September 30, Better
(In Thousands) 1997 1996 (Worse)
------------- ------------- -------
<S> <C> <C> <C>
Salaries $25,862 $23,710 (9.1)
Employee Benefits and
Performance Compensation 17,540 14,817 (18.4)
------- ------- -------
Total Salaries and Benefits 43,402 38,527 (12.7)
Net Occupancy 10,226 8,926 (14.6)
Other 19,006 16,888 (12.5)
------- ------- -------
Total Operating Expenses $72,634 $64,341 (12.9)
======= ======= =======
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
Nine Month Periods Ended %
-----------------------------
September 30, September 30, Better
(In Thousands) 1997 1996 (Worse)
------------- ------------- --------
<S> <C> <C> <C>
Salaries $ 74,668 $ 68,630 (8.8)
Employee Benefits and
Performance Compensation 50,903 40,424 (25.9)
-------- -------- --------
Total Salaries and Benefits 125,571 109,054 (15.1)
Net Occupancy 28,622 25,307 (13.1)
Other 57,040 53,310 (7.0)
-------- -------- --------
Total Operating Expenses $211,233 $187,671 (12.6)
======== ======== ========
</TABLE>
Operating expenses increased by $8.3 million in the third quarter of
1997, compared to the third quarter of 1996. The Corporation's pre-tax margin
was 22.8% for the third quarter of 1997 and 21.2% for the third quarter of 1996.
For the first nine months of 1997, operating expenses increased by
$23.6 million, versus the comparable 1996 period. The Corporation's pre-tax
margin was 22.5% for the first nine months of 1997 and 21.3% for the first nine
months of 1996.
Employee benefits and performance compensation expense increased in
both the third quarter and nine month periods of 1997 when compared to the
corresponding 1996 periods. Performance compensation is determined based upon
the Corporation's financial performance as measured by the Corporation's
earnings per share, adjusted to offset the impact of extraordinary or
nonrecurring events, or other changes, conditions or circumstances that warrant
adjustment. Employee benefit expense is typically a function of staffing levels.
The number of full-time equivalent employees increased 4.7% to 1,510 at
September 30, 1997, compared to 1,442 at September 30, 1996.
Occupancy expense increased 14.6% in the third quarter of 1997 versus
the third quarter of 1996 and increased by 13.1% in the nine month period ended
September 30, 1997 compared to the nine month period ended September 30, 1996.
Occupancy expense in the third quarter of 1997 includes certain leasehold
escalations related to previously abated tax assessments. These expenses have
been recorded throughout 1997 but are not expected to continue at the current
interim levels in 1998.
The Corporation makes a substantial commitment to sales, marketing and
advertising. As of September 30, 1997, approximately 110 employees were devoted
to these functions compared to 92 employees as of September 30, 1996. Direct
expenses associated with these functions, including salary, employee benefits
and performance compensation (principally sales commissions) were $7.2 million
for the third quarter of 1997, a 19.9% increase from the $6.0 million incurred
during the corresponding 1996 period. For the first nine months of the 1997
direct expenses amounted to $20.7 million an increase of 16.8% from the $17.7
million incurred during the first nine months of 1996. In addition to the
aforementioned direct expenses, occupancy expense directly allocable to the
sales, marketing and advertising functions amounted to approximately $561,000
and $501,000 for the third quarters of 1997 and 1996, respectively and $1.6
million and $1.4 million for the first nine months of 1997 and 1996,
respectively.
The Corporation has established a task force to evaluate, coordinate
and execute any systems changes that may be required by the year 2000 date
change. The Corporation is working with The Chase Manhattan Corporation
(provider of certain of the Corporation's data processing systems) as well as
other vendors to ensure compliance with required system changes.
16
<PAGE> 17
INCOME TAXES
The effective tax rate for the 1997 third quarter was 39.0%, compared
to 41.0% for the 1996 third quarter. The effective tax rate for the first nine
months of 1997 was 39.0%, compared to 41.7% for the first nine months of 1996.
The decline in the effective tax rate reflects the growing proportion of income
from the Corporation's regional offices.
FINANCIAL CONDITION
CAPITAL
The Corporation's ratio of Tier 1 Capital to period end risk-adjusted
assets (as defined by the Federal Reserve Board) was 15.2% at September 30, 1997
and 11.3% at September 30, 1996. The ratio of Total Capital to period end
risk-adjusted assets was 16.3% at September 30, 1997 and 12.4% at September 30,
1996. The Tier 1 Leverage (Tier 1 Capital as of the period end divided by
quarterly (3 month) total average assets) was 7.4% at September 30, 1997 and
5.7% at September 30, 1996. The Corporation's capital ratios were positively
impacted as a result of the issuance of $50.0 million of Trust Preferred Capital
Securities on January 28, 1997 (see Notes to the Condensed Consolidated
Financial Statements No. 2).
On January 28, 1997, the Corporation announced a two-for-one stock
split of its common shares effected in the form of a stock dividend distributed
on February 21, 1997, to shareholders of record on February 7, 1997. The impact
of the stock split has been reflected in the 1996 Condensed Consolidated
Statement of Condition and in all earnings per share calculations.
LIQUIDITY MANAGEMENT
The objectives of liquidity management is to ensure the availability of
resources to both meet cash flow requirements and to capitalize on opportunities
for business expansion. Management monitors the liquidity position of the
Corporation's subsidiaries on an ongoing basis to ensure that funds are
available to meet loan and deposit cash flow requirements. The liquidity profile
is also structured to ensure that the capital needs of the Parent and its
subsidiaries are met on a day to day basis.
The Corporation's liquidity requirements consist mainly of dividend
payments to common stockholders, interest and principal payments to debt holders
and purchases of its common stock. On January 28, 1997, the Corporation
announced a 20% increase in the Corporation's regular quarterly dividend,
indicating an annual dividend rate of $0.60 per share. During the first nine
months of 1997, the Board of Directors has declared three quarterly dividends of
$0.15 per share.
The Board of Directors has authorized the repurchase of two million
shares of common stock. During the first nine months of 1997, the Corporation
has repurchased 648,090 shares at a weighted average purchase price of $46.87
per share. The repurchased shares are used to meet the Parent's obligations
under its stock-based benefit plans and for general capital management purposes.
The Parent's sources of liquidity are primarily derived from dividends
from its subsidiaries, issuances of common stock and issuances of long and
short-term debt instruments. At September 30, 1997, the subsidiaries have the
ability to pay dividends of approximately $51.5 million without prior approval
of the regulatory authorities. The proceeds from the issuance of Trust Preferred
Capital Securities (see Notes to the Condensed Consolidated Financial Statements
No. 2) have been used by the Parent for general corporate purposes, including
the acquisition of the Corporation's common stock.
17
<PAGE> 18
The Corporation has a $40.0 million unsecured revolving credit facility
maturing in 1999. As of September 30, 1997, the Corporation had no borrowings
outstanding under this facility. Additionally, the Parent may borrow, subject to
certain regulatory restrictions, on a fully collateralized basis from its
subsidiaries.
Including the estimated future borrowing capacity of U.S. Trust Company
of New York (which in the fourth quarter of 1997 obtained Federal Home Loan
Bank System ("FHLB") borrowing approval), subsidiaries of the Corporation have
established credit facilities with the FHLB totaling approximately $330.5
million. As of September 30, 1997, the Corporation has borrowed $21.0 million
on these facilities from the FHLB.
Liquidity is also generated from the types of financial instruments
that the subsidiaries carry as investments. Approximately $998.7 million or 88%
of the securities portfolio is invested in U.S. Treasury obligations or
securities backed by the full faith and credit of the U.S. Government. These
securities are readily marketable and may be sold or financed through repurchase
agreements, as appropriate. At September 30, 1997, securities sold under
agreements to repurchase aggregated $137.0 million.
ASSET/LIABILITY MANAGEMENT
The objective of asset and liability management is to maximize net
interest revenue, within the constraint of acceptable levels of interest rate
sensitivity, while maintaining high asset quality and adequate liquidity.
The Corporation's asset mix is principally liquid and low-risk.
Approximately 39% of average total assets for the first nine months of 1997,
consist of short-term financial instruments and readily marketable securities.
The securities portfolio is concentrated in investments in U.S. Government
securities and investment securities backed by the full faith and credit of the
U.S. Government.
The loan portfolio is the largest component of average total assets.
For the nine months ended September 30, 1997, average loans comprise
approximately 50% of average assets. Average loans increased $222.5 million, or
15.1%, to $1.7 billion for the first nine months of 1997, from $1.5 billion for
the comparable 1996 period. See the "Asset Quality" section of Management's
Discussion and Analysis of Financial Condition and Results of Operations for a
further discussion of the Corporation's loan portfolio.
Interest Rate Sensitivity
The Corporation is exposed to interest rate risk primarily through its
mortgage lending activities and through its investments in mortgage backed
securities. Net interest revenue may be generated from prudent asset/liability
management activities that may result in timing differences in the maturity
and/or repricing of assets, liabilities and off balance sheet positions. The
results of these timing differences is presented below in the interest
sensitivity gap analysis. Gap analysis has inherent limitations as an analytical
tool because it measures the Corporation's exposure to interest rate risk at a
single point in time. The Corporation also uses simulation analysis to monitor
and control net interest revenue at risk and the economic value of equity at
risk under multiple interest rate scenarios.
To reflect anticipated payments, certain asset and liability categories
(including items with no stated maturity) are included in the table based on
estimated rather than contractual maturity or repricing dates.
18
<PAGE> 19
<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 $ 471,020 $ 85,880 $ 183,380 $ 419,020 $ 165,939 $ 1,325,239
Loans, Net of Allowance
for Credit Losses 654,784 55,359 109,094 591,174 387,715 1,798,126
----------- ----------- ----------- ----------- ----------- -----------
Total Interest Earning Assets 1,125,804 141,239 292,474 1,010,194 553,654 3,123,365
----------- ----------- ----------- ----------- ----------- -----------
INTEREST BEARING LIABILITIES:
Interest Bearing Deposits (1,960,589) (78,400) (28,557) (52,815) -- (2,120,361)
Short-Term Credit Facilities (262,340) (5,000) -- -- -- (267,340)
Trust Preferred Capital Securities -- -- -- -- (50,000) (50,000)
Long-Term Debt -- (1,000) (1,000) (20,254) (1,000) (23,254)
----------- ----------- ----------- ----------- ----------- -----------
Total Interest Bearing Liabilities (2,222,929) (84,400) (29,557) (73,069) (51,000) (2,460,955)
----------- ----------- ----------- ----------- ----------- -----------
Asset/(Liability) Sensitivity Gap (1,097,125) 56,839 262,917 937,125 502,654 662,410
Interest Rate Swaps 616,500 * (55,750) (25,750) (410,000) (125,000) --
----------- ----------- ----------- ----------- ----------- -----------
Interest Rate Sensitivity Gap (480,625) 1,089 237,167 527,125 377,654 662,410
Net Non-Interest Earning Assets,
Non-Interest Bearing Liabilities and
Stockholders' Equity (152,596) -- -- (279,448) (230,366) (662,410)
----------- ----------- ----------- ----------- ----------- -----------
Maturity/Repricing Gap (633,221) 1,089 237,167 247,677 147,288 --
----------- ----------- ----------- ----------- ----------- -----------
Cumulative Gap $ (633,221) (632,132) (394,965) (147,288) -- $ --
=========== =========== =========== =========== =========== ===========
</TABLE>
* Consists of $617,250,000 of total outstanding notional principal balance of
which $750,000 will mature during the three month period.
As part of its overall asset and liability management process, the
Corporation uses Swaps as hedges. Swaps mitigate the interest rate exposure
created by financing the residential real estate mortgage loans with short-term
deposits. The following table provides details, as of September 30, 1997, 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.
<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 $ 82,250 $ 410,000 $ 125,000 $ 617,250
Average Rate Paid 6.4570 % 6.7485 % 6.1830 % 6.5952 %
Average Rate Received (1) 5.7318 % 5.7244 % 5.7463 % 5.7298 %
</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.
The impact of the Corporation's hedging activities upon net interest
revenue for the quarters and nine month periods ended September 30, 1997 and
1996, are detailed in the following table.
19
<PAGE> 20
<TABLE>
<CAPTION>
Three Month Periods Ended Nine Month Periods Ended
-------------------------------- --------------------------------
(Dollars In Thousands) Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net Interest Revenue:
As Reported $ 22,858 $ 19,412 $ 66,773 $ 57,691
Excluding Hedging Activities $ 24,156 $ 21,074 $ 71,154 $ 61,822
Net Yield on Interest Earning Assets:
As Reported 3.14% 3.14% 3.08% 3.33%
Excluding Hedging Activities 3.30% 3.39% 3.29% 3.57%
</TABLE>
The difference between results "As Reported" and "Excluding Hedging
Activities" in each period reflects the cost of utilizing Swaps to hedge
interest rate risk.
Interest Earning Securities
Interest earning securities are comprised of $186.2 million and $202.0
million of interest bearing deposits with banks and $1.14 billion and $1.17
billion of securities available for sale at September 30, 1997 and December 31,
1996, respectively. Also included in interest earning securities at December 31,
1996 are $84.0 million of federal funds sold.
During the first nine months of 1997, the Corporation purchased
approximately $509.3 million (principally U.S. Government Treasury and Federal
agency) of securities classified as available for sale. Approximately 88% of the
Corporation's portfolio of securities available for sale is comprised of U.S.
Treasury fixed rate obligations, obligations of the Government National Mortgage
Association ("GNMAs") and other securities backed by the full faith and credit
of the U.S. Government. The remaining portfolio is primarily comprised of
variable rate collateralized mortgage obligations ("CMOs") and obligations of
states and municipalities. CMOs principally are collateralized by GNMAs.
At September 30, 1997, the market value of the securities portfolio
exceeded their amortized cost by $6.8 million. The market value of the
securities portfolio exceeded their amortized cost by $1.3 million at December
31, 1996. The Corporation classified all of its securities portfolio as
"available for sale". While the Corporation does not trade its securities
portfolio, it needs to have the ability to sell securities as required to meet
its asset/liability objectives.
ASSET QUALITY - LOAN PORTFOLIO
The Corporation's loan portfolio is predominantly comprised of loans to
private banking customers. At September 30, 1997, the loan portfolio totaled
$1.8 billion of which over 73% were collateralized by residential real estate
mortgages.
An analysis of the allowance for credit losses follows:
<TABLE>
<CAPTION>
Three Month Periods Nine Month Periods
Ended September 30, Ended September 30,
------------------------ ------------------------
(In Thousands) 1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance, Beginning of Period $ 17,629 $ 16,202 $ 16,693 $ 16,086
Provision for Credit Losses 150 250 600 750
Recoveries 393 400 879 675
Charge-offs (122) (354) (122) (1,013)
-------- -------- -------- --------
Net (Charge-Offs) Recoveries 271 46 757 (338)
-------- -------- -------- --------
Balance, End of Period $ 18,050 $ 16,498 $ 18,050 $ 16,498
======== ======== ======== ========
</TABLE>
20
<PAGE> 21
The level of the allowance for credit losses is based upon management's
judgment as to the current condition of the credit portfolio, which includes
loans, commitments to extend credit and standby letters or credit, determined by
a continuing monitoring process. 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
six basis points for the third quarter of 1997, compared to annualized net loan
recoveries of one basis point for the third quarter of 1996. For the first nine
months of 1997, annualized net loan recoveries as a percentage of average loans
were six basis points, versus annualized net loan charge-offs of three basis
points for the first nine months of 1996. The allowance for credit losses at
September 30, 1997, was 1.03% of average loans for the quarter. This compares
with 1.05% of average loans for the quarter ended September 30, 1996. Given the
current market environment, management anticipates that the allowance for credit
losses as a percentage of loans will continue to decrease.
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>
September 30, June 30, March 31, Dec. 31, September 30,
(In Millions) 1997 1997 1997 1996 1996
------------- -------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans $ 9.5 $ 8.8 $ 8.8 $ 8.9 $10.8
Real estate owned, net 0.7 0.7 0.7 0.7 7.0
----- ----- ----- ----- -----
Total Nonperforming Assets $10.2 $ 9.5 $ 9.5 $ 9.6 $17.8
===== ===== ===== ===== =====
</TABLE>
Other real estate owned is net of a reserve for selling and disposition
costs of $529,000 at September 30, 1997, $477,000 at June 30, 1997, March 31,
1997 and December 31, 1996. At September 30, 1996, the reserve for other real
estate owned was $978,000.
The allowance for credit losses as a percentage of non-accrual loans
was 190.3% at September 30, 1997, compared to 152.9% at September 30, 1996. The
ratio of nonperforming assets to average loans and real estate owned for the
quarter was 0.6% at September 30, 1997, compared to 1.1% at September 30, 1996.
21
<PAGE> 22
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 THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------------------------------------------
1997 1996
----------------------------------------- -----------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Earning Securities (1)(2) $ 1,268,059 $ 20,308 6.35 % $ 1,031,516 $ 15,703 6.06 %
Loans (3) 1,762,683 34,039 7.66 1,578,075 30,233 7.62
----------- ----------- ----------- ----------- ----------- -----------
Total Interest Earning Assets 3,030,742 54,347 7.13 2,609,591 45,936 7.02
----------- ----------- ----------- ----------- ----------- -----------
Allowance for Credit Losses (17,891) (16,451)
Cash and Due from Banks 72,227 64,539
Other Assets 349,246 309,895
----------- -----------
Total Assets $ 3,434,324 $ 2,967,574
=========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest Bearing Deposits $ 2,023,216 24,528 4.81 $ 1,742,267 21,089 4.82
Short-Term Credit Facilities 322,831 4,508 5.54 286,774 3,878 5.38
Trust Preferred Capital Securities 50,000 1,049 8.39 -- -- --
Long-Term Debt 23,254 414 7.09 26,468 481 7.27
----------- ----------- ----------- ----------- ----------- -----------
Total Sources on Which
Interest is Paid 2,419,301 30,499 5.00 2,055,509 25,448 4.93
----------- ----------- ----------- ----------- ----------- -----------
Total Non-Interest Bearing
Deposits 537,211 465,927
Other Liabilities 246,253 238,878
Stockholders' Equity (3) 231,559 207,260
----------- -----------
Total Liabilities and
Stockholders' Equity $ 3,434,324 $ 2,967,574
=========== ===========
Net Interest Revenue -
Tax Equivalent Basis 23,848 20,488
Credit Loss Provision (150) (250)
Tax Equivalent Adjustment (2) (840) (826)
----------- -----------
Net Interest Revenue $ 22,858 $ 19,412
=========== ===========
Net Yield on Interest
Earning Assets 3.14 % 3.14 %
========== ===========
Interest Spread 2.13 % 2.09 %
========== ===========
</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 a marginal tax rate of
47%.
(3) Loans and Stockholders' Equity have been increased to include the Loan to
ESOP, which had an average balance of $7.3 million in 1997 and $10.5 million
in 1996.
22
<PAGE> 23
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 MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------------------------------------------
1997 1996
----------------------------------------- -----------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Earning Securities (1)(2) $ 1,327,099 $ 62,640 6.31 % $ 942,849 $ 41,941 5.94 %
Loans (3) 1,707,567 98,137 7.68 1,488,256 86,220 7.74
----------- ----------- ----------- ----------- ----------- -----------
Total Interest Earning Assets 3,034,666 160,777 7.08 2,431,105 128,161 7.04
----------- ----------- ----------- ----------- ----------- -----------
Allowance for Credit Losses (17,413) (16,331)
Cash and Due from Banks 70,275 78,776
Other Assets 337,488 302,272
----------- -----------
Total Assets $ 3,425,016 $ 2,795,822
=========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest Bearing Deposits $ 2,068,166 74,321 4.80 $ 1,676,728 59,249 4.72
Short-Term Credit Facilities 301,441 12,385 5.49 173,364 6,854 5.28
Trust Preferred Capital Securities 45,055 2,800 8.29 -- -- --
Long-Term Debt 23,607 1,256 7.11 26,803 1,456 7.24
----------- ----------- ----------- ----------- ----------- -----------
Total Sources on Which
Interest is Paid 2,438,269 90,762 4.98 1,876,895 67,559 4.81
----------- ----------- ----------- ----------- ----------- -----------
Total Non-Interest Bearing
Deposits 509,874 483,353
Other Liabilities 246,235 234,284
Stockholders' Equity (3) 230,638 201,290
----------- -----------
Total Liabilities and
Stockholders' Equity $ 3,425,016 $ 2,795,822
=========== ===========
Net Interest Revenue -
Tax Equivalent Basis 70,015 60,602
Credit Loss Provision (600) (750)
Tax Equivalent Adjustment (2) (2,642) (2,161)
----------- -----------
Net Interest Revenue $ 66,773 $ 57,691
=========== ===========
Net Yield on Interest
Earning Assets 3.08 % 3.33 %
=========== ===========
Interest Spread 2.10 % 2.23 %
=========== ===========
</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 a marginal tax rate of
47%.
(3) Loans and Stockholders' Equity have been increased to include the Loan to
ESOP, which had an average balance of $7.6 million in 1997 and $10.8 million
in 1996.
23
<PAGE> 24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required. See Note 4 of Notes to the Condensed Consolidated Financial
Statements in Item 1 of Part I of this Report.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
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.
(b) REPORTS ON FORM 8-K:
None.
24
<PAGE> 25
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 10, 1997 By: Richard E. Brinkmann
----------------- --------------------------------------------
Richard E. Brinkmann
Comptroller and
Chief Planning Officer
(Principal Accounting Officer)
25
<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,
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY NET INCOME PER SHARE:
Net Income $13,057,000 $10,212,000 $37,417,000 $29,663,000
Plus Dividend Equivalent on Deferred
Long-Term Performance Plan Awards
(After-Tax) 144,979 106,576 404,811 312,052
----------- ----------- ----------- -----------
Adjusted Net Income $13,201,979 $10,318,576 $37,821,811 $29,975,052
=========== =========== =========== ===========
Weighted average number of common
shares outstanding 19,239,095 19,556,514 19,440,759 19,540,176
Add average shares issuable under stock
based benefit plans 2,415,171 1,679,234 2,175,312 1,621,882
----------- ----------- ----------- -----------
Total Common and Common
Equivalent Shares 21,654,266 21,235,748 21,616,071 21,162,058
=========== =========== =========== ===========
Primary Net Income Per Share $ 0.61 $ 0.49 $ 1.75 $ 1.42
=========== =========== =========== ===========
FULLY DILUTED NET INCOME PER SHARE:
Net Income $13,057,000 $10,212,000 $37,417,000 $29,663,000
Plus Dividend Equivalent on Deferred
Long-Term Performance Plan Awards
(After-Tax) 144,979 106,576 404,811 312,052
----------- ----------- ----------- -----------
Adjusted Net Income $13,201,979 $10,318,576 $37,821,811 $29,975,052
=========== =========== =========== ===========
Weighted average number of common
shares outstanding 19,239,095 19,556,514 19,440,759 19,540,176
Add maximum dilutive impact of average
shares issuable under stock based
benefit plans 2,443,112 1,746,422 2,384,670 1,729,378
----------- ----------- ----------- -----------
Total Dilutive Shares 21,682,207 21,302,936 21,825,429 21,269,554
=========== =========== =========== ===========
Fully Diluted Net Income Per Share $ 0.61 $ 0.49 * $ 1.73 $ 1.41
=========== =========== =========== ===========
</TABLE>
* The fully diluted net income per share amount for the three month period
ended September 30, 1996 has been rounded up in conjunction with the
restatement of prior period amounts to reflect the stock split distribution
of February 21, 1997.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 120,152
<INT-BEARING-DEPOSITS> 186,166
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,139,073
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,816,176
<ALLOWANCE> 18,050
<TOTAL-ASSETS> 3,543,876
<DEPOSITS> 2,729,194
<SHORT-TERM> 267,340
<LIABILITIES-OTHER> 244,122
<LONG-TERM> 73,254
0
0
<COMMON> 19,885
<OTHER-SE> 210,081
<TOTAL-LIABILITIES-AND-EQUITY> 3,543,876
<INTEREST-LOAN> 34,039
<INTEREST-INVEST> 17,831
<INTEREST-OTHER> 1,637
<INTEREST-TOTAL> 53,507
<INTEREST-DEPOSIT> 24,528
<INTEREST-EXPENSE> 30,499
<INTEREST-INCOME-NET> 23,008
<LOAN-LOSSES> 150
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 72,634
<INCOME-PRETAX> 21,406
<INCOME-PRE-EXTRAORDINARY> 13,057
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,057
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.61
<YIELD-ACTUAL> 3.14
<LOANS-NON> 9,484
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 17,629
<CHARGE-OFFS> 122
<RECOVERIES> 393
<ALLOWANCE-CLOSE> 18,050
<ALLOWANCE-DOMESTIC> 18,050
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 18,050
</TABLE>
