<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: MARCH 31, 1998
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.
18,838,351 shares, Common Stock, $1 par value, as of April 30, 1998
Page 1 of 20
<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 March 31, 1998 and 1997 3
Condensed Consolidated Statement of Condition as of March 31, 1998
and December 31, 1997 4
Condensed Consolidated Statement of Changes in Stockholders' Equity
for the Three Month Periods Ended March 31, 1998 and 1997 5
Condensed Consolidated Statement of Cash Flows for the Three Month
Periods Ended March 31, 1998 and 1997 6
Notes to the Condensed Consolidated Financial Statements 7
Condensed Consolidated Net Interest Revenue and Average Balances
For the Three Month Periods Ended March 31, 1998 and 1997 18
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 MARCH 31,
---------------------------------------------
BETTER (WORSE)
---------------------
1998 1997 $ %
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Fee Revenue $ 78,620 $ 66,696 $ 11,924 17.9 %
Net Interest Revenue (1) 25,354 21,748 3,606 16.6
Securities Gains, Net -- 9 (9) --
-------- -------- -------- --------
TOTAL REVENUE 103,974 88,453 15,521 17.5
-------- -------- -------- --------
OPERATING EXPENSES
Salaries 26,638 23,586 (3,052) (12.9)
Employee Benefits and Performance
Compensation 22,262 16,920 (5,342) (31.6)
-------- -------- -------- --------
Total Salaries and Benefits 48,900 40,506 (8,394) (20.7)
Net Occupancy 9,003 9,204 201 2.2
Other 21,981 19,200 (2,781) (14.5)
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 79,884 68,910 (10,974) (15.9)
-------- -------- -------- --------
Income Before Income Tax Expense 24,090 19,543 4,547 23.3
Income Tax Expense 9,395 7,622 (1,773) (23.3)
-------- -------- -------- --------
NET INCOME $ 14,695 $ 11,921 $ 2,774 23.3 %
======== ======== ======== ========
BASIC INCOME PER SHARE $ 0.78 $ 0.61 $ 0.17 27.9 %
======== ======== ======== ========
DILUTED INCOME PER SHARE $ 0.70 $ 0.55 $ 0.15 27.3 %
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
U.S. TRUST CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CONDITION
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1998 1997
----------- -----------
<S> <C> <C>
Cash and Due from Banks $ 293,681 $ 74,887
Interest Earning Securities 1,427,555 1,519,083
Loans, Net of Allowance for Credit Losses
($18,713 in 1998 and $18,294 in 1997) 1,856,629 1,920,555
Other Assets 303,592 300,457
----------- -----------
Total Assets $ 3,881,457 $ 3,814,982
=========== ===========
LIABILITIES
Deposits:
Non-Interest Bearing $ 636,622 $ 746,314
Interest Bearing 2,520,239 2,327,588
----------- -----------
Total Deposits 3,156,861 3,073,902
Short-Term Credit Facilities 167,768 179,588
Accounts Payable and Accrued Liabilities 252,536 258,092
Long-Term Debt 18,773 22,254
----------- -----------
Total Deposits and Other Liabilities 3,595,938 3,533,836
Trust Preferred Capital Securities 50,000 50,000
----------- -----------
Total Liabilities 3,645,938 3,583,836
----------- -----------
STOCKHOLDERS' EQUITY
Common Stock, $1.00 Par Value; 40,000,000 Shares
Authorized; 19,920,024 Shares Issued in 1998
and 19,894,785 Shares Issued in 1997 19,920 19,895
Capital Surplus 9,703 11,067
Retained Earnings 259,209 246,238
Treasury Stock at Cost (1,032,660 shares in 1998
and 879,706 shares in 1997) (52,997) (42,627)
Loan to ESOP (3,773) (7,254)
Accumulated Other Comprehensive Income 3,457 3,827
----------- -----------
Total Stockholders' Equity 235,519 231,146
----------- -----------
Total Liabilities and Stockholders' Equity $ 3,881,457 $ 3,814,982
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
U.S. TRUST CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
---------------------------------------------------
1998 1997
----------------------- -----------------------
Comprehensive Comprehensive
Income Income
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
COMMON STOCK
Balance, January 1 $ 19,895 $ 19,630
Acquisition -- 204
Issuance of Shares Under Employee Benefit Plans 25 37
--------- ---------
Balance, March 31 $ 19,920 $ 19,871
========= =========
CAPITAL SURPLUS
Balance, January 1 $ 11,067 $ 3,575
Acquisition -- 6,943
Employee Benefit Plans (1,364) (881)
--------- ---------
Balance, March 31 $ 9,703 $ 9,637
========= =========
RETAINED EARNINGS
Balance, January 1 $ 246,238 $ 205,384
Net Income 14,695 $ 14,695 11,921 $ 11,921
Cash Dividends Declared ($0.18 Per Share in 1998
and $0.15 Per Share in 1997) (3,402) (2,954)
Tax Benefit on Stock Based Awards 1,678 1,300
--------- ---------
Balance, March 31 $ 259,209 $ 215,651
========= =========
TREASURY STOCK
Balance, January 1 $ (42,627) $ (4,728)
Purchases (14,045) (10,314)
Issuance of Shares Under Employee Benefit Plans, Net 3,675 2,656
--------- ---------
Balance, March 31 $ (52,997) $ (12,386)
========= =========
LOAN TO ESOP
Balance, January 1 $ (7,254) $ (10,468)
Principal Payment by ESOP 3,481 3,214
--------- ---------
Balance, March 31 $ (3,773) $ (7,254)
========= =========
ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS)
Balance, January 1 $ 3,827 $ 705
Unrealized gains (losses) on securities available for
sale (net of $295 tax benefit in 1998
and $3,369 tax benefit in 1997) (370) (4,398)
Less: Reclassification adjustment for gains (losses)
included in net income (net of $4 tax expense
in 1997) -- 5
Net unrealized gains (losses) (net of $295 tax --------- ---------
benefit in 1998 and $3,365 tax benefit in 1997) (370) (4,393)
--------- ---------
Other Comprehensive Income (Loss) (370) (4,393)
--------- ---------
Balance, March 31 $ 3,457 $ (3,688)
========= =========
TOTAL COMPREHENSIVE INCOME $ 14,325 $ 7,528
========= =========
TOTAL STOCKHOLDERS' EQUITY $ 235,519 $ 221,831
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
U.S. TRUST CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------
1998 1997
--------- ---------
<S> <C> <C>
Net Cash Provided by Operating Activities $ 19,331 $ 13,303
--------- ---------
Cash Flows From Investing Activities:
Interest Earning Securities:
Purchases (99,494) (440,234)
Sales -- 5,215
Maturities, Calls and Mandatory Redemptions 189,828 472,921
Net Change in Loans 63,504 21,682
Other, Net (5,778) (8,538)
--------- ---------
Net Cash Provided by Investing Activities 148,060 51,046
--------- ---------
Cash Flows From Financing Activities:
Net Change in Non-Interest Bearing Deposits (109,692) (219,566)
Net Change in Interest Bearing Deposits 192,651 123,039
Net Change in Short-Term Credit Facilities (11,820) (17,957)
Issuance of Trust Preferred Capital Securities -- 50,000
Repayments of Long-Term Debt (3,481) (3,214)
Purchases of Treasury Stock (14,045) (10,375)
Other, Net (2,210) (565)
--------- ---------
Net Cash Provided by (Used in) Financing Activities 51,403 (78,638)
--------- ---------
Net Change in Cash and Cash Equivalents 218,794 (14,289)
Cash and Cash Equivalents at January 1 74,887 78,566
--------- ---------
Cash and Cash Equivalents at March 31 $ 293,681 $ 64,277
========= =========
- --------------------------------------------------------------------------------
Income Taxes Paid $ 1,398 $ 391
Interest Expense Paid 31,056 28,104
Noncash Item:
Issuance of stock for employee benefit plans $ 4,395 $ 3,283
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
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 (including but not limited to
the allowance for credit losses, retirement and postretirement benefits) 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.
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 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. These financial
statements should be read in conjunction with the audited financial statements
included in the Corporation's annual report on Form 10-K for the year ended
December 31, 1997.
2. INCOME PER SHARE
The Corporation adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share," ("FAS 128") effective December 31, 1997. FAS 128
establishes new standards for computing and presenting income per share. All
income per share amounts have been restated to conform to the new requirements.
Basic Income Per Share ("BIPS") is computed by dividing net income by
the number of weighted average shares outstanding. Diluted Income Per Share
("DIPS") includes the determinants of BIPS and, in addition, gives effect to
potentially dilutive common shares that were outstanding during the period.
The computation of BIPS and DIPS for the three-month periods ended
March 31, 1998 and March 31, 1997 are reflected in the following table.
7
<PAGE> 8
U.S. TRUST CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
2. INCOME PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
Three-Month Periods Ended March 31,
(In Thousands) 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
BASIC INCOME PER SHARE:
Net Income $14,695 $11,921
======= =======
Weighted average number of common shares outstanding 18,958 19,664
======= =======
Basic Income Per Share $ 0.78 $ 0.61
======= =======
DILUTED INCOME PER SHARE:
Net Income $14,695 $11,921
Dividend Equivalents on stock based benefit plans (after-tax) 145 117
------- -------
Net Income available for common shareholders $14,840 $12,038
======= =======
Weighted average number of common shares outstanding 18,958 19,664
Dilutive impact of average shares issuable under stock based benefit plans 2,198 2,235
------- -------
Total Dilutive Shares 21,156 21,899
======= =======
Diluted Income Per Share $ 0.70 $ 0.55
======= =======
</TABLE>
3. ACCOUNTING CHANGES AND DEVELOPMENTS
In December 1996, Statement of Financial Accounting Standards No. 127,
which deferred the effective date of certain provisions (relating to repurchase
agreements, securities lending and other secured financing transactions) of
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities," ("FAS
125") was issued. These provisions of FAS 125 were adopted by the Corporation
effective January 1, 1998 and have had no material effect on the Corporation's
financial statements.
As of January 1, 1998, the Corporation adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," ("FAS 130"). 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. These disclosures are presented
in the condensed consolidated statement of changes in stockholders' equity.
In June 1997, Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information," ("FAS
131") was issued. FAS 131 requires disclosure of financial and descriptive
information about the Corporation's reportable operating segments. The
Corporation is required to adopt FAS 131 starting with financial statements for
the year ended December 31, 1998. In February 1998, Statement of Financial
Accounting Standards No. 132, "Employer's Disclosures about Pensions and Other
Postretirement Benefits," ("FAS 132") was issued. FAS 132 revises employer's
disclosures about pensions and other postretirement benefits to include
additional information of changes in benefit obligations and plan assets and
eliminates certain disclosures to facilitate the financial analysis of these
plans. The Corporation is required to adopt this standard starting with
financial statements for the year ended December 31, 1998. FAS 131 and FAS 132
are limited to issues of reporting and presentation and do not address
recognition or measurement. Adoption, therefore will not affect the
Corporation's financial condition or results or operations.
8
<PAGE> 9
U.S. TRUST CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
3. ACCOUNTING CHANGES AND DEVELOPMENTS (CONTINUED)
In March 1998, Statement of Position No. 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use," ("SOP 98-1")
was issued effective for financial statements issued in 1999. SOP 98-1 requires
the capitalization of eligible costs of specified activities related to computer
software developed or obtained for internal use. The Corporation is assessing
how the capitalization of these costs will affect financial condition and
results of operations.
4. NET INTEREST REVENUE
The following is an analysis of the composition of net interest
revenue:
<TABLE>
<CAPTION>
Three-Month Periods
Ended March 31,
---------------------
Better
(In Thousands) 1998 1997 (Worse)
- ------------------------------------------ ------- ------- ----
<S> <C> <C> <C>
Interest Income:
Loans $35,385 $31,456 12.5 %
Securities:
Taxable 15,894 17,745 (10.4)
Tax Exempt 888 998 (11.0)
Short-Term Investments 3,022 1,073 --
Deposits with Banks 595 330 80.3
------- ------- ----
Total Interest Income 55,784 51,602 8.1
------- ------- ----
Interest Expense:
Deposits 26,717 24,587 (8.7)
Short-Term Credit Facilities 2,160 3,844 43.8
Long-Term Debt 344 431 20.2
Trust Preferred Capital Securities 1,059 692 (53.0)
------- ------- ----
Total Interest Expense 30,280 29,554 (2.5)
------- ------- ----
Net Interest Income 25,504 22,048 15.7
Provision for Credit Losses 150 300 50.0
------- ------- ----
Net Interest Revenue $25,354 $21,748 16.6 %
======= ======= ====
</TABLE>
5. PLEDGED ASSETS
Financial instruments carried at $310.5 million on March 31, 1998 and
$314.3 million on December 31, 1997 were pledged to secure public deposits, as
collateral for borrowings, to qualify for fiduciary powers and for other
purposes.
6. 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.
7. RECLASSIFICATIONS
Certain amounts presented in the prior period have been reclassified to
conform with the current year's presentation.
9
<PAGE> 10
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 the occurrence of unanticipated
events.
RESULTS OF OPERATIONS
Net income for the first quarter of 1998 was $14.7 million, compared to
$11.9 million earned in the first quarter of 1997. On a diluted basis, income
per share was $0.70 in the first quarter of 1998, versus $0.55 in the first
quarter of 1997. The Corporation's return on average stockholders' equity was
25.6% for the first quarter of 1998, compared to 21.6% for the first quarter of
1997.
FEE REVENUE
<TABLE>
<CAPTION>
Three Month Periods Ended
---------------------
March 31, March 31, Better
(In Thousands) 1998 1997 (Worse)
------- ------- ------
<S> <C> <C> <C>
Investment Management and
Related Services $72,665 $61,219 18.7 %
Corporate Trust 5,955 5,477 8.7
------- ------- ------
Total Fee Revenue $78,620 $66,696 17.9 %
======= ======= ======
Market Related Fees $63,505 $53,372 19.0 %
Transaction Related Fees 15,115 13,324 13.4
------- ------- ------
Total Fee Revenue $78,620 $66,696 17.9 %
======= ======= ======
</TABLE>
Total fee revenue for the first quarter of 1998 increased approximately
$11.9 million to $78.6 million from $66.7 million in the first quarter of 1997.
Market-related fee revenue increased by $10.1 million to $63.5 million from
$53.4 million in the first quarter of 1997.
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, changes in
fee rate schedules and 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 first quarter of 1998 is attributable to a
combination of strong new business and the overall appreciation in the financial
markets.
10
<PAGE> 11
Most market related fee revenue typically is determined on a sliding
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 typically
have a proportionate impact on the level of market related fee revenue. In
general, market related fee revenue is determined quarterly based upon the value
of the prior quarters' assets under management. 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>
March 31, Dec. 31, March 31,
1998 1997 1997
--------- --------- ---------
<S> <C> <C> <C>
Equity Securities 56% 53% 52%
Fixed Income Securities 30% 32% 35%
Short-Term and Other 14% 15% 13%
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
Transaction related fee revenue, principally derived from corporate
trust and agency, estate settlement and brokerage activities increased $1.8
million to $15.1 million in the first quarter of 1998 from $13.3 million for the
first quarter of 1997.
The carrying amount of assets under management was $67.1 billion at
March 31, 1998, an increase of $13.8 billion from March 31, 1997. Investment
management assets at March 31, 1998, increased approximately $13.4 billion from
March 31, 1997.
<TABLE>
<CAPTION>
March March vs.
vs. Dec. March
Assets Under Management and Administration March 31, Dec. 31, March 31, Better Better
(In Billions) 1998 1997 1997 (Worse) (Worse)
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Assets Under Management:
Investment Management $ 52.0 $ 47.3 $ 38.6 10.0% 34.8%
Special Fiduciary 15.1 13.9 14.7 8.3 2.4
------ ------ ------ ------ ------
Total Assets Under Management 67.1 61.2 53.3 9.6 25.9
------ ------ ------ ------ ------
Assets Under Administration:
Personal Custody and Other 21.8 20.1 15.9 8.1 37.2
Corporate and Municipal Trusteeships
and Agency Relationships at Par Value 266.8 248.6 226.0 7.3 18.0
------ ------ ------ ------ ------
Total Assets Under Administration 288.6 268.7 241.9 7.4 19.3
------ ------ ------ ------ ------
Total Assets Under Management and
Administration $355.7 $329.9 $295.2 7.8% 20.5%
====== ====== ====== ====== ======
</TABLE>
Approximately $6.8 billion of assets under management were invested in
the Corporation's Excelsior Funds at March 31, 1998. At December 31, 1997 and
March 31, 1997, total assets under management invested in the Excelsior Funds
were $5.9 billion and $5.1 billion, respectively.
11
<PAGE> 12
NET INTEREST REVENUE
The details of net interest revenue are presented in Note 4, of Notes
to the Condensed Consolidated Financial Statements.
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. The net yield on interest
earning assets has increased from 3.03% at March 31, 1997 to 3.29% at March 31,
1998.
OPERATING EXPENSES
<TABLE>
<CAPTION>
Three Month Periods Ended
--------------------------
March 31, March 31, Better
(In Thousands) 1998 1997 (Worse)
------- ------- ----
<S> <C> <C> <C>
Salaries $26,638 $23,586 (12.9) %
Employee Benefits and
Performance Compensation 22,262 16,920 (31.6)
------- ------- ----
Total Salaries and Benefits 48,900 40,506 (20.7)
Net Occupancy 9,003 9,204 2.2
Other 21,981 19,200 (14.5)
------- ------- ----
Total Operating Expenses 79,884 $68,910 (15.9) %
======= ======= ====
</TABLE>
Operating expenses increased by $11.0 million in the first quarter of
1998, compared to the first quarter of 1997. The Corporation's pre-tax margin
was 23.2% for the first quarter of 1998 and 22.1% for the first quarter of 1997.
Salaries and employee benefits including performance compensation
increased $8.4 million from the first quarter of 1997. Performance compensation
is determined based upon the Corporation's financial performance as measured by
the Corporation's diluted income per share, adjusted to offset the impact of
extraordinary or nonrecurring events, or other changes, conditions or
circumstances that warrant consideration. Employee benefit expense is typically
a function of staffing levels. The number of full-time equivalent employees
increased 8.6% to 1,609 at March 31, 1998, compared to 1,481 at March 31, 1997.
The Corporation makes a substantial commitment to sales, marketing and
advertising. As of March 31, 1998, approximately 127 employees were devoted to
these functions compared with 106 as of March 31, 1997. Direct expenses
associated with these functions, including salary, employee benefits and
performance compensation (principally sales commissions) were $8.7 million for
the first quarter of 1998, an increase of 20.2% from the $7.3 million incurred
during the corresponding 1997 period. In addition to the aforementioned
expenses, occupancy expense directly allocable to these functions amounted to
approximately $561,000 for the first quarter of 1998 and $542,000 for the first
quarter of 1997.
12
<PAGE> 13
In 1996, the Corporation established a Year 2000 Committee with
responsibility for developing an effective plan for identifying, renovating,
testing, and implementing solutions for Year 2000 processing. The Corporation is
working with Chase (provider of certain of the Corporation's most significant
data processing systems) as well as other vendors to ensure compliance with
required systems changes. Under a servicing agreement, Chase is responsible for
and bears the cost of effecting all necessary changes to such systems. The
Corporation expects to incur approximately $5 to $6 million dollars over the
next two years related to enhancements necessary to prepare the systems for the
year 2000. The Corporation presently believes that with modifications to
existing software and compliance by vendors who provide significant processing
systems to the Corporation, the Corporation's systems will continue without
disruption. However, if such modifications are not made, or are not completed
timely, the Year 2000 issue could have a material impact on the operations of
the Corporation. Specific factors that might cause such a material impact
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer codes and
similar uncertainties. The Corporation's Year 2000 plan anticipates that
software code remediation and testing of all critical systems will be
substantively completed by the end of 1998. The Corporation's total Year 2000
project costs and its estimated time frame to complete are based on presently
available information. However, there can be no guarantee that the systems of
other companies on which the Corporation's systems rely will be timely
converted, or that a failure to convert by another company would not have a
material adverse effect on the Corporation.
FINANCIAL CONDITION
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 14.8% at March 31, 1998 and
15.6% at March 31, 1997. The ratio of Total Capital to period end risk-adjusted
assets was 15.9% at March 31, 1998 and 16.7% at March 31, 1997. The Tier 1
Leverage (Tier 1 Capital as of the period end divided by quarterly (3 month)
total average assets) was 7.2% at March 31, 1998 and 7.0% at March 31, 1997.
The objective of liquidity management is to ensure the availability of
financial resources to meet the Corporation's cash flow requirements and to
capitalize on opportunities for business expansion. Management monitors the
liquidity position of the Parent and each of its subsidiaries on an ongoing
basis to ensure that funds are available to meet loan and deposit cash flow
requirements. Liquidity management is also structured to ensure that the capital
needs of the Parent and its subsidiaries are met on a day to day basis.
The Parent'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 27, 1998, the Corporation announced a
20% increase in its regular quarterly common stock dividend, indicating an
annual dividend rate of $0.72 per share. During the first quarter of 1998, the
Board of Directors declared a dividend of $0.18 per share payable on April 24,
1998. Dividends declared per share as a percentage of diluted income per share
was 25.7% for the first quarter of 1998 and 27.3% for the first quarter of 1997.
Actual dividends declared in 1998 will be subject to the approval of the Board
of Directors and regulatory capital limitations.
13
<PAGE> 14
The Board of Directors has authorized the repurchase of two million
shares of common stock. During the quarter ended March 31, 1998, 226,500 shares
have been repurchased at a weighted average purchase price of $62.01 per share.
The repurchased shares are available to meet the Parent's obligations under its
stock-based benefit plans and for general capital management purposes. The
Corporation has remaining authority to repurchase approximately 829,000
additional shares of common stock.
The Parent's sources of liquidity are primarily derived from dividends
from its subsidiaries, issuances of common stock and issuances of long-term and
short-term debt instruments. At March 31, 1998, the subsidiaries have the
ability to pay dividends of approximately $47.1 million without prior approval
of the regulatory authorities.
The Parent has a $40.0 million unsecured revolving credit facility
maturing in 1999. As of March 31, 1998, the Parent 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.
The Parent is authorized to issue up to $5.0 million, $1.00 par value,
preferred shares. As of March 31, 1998, no preferred shares have been issued.
In addition to traditional interest and non-interest bearing deposit
raising capabilities, subsidiaries of the Corporation have established their own
external funding sources. The subsidiaries have established credit facilities
with the Federal Home Loan Bank ("FHLB") totaling approximately $365.2 million.
As of March 31, 1998, the subsidiaries have borrowed $15.0 million under these
credit facilities.
Liquidity is also generated from the types of financial instruments
that the subsidiaries carry as investments. Approximately $940.2 million or 85%
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 March 31, 1998, securities sold under agreements
to repurchase aggregated $148.2 million. The subsidiaries may also pledge these
securities to secure public deposits to qualify for fiduciary powers and as
collateral for FHLB and other borrowings. Pledged assets at March 31, 1998
totaled $310.5 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 38% of
average total assets consist of short-term financial instruments and readily
marketable securities. The securities portfolio is concentrated in investments
in U.S. Treasury obligations and 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 1998 first quarter, average loans comprised approximately 51% of average
total assets. Average loans increased $193.4 million, or 11.7%, to $1.8 billion
in the first quarter of 1998, from $1.7 billion in the first quarter of 1997.
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.
14
<PAGE> 15
Market Risk and Sensitivity Analysis
The Corporation does not trade financial instruments nor does the
Corporation invest in financial instruments denominated in foreign currencies.
The Corporation's primary market risk exposure is interest rate risk mainly
through mortgage lending activities and through investments in mortgage backed
securities. The Corporation uses interest rate swaps ("Swaps") as hedges. Swaps
mitigate the interest rate exposure created by financing long-term, fixed rate
financial instruments with shorter-term interest bearing deposits.
Prudent asset/liability management activities generate net interest
revenue that results from timing differences in the maturity and/or repricing of
assets, liabilities and off-balance sheet positions. The results of these timing
differences are 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. The Corporation has established limits for net
interest revenue at risk equal to about 2.5% of gross revenue given a 200 basis
point adverse change in rates occurring over a twelve month period.
The table below provides information about the Corporation's financial
instruments that are sensitive to changes in interest rates as well as
non-interest earning assets, non-interest bearing liabilities and stockholders'
equity. 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.
<TABLE>
<CAPTION>
Carrying Amount by Expected Maturity
------------------------------------------------------------------------------------------
Within 1-2 2-3 3-4 4-5 Over 5
(Dollars in Thousands) 1 Year Years Years Years Years Years Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Short-Term Investments $ 326,342 -- -- -- -- -- $ 326,342
Securities 563,967 $ 200,311 $ 72,936 $ 58,725 $ 44,539 $ 160,735 1,101,213
Loans, Net of Allowance
for Credit Losses 849,910 236,931 171,269 177,781 81,365 339,373 1,856,629
----------- --------- --------- --------- --------- --------- -----------
Total Interest Earning Assets 1,740,219 437,242 244,205 236,506 125,904 500,108 3,284,184
----------- --------- --------- --------- --------- --------- -----------
INTEREST BEARING
LIABILITIES:
Interest Bearing Deposits (2,492,635) (456) (1,829) (25,070) (144) (105) (2,520,239)
Short-Term Credit Facilities (167,768) -- -- -- -- -- (167,768)
Long-Term Debt (2,000) (3,773) (11,000) (1,000) (1,000) -- (18,773)
Trust Preferred Capital Securities -- -- -- -- -- (50,000) (50,000)
----------- --------- --------- --------- --------- --------- -----------
Total Interest Bearing Liabilities (2,662,403) (4,229) (12,829) (26,070) (1,144) (50,105) (2,756,780)
----------- --------- --------- --------- --------- --------- -----------
Asset/(Liability) Sensitivity Gap (922,184) 433,013 231,376 210,436 124,760 450,003 527,404
Interest Rate Swaps 505,000* (70,000) (120,000) (140,000) (145,000) (30,000) --
----------- --------- --------- --------- --------- --------- -----------
Interest Rate Sensitivity Gap (417,184) 363,013 111,376 70,436 (20,240) 420,003 527,404
Net Non-Interest Earning Assets,
Non-Interest Bearing Liabilities and
Stockholders' Equity 50,948 (250,826) (67,031) (9,952) (9,952) (240,591) (527,404)
----------- --------- --------- --------- --------- --------- -----------
Maturity/Repricing Gap (366,236) 112,187 44,345 60,484 (30,192) 179,412 --
----------- --------- --------- --------- --------- -------- -----------
Cumulative Gap $ (366,236) $(254,049) $(209,704) $(149,220) $(179,412) $ -- $ --
=========== ========= ========= ========= ========= ========= ===========
</TABLE>
* Includes $610.8 million of total outstanding notional principal balance of
which $105.8 million will mature within one year.
15
<PAGE> 16
The following table provides details, as of March 31, 1998, 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 $ 105,750 $ 475,000 $ 30,000 $ 610,750
Average Rate Paid 6.49% 6.58% 6.50% 6.56%
Average Rate Received (1) 5.68% 5.66% 5.71% 5.67%
</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 ended March 31, 1998 and 1997, are detailed in the
following table.
<TABLE>
<CAPTION>
Three Month Periods Ended
--------------------------------
(Dollars In Thousands) March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Net Interest Revenue:
As Reported $ 25,354 $ 21,748
Excluding Hedging Activities $ 26,572 $ 23,427
Net Yield on Interest Earning Assets:
As Reported 3.29% 3.03%
Excluding Hedging Activities 3.47% 3.29%
</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
Included in interest earning securities are $61.3 million and $242.6
million of interest bearing deposits with banks, $1.10 billion and $1.13 billion
of securities available for sale and $265.0 million and $145.0 million of
federal funds sold at March 31, 1998 and December 31, 1997, respectively.
The Corporation maintains a high quality securities portfolio with
approximately 85% 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 comprised of variable rate collateralized mortgage obligations
("CMOs") and obligations of states and municipalities. CMOs principally are
collateralized by GNMAs.
The fair value of securities exceeded their amortized cost by $6.3
million and $7.0 million at March 31, 1998 and December 31, 1997, respectively.
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.
16
<PAGE> 17
ASSET QUALITY - LOAN PORTFOLIO
The Corporation's loan portfolio is predominantly comprised of loans to
private banking customers. At March 31, 1998, the loan portfolio totaled $1.9
billion of which approximately 74% were collateralized by residential real
estate mortgages.
An analysis of the allowance for credit losses follows:
<TABLE>
<CAPTION>
Three Month Periods
Ended March. 31,
---------------------------
(In Thousands) 1998 1997
-------- --------
<S> <C> <C>
Balance, Beginning of Period $ 18,294 $ 16,693
Provision for Credit Losses 150 300
Recoveries 290 275
Charge-offs (21) --
-------- --------
Net (Charge-Offs) Recoveries 269 275
-------- --------
Balance, End of Period $ 18,713 $ 17,268
======== ========
</TABLE>
The level of the allowance for credit losses is based upon management's
judgment as to the current condition of the credit portfolio 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 first quarter of 1998, compared to annualized net loan
recoveries of seven basis points for the first quarter of 1997. The allowance
for credit losses at March 31, 1998, was 1.01% of average loans for the quarter.
This compares with 1.05% of average loans for the quarter ended March 31, 1997.
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>
March 31, Dec. 31, Sept. 30, June 30, March 31,
(In Millions) 1998 1997 1997 1997 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Non-accrual loans $ 9.8 $ 9.7 $ 9.5 $ 8.8 $ 8.8
Real estate owned, net -- -- 0.7 0.7 0.7
----- ----- ----- ----- -----
Total Nonperforming Assets $ 9.8 $ 9.7 $10.2 $ 9.5 $ 9.5
===== ===== ===== ===== =====
</TABLE>
Other real estate owned is net of a reserve for selling and disposition
costs of $529,000 at September 30, 1997 and $477,000 at June 30, 1997 and March
31, 1997.
The allowance for credit losses as a percentage of nonperforming loans
was 191.6% at March 31, 1998, compared to 197.4% at March 31, 1997. The ratio of
nonperforming assets to average loans and real estate owned for the quarter was
0.5% at March 31, 1998, compared to 0.6% at March 31, 1997.
17
<PAGE> 18
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 MARCH 31,
------------------------------------------------------------------------------------------
1998 1997
---------------------------------------- ----------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
----------- ----------- --------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Earning Securities (1) (2) $ 1,360,378 $ 21,162 6.31% $ 1,382,239 $ 21,065 6.18%
Loans (3) 1,849,289 35,385 7.76 1,659,282 31,456 7.69
----------- ----------- --------- ----------- ------------- -----------
Total Interest Earning Assets 3,209,667 56,547 7.11 3,041,521 52,521 6.97
----------- ----------- --------- ----------- ------------- -----------
Allowance for Credit Losses (18,470) (16,893)
Cash and Due from Banks 69,337 68,336
Other Assets 352,820 329,397
----------- -----------
Total Assets $ 3,613,354 $ 3,422,361
=========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest Bearing Deposits $ 2,289,780 26,717 4.73 $ 2,094,721 24,587 4.76
Short-Term Credit Facilities 165,067 2,160 5.31 289,057 3,844 5.39
Trust Preferred Capital Securities 50,000 1,059 8.47 35,000 692 7.91
Long-Term Debt 20,010 344 6.95 24,326 431 7.14
----------- ----------- --------- ----------- ------------- -----------
Total Sources on Which
Interest is Paid 2,524,857 30,280 4.86 2,443,104 29,554 4.91
----------- ----------- --------- ----------- ------------- -----------
Total Non-Interest Bearing
Deposits 579,760 484,199
Other Liabilities 271,029 262,559
Stockholders' Equity (3) 237,708 232,499
----------- -----------
Total Liabilities and
Stockholders' Equity $ 3,613,354 $ 3,422,361
=========== ===========
Net Interest Revenue -
Tax Equivalent Basis 26,267 22,967
Credit Loss Provision (150) (300)
Tax Equivalent Adjustment (2) (763) (919)
----------- -------------
Net Interest Revenue $ 25,354 $ 21,748
=========== =============
Net Yield on Interest
Earning Assets 3.29% 3.03%
========= ===========
Interest Spread 2.25% 2.06%
========= ===========
</TABLE>
(1) The average balance and average rate for securities available for sale have
been calculated using their amortized cost.
(2) Yields on state and municipal obligations are stated on a taxable equivalent
basis, employing the federal statutory income tax rate adjusted for the
effect of state and local taxes, resulting in a marginal tax rate of 47%.
(3) Loans and Stockholders' Equity include the Loan to ESOP, which had an
average balance of $4.9 million in 1998 and $8.3 million in 1997.
18
<PAGE> 19
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.
10.8 Third Lease Modification Agreement dated September 1, 1997, between
46-47 Associates L.L.C., as Lessor and USTNY, as Lessee, amending the
lease agreement dated September 10, 1997.
27 Financial Data Schedule.
(1) Incorporated herein by reference.
(b) REPORTS ON FORM 8-K:
None.
19
<PAGE> 20
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: May 12, 1998 By: /s/ RICHARD E. BRINKMANN
---------------------------------
Richard E. Brinkmann
Managing Director and
Comptroller
(Principal Accounting Officer)
20
<PAGE> 1
Exhibit 10.8
THIRD LEASE MODIFICATION AGREEMENT
This Third Lease Modification Agreement (the "Agreement"),
dated as of the 1st day of September, 1997, between 46-47 ASSOCIATES L.L.C., a
New York limited liability company, having offices at 1155 Avenue of the
Americas, New York, New York 10036 (the "Landlord"), and UNITED STATES TRUST
COMPANY OF NEW YORK, a New York banking corporation, having offices at 114 West
47th Street, New York, New York (the "Tenant").
W I T N E S S E T H :
WHEREAS, Landlord (formerly known as 46-47 Associates) is the
landlord, and Tenant is the successor-in-interest to the tenant, under that
certain lease (such lease, as thereafter modified, being herein called the
"Lease") dated as of September 10, 1987, a memorandum of which was recorded in
Reel 1290, Page 1488, in the office of the City Register of the County of New
York (the "Register's Office"), covering the premises more particularly
described in the Lease; and
WHEREAS, Landlord and Tenant entered into that certain lease
modification agreement dated as of December 7, 1987, modifying Exhibit B of the
Lease, which lease modification agreement was recorded in Reel 1374, page 1722,
in the Register's Office; and
WHEREAS, Landlord and Tenant entered into that certain Second
Lease Modification Agreement dated as of May 10, 1993, a memorandum of which was
recorded in Reel 1981, Page 803, in the Register's Office; and
WHEREAS, Landlord and Tenant wish to make certain additional
modifications to the Lease and to clarify certain understandings, in the manner
hereinafter set forth.
NOW, THEREFORE, in consideration of the sum of Ten Dollars
($10.00) and other good and valuable consideration, the receipt of which is
hereby acknowledged, Landlord and Tenant hereby agree as follows:
1. Capitalized terms not defined herein shall have the
meanings ascribed to such terms in the Lease.
2. Section 6.01D of the Lease is hereby modified so that the
following new language shall be deemed to be, and hereby is, added thereto:
Tenant agrees that the cleaning contractor for the Building
may be Landlord or a division or affiliate of Landlord.
<PAGE> 2
Landlord and Tenant agree that, effective as of January 1,
1997, in addition to the Building standard cleaning services provided to the
Office Space and public portions of the Building, as described in this Section
6.01D (and Exhibit D to the Lease), the General Cleaning and Special Services
(collectively, "Special Cleaning") described in the Special Services Cleaning
Specification attached hereto and made a part hereof as Exhibit A shall be
provided to Tenant, at Tenant's cost, as hereinafter set forth.
Tenant shall pay Landlord, as additional rent, a charge of
$13,709.37 per month (as hereinafter adjusted) for providing Special Cleaning.
Such Special Cleaning charge shall be adjusted on January 1, 1998, and on each
January 1 occurring thereafter during the term of this Lease (and during any
Renewal Term), by multiplying (i) the Special Cleaning charge payable by Tenant
hereunder as of the last month of the prior year (as adjusted hereby) by (ii)
103.75%.
In the event Landlord and Tenant shall agree on a change in
the scope of Special Cleaning services to be provided by Landlord hereunder,
such Special Cleaning charge shall also be adjusted to reflect such change,
based on the mutual written agreement of the parties, in accordance with then
competitive rates for such services.
Landlord and Tenant acknowledge and agree that the provisions
of the first paragraph of Section 6.01D (appearing on the first half of page 28
of the Lease) shall be applicable, also, to Special Cleaning. Tenant, therefore,
hereby approves the current cleaning contractor for the Building (such cleaning
contractor being a division or affiliate of Landlord) for the purposes of
providing Special Cleaning, as well as the Building standard cleaning described
in Section 6.01D (subject, as aforesaid, to Tenant's rights with respect to
dissatisfaction with any cleaning services as set forth in said first paragraph
of Section 6.01D).
Landlord and Tenant acknowledge and agree that the provisions
of Section 4.01A.5.(xiv) (appearing on page 17 of the Lease) shall not be
applicable to Special Cleaning, so that one hundred percent (100%) of Special
Cleaning charges shall be excluded from Expenses.
3. At the request of either party hereto, Landlord and Tenant
shall promptly execute, acknowledge and deliver a memorandum with respect to
this Agreement sufficient for recordation in the Register's office. Such
memorandum shall not in any circumstances be deemed to change or otherwise
affect any of the obligations or provisions of the Lease or this Agreement.
-2-
<PAGE> 3
4. Except as modified herein, all of the terms, covenants and
conditions of the Lease are and shall remain in full force and effect and are
hereby ratified and confirmed.
5. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective legal representatives,
successors and assigns.
IN WITNESS WHEREOF, Landlord and Tenant have executed this
Agreement as of the day and year first above written.
46-47 ASSOCIATES L.L.C. (Landlord)
By: /s/ Jeffrey Meaney
-------------------------------------
Name: Jeffrey Meaney
Title: VP
UNITED STATES TRUST COMPANY OF
NEW YORK (Tenant)
By: /s/ John M. Deignan
-------------------------------------
Name: John M. Deignan
Title: Executive V.P.
-3-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 293,681
<INT-BEARING-DEPOSITS> 61,342
<FED-FUNDS-SOLD> 265,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,101,213
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,875,342
<ALLOWANCE> 18,713
<TOTAL-ASSETS> 3,881,457
<DEPOSITS> 3,156,861
<SHORT-TERM> 167,768
<LIABILITIES-OTHER> 252,536
<LONG-TERM> 68,773
0
0
<COMMON> 19,920
<OTHER-SE> 215,599
<TOTAL-LIABILITIES-AND-EQUITY> 3,881,457
<INTEREST-LOAN> 35,385
<INTEREST-INVEST> 16,782
<INTEREST-OTHER> 3,617
<INTEREST-TOTAL> 55,784
<INTEREST-DEPOSIT> 26,717
<INTEREST-EXPENSE> 30,280
<INTEREST-INCOME-NET> 25,504
<LOAN-LOSSES> 150
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 79,884
<INCOME-PRETAX> 24,090
<INCOME-PRE-EXTRAORDINARY> 14,695
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,695
<EPS-PRIMARY> 0.78<F1>
<EPS-DILUTED> 0.70<F1>
<YIELD-ACTUAL> 3.29
<LOANS-NON> 9,767
<LOANS-PAST> 3,260
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 18,294
<CHARGE-OFFS> 21
<RECOVERIES> 290
<ALLOWANCE-CLOSE> 18,713
<ALLOWANCE-DOMESTIC> 18,713
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 18,713
<FN>
<F1>REPRESENTS THE CORPORATION'S BASIC AND DILUTED INCOME PER SHARE CALCULATED IN
ACCORDANCE WITH STATEMENT OF FINANCIAL ACCOUTING STANDARDS NO. 128 "EARNINGS
PER SHARE".
</FN>
</TABLE>
