<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: JUNE 30, 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 10036-1532
(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.
18,812,950 shares, Common Stock, $1 par value, as of July 31, 1998
Page 1 of 24
<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 June 30, 1998 and 1997 3
For the Six Months Ended June 30, 1998 and 1997 4
Condensed Consolidated Statement of Condition as of June 30, 1998
and December 31, 1997 5
Condensed Consolidated Statement of Changes in Stockholders' Equity
for the Six Months Ended June 30, 1998 and 1997 6
Condensed Consolidated Statement of Cash Flows for the Six Months
Ended June 30, 1998 and 1997 7
Notes to the Condensed Consolidated Financial Statements 8
Condensed Consolidated Net Interest Revenue and Average Balances:
For the Three Months Ended June 30, 1998 and 1997 21
For the Six Months Ended June 30, 1998 and 1997 22
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 JUNE 30,
--------------------------------------------
BETTER (WORSE)
--------------------
1998 1997 $ %
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Fee Revenue $ 83,293 $ 67,913 $ 15,380 22.6 %
Net Interest Revenue 24,701 22,167 2,534 11.4
Securities Gains, Net 3 -- 3 --
-------- -------- -------- --------
TOTAL REVENUE 107,997 90,080 17,917 19.9
-------- -------- -------- --------
OPERATING EXPENSES
Salaries 29,144 25,220 (3,924) (15.6)
Employee Benefits and Performance
Compensation 23,610 16,443 (7,167) (43.6)
-------- -------- -------- --------
Total Salaries and Benefits 52,754 41,663 (11,091) (26.6)
Net Occupancy 8,886 9,192 306 3.3
Other 21,287 18,834 (2,453) (13.0)
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 82,927 69,689 (13,238) (19.0)
-------- -------- -------- --------
Income Before Income Tax Expense 25,070 20,391 4,679 22.9
Income Tax Expense 9,777 7,952 (1,825) (23.0)
-------- -------- -------- --------
NET INCOME $ 15,293 $ 12,439 $ 2,854 22.9 %
======== ======== ======== ========
BASIC INCOME PER SHARE $ 0.81 $ 0.64 $ 0.17 26.6 %
======== ======== ======== ========
DILUTED INCOME PER SHARE $ 0.73 $ 0.58 $ 0.15 25.9 %
======== ======== ======== ========
</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 SIX MONTHS ENDED JUNE 30,
--------------------------------------------
BETTER (WORSE)
--------------------
1998 1997 $ %
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Fee Revenue $161,913 $134,609 $ 27,304 20.3%
Net Interest Revenue 50,055 43,915 6,140 14.0
Securities Gains, Net 3 9 (6) (66.7)
-------- -------- -------- --------
TOTAL REVENUE 211,971 178,533 33,438 18.7
-------- -------- -------- --------
OPERATING EXPENSES
Salaries 55,782 48,806 (6,976) (14.3)
Employee Benefits and Performance
Compensation 45,872 33,363 (12,509) (37.5)
-------- -------- -------- --------
Total Salaries and Benefits 101,654 82,169 (19,485) (23.7)
Net Occupancy 17,889 18,396 507 2.8
Other 43,268 38,034 (5,234) (13.8)
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 162,811 138,599 (24,212) (17.5)
-------- -------- -------- --------
Income Before Income Tax Expense 49,160 39,934 9,226 23.1
Income Tax Expense 19,172 15,574 (3,598) (23.1)
-------- -------- -------- --------
NET INCOME $ 29,988 $ 24,360 $ 5,628 23.1%
======== ======== ======== ========
BASIC INCOME PER SHARE $ 1.59 $ 1.25 $ 0.34 27.2%
======== ======== ======== ========
DILUTED INCOME PER SHARE $ 1.43 $ 1.14 $ 0.29 25.4%
======== ======== ======== ========
</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>
JUNE 30, DECEMBER 31,
ASSETS 1998 1997
---------- ----------
<S> <C> <C>
Interest Earning Securities $1,247,585 $1,519,083
Loans, Net of Allowance for Credit Losses
($19,037 in 1998 and $18,294 in 1997) 2,013,634 1,920,555
Other Assets 415,270 375,344
---------- ----------
Total Assets $3,676,489 $3,814,982
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Total Deposits $2,943,035 $3,073,902
Short and Long-Term Credit Facilities 230,574 251,842
Other Liabilities 268,351 258,092
---------- ----------
Total Liabilities 3,441,960 3,583,836
---------- ----------
Stockholders' Equity 234,529 231,146
---------- ----------
Total Liabilities and Stockholders' Equity $3,676,489 $3,814,982
========== ==========
</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>
Accumulated
Other Total
Common Capital Retained Treasury Loan to Comprehensive Stockholders'
Stock Surplus Earnings Stock ESOP Income (Loss) Equity
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 $ 19,895 $ 11,067 $ 246,238 $ (42,627) $ (7,254) $ 3,827 $ 231,146
Net Income 29,988 29,988
Net Unrealized (Loss) on Securities
Available for Sale (70) (70)
--------- --------- ---------
Total Comprehensive Income 29,988 (70) 29,918
Purchases of Treasury Stock (28,210) (28,210)
Principal Payment by ESOP 3,481 3,481
Cash Dividends Declared ($0.36 Per Share) (6,772) (6,772)
Capital Effect of Employee Benefit
Plans 37 (412) 1,697 3,644 4,966
--------- --------- --------- --------- --------- --------- ---------
Balance, June 30, 1998 $ 19,932 $ 10,655 $ 271,151 $ (67,193) $ (3,773) $ 3,757 $ 234,529
========= ========= ========= ========= ========= ========= =========
<CAPTION>
Accumulated
Other Total
Common Capital Retained Treasury Loan to Comprehensive Stockholders'
Stock Surplus Earnings Stock ESOP Income (Loss) Equity
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $ 19,630 $ 3,575 $ 205,384 $ (4,728) $ (10,468) $ 705 $ 214,098
Net Income 24,360 24,360
Net Unrealized Gain on Securities
Available for Sale 334 334
--------- --------- ---------
Total Comprehensive Income 24,360 334 24,694
Purchases of Treasury Stock (23,844) (23,844)
Principal Payment by ESOP 3,214 3,214
Cash Dividends Declared ($0.30 Per Share) (5,872) (5,872)
Issuance of Shares for Acquisition 204 6,943 7,147
Capital Effect of Employee Benefit
Plans 40 (551) 1,328 2,655 3,472
--------- --------- --------- --------- --------- --------- ---------
Balance, June 30, 1997 $ 19,874 $ 9,967 $ 225,200 $ (25,917) $ (7,254) $ 1,039 $ 222,909
========= ========= ========= ========= ========= ========= =========
</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 SIX MONTHS
ENDED JUNE 30,
-----------------------
1998 1997
--------- ---------
<S> <C> <C>
Net Cash Provided by Operating Activities $ 48,349 $ 33,707
--------- ---------
Cash Flows From Investing Activities:
Interest Earning Securities:
Purchases (169,534) (472,158)
Sales 1,315 34,394
Maturities, Calls and Mandatory Redemptions 437,814 429,467
Net Change in Loans (93,832) (71,404)
Other, Net (10,985) (13,652)
--------- ---------
Net Cash Provided by (Used in) Investing Activities 164,778 (93,353)
--------- ---------
Cash Flows From Financing Activities:
Net Change in Non-Interest Bearing Deposits (45,610) 113,535
Net Change in Interest Bearing Deposits (85,257) (169,224)
Net Change in Short-Term Credit Facilities (16,787) 108,518
Issuance of Trust Preferred Capital Securities -- 50,000
Repayments of Long-Term Debt (4,481) (3,214)
Purchases of Treasury Stock (28,210) (23,844)
Other, Net (5,303) (5,014)
--------- ---------
Net Cash Provided by (Used in) Financing Activities (185,648) 70,757
--------- ---------
Net Change in Cash and Cash Equivalents 27,479 11,111
Cash and Cash Equivalents at January 1 74,887 78,566
--------- ---------
Cash and Cash Equivalents at June 30 $ 102,366 $ 89,677
========= =========
- --------------------------------------------------------------------------------
Income Taxes Paid $ 21,144 $ 14,996
Interest Expense Paid 59,713 63,693
Noncash Item:
Issuance of stock for employee benefit plans $ 4,733 $ 3,283
</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 (individually, the "Parent") and its wholly owned
subsidiaries (collectively with the Parent, the "Corporation"). All material
intercompany accounts and transactions have been eliminated in consolidation.
The accounting and reporting policies of the Corporation conform with
generally accepted accounting principles and general practice within the
investment management and banking industries. The preparation of condensed
consolidated 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. ACCOUNTING CHANGES AND DEVELOPMENTS
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 of operations.
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 anticipates
adoption of SOP 98-1 will not have a material effect on the Corporation's
financial condition or results of operations.
8
<PAGE> 9
U.S. TRUST CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. ACCOUNTING CHANGES AND DEVELOPMENTS (CONTINUED)
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," ("FAS 133") was
issued. FAS 133 establishes accounting and reporting standards for derivatives.
FAS 133 requires recognition of all derivatives as either assets or liabilities
in the statement of financial condition and measurement of those instruments at
fair value. FAS 133 is effective for all quarters of years beginning after June
15, 1999. The Corporation is in the process of assessing how the adoption of FAS
133 will affect its financial condition and results of operations.
3. ACQUISITION
On July 31, 1998, the Corporation acquired Wood Island Associates,
Inc., an investment management firm located in Larkspur, California that
managed approximately $1 billion in assets. Under the terms of the acquisition,
the Corporation made a $21.9 million initial payment comprised of both cash
and common stock of the Corporation (approximately 99,000 shares) and may make
several additional payments after the acquisition date based upon business
retention and other conditions. The transaction, which is accounted for as a
purchase, will not have a material impact on the Corporation's financial
condition or results of operations.
4. 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.
The computation of basic income per share and diluted income per share
for the three-month and six-month periods ended June 30, 1998 and June 30, 1997
are reflected in the following table.
<TABLE>
<CAPTION>
Three Month Periods Six Month Periods
Ended June 30, Ended June 30,
------------------ ------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
BASIC INCOME PER SHARE:
Net Income $15,293 $12,439 $29,988 $24,360
======= ======= ======= =======
Weighted average number of common shares outstanding 18,806 19,424 18,882 19,543
======= ======= ======= =======
Basic Income Per Share $ 0.81 $ 0.64 $ 1.59 $ 1.25
======= ======= ======= =======
DILUTED INCOME PER SHARE:
Net Income $15,293 $12,439 $29,988 $24,360
Dividend Equivalents on stock based benefit plans (after-tax) 177 142 322 259
------- ------- ------- -------
Adjusted Net Income $15,470 $12,581 $30,310 $24,619
======= ======= ======= =======
Weighted average number of common shares outstanding 18,806 19,424 18,882 19,543
Dilutive impact of shares issuable under stock based
benefit plans 2,369 2,163 2,269 2,112
------- ------- ------- -------
Total Dilutive Shares 21,175 21,587 21,151 21,655
======= ======= ======= =======
Diluted Income Per Share $ 0.73 $ 0.58 $ 1.43 $ 1.14
======= ======= ======= =======
</TABLE>
9
<PAGE> 10
U.S. TRUST CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. NET INTEREST REVENUE
The following is an analysis of the composition of net interest
revenue:
<TABLE>
<CAPTION>
Three Month Periods Six Month Periods
Ended June 30, Ended June 30,
-------------------- --------------------
(In Thousands) 1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest Income:
Loans $ 36,651 $ 32,642 $ 72,036 $ 64,098
Securities:
Taxable 14,892 17,329 30,786 35,074
Tax Exempt 950 1,004 1,838 2,002
Short-Term Investments and Deposits with Banks 2,534 2,051 6,151 3,454
-------- -------- -------- --------
Total Interest Income 55,027 53,026 110,811 104,628
-------- -------- -------- --------
Interest Expense:
Deposits 26,147 25,206 52,864 49,793
Short and Long-Term Credit Facilities 4,029 5,503 7,592 10,470
-------- -------- -------- --------
Total Interest Expense 30,176 30,709 60,456 60,263
-------- -------- -------- --------
Net Interest Income 24,851 22,317 50,355 44,365
Provision for Credit Losses 150 150 300 450
-------- -------- -------- --------
Net Interest Revenue $ 24,701 $ 22,167 $ 50,055 $ 43,915
======== ======== ======== ========
</TABLE>
6. PLEDGED ASSETS
Financial instruments carried at $269.8 million on June 30, 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.
7. CONTINGENCIES
There are various pending and threatened actions and claims against the
Corporation 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.
10
<PAGE> 11
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.
RESULTS OF OPERATIONS
Net income for the second quarter of 1998 was $15.3 million, compared
to $12.4 million earned in the second quarter of 1997. On a diluted basis,
income per share was $0.73 in the second quarter of 1998, versus $0.58 in the
second quarter of 1997. The Corporation's annualized return on average
stockholders' equity was 26.4% for the second quarter of 1998, compared to 22.6%
for the second quarter of 1997.
FEE REVENUE
<TABLE>
<CAPTION>
Three Month Periods Ended
-------------------------
June 30, June 30, Better
(In Thousands) 1998 1997 (Worse)
-------- -------- --------
<S> <C> <C> <C>
Investment Management
and Related Services $ 76,532 $ 61,451 24.5 %
Corporate Trust 6,761 6,462 4.6
-------- -------- --------
Total Fee Revenue $ 83,293 $ 67,913 22.6 %
======== ======== ========
Market Related Fees $ 67,848 $ 54,049 25.5 %
Transaction Related Fees 15,445 13,864 11.4
-------- -------- --------
Total Fee Revenue $ 83,293 $ 67,913 22.6 %
======== ======== ========
<CAPTION>
Six Month Periods Ended
-----------------------
June 30, June 30, Better
(In Thousands) 1998 1997 (Worse)
-------- -------- --------
<S> <C> <C> <C>
Investment Management
and Related Services $149,197 $122,670 21.6 %
Corporate Trust 12,716 11,939 6.5
-------- -------- --------
Total Fee Revenue $161,913 $134,609 20.3 %
======== ======== ========
Market Related Fees $131,353 $107,421 22.3 %
Transaction Related Fees 30,560 27,188 12.4
-------- -------- --------
Total Fee Revenue $161,913 $134,609 20.3 %
======== ======== ========
</TABLE>
11
<PAGE> 12
Total fee revenue for the second quarter of 1998 increased
approximately $15.4 million to $83.3 million from $67.9 million in the second
quarter of 1997. Market related fee revenue increased by $13.8 million to $67.8
million from $54.0 million in the second 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 second quarter of 1998 as compared to the
second quarter of 1997 is primarily attributable to a combination of strong new
business and the overall appreciation in the financial markets.
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 may not 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 type 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>
June 30, March 31, June 30,
1998 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Equity 56% 56% 55%
Fixed Income 30% 30% 33%
Short-Term and Other 14% 14% 12%
---------- ---------- ----------
100% 100% 100%
========== ========== ==========
</TABLE>
Transaction related fee revenue, principally derived from corporate
trust and agency, estate settlement and brokerage activities increased $1.6
million to $15.4 million in the second quarter of 1998 from $13.9 million for
the second quarter of 1997.
As presented in the following table, the carrying amount of assets
under management was $68.2 billion at June 30, 1998, an increase of $10.5
billion from June 30, 1997. Investment management assets at June 30, 1998,
increased approximately $11.9 billion from June 30, 1997.
12
<PAGE> 13
<TABLE>
<CAPTION>
June vs. June vs.
March June
Assets Under Management and Administration June 30, March 31, June 30, Better Better
(In Billions) 1998 1998 1997 (Worse) (Worse)
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Assets Under Management:
Investment Management $ 54.2 $ 52.0 $ 42.3 4.3 % 28.2 %
Special Fiduciary 14.0 15.1 15.4 (7.3) (9.5)
------ ------ ------ ------ ------
Total Assets Under Management 68.2 67.1 57.7 1.7 18.1
------ ------ ------ ------ ------
Assets Under Administration:
Personal Custody and Other 22.4 21.8 19.2 2.8 16.4
Corporate and Municipal Trusteeships
and Agency Relationships at Par Value 279.7 266.8 234.8 4.9 19.2
------ ------ ------ ------ ------
Total Assets Under Administration 302.1 288.6 254.0 4.7 19.0
------ ------ ------ ------ ------
Total Assets Under Management and
Administration $370.3 $355.7 $311.7 4.1 % 18.8 %
====== ====== ====== ====== ======
</TABLE>
The volume of corporate and municipal trusteeships and agency
relationships (measured by the par value of the outstanding debt) increased
19.2% at June 30, 1998 as compared to June 30, 1997. Corporate trust activities
are a source of both interest and non-interest bearing funds. Corporate trust
activities also generate funds which are invested in various Excelsior Funds
(several families of mutual funds advised by certain subsidiaries of the Parent)
resulting in additional investment management fee revenue to the Corporation.
Approximately $6.9 billion of assets under management were invested in
the Excelsior Funds at June 30, 1998. At March 31, 1998 and June 30, 1997, total
assets under management invested in the Excelsior Funds were $6.8 billion and
$5.3 billion, respectively.
NET INTEREST REVENUE
The details of net interest revenue are presented in Note 5 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 increased from 3.06% at June 30, 1997 to 3.23% at June 30, 1998.
OPERATING EXPENSES
<TABLE>
<CAPTION>
Three Month Periods Ended
-----------------------
June 30, June 30, Better
(In Thousands) 1998 1997 (Worse)
------- ------- -------
<S> <C> <C> <C>
Salaries $29,144 $25,220 (15.6) %
Employee Benefits and
Performance Compensation 23,610 16,443 (43.6)
------- ------- -------
Total Salaries and Benefits 52,754 41,663 (26.6)
Net Occupancy 8,886 9,192 3.3
Other 21,287 18,834 (13.0)
------- ------- -------
Total Operating Expenses $82,927 $69,689 (19.0) %
======= ======= =======
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
Six Month Periods Ended
------------------------
June 30, June 30, Better
(In Thousands) 1998 1997 (Worse)
-------- -------- --------
<S> <C> <C> <C>
Salaries $ 55,782 $ 48,806 (14.3) %
Employee Benefits and
Performance Compensation 45,872 33,363 (37.5)
-------- -------- --------
Total Salaries and Benefits 101,654 82,169 (23.7)
Net Occupancy 17,889 18,396 2.8
Other 43,268 38,034 (13.8)
-------- -------- --------
Total Operating Expenses $162,811 $138,599 (17.5) %
======== ======== ========
</TABLE>
Operating expenses increased by $13.2 million in the second quarter of
1998, compared to the second quarter of 1997. The Corporation's pre-tax margin
was 23.2% for the second quarter of 1998 and 22.6% for the second quarter of
1997.
For the first half of 1998, operating expenses increased by $24.2
million, compared to the first half of 1997. The Corporation's pre-tax margin
was 23.2% for the first half of 1998 and 22.4% for the first half of 1997.
Salaries and employee benefits including performance compensation
increased in both the second quarter and six month periods of 1998 when compared
to the corresponding 1997 periods. 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 conditions or circumstances that warrant
consideration. Employee benefit expense is typically a function of staffing
levels. The number of full-time equivalent employees increased 10.7% to 1,656 at
June 30, 1998, compared to 1,496 at June 30, 1997.
The Corporation makes a substantial commitment to sales, marketing and
advertising. As of June 30, 1998, approximately 129 employees were devoted to
these functions compared to 107 employees as of June 30, 1997. Direct expenses
associated with these functions, including salary, employee benefits and
performance compensation (principally sales commissions) were $9.3 million for
the second quarter of 1998, an increase of 49.1% from the $6.3 million incurred
during the corresponding 1997 period. For the first half of the 1998 direct
expenses amounted to $18.1 million an increase of 33.6% from the $13.5 million
incurred during the first half of 1997. In addition to the aforementioned
expenses, occupancy expense directly allocable to these functions amounted to
approximately $558,000 and $501,000 for the second quarters of 1998 and 1997,
respectively and $1.1 million and $1.0 for the first six months of 1998 and
1997, respectively.
14
<PAGE> 15
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 The Chase Manhattan Corporation (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,
The Chase Manhattan Corporation 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 in a timely fashion, 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 January 1999. 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
Regulatory capital amounts and ratios for the Corporation and its
wholly owned subsidiary United States Trust Company of New York (the "Trust
Company") as of June 30, 1998 and 1997 are set forth in the following table.
Minimum ratio requirements and ratios required to be considered "well
capitalized" by the Federal Reserve Board are also presented.
<TABLE>
<CAPTION>
Minimum Well
Federal Capitalized
Reserve Ratio Under Prompt
Actual as of Actual as of For Capital Corrective
(Dollars in June 30, 1998 June 30, 1997 Adequacy Action Provisions
Thousands) ------------------- ----------------- ------------- -----------------
Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Capital:
Corporation $256,902 14.0% $238,808 14.6% 4.0% 6.0%
Trust Company 153,123 9.9% 144,473 11.0% 4.0% 6.0%
Total Capital:
Corporation 275,939 15.1% 256,437 15.7% 8.0% 10.0%
Trust Company 169,831 11.0% 158,252 12.0% 8.0% 10.0%
Tier 1 Leverage:
Corporation 256,902 7.2% 238,808 7.1% 3.0-5.0% --
Trust Company 153,123 5.4% 144,473 5.3% 3.0-5.0% 5.0%
</TABLE>
15
<PAGE> 16
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 the Corporation 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, capital
additions to its subsidiaries and repurchases of its common stock. On January
27, 1998, the Parent announced a 20% increase in its regular quarterly common
stock dividend, indicating an annual dividend of $0.72 per share. During the
first six months of 1998, the Board of Directors declared two quarterly
dividends of $0.18 per share. Dividend declared per share as a percentage of
diluted income per share was 25.2% for the first six months of 1998 and 26.3%
for the comparable 1997 period. Actual dividend declarations for the remaining
part of 1998 will be subject to the approval of the Board of Directors of the
Parent ("Board") and regulatory capital limitations.
The Board has authorized the repurchase of two million shares of common
stock. During the six months ended June 30, 1998, 423,400 shares have been
repurchased at a weighted average purchase price of $66.63 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
Parent has remaining authority to repurchase 632,510 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 and
short-term debt instruments. At June 30, 1998, the subsidiaries have the ability
to pay dividends of approximately $46.9 million without prior approval of the
regulatory authorities.
The Parent has a $40.0 million unsecured revolving credit facility
maturing in 1999. As of June 30, 1998, the Parent had $5.0 million 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 stock. As of June 30, 1998, no preferred stock has 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. Certain subsidiaries have established credit
facilities with the Federal Home Loan Bank ("FHLB") totaling approximately
$352.9 million. As of June 30, 1998, certain subsidiaries have borrowed $14.0
million under these credit facilities.
Liquidity is also generated from the types of financial instruments
that the subsidiaries carry as investments. Approximately $897.5 million or 83%
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 June 30, 1998, securities sold under agreements
to repurchase aggregated $125.8 million. The subsidiaries also may pledge these
securities to secure public deposits to qualify for fiduciary powers and as
collateral for FHLB and other borrowings. Pledged assets at June 30, 1998
totaled $269.8 million.
16
<PAGE> 17
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 36% of
average total assets for the first six months of 1998 consist of short-term
financial instruments and readily marketable securities. The securities
portfolio is concentrated in investments in U.S. Government 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 first half of 1998, average loans comprised approximately 52% of average
total assets. Average loans increased $211.3 million, or 12.6%, to $1.9 billion
during the first half of 1998, from $1.7 billion for the first half of 1997. See
the "Quality of Lending Activities" section of Management's Discussion and
Analysis of Financial Condition and Results of Operations for a further
discussion of the Corporation's loan portfolio.
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 interest rate exposure created by financing long-term, fixed rate
financial instruments with shorter-term, floating rate, 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 total 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.
17
<PAGE> 18
<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:
Interest Earning Securities $ 732,914 $ 185,756 $ 65,948 $ 61,602 $ 51,925 $ 149,440 $ 1,247,585
Loans, Net of Allowance for
Credit Losses 931,678 253,421 187,066 205,600 89,158 346,711 2,013,634
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Interest Earning Assets 1,664,592 439,177 253,014 267,202 141,083 496,151 3,261,219
----------- ----------- ----------- ----------- ----------- ----------- -----------
INTEREST BEARING
LIABILITIES:
Interest Bearing Deposits (2,209,683) (4,319) (3,091) (24,985) (253) -- (2,242,331)
Short and Long-Term Credit
Facilities (167,574) -- (11,000) (1,000) (1,000) (50,000) (230,574)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Interest Bearing
Liabilities (2,377,257) (4,319) (14,091) (25,985) (1,253) (50,000) (2,472,905)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Asset/(Liability) Sensitivity Gap (712,665) 434,858 238,923 241,217 139,830 446,151 788,314
Interest Rate Swaps 490,000* (150,000) (75,000) (90,000) (175,000) -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Interest Rate Sensitivity Gap (222,665) 284,858 163,923 151,217 (35,170) 446,151 788,314
Net Non-Interest Earning Assets,
Non-Interest Bearing
Liabilities and
Stockholders' Equity (204,298) (251,625) (67,830) (10,750) (10,750) (243,061) (788,314)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Maturity/Repricing Gap (426,963) 33,233 96,093 140,467 (45,920) 203,090 --
=========== =========== =========== =========== =========== =========== ===========
Cumulative Gap $ (426,963) $ (393,730) $ (297,637) $ (157,170) $ (203,090) $ -- $ --
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
* Includes $585.0 million of total outstanding notional principal balance of
which $95.0 million will mature within one year.
The following table provides details, as of June 30, 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
(Dollars In Thousands) Year Years Total
--------- --------- ---------
<S> <C> <C> <C>
Fixed Pay Swaps $ 95,000 $ 490,000 $ 585,000
Average Rate Paid 6.64 % 6.56 % 6.57 %
Average Rate Received(1) 5.70 % 5.70 % 5.70 %
</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 six month periods ended June 30, 1998 and 1997, are
detailed in the following table.
18
<PAGE> 19
<TABLE>
<CAPTION>
Three Month Periods Ended Six Month Periods Ended
------------------------- -------------------------
(Dollars In Thousands) June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Interest Revenue:
As Reported $ 24,701 $ 22,167 $ 50,055 $ 43,915
Excluding Hedging Activities $ 26,008 $ 23,571 $ 52,580 $ 46,998
Net Yield on Interest Earning Assets:
As Reported 3.23% 3.06% 3.26% 3.04%
Excluding Hedging Activities 3.40% 3.26% 3.44% 3.28%
</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 $46.9 million and $242.6
million of interest bearing deposits with banks, $1.08 billion and $1.13 billion
of securities available for sale and $125.0 million and $145.0 million of
federal funds sold at June 30, 1998 and December 31, 1997, respectively.
The Corporation maintains a high quality securities portfolio with
approximately 83% comprised of U.S. Treasury 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 are principally collateralized by
GNMAs.
The fair value of securities exceeded their amortized cost by $6.8
million and $7.0 million at June 30, 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.
QUALITY OF LENDING ACTIVITIES
The Corporation's loan portfolio is predominantly comprised of loans to
private banking customers. At June 30, 1998, the loan portfolio totaled $2.0
billion of which approximately 72% were collateralized by residential real
estate mortgages.
An analysis of the allowance for credit losses follows:
<TABLE>
<CAPTION>
Three Month Periods Six Month Periods
Ended June 30, Ended June 30,
-------------------- ---------------------
(In Thousands) 1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance, Beginning of Period $ 18,713 $ 17,268 $ 18,294 $ 16,693
Provision for Credit Losses 150 150 300 450
Recoveries 174 211 464 486
Charge-offs -- -- (21) --
-------- -------- -------- --------
Net Recoveries 174 211 443 486
-------- -------- -------- --------
Balance, End of Period $ 19,037 $ 17,629 $ 19,037 $ 17,629
======== ======== ======== ========
</TABLE>
19
<PAGE> 20
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
continuous surveillance 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
four basis points for the second quarter of 1998, compared to annualized net
loan recoveries of five basis points for the second quarter of 1997. For the
first half of 1998, annualized net loan recoveries as a percentage of average
loans were five basis points, versus annualized net loan recoveries of six basis
points for the first half of 1997. The allowance for credit losses at June 30,
1998, was 0.99% of average loans for the quarter. This compares with 1.04% of
average loans for the quarter ended June 30, 1997. Given the current market
environment, it is anticipated 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>
June 30, March 31, Dec. 31, Sept. 30, June 30,
(In Millions) 1998 1998 1997 1997 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Non-accrual loans $ 8.2 $ 9.8 $ 9.7 $ 9.5 $ 8.8
Real estate owned, net -- -- -- 0.7 0.7
-------- -------- -------- -------- --------
Total Nonperforming Assets $ 8.2 $ 9.8 $ 9.7 $ 10.2 $ 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.
The allowance for credit losses as a percentage of non-accrual loans
was 233.0% at June 30, 1998, compared to 200.2% at June 30, 1997. The ratio of
nonperforming assets to average loans and real estate owned for the quarter was
0.4% at June 30, 1998, compared to 0.6% at June 30, 1997.
20
<PAGE> 21
U.S. TRUST CORPORATION
CONDENSED CONSOLIDATED NET INTEREST REVENUE AND AVERAGE BALANCES
(DOLLARS IN THOUSANDS; INTEREST AND AVERAGE RATES ON A TAXABLE EQUIVALENT BASIS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30,
---------------------------------------------------------------------------------------
1998 1997
----------------------------------------- -----------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Securities (1) (2) $ 1,259,040 $ 19,172 6.11 % $ 1,332,254 $ 21,267 6.40 %
Loans (3) 1,925,155 36,651 7.64 1,699,592 32,642 7.70
----------- ----------- ----------- ----------- ----------- -----------
Total Interest Earning Assets 3,184,195 55,823 7.03 3,031,846 53,909 7.12
----------- ----------- ----------- ----------- ----------- -----------
Interest Bearing Deposits 2,234,269 26,147 4.69 2,087,345 25,206 4.84
Short-Term Credit Facilities 200,568 2,657 5.31 292,065 4,033 5.54
Long-Term Credit Securities 68,058 1,372 8.09 73,254 1,470 8.05
----------- ----------- ----------- ----------- ----------- -----------
Total Sources on Which
Interest is Paid 2,502,895 30,176 4.84 2,452,664 30,709 5.02
----------- ----------- ----------- ----------- ----------- -----------
Net Interest Revenue -
Tax Equivalent Basis 25,647 23,200
Net Free Funds (4) $ 681,300 $ 579,182
=========== ===========
Credit Loss Provision (150) (150)
Tax Equivalent Adjustment (2) (796) (883)
----------- -----------
Net Interest Revenue $ 24,701 $ 22,167
=========== ===========
Net Yield on Interest
Earning Assets 3.23 % 3.06 %
=========== ===========
Interest Spread 2.19 % 2.10 %
=========== ===========
</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 $3.8 million in 1998 and $7.3 million in 1997.
(4) Net Free Funds consist of non-interest bearing deposits, other liabilities
and stockholders' equity, net of non-interest earning assets.
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 SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------------------------------
1998 1997
----------------------------------------- ----------- ----------- -----------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Securities (1) (2) $ 1,309,429 $ 40,334 6.21 % $ 1,357,109 $ 42,332 6.29 %
Loans (3) 1,887,432 72,036 7.70 1,679,548 64,098 7.70
----------- ----------- ----------- ----------- ----------- -----------
Total Interest Earning Assets 3,196,861 112,370 7.07 3,036,657 106,430 7.05
----------- ----------- ----------- ----------- ----------- -----------
Interest Bearing Deposits 2,261,871 52,864 4.71 2,091,013 49,793 4.80
Short-Term Credit Facilities 182,916 4,817 5.31 290,570 7,877 5.47
Long-Term Credit Securities 69,029 2,775 8.11 66,328 2,593 7.88
----------- ----------- ----------- ----------- ----------- -----------
Total Sources on Which
Interest is Paid 2,513,816 60,456 4.85 2,447,911 60,263 4.96
----------- ----------- ----------- ----------- ----------- -----------
Net Interest Revenue -
Tax Equivalent Basis 51,914 46,167
Net Free Funds (4) $ 683,045 $ 588,746
=========== ===========
Credit Loss Provision (300) (450)
Tax Equivalent Adjustment (2) (1,559) (1,802)
----------- -----------
Net Interest Revenue $ 50,055 $ 43,915
=========== ===========
Net Yield on Interest
Earning Assets 3.26 % 3.04 %
=========== ===========
Interest Spread 2.22 % 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 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 $4.3 million in 1998 and $7.8 million in 1997.
(4) Net Free Funds consist of non-interest bearing deposits, other liabilities
and stockholders' equity, net of non-interest earning assets.
22
<PAGE> 23
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders of the Corporation was held
April 28, 1998.
(b) Not required.
(c) (i) Election of six directors to hold office for a term expiring in
2001, and, in each case, until their successors have been elected and qualified.
Samuel C. Butler H. Marshall Schwarz
For 16,805,476 For 17,076,167
Withhold Authority 467,927 Withhold Authority 197,236
Paul W. Douglas Philip L. Smith
For 17,074,166 For 17,097,366
Withhold Authority 199,237 Withhold Authority 176,037
Maribeth S. Rahe Ruth A. Wooden
For 17,090,288 For 17,068,419
Withhold Authority 183,115 Withhold Authority 204,984
(ii) Ratification of appointment of PricewaterhouseCoopers LLP
(formerly Coopers & Lybrand L.L.P.) as independent auditors for the Corporation
and its consolidated subsidiaries for the year 1998.
For 17,108,168
Against 109,137
Abstain 56,098
(d) Not applicable.
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, inasmuch as the total
amount of debt authorized under any such instrument does not exceed 10%
of the total assets of the Corporation 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.
27 Financial Data Schedule.
(1) Incorporated herein by reference.
(b) REPORTS ON FORM 8-K:
None.
23
<PAGE> 24
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: August 10, 1998 By: Richard E. Brinkmann
-------------------------------
Richard E. Brinkmann
Managing Director and
Comptroller
(Principal Accounting Officer)
24
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 102,366
<INT-BEARING-DEPOSITS> 46,890
<FED-FUNDS-SOLD> 125,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,075,695
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 2,032,671
<ALLOWANCE> 19,037
<TOTAL-ASSETS> 3,676,489
<DEPOSITS> 2,943,035
<SHORT-TERM> 162,801
<LIABILITIES-OTHER> 268,351
<LONG-TERM> 67,773
0
0
<COMMON> 19,932
<OTHER-SE> 214,597
<TOTAL-LIABILITIES-AND-EQUITY> 3,676,489
<INTEREST-LOAN> 36,651
<INTEREST-INVEST> 15,842
<INTEREST-OTHER> 2,534
<INTEREST-TOTAL> 55,027
<INTEREST-DEPOSIT> 26,147
<INTEREST-EXPENSE> 30,176
<INTEREST-INCOME-NET> 24,851
<LOAN-LOSSES> 150
<SECURITIES-GAINS> 3
<EXPENSE-OTHER> 82,927
<INCOME-PRETAX> 25,070
<INCOME-PRE-EXTRAORDINARY> 9,777
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,777
<EPS-PRIMARY> 0.81<F1>
<EPS-DILUTED> 0.73<F1>
<YIELD-ACTUAL> 3.23
<LOANS-NON> 8,172
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 18,713
<CHARGE-OFFS> 0
<RECOVERIES> 174
<ALLOWANCE-CLOSE> 19,037
<ALLOWANCE-DOMESTIC> 19,037
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 19,037
<FN>
<F1>REPRESENTS THE CORPORATION'S BASIC AND DILUTED INCOME PER SHARE CALCULATED
IN ACCORDANCE WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128
"EARNINGS PER SHARE".
</FN>
</TABLE>
