<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
---------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
DECEMBER 31, 1999 1-14933
</TABLE>
---------------
U.S. TRUST CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
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)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 852-1000
---------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
----------------------------------------- -----------------------------------------
COMMON SHARES, PAR VALUE $1 PER SHARE NEW YORK STOCK EXCHANGE
RIGHTS TO PURCHASE SERIES A PARTICIPATING
CUMULATIVE PREFERRED SHARES NEW YORK STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT: NONE
---------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the common equity was sold, or the
average bid and asked prices of such common equity, as of a specified date
within 60 days prior to the date of filing. (See definition of affiliate in Rule
405, 17 CFR 230.405.)
$2,220,375,862 as of January 31, 2000
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
18,740,512 Common Shares, Par Value $1 Per Share, as of January 31, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Current Report on Form 8-K filed February 22, 2000 are
incorporated by reference into Parts I and II of this Report.
1
<PAGE> 2
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
----
PART I
<S> <C> <C>
Item 1 Business.............................................................. 1-16 of exhibit 99-4 to Form 8-K,(a)
Item 2 Properties............................................................ 16 of exhibit 99-4 to Form 8-K,(a)
Item 3 Legal Proceedings..................................................... 16 of exhibit 99-4 to Form 8-K,(a)
Item 4 Submission of Matters to a Vote of Security Holders................... (b)
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters................................................... 24 of exhibit 99-5 to Form 8-K,(a)
Item 6 Selected Financial Data............................................... 1 of exhibit 99-6 to Form 8-K,(a)
Item 7 Management's Discussion and Analysis of Financial Condition
And Results of Operations............................................. 1-16 of exhibit 99-4 to Form 8-K,(a)
Item 7A Quantitative and Qualitative Disclosures About Market Risk............ 13-15 of exhibit 99-4 to Form 8-K,(a)
Item 8 Financial Statements and Supplementary Data........................... 1-25 of exhibit 99-5 to Form 8-K,(a)
Item 9 Changes in and Disagreements with Accountants on Accounting
And Financial Disclosure.............................................. (b)
PART III
Item 10 Directors and Executive Officers of the Registrant.................... 3-8
Item 11 Executive Compensation................................................ 9-13
Item 12 Security Ownership of Certain Beneficial Owners and Management........ 14-15
Item 13 Certain Relationships and Related Transactions........................ 16
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K...... 16-21
</TABLE>
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(a) Incorporated by reference to the Current Report on Form 8-K filed on
February 22, 2000 and included as Exhibit 99 to this Form 10-K.
(b) Nothing to report.
2
<PAGE> 3
PART III
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Board of Directors
<TABLE>
<CAPTION>
FIRST
PRINCIPAL OCCUPATION AND BECAME
NAME (AGE) BUSINESS EXPERIENCE DIRECTOR
<S> <C> <C> <C>
Eleanor Baum (60) Dean of Engineering at The Cooper 1994
Union for the Advancement of
Science & Art
</TABLE>
Eleanor Baum became dean of engineering at Cooper Union in 1987. Prior to that,
she was dean at Pratt Institute in Brooklyn and worked as an engineer in the
aerospace industry. Dr. Baum is also a director of Allegheny Energy, Inc. and
Avnet, Inc. She is the past president of the American Society for Engineering
Education, past chairman of the Board of Governors of the New York Academy of
Sciences and past president of the Accreditation Board for Engineering &
Technology. Dr. Baum is chairperson of the Association of Engineering Schools,
New York State, and an advisory board member at Duke University, Rice
University, the U.S. Merchant Marine Academy and University of Michigan. She is
chair of the Engineering Workforce Commission and a fellow of the Institute of
Electrical & Electronic Engineers.
<TABLE>
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Samuel C. Butler (70) Partner in Cravath, Swaine & Moore 1972
(law firm)
</TABLE>
Mr. Butler joined the law firm of Cravath, Swaine & Moore in 1956 and was
elected a partner of the firm in 1960. He is also a director of Ashland Inc. and
Millipore Corporation. Mr. Butler is chairman of the board of trustees of The
New York Public Library, a trustee of the Culver Educational Foundation and a
member of the Council on Foreign Relations.
<TABLE>
<S> <C> <C> <C>
Peter O. Crisp (67) Retired Chairman of Venrock, Inc. 1992
(venture capital)
</TABLE>
Mr. Crisp retired in September 1997 after serving as general partner of Venrock
Associates from 1969 and chairman of Venrock, Inc. from 1995. He continues as a
director of Venrock and as an advisor to Rockefeller Financial Services Inc. Mr.
Crisp is also a director of Acadia Risk Management, Inc., American
Superconductor Corporation, Evans & Sutherland Computer Corp., Thermedics Inc.,
ThermoElectron Corp. and ThermoTrex Corp. Mr. Crisp serves as a member of the
Board of Managers of Memorial Sloan-Kettering Cancer Center, Memorial Hospital
for Cancer and Allied Diseases and Sloan-Kettering Institute for Cancer
Research. He is a director of North Shore Long Island Jewish Health System and
trustee of The Teagle Foundation.
<TABLE>
<S> <C> <C> <C>
Philippe de Montebello (63) Director of the Metropolitan 1983
Museum of Art
</TABLE>
Mr. de Montebello has been associated with the Metropolitan Museum of Art since
1963, serving as associate curator for European paintings from 1963 to 1969,
vice director for curatorial and educational affairs from 1974 to 1977 and as
director since 1978. In the interim of his duties at the Metropolitan, Mr. de
Montebello served as director of the Museum of Fine Arts in Houston from 1969 to
1974. He is a member of the Advisory Board of the Skowhegan School of Painting
and Sculpture and the Columbia University Advisory Council-Departments of Art
History and Archaeology. Mr. de Montebello is a trustee of the New York
University Institute of Fine Arts and the American Federation of Arts.
3
<PAGE> 4
<TABLE>
<CAPTION>
FIRST
PRINCIPAL OCCUPATION AND BECAME
NAME (AGE) BUSINESS EXPERIENCE DIRECTOR
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<S> <C> <C> <C>
Robert E. Denham (54) Partner in Munger, Tolles & 1998
Olson LLP (law firm)
</TABLE>
Mr. Denham rejoined Munger, Tolles & Olson LLP in June 1998 after serving as
chairman and CEO of Salomon Inc. from June 1992 through November 1997. Prior to
joining Salomon as general counsel in August 1991, Mr. Denham had worked for
twenty years at Munger, Tolles & Olson. Mr. Denham is a director of the
Independence Standards Board, vice chairman of The Conference Board and trustee
of the Natural Resources Defense Council, New School University, Russell Sage
Foundation and Good Samaritan Hospital (Los Angeles).
<TABLE>
<S> <C> <C> <C>
Antonia M. Grumbach (56) Partner in Patterson, Belknap, 1991
Webb & Tyler LLP (law firm)
</TABLE>
Ms. Grumbach joined the law firm of Patterson, Belknap, Webb & Tyler LLP in 1971
and became a partner of the firm in 1979. She is co-chairman of the board of
trustees of Teachers College-Columbia University, trustee of Milton Academy, the
William T. Grant Foundation, J.I. Foundation and Ponagansett Foundation and a
director of The Henfield Foundation. Ms. Grumbach also served as an initial
member of the Board of Advisors of the New York University program on
philanthropy and the law.
<TABLE>
<S> <C> <C> <C>
Peter L. Malkin (66) Chairman of Wien & Malkin LLP 1992
(law firm)
</TABLE>
Mr. Malkin joined the predecessor law firm of Wien & Malkin LLP in 1958 and
became a partner in the firm in 1962. He is also chairman of W & M Properties,
Inc. and is a general partner in the ownership of several New York City
buildings, including the Empire State Building, the Fisk Building, the Lincoln
Building and The International Toy Center. Mr. Malkin owns the general corporate
partner in a private partnership which owns an apartment property in Staten
Island, New York, currently managed by a court-appointed receiver in a contested
mortgage foreclosure proceeding for obligations which pre-date such general
partner's service. Mr. Malkin is founding chairman of the Grand Central
Partnership and of the 34th Street Partnership, a founding director of the
Fashion Center Business Improvement District, a director of the NYC Partnership
and Chamber of Commerce, a director and member of the Executive Committee of
Lincoln Center for the Performing Arts, chairman of the Dean's Council and a
member of the Overseers Committee to visit The John F. Kennedy School of
Government at Harvard University and founding honorary chairman of The Committee
to Encourage Corporate Philanthropy.
<TABLE>
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Jeffrey S. Maurer (52) President of the Corporation 1989
and the Trust Company
</TABLE>
Mr. Maurer joined the Trust Company in 1970 and was made manager of the Asset
Management and Private Banking Group in 1988. He was elected senior vice
president in November 1980, executive vice president in May 1986, president
effective February 1990 and chief operating officer in December of 1994. Mr.
Maurer is also a director of the Greater New York Mutual Insurance Company. He
is a trustee of Alfred University, a director and treasurer of The Children's
Health Fund, a director of The Hebrew Home for the Aged and the Riverdale
Terrance Housing Fund Developmental Company, Inc., a director of Roundabout
Theatre Co., a member of the Advisory Board of The Salvation Army of Greater New
York, and a director of the North Shore Long Island Jewish Health System.
4
<PAGE> 5
<TABLE>
<CAPTION>
FIRST
PRINCIPAL OCCUPATION AND BECAME
NAME (AGE) BUSINESS EXPERIENCE DIRECTOR
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<S> <C> <C> <C>
David A. Olsen (62) Retired Chairman of the Board and 1997
Chief Executive Officer of
Johnson & Higgins (insurance
broker/benefit consulting firm)
</TABLE>
Mr. Olsen was associated with Johnson & Higgins for over 30 years, in sales,
client work, international and office management. After the merger of Johnson &
Higgins with Marsh & McLennan, Inc. in June 1997, Mr. Olsen served as vice
chairman of Marsh & McLennan until his retirement in December 1997. Prior to the
merger, he had been a partner of Johnson & Higgins from 1980 and chairman and
chief executive officer from 1990. Mr. Olsen is a director of Marsh & McLennan
Companies. He is a trustee of Bowdoin College, a trustee, vice chairman and
member of the Executive Committee of Sharon Hospital and director of the South
Street Seaport Museum.
<TABLE>
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Carl H. Pforzheimer, III (63) Managing Partner of Carl 1999
H. Pforzheimer & Co.
(broker dealer; investment advisor)
</TABLE>
Mr. Pforzheimer joined the Pforzheimer firm in 1963, became a partner in 1964
and Managing Partner in 1974. He is also a director of Ampco-Pittsburgh
Corporation. Mr. Pforzheimer is president of The Carl and Lily Pforzheimer
Foundation, and trustee and executive committee member of Pace University and
The Visiting Nurse Service of New York. He is a trustee and a member of the
executive committee of The New York Public Library and a member of the executive
committee of the Committee on University Resources of the Board of Overseers of
Harvard College.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Maribeth S. Rahe (51) Vice Chairman of the Board 1997
of the Corporation and the
Trust Company
</TABLE>
Prior to joining U.S. Trust as vice chairman, Ms. Rahe was with Harris Bank
serving as vice chair of the board from 1995 and as senior executive vice
president from 1994, executive vice president 1991-1994 and senior vice
president 1988 -1991. She was also with Harris Bank from 1974 to 1980. From 1980
to 1988, she held various positions with Morgan Guaranty Trust Company and J.P.
Morgan Investment Management in London and New York. Ms. Rahe is a director of
Trustmark Insurance Company and of the advisory board of Pasquinelli
Construction Company. She has served as chairman of the Private Banking Section
of the American Bankers Association. Ms. Rahe also serves on the board of
Rush-Presbyterian-St. Luke's Medical Center and is vice chairman and treasurer
of the Foundation Board of the Committee of 200. She is a member of the Business
Committee at the Metropolitan Museum of Art and The Chicago Network.
<TABLE>
<S> <C> <C> <C>
H. Marshall Schwarz (63) Chairman of the Board and 1977
Chief Executive Officer of
the Corporation and the
Trust Company
</TABLE>
Mr. Schwarz joined the Trust Company in 1967 after a seven-year association with
Morgan Stanley & Co. In 1972, he was elected a senior vice president and head of
the Banking Division. He was elected executive vice president and chief
operating officer of the Trust Company's Bank Group in 1977 and chief operating
officer of the Asset Management Group in 1979. Mr. Schwarz served as president
of the Corporation and the Trust Company from June 1986 through January 1990 and
became chairman and chief executive officer effective February 1, 1990. He is
also a director of Atlantic Mutual Companies and Bowne & Co., Inc. Mr. Schwarz
is a trustee and former chairman of the board of the American Red Cross in
Greater New York, a trustee of Teachers College-Columbia University and the
Camille and Henry Dreyfus Foundation, Inc., and is president of the board of
trustees of Milton Academy.
5
<PAGE> 6
<TABLE>
<CAPTION>
FIRST
PRINCIPAL OCCUPATION AND BECAME
NAME (AGE) BUSINESS EXPERIENCE DIRECTOR
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<S> <C> <C> <C>
Philip L. Smith (66) Corporate Director and Trustee 1987
</TABLE>
Mr. Smith was chairman of the board and director of the Golden Cat Corporation
from November 1990 to July 1995. He was chairman of the board, president and
chief executive officer of The Pillsbury Company from August 1988 through
January 1989. Formerly, he had been associated with General Foods Corporation
for over 20 years, serving in his final position as chairman of General Foods
and director of Philip Morris Companies, Inc. Mr. Smith is also a director of
Whirlpool Corporation. He is a trustee of the Bishops Foundation and of the
Guardian of Dreams Foundation.
<TABLE>
<S> <C> <C> <C>
John Hoyt Stookey (70) Chairman of Suburban Propane Pts. 1989
(petrochemicals and propane)
</TABLE>
Mr. Stookey served as president of Quantum Chemical Corporation from 1975 to
1993 when Quantum was acquired by Hanson Industries, Inc. He continued as
chairman of the board of Quantum, a position he held from 1986, until 1995 when
Suburban Propane was organized. Prior to joining Quantum, Mr. Stookey was
president of Wallace Clark Incorporated from 1969 to 1975 and served as the U.S.
Representative to both private and public banks in Mexico. He is also a director
of ACX Technologies Inc. Mr. Stookey is the founder and president emeritus of
The Berkshire Choral Institute and founder and president of Landmark Volunteers.
He is chairman of Per Scholas, Inc. and trustee of the Berkshire School, The
Clark Foundation and The Robert Sterling Clark Foundation. Mr. Stookey is a
member of The New York Academy of Sciences and a fellow of the American
Institute of Chemists.
<TABLE>
<S> <C> <C> <C>
Frederick B. Taylor (58) Vice Chairman of the 1989
Board and Chief Investment
Officer of the Corporation
and the Trust Company
</TABLE>
Mr. Taylor joined the Trust Company in 1966. In 1980, he was elected a senior
vice president and, in 1986, he was elected an executive vice president of the
Corporation and chairman, Investment Policy of the Trust Company. Mr. Taylor was
elected vice chairman and chief investment officer effective February 1990. He
is a member of the New York Society of Security Analysts and the Association for
Investment Management and Research. Mr. Taylor serves on the board of counselors
of White Plains Hospital and on the senior advisory board of the New York
Chapter of the Arthritis Foundation.
<TABLE>
<S> <C> <C> <C>
Robert N. Wilson (59) Vice Chairman of the 1991
Board of Johnson &
Johnson (health care products)
</TABLE>
Mr. Wilson joined Johnson & Johnson in 1964. He was appointed to the executive
committee in 1983 and was elected to the board of directors in 1986. Mr. Wilson
is vice chairman of the board of directors of Johnson & Johnson and is also a
member of the board of directors of Amerada Hess Corporation. He is a member of
the board of directors and chairman-elect of the Pharmaceutical Research and
Manufacturers Association. He is also a member of the board of directors of the
PhRMA Foundation, Inc. and The Georgetown College Foundation, Inc. Mr. Wilson is
a director of The James Black Foundation in London and a member of the National
Council of World Wildlife Fund.
6
<PAGE> 7
<TABLE>
<CAPTION>
FIRST
PRINCIPAL OCCUPATION AND BECAME
NAME (AGE) BUSINESS EXPERIENCE DIRECTOR
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ruth A. Wooden (53) President of National 1994
Parenting Association
(not-for-profit advocate for
parents and parenting)
</TABLE>
Ms. Wooden became president of the National Parenting Association in June 1999
after serving as president and chief executive officer of The Advertising
Council from August 1987. She continues as a director of The Advertising
Council. Prior to joining The Advertising Council, Ms. Wooden was employed with
NW Ayer, Inc. for eleven years. She serves as a trustee of The Edna McConnell
Clark Foundation, a director of Phoenix House Foundation, and a director of
Replication and Program Strategies, Inc. Ms. Wooden serves as an advisor to the
Columbia Health Sciences Advisory Council and the Harvard University Initiative
on Social Enterprise.
The Board and Its Committees
The Corporation is governed by a Board of Directors and various committees of
the Board which meet regularly throughout the year. Members of the Board are
kept informed of the Corporation's business through discussions with the
Chairman and other officers, by reviewing materials provided to them and by
participating in meetings of the Board and its committees.
During 1999, the Board met 11 times. With the exception of Mr. Malkin, each
director attended at least 75% of the meetings of the Board and committees on
which the director served in the last year.
The Board has four standing committees. Each committee's functions,
membership and number of meetings held during 1999 are described as follows.
EXECUTIVE COMMITTEE
2 meetings in 1999
<TABLE>
<CAPTION>
FUNCTIONS MEMBERS
- -------------------------------------------------------------- ----------------------
<S> <C>
- acts on behalf of the Board when the Board is not in Eleanor Baum
session except as limited by law Samuel C. Butler
Philippe de Montebello
- considers nominees for election to the Board, Antonia M. Grumbach
including any written recommendation by a Jeffrey S. Maurer
shareholder which is mailed to the attention of the H. Marshall Schwarz
Secretary (Chairman)
John H. Stookey
- oversees Board governance matters Robert N. Wilson
</TABLE>
7
<PAGE> 8
AUDIT COMMITTEE
6 meetings in 1999
<TABLE>
<CAPTION>
FUNCTIONS MEMBERS
- -------------------------------------------------------------- ------------------------
<S> <C>
- reviews adequacy of financial controls, accounting Samuel C. Butler
policies and reliability of financial information Antonia M. Grumbach
David A. Olsen
- oversees activities of internal auditor Carl H. Pforzheimer, III
Philip L. Smith
John H. Stookey
- reviews engagement of and services provided by (Chairman)
independent auditors
- evaluates reports of examinations of the Corporation
including regulatory examinations
</TABLE>
COMPENSATION & BENEFITS COMMITTEE
3 meetings in 1999
<TABLE>
<CAPTION>
FUNCTIONS MEMBERS
- -------------------------------------------------------------- ------------------------
<S> <C>
- determines compensation and benefits for officer- Peter O. Crisp
directors and other executive officers Robert E. Denham
David A. Olsen
Philip L. Smith
- reviews and approves compensation and benefit Robert N. Wilson
programs (Chairman)
Ruth A. Wooden
- oversees the benefit plan fiduciaries and plan
administrators
</TABLE>
CORPORATE RESPONSIBILITY COMMITTEE
3 meetings in 1999
<TABLE>
<CAPTION>
FUNCTIONS MEMBERS
- -------------------------------------------------------------- ------------------------
<S> <C>
- reviews community reinvestment activities Eleanor Baum
Philippe de Montebello
Antonia M. Grumbach
- reviews policies, programs and practices for (Chairman)
equal employment, recruiting, safety and Peter L. Malkin
health, employee training, education and assistance Carl H. Pforzheimer, III
Ruth A. Wooden
- reviews policies and practices relating to charitable
and political contributions, ethics and investor
relations issues
</TABLE>
Executive Officers of the Registrant as of February 1, 2000
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AGE TITLE
- --------------------------------------------------- ----------------------------------------------------------------------
<S> <C> <C>
H. Marshall Schwarz.......................... 63 Chairman of the Board and Chief Executive Officer (since 1990)
Jeffrey S. Maurer............................ 52 President (since 1990) and Chief Operating Officer (since 1994)
Maribeth S. Rahe............................. 51 Vice Chairman (since 1997); prior thereto, Vice Chairman (from 1995)
and Senior Executive Vice President
(from 1994) of Harris Bank
Frederick B. Taylor.......................... 58 Vice Chairman and Chief Investment Officer (since 1990)
John M. Deignan.............................. 56 Executive Vice President (since 1991)
John L. Kirby................................ 52 Treasurer and Chief Financial Officer (since 1995); prior thereto,
Senior Vice President and Auditor (since 1992)
</TABLE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Corporation's
directors and certain officers to file reports of their holdings and
transactions in Common Shares with the Securities and Exchange Commission. Based
on the Corporation's records and other information, we believe that its
executive officers and directors have complied with all SEC filing requirements.
8
<PAGE> 9
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ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The Table below shows cash and other compensation paid or accrued to the CEO and
the four other most highly compensated executive officers ("Named Executive
Officers") during the last three fiscal years for services rendered in all
capacities to U.S. Trust. Ms. Rahe became an Executive Officer at the time she
joined U.S. Trust on June 30, 1997:
<TABLE>
<CAPTION>
ANNUAL LONG -TERM
COMPENSATION COMPENSATION AWARDS
-------------- --------------------
SECURITIES
RESTRICTED UNDERLYING ALL OTHER
UNIT STOCK COMPEN-
SALARY BONUS AWARDS OPTIONS SATION(2)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) (#) ($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
H.M. Schwarz 1999 669,231 970,061(3) 609,939 17,500 56,300
Chairman, CEO 1998 644,231 499,356(3) 492,644 14,000 57,000
1997 619,231 728,036 363,964 28,000 101,000
J.S. Maurer 1999 525,385 883,382(3) 491,618 15,000 60,300
President, COO 1998 505,385 527,500 364,500 12,500 60,500
1997 485,385 514,692 257,308 25,000 57,500
F.B. Taylor 1999 525,385 800,045(3) 449,955 12,500 69,550
Vice Chairman, 1998 505,385 427,500(3) 314,500 10,000 69,250
Chief Investment 1997 485,385 544,694 272,306 20,000 65,750
Officer
M.S. Rahe (4) 1999 468,077 800,040 399,960 12,500 52,050
Vice Chairman 1998 440,385 424,577 267,423 8,000 50,750
1997 212,500 400,000 - 30,000 13,250
J.M. Deignan 1999 361,539 466,690 233,310 7,500 40,675
Executive Vice 1998 346,539 328,016 163,984 5,000 41,250
President 1997 332,000 308,105 153,985 10,000 34,250
</TABLE>
(1) Each dollar value shown in this column (other than the amount shown for Ms.
Rahe in 1997; see footnote (4)) is the Restricted Units Portion of an award
under the Executive Incentive Plan ("EIP"). Such dollar values for 1999 were
converted into Restricted Units on February 22, 2000, as follows, based on the
average of the high and low market prices of a Common Share on that date: Mr.
Schwarz - 4,906 units; Mr. Maurer - 3,955 units; Mr. Taylor - 3,620 units; Ms.
Rahe - 3,217 units; and Mr. Deignan - 1,877 units. A holder of Restricted Units
is credited with additional units in respect of dividends that would be paid on
the Common Shares underlying his or her Restricted Units. The number and value
of the Named Executive Officers' aggregate Restricted Unit holdings at the end
of the Corporation's last fiscal year (December 31, 1999), not including the
above-mentioned February 2000 awards, were as follows: Mr. Schwarz - 23,400
units ($1,310,242); Mr. Maurer - 16,709 units ($940,666); Mr. Taylor - 16,251
units ($904,724); Ms. Rahe - 21,001 units ($1,090,746) and Mr. Deignan - 9,240
units ($507,413).
(2) See following table for identification and amount of components.
(3) The 1999 bonus amounts shown for Mr. Schwarz, Mr. Maurer and Mr. Taylor do
not include the amounts waived by such individuals pursuant to split-dollar
insurance agreements with the Corporation. Under these agreements, Mr. Schwarz
waived his right to receive the first $250,000 and Mr. Maurer and Mr. Taylor
each waived the right to receive the first $100,000 of the cash portions of any
EIP awards otherwise payable to them for each of the years 1998 through 2001 (in
the case of Mr. Schwarz); for each of the years 1998 through 2002 (in the case
of Mr. Taylor); and for each of the years 1999 through 2003 (in the case of Mr.
Maurer), and the Corporation has agreed to pay equivalent amounts of annual
premiums for insurance policies on each of their lives. The Corporation is the
owner of each of these policies but has endorsed to Messrs. Schwarz , Maurer and
Taylor the right to name beneficiaries for their respective policies' death
benefit proceeds in excess of the Corporation's aggregate premium payments under
the policies.
(4) Ms. Rahe joined U.S. Trust on June 30, 1997. On that date, she was granted
17,000 restricted stock units which will vest on June 30, 2000 and options to
purchase 30,000 shares at $46.438 per share which vest and become exercisable in
four equal, cumulative installments on each of the first through fourth
anniversaries of the grant. $13,250 was credited to the Benefit Equalization
Plan on behalf of Ms. Rahe in 1997. She was not eligible for the ESOP in 1997.
9
<PAGE> 10
All Other Compensation in 1999
- --------------------------------------------------------------------------------
The following table lists "All Other Compensation" paid or accrued to each of
the Named Executive Officers.
<TABLE>
<CAPTION>
Matching
401(k) BEP
Contributions (1) Allocation (2) Total
Name ($) ($) ($)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
H.M. Schwarz 4,800 51,500 56,300
J.S. Maurer 4,800 55,500 60,300
F.B. Taylor 4,800 64,750 69,550
M.S. Rahe 4,800 47,250 52,050
J.M. Deignan 4,800 35,875 40,675
- -----------------------------------------------------------------------------------
</TABLE>
(1) Represents the employer matching contributions that will be made in 2000 for
the 1999 plan year to the 401(k) Plan and ESOP on behalf of each of the named
Executive Officers.
(2) Represents the amounts credited in 1999 to the Benefit
Equalization Plan, a non-qualified defined contribution supplemental retirement
plan.
1999 Option Grants Table
The following table shows options granted during 1999 to the Named Executive
Officers, including potential gains that these officers would realize under two
stock price growth-rate assumptions compounded annually. Under the 5%
growth-rate assumption, the indicated values would be realized if the stock
price reached $123.389 per share at the end of the option term (10 years from
grant). Under the 10% growth-rate assumption, the indicated values would be
realized if the stock price reached $196.476 per share.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(1)
----------------------------------------------------------- -----------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED TO EXERCISE OF
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION
NAME (#) FISCAL YEAR ($/SH) DATE(2) 5% ($) 10% ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
H.M. Schwarz 17,500 3.85% 75.75 2/23/09 833,678 2,112,705
J.S. Maurer 15,000 3.30% 75.75 2/23/09 714,582 1,810,890
F.B. Taylor 12,500 2.75% 75.75 2/23/09 595,485 1,509,075
M.S. Rahe 12,500 2.75% 75.75 2/23/09 595,485 1,509,075
J.M. Deignan 7,500 1.65% 75.75 2/23/09 357,291 905,445
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annual growth-rate assumptions are prescribed by rules of the Securities and
Exchange Commission and do not reflect actual or projected price appreciation of
the Common Shares.
(2) Each option will vest and become exercisable in four
equal, cumulative installments on each of the first through fourth anniversary
dates of the date of grant (February 23, 1999).
Aggregated Option Exercises in 1999 and Year-End Option Values
The following table shows the stock option exercises by each Named Executive
Officer in the fiscal year ended December 31, 1999. It also shows the number of
vested and unvested unexercised options, and the value of vested and unvested
unexercised in-the-money options, as of December 31, 1999.
10
<PAGE> 11
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES YEAR-END(#) YEAR-END($)(2)
ACQUIRED ON VALUE ----------------------------- -----------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
H.M. Schwarz 3,000 183,938 76,750 / 150,750 3,958,648 / 6,735,185
J.S. Maurer - - 75,797 / 118,375 3,978,655 / 5,145,645
F.B. Taylor - - 52,250 / 95,250 2,683,417 / 4,121,563
M.S. Rahe - - 17,000 / 33,500 539,376 / 661,103
J.M. Deignan - - 26,124 / 36,876 1,341,652 / 1,402,030
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Aggregate market value on the date(s) of exercise less aggregate exercise
price.
(2) Total value of unexercised options is based on the difference between
aggregate market value of the Common Shares at $80.18 per share, the closing
price on December 31, 1999, and aggregate exercise price.
Retirement Benefits
The Named Executive Officers participate in the Employees' Retirement Plan of
United States Trust Company of New York and Affiliated Companies (the
"Retirement Plan"), a tax qualified noncontributory defined benefit pension
plan. An annual pension benefit equal to a percentage (based on the
participant's credited years of service up to a maximum of 35 years) of average
base salary (based on the participant's highest five consecutive years of base
salary during the last ten plan years of employment), reduced by a portion of
such participant's annual Social Security covered compensation is payable after
retirement in the form of an annuity.
The amount of benefits payable from the Retirement Plan trust is limited by
the restrictions applicable to qualified plans under the Internal Revenue Code.
The table below shows the annual pension benefit accrued as of December 31, 1999
under the Retirement Plan for each Named Executive Officer, and the estimated
annual pension benefit payable upon retirement at normal retirement age (65) as
a single life annuity under the Retirement Plan to the Named Executive Officers:
<TABLE>
<CAPTION>
ANNUAL RETIREMENT ESTIMATED ANNUAL
BENEFIT ACCRUED RETIREMENT BENEFIT
NAME AS OF 12/31/99 AT AGE 65
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
H.M. Schwarz $ 118,900 $ 121,700
J.S. Maurer 100,800 107,800
F.B. Taylor 119,600 121,500
M.S. Rahe (1) 10,300 55,100
J.M. Deignan 50,400 75,400
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Benefits under the Retirement Plan vest after five years of service. Ms.
Rahe will vest in her Retirement Plan benefits on June 30, 2002.
In addition, under the Corporation's Benefit Equalization Plan (the "BEP"), an
amount is credited each year to the account of a Retirement Plan participant
equal to a specific percentage (based on the participant's age at December 31 of
such year) of the participant's base salary in excess of the Internal Revenue
Code compensation limitation ($160,000 in 1999). Such amounts credited to the
Named Executive Officers are included under the caption "All Other Compensation"
in the Summary Compensation Table above. At retirement, a participant is paid,
in addition to his or her benefit under the Retirement Plan, the value of his or
her individual BEP account, partly in cash and partly in Common Shares, in
either a lump sum or installments.
11
<PAGE> 12
Change in Control Provisions
The Corporation's compensation and benefit plans generally provide for the
acceleration of the payment of benefits in the event of a "change in control" of
the Corporation, unless the Board of Directors otherwise determines prior to the
date of such change in control (or not later than 45 day thereafter in certain
circumstances). A "change in control" means: (i) 20% or more of the Common
Shares have been acquired by any person (as defined by Section 3(a)(9) of the
Securities Exchange Act of 1934) other than directly from the Corporation; (ii)
a merger or equivalent combination has occurred after which 49% or more of the
voting stock of the surviving corporation is held by persons other than former
shareholders of the Parent; or (iii) 20% or more of the directors elected by
shareholders to the Board of Directors of the Parent are persons who were not
nominated by the Board of Directors or Executive Committee of the Board of
Directors in the most recent proxy statement of the Corporation.
Upon a change in control (a) all stock options granted and held under the
1995 Stock Option Plan would become immediately exercisable; (b) each
outstanding but unexercised option under the 1995 Stock Option Plan would be
canceled, and an amount equal to the excess of the Determined Value (as defined)
of the Common Shares subject to such option over the aggregate purchase price of
such Common Shares under such option would become payable in cash; (c) all
deferred awards under the 1989 Stock Compensation Plan ("Stock Plan") would
become immediately payable in cash in an amount equal to the sum of the Interest
Portion (as defined) of such awards and the Determined Value (as defined) of the
number of Common Shares corresponding to the number of units included in the
phantom share unit portion of such awards; (d) benefit equalization units
previously granted under the Stock Plan (a form of phantom share unit) would
become immediately payable in cash in an amount equal to the Determined Value
(as defined) of the number of Common Shares corresponding to the number of
benefit equalization units credited to the participant; (e) awards under the EIP
for the year in which the change in control occurs would be deemed to have been
earned in full and to the maximum extent, and would be immediately payable in
cash; (f) Restricted Units granted under the EIP would become immediately vested
and would become payable in cash in an amount equal to the Determined Value (as
defined in the applicable Plan) of such Restricted Units; (g) accounts under the
Executive Deferred Compensation Plan would become immediately payable; and (h)
excess pension benefits under the BEP would become immediately payable in cash.
(1)
The Retirement Plan provides that, if it is terminated within four years
after a change in control, surplus assets in the plan would be applied (subject
to the Internal Revenue Code and other tax qualification requirements) to
increase on a pro rata basis the pension benefits payable to all qualified
participants, including the Named Executive Officers.
The 1990 Change in Control and Severance Policy for Top Tier Officers "Top
Tier Plan" provides each Named Executive Officer with severance benefits (i) in
the event of such officer's involuntary termination (as defined in such plan) of
employment within two years following a change in control or (ii) in the case of
a member of the Office of the Chairman, in the event of such officer's voluntary
termination of employment within six months following a change in control. Such
benefits would be payable in cash in an amount equal to the sum of (a) two times
such officer's then current annual base salary, (b) two times the average of the
highest three of the previous five year's awards to such officer under the EIP
and (c) 26 times such officer's then current weekly base salary. In addition,
the policy provides for a "gross-up" payment in an amount that is intended to
make the officer whole, on an after-tax basis, for any excise tax imposed under
section 280G of the Internal Revenue Code on any benefit payable to the officer
under such policy or otherwise that would be deemed an excess parachute payment.
In addition, the Parent and the Trust Company have entered into "Benefit
Protection Agreements" with each Named Executive Officer which provide for the
payment of the Change in Control Benefits that otherwise would be payable to
such officers under each of the plans or agreements described above if a change
in control occurs, even if the Board of Directors should determine that the
transaction in question should not be treated as a change in control for
purposes of any one or more of such plans or agreements. (2)
- --------------------------------------------------------------------------------
(1) On January 12, 2000, the Board of Directors adopted amendments to the
"change in control" provisions of the non-qualified equity based plans described
in this section to provide that stock options and other equity-based
compensation denominated in common shares of U.S. Trust or share equivalents
will become fully exercisable or vested, as applicable, and will be paid out at
the effective time of the merger with The Charles Schwab Corporation ("Schwab"),
to the extent, in the case of stock options, not previously exercised, in the
form of Schwab common stock having an equivalent value to the value of the
participant's respective equity based awards. With respect to the cash
components of the non-qualified plans described in this section, the Board of
Directors amended such plans to provide that any outstanding awards that are not
equity based will become fully vested at the effective time of the merger to the
extent not then already vested, but that such plans will otherwise continue in
effect in accordance with their original terms.
(2) Simultaneously with the execution of the Agreement and Plan of Merger with
Schwab, the Named Executive Officers entered into employment agreements that
would provide for a waiver of their rights under the Top Tier Plan and Benefit
Protection Agreements.
12
<PAGE> 13
Benefit Protection Trusts(1)
Certain of the benefit and compensation plans maintained by the Corporation and
the Trust Company will be supported by the following grantor trusts, the assets
of which are subject to the claims of the Corporation's and the Trust Company's
respective creditors: the U.S. Trust Corporation Benefits Protection Trust I;
U.S. Trust Corporation Benefits Protection Trust II; and the United States Trust
Company of New York and affiliated Companies Executive Benefits Protection
Trust. The U.S. Trust Corporation Benefits Trust I also supports certain
benefits payable under the Board Members Deferred Compensation Plan.
Upon a change in control (as defined in the applicable plans and trust
agreements), the trust funds would be used to make benefit payments to the
officers and Board members. No contributions have been made to the trusts to
date.
- --------------------------------------------------------------------------------
(1) On January 12, 2000, the Board of Directors determined that the merger with
Schwab pursuant to the Agreement and Plan of Merger would not constitute a
"change in control" for purposes of the Benefit Protection Trusts.
Directors' Compensation
Non-employee directors received a $26,000 cash retainer and a stock retainer of
400 Common Shares. U.S. Trust credited $5,000 in the form of phantom share units
to each non-employee director's deferred account under the Board Members'
Deferred Compensation Plan (see below.)
Annual retainers were paid to non-employee directors for service on Board
Committees in 1999 as follows:
<TABLE>
<CAPTION>
AUDIT COMMITTEE CORPORATE RESPONSIBILITY COMMITTEE
- --------------- ----------------------------------
<S> <C> <C> <C>
Chairman $12,500 Chairman $5,000
Members $10,000 Members $3,000
</TABLE>
<TABLE>
<CAPTION>
COMPENSATION & BENEFITS COMMITTEE EXECUTIVE COMMITTEE
- --------------------------------- -------------------
<S> <C> <C> <C>
Chairman $10,000
Members $7,000 Members $3,000
</TABLE>
All directors are reimbursed for travel and other out-of-pocket expenses
incurred by them in attending Board or committee meetings.
Under the Board Members' Deferred Compensation Plan, non-employee directors
may defer all or part of their cash retainers. All deferrals are allocated
between an interest account and a phantom share unit account with a minimum of
50% of deferred amounts allocated to phantom share units ("PSUs"). Interest
accounts are credited with earnings based on four available rates of return: the
Trust Company's prime rate and rates of return matching those of the Standard &
Poor's 500 Index, the Lehman Bros. Government/Corporate Bond Index and the IBC's
Money Fund Report First Tier Average. Deferred compensation and the $5,000
annual credit are converted into PSUs on the basis of the market value of a
Common Share at the time of conversion. As dividends are paid on Common Shares,
PSUs earn common share dividend equivalents which are converted into additional
PSUs on the basis of the market value of a Common Share on the relevant dividend
payment date. Payouts of interest account balances are made in cash, and payouts
with respect to PSUs consist of one Common Share for each whole PSU. A
director's right to receive future payments under any deferred account is an
unsecured claim against the Corporation's general assets.
13
<PAGE> 14
- --------------------------------------------------------------------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
5% Shareholders
The following table contains information as of the close of business on February
18, 2000 concerning beneficial ownership of Common Shares by owners of more than
5% of the outstanding Common Shares and by the Trust Company and our affiliates.
Beneficial ownership means direct ownership with sole voting and dispositive
power unless otherwise indicated. Other than information with respect to shares
held in the 401(k) Plan and ESOP and by our affiliates, our information is based
on reports filed with the Securities and Exchange Commission by each of the
firms and individuals listed in the table below. If you wish, you may obtain the
reports from the SEC.
<TABLE>
<CAPTION>
NAME AND NUMBER OF
ADDRESS OF BENEFICIAL SHARES OWNED PERCENT
OWNER BENEFICIALLY OF CLASS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
401 (k) Plan and ESOP of United States Trust 3,019,664 shares (in a fiduciary
Company of New York and Affiliated Companies capacity) 16.05%
114 West 47th Street
New York, New York 10036
David S. Gottesman 1,000,600 shares (with sole voting
437 Madison Avenue and dispositive power) (1) 5.32%
New York, New York 10022
United States Trust Company of New York and 1,126,874 shares (in fiduciary and
Affiliated Companies agency capacities) (2) 5.99%
114 West 47th Street
New York, New York 10036
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Information with respect to David S. Gottesman has been obtained from Mr.
Gottesman's filings with the Securities and Exchange Commission and from First
Manhattan Co., of which Mr. Gottesman is a general partner. First Manhattan Co.
holds 12,505 shares in accounts of clients as to which it may be deemed to have
shared voting power and 11,035 shares as to which it may be deemed to have
shared dispositive power. Mr. Gottesman disclaims beneficial ownership of all
such shares held in accounts of clients. Such filings further disclose that the
shares acquired by Mr. Gottesman were acquired solely for investment purposes.
(2) U.S. Trust has sole voting power as to 16,630 of such shares, shared voting
power as to 50,963 of such shares, sole dispositive power as to 592,700 of such
shares and shared dispositive power as to 534,174 of such shares. As a matter of
policy, U.S. Trust votes Common Shares held in an agency capacity only as
directed by its clients, and where it holds Common Shares as a co-fiduciary,
votes such shares as directed by the other co-fiduciaries. Shares held by U.S.
Trust as sole fiduciary of a trust are not voted unless specific voting
instructions are given pursuant to the governing instrument.
Other than as set forth above, management of the Corporation is aware of no
person who, on the record date, was the beneficial owner of more than 5% of the
Corporation's outstanding Common Shares.
Share Ownership of Directors and Executive Officers
The following table shows the Common Shares beneficially owned directly or
indirectly as of February 18, 2000 by the Corporation's directors, the executive
officers named in the Summary Compensation Table and all directors and executive
officers as a group. Other than Messrs. Schwarz, Maurer and Taylor, no director
or executive officer beneficially owns 1% or more of the Common Shares. All
directors and executive officers as a group beneficially own 4.899% of the
Common Shares.
14
<PAGE> 15
<TABLE>
<CAPTION>
SHARE EQUIVALENTS
ATTRIBUTABLE TO
SHARES BOARD DEFERRALS AND TOTAL HOLDINGS
BENEFICIALLY PERCENT OFFICER DEFERRALS AND INCLUDING
NAME OF BENEFICIAL OWNER OWNED (1) OF CLASS EIP AWARDS (2) (3) SHARE EQUIVALENTS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
H. Marshall Schwarz 208,806 1.104 % 380,788 589,594
Jeffrey S. Maurer 192,631 (4) 1.019 % 172,284 364,915
Frederick B. Taylor 202,724 (5) 1.074 % 97,495 300,219
Maribeth S. Rahe 30,728 21,347 52,075
John M. Deignan 55,231 43,513 98,744
Eleanor Baum 2,800 3,465 6,265
Samuel C. Butler 19,169 (6) 41,600 60,769
Peter O. Crisp 3,600 10,599 14,199
Philippe de Montebello 5,800 1,630 7,430
Robert E. Denham 6,800 516 7,316
Antonia M. Grumbach 6,100 600 6,700
Peter L. Malkin 4,600 2,067 6,667
David A. Olsen 6,374 525 6,899
Carl H. Pforzheimer, III 35,500 (7) 480 35,980
Philip L. Smith 14,400 1,758 16,158
John H. Stookey 60,424 4,479 64,903
Robert N. Wilson 14,505 735 15,240
Ruth A. Wooden 3,000 2,209 5,209
All directors and executive 938,616 4.899 % 796,491 1,735,107
officers as a group
(numbering 19 persons)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The number of shares shown for each executive officer includes shares that
may be acquired upon the exercise of stock options exercisable within 60 days of
February 18, 2000 as follows: Mr. Schwarz 100,375 shares, Mr. Maurer 84,750
shares, Ms. Rahe 22,125 shares, Mr. Taylor 68,125 shares, Mr. Deignan 34,375
shares, and all directors and executive officers as a group 343,750 shares.
Also included in this column are shares credited to participant accounts
under the Employee Stock Purchase Plan (ESPP) and U.S. Trust 401(k) Plan and
ESOP as follows: Mr. Schwarz 81 shares (ESPP), 969 shares (401(k) Plan) and
6,250 shares (ESOP); Mr. Maurer 331 shares (ESPP), 29,193 shares (401(k) Plan)
and 6,250 shares (ESOP); Ms. Rahe 331 shares (ESPP), 5,545 shares (401(k) Plan)
and 397 shares (ESOP); Mr. Taylor 331 shares (ESPP), 46,468 shares (401(k) Plan)
and 6,250 shares (ESOP); and Mr. Deignan 289 shares (ESPP), 3,117 shares (401(k)
Plan) and 6,250 shares (ESOP). In general, Plan participants have voting and
dispositive power with respect to Common Shares held for their account in the
401(k) Plan, and have voting power with respect to Common Shares held for their
account in the ESPP and ESOP.
(2) Directors defer a certain portion of their cash compensation each year and
may defer all cash compensation under the Board Members' Deferred Compensation
Plan. For more information on the Deferred Compensation Plan, see "Directors'
Compensation".
(3) The number of shares shown for executive officers includes shares
attributable to deferred awards under the 1989 Stock Compensation Plan and
Predecessor Performance Plans and shares attributable to awards under the
Executive Incentive Plan. For more information, see "Executive Compensation,
Summary Compensation Table".
(4) Includes 5,000 shares owned by Mr. Maurer's wife as to which he disclaims
beneficial ownership and 7,968 shares held in the Maurer family limited
partnership.
(5) Includes 7,978 shares owned by Mr. Taylor's wife as to which he disclaims
beneficial ownership, 400 shares held in a family trust for which Mr. Taylor is
trustee, 540 shares held in a trust of which Mr. Taylor is sole trustee and in
which he has a beneficial interest, and 918 shares held in a family foundation.
(6) Includes 2,500 shares held in a trust of which Mr. Butler is trustee, 9,828
shares held in a trust in which he has a beneficial interest and 600 shares held
in a charitable trust with respect to which Mr. Butler has voting and
dispositive power.
(7) Includes 700 shares held in a profit-sharing plan of which Mr. Pforzheimer
is the trustee, 3,000 shares held in a discretionary client account as to which
Mr. Pforzheimer has voting and dispositive power, and 21,000 shares held in a
foundation, with respect to which shares Mr. Pforzheimer has voting and
dispositive power.
15
<PAGE> 16
- --------------------------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Some of the Corporation's directors are U.S. Trust customers and some of the
directors are officers of corporations or members of partnerships which are U.S.
Trust customers. As customers, they have had transactions in the ordinary course
of business, including borrowings, all of which were on substantially the same
terms as those prevailing at the time for comparable transactions with other
persons and did not involve more than normal risk of collectibility or present
other unfavorable features. In the ordinary course of business, we use the
products or services of a number of organizations with which directors of the
Corporation are affiliated as officers or partners and we expect to have similar
transactions with such organizations in the future. Mr. Butler, Mr. Denham, Ms.
Grumbach and Mr. Malkin are each partners in law firms that provide legal
services to U.S. Trust from time to time. We believe that these transactions
have been on terms that were at least as favorable as those available from other
service providers. In 1999, the law firm of Cravath, Swaine & Moore, of which
Mr. Butler is a partner, performed legal services for U.S. Trust Company of New
York and the law firm of Munger, Tolles & Olson LLP, of which Mr. Denham is a
partner, performed legal services for U.S. Trust Company, N.A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS OF FORM 8-K
The following financial statements are included in the Current Report on Form
8-K bearing cover date of February 22, 2000 and included as Exhibit 99 to this
Form 10-K:
Consolidated Statement of Income (Page 1 of Exhibit 99.5 of Form 8-K)
Consolidated Statement of Condition (Page 2 of Exhibit 99.5 of Form
8-K)
Consolidated Statement of Changes in Stockholders' Equity (Page 3 of
Exhibit 99.5 of Form 8-K)
Consolidated Statement of Changes in Cash Flows (Page 4 of Exhibit
99.5 of Form 8-K)
Reports on Form 8-K:
No reports were filed during the fourth quarter of 1999. On January 14,
2000, the U.S. Trust Corporation (the "Corporation") filed a Current Report
on Form 8-K, reporting under Item 5 and Item 7. The Form 8-K was filed to
report that the Corporation had entered into an Agreement and Plan of
Merger dated as of January 12, 2000 with The Charles Schwab Corporation
("Schwab"). On February 22, 2000, the Corporation filed a Current Report on
Form 8-K, reporting under Item 5. The Form 8-K presented the consolidated
financial statements and notes thereto, the independent accountants report,
unaudited management's discussion and analysis and supplementary financial
information of the Corporation for the year ended December 31, 1999.
Other schedules:
Other schedules are omitted because the required information either is not
applicable or is not present in amounts sufficient to require submission of
schedule.
16
<PAGE> 17
EXHIBIT INDEX
- ------------------ ------------------------------------------------------------
EXHIBIT NO. ITEM
- ------------------ ------------------------------------------------------------
2 Agreement and Plan of Merger dated as of January 12, 2000,
by and among The Charles Schwab Corporation, Patriot Merger
Corporation and the Registrant, filed as Exhibit 2.1 to Form
8-K dated January 14, 2000. (1)
3.1 Certificate of Incorporation of the Registrant dated June 2,
1999, filed as Exhibit 3.1 to Form 10-Q for the quarter
ended June 30, 1999.(1)
3.2 Restated By-Laws of the Registrant dated April 27, 1999,
filed as Exhibit 3.2 to Form 10-Q for the quarter ended June
30, 1999.(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.
4.1 Rights Agreement, dated as of September 1, 1995, between the
Registrant and First Chicago Trust Company of New York, as
Rights Agent, filed on September 5, 1995 as Exhibit 1 to the
Corporation's Registration Statement on Form 8-A for the
registration under Section 12(g) of the Securities Exchange
Act of 1934 of Rights to Purchase the Corporation's Series A
Participating Cumulative Preferred Shares (the "8-A").(1)
4.2 Specimen certificate representing Rights to Purchase the
Corporation's Series A Participating Cumulative Preferred
Shares, filed on September 5, 1995 as Exhibit B to Exhibit 1
to the 8-A.(1)
10.1 Sublease agreement, dated September 1, 1995, between The
Chase Manhattan Bank (National Association), as Sublessor,
and United States Trust Company of New York (the "Trust
Company"), as Sublessee, covering space at 770 Broadway, New
York, New York, filed as Exhibit 10.1 to the Corporation's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995 (the "1995 10-Q").(1)
10.2 Lease, dated as of September 10, 1987, between 46-47
Associates, as Lessor, and the predecessor to the Trust
Company ("USTNY"), as Lessee, covering space at 114 West
47th Street, New York, New York; letters modifying the terms
of such Lease dated, respectively, September 10, 1987 and
October 2, 1989; Subordination Agreement dated as of
September 10, 1987 between USTNY and 1133 Building Corp.
subordinating to such Lease a ground lease with respect to
the property subject to such Lease; Right of First Refusal
dated as of September 10, 1987 between USTNY and the Lessor
respecting the construction of an annex (at 130 West 47th
Street, New York, New York) adjacent to the property subject
to such Lease and which annex is to be subject to such
Lease; and Agreement dated as of September 10, 1987 among
USTNY, the Lessor and 1155 Office Building Corp. under which
USTNY and the Lessor may exercise an option to purchase
property (at 132 West 47th Street, New York, New York)
contiguous to the property subject to such Lease, all filed
as Exhibit (10)(k) to the former U.S. Trust Corporation's
("UST") Annual Report on Form 10-K (Commission File No.
0-8709) for the fiscal year ended December 31, 1989.(1)
- ------------------------------- ------------------------------------------------
(1) Incorporated herein by reference.
17
<PAGE> 18
- ------------------ ------------------------------------------------------------
EXHIBIT NO. ITEM
- ------------------ ------------------------------------------------------------
10.3 Lease modification agreement dated December 7, 1987, between
46-47 Associates, as Lessor, and USTNY, as Lessee;
Modification of Annex Agreement dated December 7, 1987,
between 46-47 Associates and USTNY; Modification of Right of
First Refusal Agreement dated December 7, 1987, between 1133
Building Corp. and USTNY, filed as Exhibit 10.5 to UST's
Annual Report on Form 10-K (Commission File No. 0-8709) for
the fiscal year ended December 31, 1993 (the "1993
10-K").(1)
10.4 Confirmation and Clarification Agreement dated March 10,
1992, between 46-47 Associates, as Lessor, and USTNY, as
Lessee, amending the lease agreement dated September 10,
1987, filed as Exhibit 10.6 to the 1993 10-K.(1)
10.5 Clarification of Lease Modification Agreement dated March
24, 1992, between 46-47 Associates, as Lessor, and USTNY as
Lessee; Clarification of Right of First Refusal Agreement
dated March 24, 1992, between 1133 Building Corp. and USTNY;
Termination of Annex Agreement dated March 24, 1992, between
46-47 Associates and USTNY; Agreement dated March 24, 1992,
between 46-47 Associates and USTNY; Grant of Easement and
Zoning Lot and Development Agreement dated March 24, 1992,
between 46-47 Associates and 1133 Building Corp., and
Indenture dated March 24, 1992, between 46-47 Associates and
David Puchall, filed as Exhibit 10.7 to the 1993 10-K.(1)
10.6 Second Lease Modification Agreement dated May 10, 1993,
between 46-47 Associates, as Lessor, and USTNY, as Lessee,
amending the lease agreement dated September 10, 1987 (see
Exhibit 10.2 above), filed as Exhibit 10.8 to the 1993
10-K.(1)
10.7 License agreement between 46-47 Associates and USTNY for
space in Cellar 201 at 114 West 47th Street, New York, New
York, filed as Exhibit 10.9 to UST's Annual Report on Form
10-K (Commission File No. 0-8709) for the fiscal year ended
December 31, 1994.(1)
10.8 Third Lease Modification Agreement dated September 1, 1997,
between 46-47 Associates L.L.C., as Lessor and the Trust
Company, as Lessee, amending the lease agreement dated
September 10, 1987 (see Exhibit 10.2 above).
10.9 Fourth Lease Modification Agreement dated August 31, 1998,
between 46-47 Associates L.L.C., as Lessor and the Trust
Company, as Lessee, amending the lease agreement dated
September 10, 1987 (see Exhibit 10.2 above).
10.10 Fifth Lease Modification Agreement dated April 15, 1999,
between 46-47 Associates, L.L.C., as Lessor and the Trust
Company, as Lessee, amending the lease agreement dated
September 10, 1987 (see Exhibit 10.2 above).
10.11 Agreement of Lease dated December 21, 1998, between Newport
Office Center III Company LLC, as Lessor, and U.S. Trust
Company of New Jersey, as Lessee, for space in the Newport
Office Center in Jersey City, New Jersey, filed as Exhibit
10.10 to the Form 10-K for the year ended December 31, 1998
(the "1998 10-K"). (1)
10.12 Services Agreement between USTNY and the Trust Company,
dated September 1, 1995, filed as Exhibit 2.6 to Amendment
No. 1, dated December 27, 1995 to the 1995 10-Q.(1)
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10.13 U.S. Trust Corporation Stock Plan for Non-Officer Directors,
as amended and restated effective as of September 1, 1995,
filed as Exhibit 10.8 to the 1995 10-Q.(1)
- --------------------------------------------------------------------------------
(1) Incorporated herein by reference.
18
<PAGE> 19
- ------------------ ------------------------------------------------------------
EXHIBIT NO. ITEM
- ------------------ ------------------------------------------------------------
10.14 1989 Stock Compensation Plan and Predecessor Plans of the
Corporation, as amended and restated through July 1, 1997,
filed as Exhibit 10.9 to the Corporation's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1997.(1)
10.15 Amendment, effective January 1, 1998, to the 1989 Stock
Compensation Plan and Predecessor Plans of the Corporation,
as amended and restated through July 1, 1997, filed as
Exhibit 10.14 to the 1998 10-K. (1)
10.16 Amendment, effective January 12, 2000, to the 1989 Stock
Compensation Plan and Predecessor Plans of the Corporation,
as amended and restated through July 1, 1997 and amended
January 1, 1998.
10.17 Benefit Equalization Plan of the Corporation, as amended and
restated effective as of January 1, 1997, filed as Exhibit
10.10 to the Corporation's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997.(1)
10.18 Amendment, effective April 28, 1998, to the Benefit
Equalization Plan of the Corporation, as amended and
restated effective as of January 1, 1997, filed as Exhibit
10.16 to the 1998 10-K. (1)
10.19 Amendment, effective January 1, 1999, to the Benefit
Equalization Plan of the Corporation, as amended and
restated effective as of January 1, 1997 and amended
effective April 28, 1998, filed as Exhibit 10.17 to the 1998
10-K. (1)
10.20 Amendment, effective January 12, 2000, to the Benefit
Equalization Plan of the Corporation, as amended and
restated effective as of January 1, 1997 and amended April
28, 1998 and January 1, 1999.
10.21 Board Members' Deferred Compensation Plan of the
Corporation, as amended and restated through January 1,
1997, filed as Exhibit 10.12 to the Corporation's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997.(1)
10.22 Amendment, effective April 28, 1998, to the Board Members'
Deferred Compensation Plan of the Corporation, as amended
and restated through January 1, 1997, filed as Exhibit 10.19
to the 1998 10-K. (1)
10.23 1995 Annual Incentive Plan of the Trust Company and
Affiliated Companies, as amended and restated effective
January 1, 1996, filed as Exhibit 10.15 to the Corporation's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (the "1996 10-K").(1)
10.24 Amendment, effective January 1, 1999, to the 1995 Annual
Incentive Plan of the Trust Company and Affiliated
Companies, as amended and restated effective January 1,
1996, filed as Exhibit 10.22 to the 1998 10-K. (1)
10.25 1990 Change in Control and Severance Policy for Top Tier
Officers of the Trust Company and Affiliated Companies as
amended and restated effective as of October 22, 1996, filed
as Exhibit 10.16 to the 1996 10-K.(1)
10.26 1990 Change in Control and Severance Policy for Officers and
Employees of the Trust Company and Affiliated Companies as
amended and restated effective as of October 22, 1996, filed
as Exhibit 10.17 to the 1996 10-K.(1)
- --------------------------------------------------------------------------------
(1)Incorporated herein by reference.
19
<PAGE> 20
- ------------------ ------------------------------------------------------------
EXHIBIT NO. ITEM
- ------------------ ------------------------------------------------------------
10.27 Executive Deferred Compensation Plan of the Corporation, as
amended and restated through July 1, 1997, filed as Exhibit
10.18 to the Corporation's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997. (1)
10.28 Amendment, effective April 28, 1998, to the Executive
Deferred Compensation Plan of the Corporation, as amended
and restated through July 1, 1997, filed as Exhibit 10.26 to
the 1998 10-K. (1)
10.29 Amendment, effective January 1, 1999, to the Executive
Deferred Compensation Plan of the Corporation, as amended
and restated through July 1, 1997 and amended effective
April 28, 1998, filed as Exhibit 10.27 to the 1998 10-K. (1)
10.30 Executive Incentive Plan of the Corporation, as adopted
effective January 1, 1997, filed as Exhibit 10.19 to the
Corporation's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997. (1)
10.31 Amendment, effective January 1, 1999, to the Executive
Incentive Plan of the Corporation, as adopted effective
January 1, 1997, filed as Exhibit 10.29 to the 1998 10-K.
(1)
10.32 Amendment, effective January 12, 2000, to the Executive
Incentive Plan of the Corporation, as adopted effective
January 1, 1997 and amended January 1, 1999.
10.33 1995 Stock Option Plan of the Corporation, as amended and
restated effective November 1, 1996, filed as Exhibit 10.20
to the 1996 10-K.(1)
10.34 Amendment, effective January 12, 2000 to the 1995 Stock
Option Plan of the Corporation, as amended and restated
effective November 1, 1996.
10.35 Agreements re supplemental retirement benefits for H.
Marshall Schwarz, Jeffrey S. Maurer and Frederick B. Taylor,
as amended and restated as of August 29, 1995, filed as
Exhibit 10.21 to the 1995 10-Q.(1)
10.36 Deferred Restricted Unit Plan of the Corporation, as adopted
effective January 1, 1997, filed as Exhibit 10.22 to the
Corporation's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997.(1)
10.37 Amendment, effective January 1, 1998, to the Deferred
Restricted Unit Plan of the Corporation, as adopted
effective January 1, 1997, filed as Exhibit 10.33 to the
1998 10-K. (1)
10.38 Amendment, effective January 12, 2000, to the Deferred
Restricted Unit Plan of the Corporation, as adopted
effective January 1, 1997 and amended January 1, 1998.
10.39 Form of Benefits Protection Agreement for H. Marshall
Schwarz, Jeffrey S. Maurer and Frederick B. Taylor, filed as
Exhibit 10.23 to the Corporation's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997.(1)
10.40 Form of Benefits Protection Agreement, filed as Exhibit
10.24 to the Corporation's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997.(1)
- --------------------------------------------------------------------------------
(1) Incorporated herein by reference.
20
<PAGE> 21
- ------------------ ------------------------------------------------------------
EXHIBIT NO. ITEM
- ------------------ ------------------------------------------------------------
10.41 Benefits Protection Agreement for Maribeth S. Rahe, filed as
Exhibit 10.25 to the Corporation's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997. (1)
21 List of Subsidiaries of the Corporation
23 Consent of Independent Accountants
27 Financial Data Schedule
99 Current Report on Form 8-K filed February 22, 2000 and
exhibits thereto
- --------------------------------------------------------------------------------
(1) Incorporated herein by reference.
The Corporation will furnish copies of any and all exhibits to this Form
10-K without charge to stockholders requesting such information.
This Report has been prepared in accordance with the rules and regulations
of the Securities and Exchange Commission, and the financial statements have
been prepared in accordance with such rules and regulations and with generally
accepted accounting principles, by officers and employees of the Corporation and
its affiliates. This has been done under the general supervision of Richard E.
Brinkmann, Comptroller and Chief Planning Officer, who has executed this Report
on the Corporation's behalf. It has been reviewed by other operating and staff
personnel of the Corporation and such affiliates and by counsel. The
consolidated financial statements have been audited by PricewaterhouseCoopers
LLP, independent certified public accountants, as indicated in their report.
This Report contains much detailed information, of which the various
signatories cannot and do not have independent personal knowledge. The
signatories believe, however, that the preparation and review process summarized
above are such as ordinarily to afford reasonable assurance of compliance with
applicable requirements.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
U. S. TRUST CORPORATION
(Registrant)
Dated: March 15, 2000 By: /s/ RICHARD E. BRINKMANN
-------------------------
Richard E. Brinkmann
Comptroller and Chief Planning Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
------------------------------------------------ --------------------- --------------
/s/ H. MARSHALL SCHWARZ Chairman of the Board March 15, 2000
------------------------------------------------
H. Marshall Schwarz and Director (Chief
Executive Officer)
/s/ JOHN L. KIRBY Treasurer and Chief March 15, 2000
------------------------------------------------
John L. Kirby Financial Officer
/s/ RICHARD E. BRINKMANN Comptroller and March 15, 2000
------------------------------------------------
Richard E. Brinkmann Chief Planning Officer
(Chief Accounting Officer)
/s/ ELEANOR BAUM Director March 15, 2000
------------------------------------------------
Eleanor Baum
/s/ SAMUEL C. BUTLER Director March 15, 2000
------------------------------------------------
Samuel C. Butler
/s/ PETER O. CRISP Director March 15, 2000
------------------------------------------------
Peter O. Crisp
/s/ PHILIPPE DE MONTEBELLO Director March 15, 2000
------------------------------------------------
Philippe de Montebello
/s/ ROBERT E. DENHAM Director March 15, 2000
------------------------------------------------
Robert E. Denham
/s/ ANTONIA M. GRUMBACH Director March 15, 2000
------------------------------------------------
Antonia M. Grumbach
Director March 15, 2000
------------------------------------------------
Peter L. Malkin
/s/ JEFFREY S. MAURER Director March 15, 2000
------------------------------------------------
Jeffrey S. Maurer
/s/ DAVID A. OLSEN Director March 15, 2000
------------------------------------------------
David A. Olsen
/s/ CARL H. PFORZHEIMER III Director March 15, 2000
------------------------------------------------
Carl H. Pforzheimer III
/s/ MARIBETH S. RAHE Director March 15, 2000
------------------------------------------------
Maribeth S. Rahe
Director March 15, 2000
------------------------------------------------
Philip L. Smith
/s/ JOHN HOYT STOOKEY Director March 15, 2000
------------------------------------------------
John Hoyt Stookey
/s/ FREDERICK B. TAYLOR Director March 15, 2000
------------------------------------------------
Frederick B. Taylor
/s/ ROBERT N. WILSON Director March 15, 2000
------------------------------------------------
Robert N. Wilson
/s/ RUTH A. WOODEN Director March 15, 2000
------------------------------------------------
Ruth A. Wooden
</TABLE>
22
<PAGE> 1
FIFTH LEASE MODIFICATION AGREEMENT
This Fifth Lease Modification Agreement (the "Agreement"), dated as of
April 15, 1999, 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
("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 10036
("Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant entered into that certain lease dated as of
September 10, 1987 (the "Original Lease"), as amended by (i) Lease Modification
Agreement dated as of December 7, 1987 (the "First Modification"), (ii) Second
Lease Modification Agreement dated as of May 10, 1993 (the "Second
Modification"), (iii) Third Lease Modification Agreement dated as of September
1, 1997 (the "Third Modification") and (iv) Fourth Lease Modification dated as
of August 31, 1998 (the "Fourth Modification"; the Original Lease, as so
amended, is hereinafter referred to as the "Lease"), whereby Landlord leased to
Tenant and Tenant hired from Landlord certain portions (as more particularly
described in the Lease) in the building known as 114 West 47th Street, New York,
New York (the "Building").
WHEREAS, Landlord and Tenant wish to confirm and clarify the occurrence of
certain events and circumstances contemplated by the parties under the Lease and
to make certain additional modifications to the Lease in the manner hereinafter
set forth.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and adequacy of which is hereby mutually
acknowledged, Landlord and Tenant hereby agree as follows:
1. Capitalized terms used but not otherwise defined herein shall have the
meanings ascribed to them in the Lease.
2. The parties acknowledge that as contemplated by Section 25.01(C) of
the Lease, as set forth in Paragraph 12 of the Second Modification, Landlord has
entered into an agreement with Pollack & Kaminsky, its successors and assigns
("Pollack"), to extend the current expiration date of its lease covering a
portion of the, 19th floor of the Building to June 30, 2002 and to extend to
December 31, 2000 the required outside date by which Landlord must notify
Pollack in the event Tenant does not elect to exercise its option with respect
to the 19th floor. Accordingly, the Lease is hereby amended as follows:
A. The date "September 30, 2000" appearing in the second sentence of
Section 25.01(C) of the Lease is hereby deleted and the date "November 30, 2000"
inserted in place thereof.
B. The fourth and fifth sentences of Section 25.01(C) of the Lease
are hereby deleted in their entirety.
3. Tenant hereby certifies that (i) the Lease is in full force and effect
and has not been further modified or amended, (ii) Landlord is not now in
default under the Lease, and
-1-
<PAGE> 2
has completed all improvements and made all contributions (if any) required of
Landlord under the Lease and Tenant knows of no event which, with notice or the
passage of time or both would constitute such a default, and (iii) Tenant has
made no demand against Landlord and has no present right to make such demand
with respect to charges, liens, defenses, counterclaims, offsets, claims, or
credits against the payment of fixed minimum rent or additional rent or the
performance of Tenant's obligations under the Lease.
4. Except as amended herein, all of the other terms, covenants and
conditions of the Lease are and shall remain in full force and effect and are
hereby ratified and confirmed and this Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
5. This Agreement may not be orally changed or terminated, nor any of its
provisions waived, except by an agreement in writing signed by the party against
whom enforcement of any changes, termination or waiver is sought.
6. Tenant acknowledges that this Agreement shall not be binding on
Landlord until Landlord shall have executed this Agreement and a counterpart
thereof shall have been delivered to Tenant.
7. Tenant and Landlord each hereby represents and warrants that it has
full right, power and authority to enter into this Agreement and that the
person executing this Agreement on behalf of Tenant and Landlord, respectively,
is duly authorized to do so.
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.
By: [sig]
----------------------------
Name:
Title:
UNITED STATES TRUST COMPANY OF
NEW YORK
By: /s/ JOHN M. DEIGNAN
----------------------------
Name: John M. Deignan
Title: Executive Vice President
-2-
<PAGE> 1
EXHIBIT 10.16
AMENDMENT EFFECTIVE JANUARY 12, 2000
TO THE 1989 STOCK COMPENSATION PLAN OF
U.S. TRUST CORPORATION
The 1989 Stock Compensation Plan of U.S. Trust Corporation (the "1989
Plan") is amended effective January 12, 2000 as follows:
1. Section 3.6 is hereby amended by adding the following sentence at the
end of the Section to read as follows:
"Notwithstanding the foregoing, at the effective time of the merger of
Patriot Merger Corporation ("Merger Sub") with and into the
Corporation (the "Merger") pursuant to an Agreement and Plan of Merger
dated as of January 12, 2000, by and among The Charles Schwab
Corporation ("Schwab"), Merger Sub and the Corporation (the "Merger
Agreement"), payment with respect to Restricted Common Shares shall be
made to participants in the form of a single payment of Schwab's
common stock equivalent in value to the single lump sum cash payment
that would otherwise be required to be made hereunder upon a Change in
Control, as determined in accordance with the procedures set forth in
Section 1.7 of the Merger Agreement."
2. Section 4.7 of the 1989 Plan is hereby amended by adding the following
paragraph at the end thereof:
"Notwithstanding the foregoing, at the effective time of the Merger,
payment with respect to each Participant's Account and each
participant's Award for any Open Cycle shall be made to such
Participant in the form of a single payment of Schwab's common stock
equivalent in value to the single lump sum cash payment that would
otherwise be required to be made hereunder upon a Change in Control,
as determined in accordance with the procedures set forth in Section
1.7 of the Merger Agreement."
3. Section 5.4 of the 1989 Plan is hereby amended by adding the following
sentence at the end thereof:
"Notwithstanding the foregoing, at the effective time of the Merger,
payment with respect to each Participant's Benefit Equalization Units
shall be made to such participant in the form of a single payment of
Schwab's common stock equivalent in value to the single lump sum cash
payment that would otherwise be required to be made hereunder upon a
Change in Control, as determined in accordance with the procedures set
forth in Section 1.7 of the Merger Agreement."
<PAGE> 1
EXHIBIT 10.20
AMENDMENTS EFFECTIVE JANUARY 12, 2000
TO THE BENEFIT EQUALIZATION PLAN OF
U.S. TRUST CORPORATION
AS AMENDED AND RESTATED
THROUGH JANUARY 1, 1997
The Benefit Equalization Plan is amended effective January 12, 2000 as
follows:
1. Section 12(a) is hereby amended by adding the following sentence at
the end of the Section to read as follows:
"Notwithstanding the foregoing, at the effective time of the merger of
Patriot Merger Corporation ("Merger Sub") with and into the
Corporation pursuant to an Agreement and Plan of Merger dated as of
January 12, 2000, by and among The Charles Schwab Corporation
("Schwab"), Merger Sub and the Corporation (the "Merger Agreement"),
payment with respect to the PSU Portion of each Participant's Account
shall be made to the Participant, or if the Participant has died, to
his or her Beneficiary, in the form of a single payment of Schwab's
common stock equivalent in value to the single sum cash payment that
would otherwise be required to be made hereunder upon a Change in
Control, as determined in accordance with the procedures set forth in
Section 1.7 of the Merger Agreement."
<PAGE> 1
EXHIBIT 10.32
AMENDMENTS EFFECTIVE JANUARY 12, 2000
TO THE EXECUTIVE INCENTIVE PLAN OF
UNITED STATES TRUST CORPORATION
The Executive Incentive Plan is amended effective January 12, 2000 as
follows:
1. Section 9 is hereby amended by adding the following new Section 9(g)
at the end of the Section:
"(g) Notwithstanding the foregoing, at the effective time of the merger of
Patriot Merger Corporation ("Merger Sub") with and into the Corporation
pursuant to an Agreement and Plan of Merger dated as of January 12, 2000,
by and among The Charles Schwab Corporation ("Schwab"), Merger Sub and the
Corporation (the "Merger Agreement"), payment with respect to each
Participant's Account shall be made to the Participant, or if the
Participant has died, to his or her Beneficiary, in the form of a single
lump sum cash payment that would otherwise be required to be made hereunder
upon a Change in Control, as determined in accordance with the procedures
set forth in Section 1.7 of the Merger Agreement."
<PAGE> 1
EXHIBIT 10.34
AMENDMENTS EFFECTIVE JANUARY 12, 2000
TO THE 1995 STOCK OPTION PLAN OF
U.S. TRUST CORPORATION
The 1995 Stock Option Plan is amended effective January 12, 2000 as
follows:
1. Section 5(i) is hereby amended by adding the following sentence at the
end of the Section to read as follows:
"Notwithstanding the foregoing, at the effective time of the merger of
Patriot Merger Corporation ("Merger Sub") with and into the
Corporation pursuant to an Agreement and Plan of Merger dated as of
January 12, 2000, by and among The Charles Schwab Corporation
("Schwab"), Merger Sub and the Corporation (the "Merger Agreement"),
payment with respect to the cancellation of each Option Holder's
unexercised Options shall be made to the Option Holder in the form of
a single payment of Schwab's common stock equivalent in value to the
single lump sum cash payment that would otherwise be required to be
made hereunder upon a Change in Control, as determined in accordance
with the procedures set forth in Section 1.7 of the Merger Agreement."
<PAGE> 1
EXHIBIT 10.38
AMENDMENT EFFECTIVE JANUARY 12, 2000
TO THE DEFERRED RESTRICTED UNIT PLAN OF
U. S. TRUST CORPORATION
AS ADOPTED EFFECTIVE JANUARY 1, 1997
The Deferred Restricted Unit Plan is amended effective January 12, 2000 as
follows:
1. Section 7 is hereby amended by adding the following sentence at the
end of the first paragraph of the Section to read as follows:
"Notwithstanding the foregoing, at the effective time of the merger of
Patriot Merger Corporation ("Merger Sub") with and into the
Corporation pursuant to an Agreement and Plan of Merger dated as of
January 12, 2000, by and among The Charles Schwab Corporation
("Schwab"), Merger Sub and the Corporation (the "Merger Agreement"),
payment with respect to each Participant's Account shall be made to
the Participant, or if the Participant has died, to his or her
Beneficiary, in the form of a single lump sum cash payment that would
otherwise be required to be made hereunder upon a Change in Control,
as determined in accordance with the procedures set forth in Section
1.7 of the Merger Agreement."
<PAGE> 1
EXHIBIT 21
U.S. TRUST CORPORATION
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
State or Other
Jurisdiction Office Percent
of Incorporation Owned
------------------ ----------
<S> <C> <C>
CTC Consulting, Inc. Oregon 100.0
Custodian Securities Inc. Pennsylvania 100.0
Fernhill Holdings, Inc. California 100.0
NCT Holdings Inc. North Carolina 100.0
NCT Opportunities Inc. North Carolina 100.0
U.S. Trust Company of North Carolina North Carolina 100.0
United States Trust Company of New York New York 100.0
Pouch Terminal Inc. New York 100.0
QINB, Inc. New Jersey 100.0
United States Trust Company International Corporation United States 100.0
United States Trust Company of New York (Grand Cayman) Ltd. Cayman Islands 100.0
United States Trust London Ltd. London, England 100.0
UST Overseas Corporation Delaware 100.0
UST Capital Corp. New York 100.0
UST Financial Services Corp. New York 100.0
US Trust Mortgage Service Company Florida 100.0
Co-op Holdings, Inc. Nevada 100.0
U.S. Trust Company Connecticut 100.0
Radnor Capital Management Inc. Pennsylvania 100.0
U.S. Trust Company of Florida Savings Bank Florida 100.0
U.S. Trust Company of New Jersey New Jersey 100.0
UST Securities Corporation New Jersey 100.0
U.S. Trust Company National Association California 100.0
UST Fiduciary Services Ltd. Delaware 100.0
U.S.T. L.P.O. Corp. Delaware 100.0
U.S. Trust Company of Texas, National Association Texas 100.0
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in (i) the Registration Statement
on Form S-8 of U.S. Trust Corporation (Registration No. 33-63899) pertaining to
the 1995 Stock Option Plan of U.S. Trust Corporation, (ii) the Registration
Statement on Form S-8 of U.S. Trust Corporation (Registration No. 33-62371)
pertaining to the 401(k) Plan and ESOP of United States Trust Company of New
York and Affiliated Companies, (iii) the Registration Statement on Form S-8 of
U.S. Trust Corporation (Registration No. 333-68589) pertaining to the U.S. Trust
Corporation Employee Stock Purchase Plan, (iv) the Registration Statements on
Form S-3 of U.S. Trust Corporation (Registration Nos. 333-61903, 333-63683,
333-16607, 333-72125, 333-88489) pertaining to the resale of 872,564 shares by
certain selling shareholders, of our report dated January 31, 2000, on our
audits of the consolidated financial statements of U.S. Trust Corporation and
Subsidiaries as of December 31, 1999 and 1998, and for each of the three years
in the period ended December 31, 1999, which report is included in the Current
Report on Form 8-K, dated February 22, 2000, which is incorporated into this
Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
New York, New York
March 15, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF CONDITION AT DECEMBER 31, 1999 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 407,329
<INT-BEARING-DEPOSITS> 50,456
<FED-FUNDS-SOLD> 375,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,079,158
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 2,709,375
<ALLOWANCE> 20,169
<TOTAL-ASSETS> 5,023,051
<DEPOSITS> 4,204,943
<SHORT-TERM> 141,157
<LIABILITIES-OTHER> 312,110
<LONG-TERM> 63,000
0
0
<COMMON> 20,088
<OTHER-SE> 281,753
<TOTAL-LIABILITIES-AND-EQUITY> 5,023,051
<INTEREST-LOAN> 174,514
<INTEREST-INVEST> 60,146
<INTEREST-OTHER> 12,269
<INTEREST-TOTAL> 246,929
<INTEREST-DEPOSIT> 117,489
<INTEREST-EXPENSE> 129,816
<INTEREST-INCOME-NET> 117,113
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 17
<EXPENSE-OTHER> 413,921
<INCOME-PRETAX> 127,676
<INCOME-PRE-EXTRAORDINARY> 127,676
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 77,569
<EPS-BASIC> 4.18
<EPS-DILUTED> 3.72
<YIELD-ACTUAL> 3.26
<LOANS-NON> 1,673
<LOANS-PAST> 330
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 19,414
<CHARGE-OFFS> 292
<RECOVERIES> 1,047
<ALLOWANCE-CLOSE> 20,169
<ALLOWANCE-DOMESTIC> 20,169
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 20,169
</TABLE>
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF EARLIEST EVENT REPORTED: FEBRUARY 22, 2000
U.S. TRUST CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 1-14933 13-3818952
(State or other jurisdiction of (Commission File Number) (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)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 852-1000
<PAGE> 2
ITEM 5. OTHER EVENTS
Included in this Form 8-K are the Consolidated Financial Statements and Notes
thereto of U.S. Trust Corporation (the "Corporation") together with the
auditor's report as well as the unaudited Corporation's Management's Discussion
and Analysis and Supplementary Financial Information for the year ended
December 31, 1999.
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, hereunto duly authorized.
U.S. Trust Corporation
Registrant
Date: February 22, 2000 By: /s/ Richard E. Brinkmann
------------------------
Richard E. Brinkmann
Comptroller and Chief
Planning Officer
(Principal Accounting Officer)
2
<PAGE> 3
EXHIBIT INDEX
- --------------------------------------------------------------------------------
EXHIBIT NO. ITEM
- --------------------------------------------------------------------------------
23 Consent of Independent Accountants
99.4 Management's Discussion and Analysis
99.5 Consolidated Financial Statements, Notes to the
Consolidated Financial Statements and Report of
Independent Accountants
99.6 Financial and Other Data Supplement
3
<PAGE> 4
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in (i) the Registration Statement
on Form S-8 of U.S. Trust Corporation (Registration No. 33-63899) pertaining to
the 1995 Stock Option Plan of U.S. Trust Corporation, (ii) the Registration
Statement on Form S-8 of U.S. Trust Corporation (Registration No. 33-62371)
pertaining to the 401(k) Plan and ESOP of United States Trust Company of New
York and Affiliated Companies, (iii) the Registration Statement on Form S-8 of
U.S. Trust Corporation (Registration No. 333-68589) pertaining to the U.S.
Trust Corporation Employee Stock Purchase Plan, (iv) the Registration
Statements on Form S-3 of U.S. Trust Corporation (Registration Nos. 333-61903,
333-63683, 333-16607, 333-72125, 333-88489) pertaining to the resale of 872,564
shares by certain selling shareholders, of our report dated January 31, 2000,
on our audits of the consolidated financial statements of U.S. Trust
Corporation and Subsidiaries as of December 31, 1999 and 1998, and for each of
the three years in the period ended December 31, 1999, which report is included
in the Current Report on Form 8-K.
/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
New York, New York
February 22, 2000
<PAGE> 5
EXHIBIT NO. 99.4
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
FINANCIAL REPORTING MATTERS
Management's Discussion and Analysis should be read in conjunction with the
Consolidated Financial Statements. The financial information presented in
Management's Discussion and Analysis has been prepared on a basis consistent
with the financial accounting policies set forth in the Consolidated Financial
Statements.
In this Form 8-K we make certain forward-looking statements with respect
to the financial condition, results of operations and business of U.S. Trust
Corporation (individually, the "Parent") and its wholly owned subsidiaries
(collectively, with the Parent, the "Corporation"). These forward-looking
statements may contain words such as "believes," "expects," "anticipates,"
"estimates" or similar expressions.
We caution that these statements are not guarantees of future performance.
They involve a number of risks and uncertainties that are difficult to predict.
Factors that may cause actual results to differ materially from those expressed
or implied in the forward-looking statements include but are not limited to the
following:
- - Competitive pressures in the investment or asset management, corporate
fiduciary or private banking industries may increase significantly.
- - General economic or business conditions, or volatility in the equity, fixed
income and real estate markets, may be unfavorable. Such economic
environments could result in, among other things, a reduced demand for
asset management or other financial services, or a decline in assets under
management over a short or an extended time period. Fee revenues and net
interest revenue could be negatively impacted by such events.
- - Legislative changes, including but not limited to legislation related to
income and estate tax matters, and regulatory changes in banking or other
businesses the Corporation engages in, may adversely affect its financial
condition.
- --------------------------------------------------------------------------------
PENDING BUSINESS COMBINATION
The Parent has entered into an agreement and plan of merger (the "Merger
Agreement") dated January 12, 2000 with The Charles Schwab Corporation
("Schwab") and a wholly owned subsidiary of Schwab pursuant to which all of the
outstanding common shares of the Parent will be exchanged for shares of Schwab
common stock. The transaction, which is subject to, among other things,
regulatory approvals and Parent shareholder approval, is expected to be
consummated by July 2000. If the transaction is consummated, the Parent will
become a wholly owned subsidiary of Schwab.
Under the terms of the Merger Agreement, the Parent's shareholders will
receive 3.427 shares of Schwab common stock for each common share of the
Parent. The Parent and Schwab expect the transaction to qualify for pooling of
interest accounting treatment. See Note 1 to Notes to the Consolidated
Financial Statements for additional information.
A number of comments included in this Management's Discussion and Analysis
(e.g., financial performance objectives, earnings per share) presume that the
Corporation is a going concern and do not attempt to take into consideration
the impact, if any, that the pending business combination may have on the
matters discussed therein.
- --------------------------------------------------------------------------------
FINANCIAL PERFORMANCE OBJECTIVES
Management evaluates the five financial performance objectives set forth below
on a continual basis. The financial performance objectives are not quarterly
targets; rather, they represent management's current assessment of the
long-term capabilities of the Corporation in the present environment. Interim
period results may exceed or fall short of some or all of these financial
performance objectives. Such results may not necessarily be indicative that a
change should be made in the Corporation's long-term financial performance
objectives, but more likely would be indicative of specific transactions or
events that occurred within a given period. However, external facts and
circumstances, including changes in banking regulations and income tax
policies, may occur and require the Corporation to adjust its long-term
financial performance objectives.
- --------------------------------------------------------------------------------
Total Revenues
Total revenues are expected to increase in the range of 8% to 12% per year.
Management believes that total revenues will grow at the upper end of this
range over the foreseeable future. Total revenues increased by approximately
23% during 1999, 19% during 1998 and 15% during 1997. Revenue growth in 1997
through 1999 primarily was a result of strong new business and the overall
appreciation in the equity market during this period.
There are several factors that either will contribute to or impede the
Corporation from meeting and maintaining this financial performance objective.
1
<PAGE> 6
Fee revenue growth is enhanced through direct sales efforts, additions to
existing customer relationships, continued national expansion and selected
penetration in existing geographic markets, targeted acquisitions and market
appreciation. Fee revenue growth is adversely affected by distributions of
funds from client accounts, lost business relationships and market
depreciation. Changes in personal, capital gains or estate tax laws,
regulations and other external factors will also affect the rate of fee revenue
growth.
The level of net interest revenue is dependent upon several factors,
including loan demand, credit quality, regulatory capital requirements, federal
and state income tax policies and the Federal Reserve Board's interest rate
setting policies.
- --------------------------------------------------------------------------------
Pre-Tax Margin
Management believes that the Corporation can meet its objective to improve
pre-tax margin to 25% over the next several years. The Corporation's pre-tax
margin was 23.6% for 1999, 22.9% for 1998 and 22.4% for 1997. The Corporation's
ability to achieve this financial objective will be based upon several factors,
including the growth rate of total revenues, continued control over recurring
operating expenses, the pace of investment in national expansion and the
maturation of prior years national expansion efforts. Barring an extreme and
prolonged market decline, management anticipates that achieving this financial
objective will constrain neither its national expansion program nor its
selective acquisitions of investment advisors in strategic geographic
locations.
- --------------------------------------------------------------------------------
Earnings Per Share
Management believes that the operating leverage resulting from meeting its
revenue and pre-tax margin objectives will enable the Corporation to increase
diluted earnings per share in the range of 15% to 20% per year. Several
factors, including statutory changes in federal, state and local corporate
income tax rates, common stock repurchases and the dilutive effect of stock
options, will affect this financial performance objective. Diluted earnings per
share improved by 25.7% during 1999, 23.8% during 1998 and 22.6% during 1997.
- --------------------------------------------------------------------------------
Return on Stockholders' Equity
Management has set the Return on Stockholders' Equity ("ROE") objective to
exceed 25% over the next several years. ROE for 1999 was 29.2%, 26.2% in 1998
and 22.8% in 1997.
- --------------------------------------------------------------------------------
Dividend Pay-Out Ratio
The Corporation's dividend pay-out ratio is anticipated to range between 25%
and 35% of annual net income. Retained capital will be available for
acquisitions, business expansion, stock buy back programs and other management
initiatives. In periods in which earnings per share growth exceeds its expected
range, the dividend pay-out ratio likely will be either at the lower end or
below the targeted range. The dividend pay-out ratio was 23.7% during 1999,
24.3% during 1998 and 25.1% during 1997.
- --------------------------------------------------------------------------------
THE BUSINESSES OF U.S. TRUST
The Corporation has two principal businesses: Personal Wealth Management
Services and Institutional Services. Personal Wealth Management Services is
further delineated into two components -- New York Wealth Management Services
("New York") and National Wealth Management Services ("National").
Principal competitors of the Corporation are other investment management
companies, brokerage firms, mutual fund companies and banking institutions. No
one competitor or industry dominates the markets in which the Corporation
engages. The following provides a description of services provided by these
businesses and their markets.
- --------------------------------------------------------------------------------
Personal Wealth Management Services
The Corporation provides a complete array of financial services for affluent
individuals and families. These services, defined as Personal Wealth Management
Services, include investment management (domestic and international equity,
fixed income and alternative investments, such as private equity and real
estate), investment consulting, trust, financial and estate planning and
private banking. Personal Wealth Management Services are provided through New
York and National. The Corporation has been well established in the New York
Wealth Management business for many years. More recently, the Corporation has
expanded its presence beyond New York through national expansion resulting in
the establishment of its National Wealth Management business. The Corporation
anticipates that its national expansion will continue over the next several
years.
2
<PAGE> 7
The cornerstone of the Corporation's services to the personal market in
both its New York and National businesses is investment management. At December
31, 1999, personal assets under management were approximately $59.6 billion.
The Corporation views the personal investment market in three sectors and has
tailored its products and service delivery to each.
Personal Wealth Management's primary market sector consists of individuals
with $2 million to $50 million in investable assets. The Corporation provides
to these clients both individually managed balanced accounts and specialized
investment management services. These clients are offered and generally utilize
the Corporation's other wealth management services.
The second sector of the personal market includes clients in the wealth
accumulation phase, with $250,000 to as much as $2 million in financial assets.
In this sector, the Corporation offers Wealth Advisory Accounts; an investment
advisory service that utilizes the U.S. Trust-advised Excelsior family of
mutual funds.
The third personal market sector is comprised of clients who have over $50
million in investable assets and whose financial needs are particularly
complex. In addition to investment management services, the Corporation offers
to these clients specialized fiduciary, financial planning, enhanced master
custody and philanthropic consulting services. The Corporation provides
counseling to this sector regarding the development of tax-intelligent
investment policies and the selection and monitoring of investment managers.
In addition, the Corporation provides the private equity community with
expertise on in-kind stock distributions, liquidation of securities positions
as agent, and hedging transactions for high-net-worth individuals who
frequently face complex issues involving the disposition of low-cost-basis
stock.
The Corporation offers private banking services to meet the credit and
liquidity requirements for all of its Personal Wealth Management clients. These
services include mortgage and personal lending vehicles and an array of deposit
taking products.
A major strategy for the growth of the Corporation's Personal Wealth
Management business has been national expansion. Personal Wealth Management
clients usually prefer services to be delivered locally. The Corporation has
established affiliates throughout the United States: California, Connecticut,
Florida, New Jersey, North Carolina, Oregon, Pennsylvania, Texas and Washington
D.C.
The Corporation has placed heavy emphasis on the sales effort supporting
the Personal Wealth Management business, including in recent years a 50 percent
increase in the total staff dedicated to sales and an innovative sales
incentive program for all employees.
- --------------------------------------------------------------------------------
Institutional Services
Institutional Services includes investment management, corporate trust,
brokerage and special fiduciary services for corporations, endowments,
foundations, pension plans and other institutional clients.
The Corporation's institutional investment management business provides a
wide range of investment options for its clients, including balanced and
specialized domestic and international equity investment styles, structured
investments, alternative investments, fixed-income vehicles and short-term cash
management. Institutional clients can also utilize the U.S. Trust's Excelsior
mutual fund family, which offers all major asset classes and both active and
passive management styles.
Institutional Services also includes investment, consulting and fiduciary
services to employee stock ownership plans (ESOPs) that invest in significant
blocks of employer stock. The Corporation specializes in providing these special
fiduciary services to large, complex plans and believes it is the preeminent
provider of such services to this market.
At December 31, 1999, the Corporation managed approximately $26.5 billion
for its institutional clients of which approximately $12 billion is related to
the Corporation's special fiduciary services. The remaining assets managed by
Institutional include those of endowments, pension plans and other not-for
- -profit and institutional clients.
The Corporation is among the top 10 trustees in the country that provide
trust, agency and related services to public and private corporations,
municipalities and other financial enterprises. The Corporation's strategy is
to develop long-term relationships that will generate recurring business. The
aggregate principal amount of assets administered by corporate trust exceeds
$330 billion at December 31, 1999.
For the twelfth consecutive year the Corporation was the leading trustee in
New York State for new municipal debt issues, and was also ranked among the top
five nationally for new municipal debt issues. Providing support for complex
new types of securities, such as derivatives and securitized transactions,
continues to be the fastest growing
3
<PAGE> 8
aspect of the corporate trust business.
- --------------------------------------------------------------------------------
Segment Financial Results
Business segment results are presented in order to reflect financial
performance and strategic direction. Fee revenue is generally credited to the
segment that has the contractual relationship with the client. Allocated net
interest revenue is credited to each segment based upon the level of financial
instruments managed by the segment, after taking into effect the internally
developed cost of fund transfers. All costs directly attributable to a business
segment are charged directly to that segment. These costs include salaries,
performance compensation, sales commissions and incentives, employee benefits,
occupancy and all other operating costs. The amortization of intangibles
resulting from a business combination is charged to the segment that manages
the acquired business. Corporate expenses are charged to the segments based
upon management's determination of the direct or indirect benefits realized by
each segment utilizing such corporate services.
Segment results are based upon estimates and judgments. Internal management
accounting reflects the way management views its businesses and may not be
comparable to other financial institutions. Segment comparability between
reporting periods is achieved by periodic restatement to conform to changes in
organizational structure and changes in allocation policies.
The following information reflects operating performance by segment for the
three years ended December 31, 1999.
4
<PAGE> 9
<TABLE>
<CAPTION>
PERSONAL WEALTH MANAGEMENT TOTAL
-------------------------------------------------
(DOLLARS IN THOUSANDS) NEW YORK NATIONAL TOTAL INSTITUTIONAL CORPORATION
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999
Fee revenue......................... $ 227,167 $ 108,478 $ 335,645 $ 88,822 $ 424,467
Allocated net interest revenue...... 82,306 23,547 105,853 11,277 117,130
-------------- -------------- --------------- --------------- ----------------
Total revenue....................... 309,473 132,025 441,498 100,099 541,597
Operating expense................... 219,152 121,602 340,754 73,167 413,921
-------------- -------------- --------------- --------------- ----------------
Income before taxes................. $ 90,321 $ 10,423 $ 100,744 $ 26,932 $ 127,676
-------------- -------------- --------------- --------------- ----------------
Profit margin....................... 29.2% 7.9% 22.8% 26.9% 23.6%
-------------- -------------- --------------- --------------- ----------------
Percentage of income before taxes... 70.7% 8.2% 78.9% 21.1%
-------------- -------------- --------------- ---------------
Total assets........................ $ 3,712,000 $ 1,182,000 $ 4,894,000 $ 129,000 $ 5,023,000
-------------- -------------- --------------- --------------- ----------------
Assets under management............. $ 39,059,000 $ 20,535,000 $ 59,594,000 $ 26,503,000 $ 86,097,000
-------------- -------------- --------------- --------------- ----------------
Assets under administration......... $ 15,715,000 $ 2,536,000 $ 18,251,000 $ 344,355,000 $ 362,606,000
-------------- -------------- --------------- --------------- ----------------
Year ended December 31, 1998
Fee revenue......................... $ 183,991 $ 71,298 $ 255,289 $ 84,330 $ 339,619
Allocated net interest revenue...... 70,688 20,948 91,636 10,394 102,030
-------------- -------------- --------------- --------------- ----------------
Total revenue....................... 254,679 92,246 346,925 94,724 441,649
Operating expense................... 186,079 83,512 269,591 70,964 340,555
-------------- -------------- --------------- --------------- ----------------
Income before taxes................. $ 68,600 $ 8,734 $ 77,334 $ 23,760 $ 101,094
-------------- -------------- --------------- --------------- ----------------
Profit margin....................... 26.9% 9.5% 22.3% 25.1% 22.9%
-------------- -------------- --------------- --------------- ----------------
Percentage of income before taxes... 67.9% 8.6% 76.5% 23.5%
-------------- -------------- --------------- ---------------
Total assets........................ $ 3,066,000 $ 973,000 $ 4,039,000 $ 104,000 $ 4,143,000
-------------- -------------- --------------- --------------- ----------------
Assets under management............. $ 32,372,000 $ 14,328,000 $ 46,700,000 $ 28,336,000 $ 75,036,000
-------------- -------------- --------------- --------------- ----------------
Assets under administration......... $ 13,269,000 $ 2,067,000 $ 15,336,000 $ 311,124,000 $ 326,460,000
-------------- -------------- --------------- --------------- ----------------
Year ended December 31, 1997
Fee revenue......................... $ 158,437 $ 51,386 $ 209,823 $ 71,868 $ 281,691
Allocated net interest revenue...... 62,248 18,362 80,610 10,515 91,125
-------------- -------------- --------------- --------------- ----------------
Total revenue....................... 220,685 69,748 290,433 82,383 372,816
Operating expense................... 164,127 61,286 225,413 63,744 289,157
-------------- -------------- --------------- --------------- ----------------
Income before taxes................. $ 56,558 $ 8,462 $ 65,020 $ 18,639 $ 83,659
-------------- -------------- --------------- --------------- ----------------
Profit margin....................... 25.6% 12.1% 22.4% 22.6% 22.4%
-------------- -------------- --------------- --------------- ----------------
Percentage of income before taxes... 67.6% 10.1% 77.7% 22.3%
-------------- -------------- --------------- ---------------
Total assets........................ $ 2,936,000 $ 767,000 $ 3,703,000 $ 112,000 $ 3,815,000
-------------- -------------- --------------- --------------- ----------------
Assets under management............. $ 26,890,000 $ 10,704,000 $ 37,594,000 $ 23,594,000 $ 61,188,000
-------------- -------------- --------------- --------------- ----------------
Assets under administration......... $ 9,883,000 $ 1,772,000 $ 11,655,000 $ 257,081,000 $ 268,736,000
-------------- -------------- --------------- --------------- ----------------
</TABLE>
The Personal Wealth Management segment's compounded fee revenue growth rate has
exceeded 23% over the past three years. Fee revenue for the New York component
of the Personal Wealth Management segment has grown at a compounded growth rate
in excess of 18% over the same three-year period whereas the National
component's fee revenue growth rate has exceeded 38%. Fee revenue growth is
attributable to new business, the overall strength in the financial markets and
acquisitions.
Allocated net interest revenue attributable to the Personal Wealth
Management segment has grown at a compounded growth rate in excess of 15%. New
York and National's compounded growth rates were 14% and 21%, respectively. The
increase in allocated net interest is principally attributable to the growth in
private banking activities.
5
<PAGE> 10
Personal Wealth Management's profit margin increased modestly to 22.8% in
1999 from 22.3% in 1997. The improvement was realized during a period of
significant national expansion.
New York's profit margin was 29.2% in 1999, improving from 26.9% in 1998
and 25.6% in 1997. New York, the cornerstone of the Corporation's Personal
Wealth Management segment, continues to increase its penetration in one of the
largest concentrations of wealth in the United States.
National's profit margin was 7.9% in 1999, 9.5% in 1998 and 12.1% in 1997.
The absolute levels and volatility in National's profit margins are reflective
of the Corporation's continuing investment in its national expansion strategy.
National provides each new location with the Corporation's full array of
Personal Wealth Management service capabilities. The personnel and
infrastructure costs incurred to provide these services are charged directly to
National. In addition, costs incurred to acquire investment management firms
managed by National, including the amortization of intangibles, are borne by
National. As a result, it is anticipated that the profit contribution from
National will continue to fluctuate, reflecting the Corporation's ability to
invest in new markets as it expands its national presence.
Institutional's compounded fee revenue growth rate has exceeded 10% over
the past three years. Institutional's allocated net interest revenue has
increased 8.5% in 1999 compared to 1998 and remained relatively flat in 1998 as
compared to 1997. Institutional receives interest revenue credit principally
from the customer deposits generated from its corporate trust activities.
Corporate trust's deposit base increased during 1998 and 1999. The increasing
interest rate environment in 1999 increased the interest-credit rates the
Corporation allocates to deposit generating businesses.
Institutional's profit margin has increased from 22.6% in 1997 to 26.9% in
1999. Institutional's profit contribution is attributable to the continued
strength of the segment's corporate trust and special fiduciary businesses as
well as the segment's further penetration in the institutional investment
management market throughout the United States. Institutional assets under
management decreased by $1.8 billion in 1999 compared with 1998 primarily as a
result of institutional assets withdrawn from the Campbell Cowperthwait
division.
- --------------------------------------------------------------------------------
CONSOLIDATED RESULTS OF OPERATIONS
The Corporation recorded record net income of $77.6 million in 1999, compared
to net income of $61.7 million in 1998 and $51.0 million in 1997. On a diluted
basis, earnings per share was $3.72 in 1999, versus $2.96 in 1998 and $2.39 in
1997.
- --------------------------------------------------------------------------------
Fee Revenue
<TABLE>
<CAPTION>
COMPOUND
YEARS ENDED DECEMBER 31, GROWTH
------------------------------------ RATE
(DOLLARS IN MILLIONS) 1999 1998 1997 1996-1999
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Personal wealth management services............ $ 335.7 $ 255.3 $ 209.8 23.6 %
Institutional services......................... 88.8 84.3 71.9 10.1
---------- ---------- ---------- --------
Fee revenue.................................... $ 424.5 $ 339.6 $ 281.7 20.2 %
---------- ---------- ---------- --------
</TABLE>
Fee revenue increased 25.0% in 1999 from 1998 and increased 20.6% in 1998 from
1997. The increase in fee revenue during these periods was attributable to
strong new business, selective acquisitions and the overall appreciation in the
equity market.
Approximately 80% of fee revenue is sensitive to changes in equity and
fixed income market investments. In general, fee revenue is influenced by a
variety of factors, including growth or decline of stock, fixed income and real
estate market levels, new business, acquisitions, changes in fee rate schedules
and added services. Fee revenue is negatively impacted by the outflow of
investment management assets due to terminating trusts, client withdrawals,
income and estate taxes and lost business. Fee revenue related to market
conditions 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 account value. Therefore, market value or other incremental changes
in a portfolio's size may not typically have a proportionate impact on the
level of fee revenue. In general, fee revenue is calculated quarterly based
upon the value of the prior quarters' assets under management. Another
important factor in the determination of fee revenues is the type of assets
under management. Depending on how assets
6
<PAGE> 11
under management are invested, fluctuations in any one market will not
necessarily have a proportionate impact on the overall level of fee revenue.
The following is a comparative analysis of the composition of assets under
management.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity securities............................................ 59% 56% 53%
Fixed income securities...................................... 27 29 32
Short-term money management, real estate and other........... 14 15 15
----- ----- ------
100% 100% 100%
----- ----- ------
</TABLE>
- --------------------------------------------------------------------------------
Assets Under Management
The following table delineates assets under management and administration for
the last three years. This analysis is presented on a consolidated and segment
basis. Unless otherwise noted, asset values are measured at their estimated
fair value.
<TABLE>
<CAPTION>
COMPOUND
GROWTH
DECEMBER 31, RATE
--------------------------------------
(DOLLARS IN BILLIONS) 1999 1998 1997 1996-1999
- --------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED ASSETS UNDER MANAGEMENT AND ADMINISTRATION:
<S> <C> <C> <C> <C>
Assets under management:
Investment management.......................................... $ 73.8 $ 61.3 $ 47.3 24.8%
Special fiduciary.............................................. 12.3 13.7 13.9 (7.0)
----------- ---------- ---------- ---------
Total assets under management............................... 86.1 75.0 61.2 17.3
----------- ---------- ---------- ---------
Assets under administration:
Personal custody and other..................................... 31.9 26.0 20.1 26.7
Corporate and municipal trusteeships and agency
relationships at par value.................................. 330.7 300.5 248.6 15.2
----------- ---------- ---------- ---------
Total assets under administration........................... 362.6 326.5 268.7 16.0
----------- ---------- ---------- ---------
Total assets under management and administration................. $ 448.7 $ 401.5 $ 329.9 16.3%
----------- ---------- ---------- ---------
SEGMENT ASSETS UNDER MANAGEMENT AND ADMINISTRATION:
Personal wealth management
Assets under management........................................ $ 59.6 $ 46.7 $ 37.6 27.0%
Assets under administration.................................... 18.2 15.3 11.7 22.5
----------- ---------- ---------- ---------
Total....................................................... 77.8 62.0 49.3 25.9
----------- ---------- ---------- ---------
Institutional
Assets under management........................................ 26.5 28.3 23.6 3.1
Assets under administration.................................... 344.4 311.2 257.0 15.7
----------- ---------- ---------- ---------
Total....................................................... 370.9 339.5 280.6 14.6
----------- ---------- ---------- ---------
Total assets under management and administration................. $ 448.7 $ 401.5 $ 329.9 16.3%
----------- ---------- ---------- ---------
</TABLE>
Investment management assets increased by 20.2% in 1999 and by 29.8% in 1998
and 24.4% in 1997. During 1999, the Corporation acquired Radnor Capital
Management, Inc., and NCT Holdings, Inc. which, in the aggregate, managed
approximately $2.8 billion in personal and institutional assets at the
acquisition dates (see Note 3 to Notes to the Consolidated Financial
Statements).
The Corporation's Excelsior Funds totaled $9.5 billion assets under
management at December 31, 1999, compared with $7.5 billion as of December 31,
1998 and $5.9 billion as of December 31, 1997.
7
<PAGE> 12
- --------------------------------------------------------------------------------
Net Interest Revenue
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(DOLLARS IN ---------------------------------------
THOUSANDS) 1999 1998 1997
- -----------------------------------------------------------
<S> <C> <C> <C>
Interest
revenue $ 246,929 $ 224,743 $ 212,521
Interest
expense (129,816) (122,117) (120,862)
Provision for
credit losses -- (600) (750)
Securities
gains, net 17 4 216
----------- ----------- ------------
Net interest
revenue $ 117,130 $ 102,030 $ 91,125
=========== =========== ============
Percentage
increase
(decrease)
from prior
period 14.8% 12.0% 16.1%
----------- ----------- ------------
<CAPTION>
YEARS ENDED DECEMBER 31,
- ----------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------
<S> <C> <C> <C>
Average rates (taxable
equivalent basis):
Interest earning assets 6.77% 6.99% 7.09%
Cost of funding interest
earning assets 3.51 3.75 3.97
----- ----- ----
Net yield on interest
earning assets 3.26% 3.24% 3.12%
----- ----- ----
</TABLE>
Net interest revenue is affected by changes in the absolute levels of interest
rates and shifts in the term structure of interest rates, funding and hedging
strategies, and the impact of changes in the credit quality of interest earning
financial instruments. The net yield on interest earning assets for the year
ended December 31, 1999 has increased moderately from the corresponding 1998
period. Average interest earning assets increased by 13.7% to approximately
$3.7 billion as of December 31, 1999 compared to a 7.0% increase between 1998
and 1997.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
AVERAGE BALANCES ----------------------------
(PERCENTAGE) 1999 1998 1997
- ---------------------------------------------------------
<S> <C> <C> <C>
Short-term financial
instruments 5.9% 6.6% 3.8%
Investment securities 25.1 28.4 34.4
------- -------- -------
Total short-term financial
instruments and
securities 31.0 35.0 38.2
Loans, net of allowance for
credit losses 57.0 53.2 49.9
Non-interest earning
assets 12.0 11.8 11.9
------- -------- -------
Total assets 100.0% 100.0% 100.0%
------- -------- -------
Average total assets (in
billions) $ 4.2 $ 3.7 $ 3.4
======= ======== =======
</TABLE>
- --------------------------------------------------------------------------------
The loan portfolio is the largest component of average total assets. Average
loans for 1999 were $2.4 billion, a $435.1 million or 22.1% increase over
average loans for the year ended December 31, 1998. Average loans for 1998 were
$2.0 billion, a $238.8 million or 13.8% increase over average loans for the
year ended December 31, 1997. The Corporation's loan portfolio is predominantly
comprised of loans to private banking customers. Approximately 73% of total
loans are collateralized by residential real estate mortgages at December 31,
1999, 74% at December 31, 1998 and 70% at December 31, 1997.
- --------------------------------------------------------------------------------
Operating Expenses
The following table provides details of operating expenses for the last three
years.
<TABLE>
<CAPTION>
COMPOUND
YEARS ENDED DECEMBER 31, GROWTH
----------------------------------------------- RATE
(DOLLARS IN THOUSANDS) 1999 1998 1997 1996-1999
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and other employee benefits............... $ 175,456 $ 150,262 $ 125,901 16.0%
Performance compensation........................... 58,303 41,028 32,472 33.3
Sales commissions and incentives................... 29,012 19,448 14,050 41.8
Occupancy.......................................... 41,786 36,574 39,294 6.9
Amortization of Intangibles........................ 6,950 5,799 3,521 39.4
Other.............................................. 102,414 87,444 73,919 13.9
-------------- ------------- ------------- ---------
Total.............................................. $ 413,921 $ 340,555 $ 289,157 17.8%
============== ============= ============= =========
</TABLE>
Operating expenses increased by $73.4 million in 1999, $51.4 million in 1998
and $35.7 million in 1997. The Corporation's pre-tax margin was 23.6%, 22.9%
and 22.4% for the years ended December 31, 1999, 1998 and 1997, respectively.
8
<PAGE> 13
Salaries and other employee benefits increased $25.2 million in 1999 an
increase of 16.8% from the total of $150.3 million in 1998. Salaries and other
employee benefits increased $24.4 million in 1998 an increase of 19.3% from the
total of $125.9 million in 1997. The number of full-time equivalent employees
increased 10.2% to 1,940 at December 31, 1999 and increased 14.5% to 1,761 at
December 31, 1998, from 1,538 at December 31, 1997. The increase in employees
is attributable to acquisitions and internal growth required to meet an
expanding customer base.
Performance compensation is determined based upon the Corporation's
financial performance as measured by the Corporation's diluted earnings per
share, adjusted to offset the impact, if any, of extraordinary or nonrecurring
events, or other conditions or circumstances that warrant consideration.
Performance compensation increased $17.3 million in 1999, an increase of 42.1%
from the total of $41.0 million in 1998. Performance compensation increased $8.6
million in 1998, an increase of 26.3% from $32.5 million in 1997. Included in
performance compensation is amortization of Restricted Stock Units ("RSUs")
awarded to certain employees (see Note 19 to Notes to the Consolidated Financial
Statements for additional information on RSUs). Amortization of RSUs totaled
$4.2 million in 1999, $2.6 million in 1998 and $1.1 million in 1997. The
increases in performance compensation and amortization of RSUs is due to the
Corporation's strong financial performance and the increase in staffing levels.
Sales commissions and incentives increased $9.6 million in 1999, an
increase of 49.2% from the total of $19.4 million in 1998. Sales commissions
and incentives increased $5.4 million in 1998, an increase of 38.4% from the
total of $14.1 million in 1997. These increases reflect the Corporation's
strong emphasis on sales. The Corporation makes a substantial commitment to
sales, marketing and advertising. As of December 31, 1999, 173 employees were
devoted to these functions compared to 145 employees as of December 31, 1998
and 116 employees as of December 31, 1997. As a percentage of total staff,
dedicated sales, marketing and advertising employees comprised 8.9% at December
31, 1999 compared to 8.2% and 7.5% at December 31, 1998 and 1997, respectively.
Direct expenses associated with these functions, including salary and other
employee benefits, performance compensation and sales commissions and
incentives, were $55.1 million, $40.8 million and $29.5 million for the years
ended December 31, 1999, 1998 and 1997, respectively. In addition to the
aforementioned expenses, occupancy expense directly allocable to these
functions amounted to approximately $2.7 million, $2.5 million and $2.2 million
for the years ended December 31, 1999, 1998 and 1997, respectively.
Other operating expenses increased 17.1% in 1999 and 18.3% in 1998. The
increase in other operating expense reflects the impact of the Corporation's
national expansion strategy as well as normal growth.
Amortization of intangible expense resulting from business combinations was
$7.0 million in 1999, $5.8 million in 1998 and $3.5 million in 1997.
Amortization of intangibles does not require the use of cash and therefore,
Management believes it should be distinguished from other operating expenses.
The impact on net income after consideration of applicable income tax benefits
of these non-cash charges was approximately $5.6 million, $4.6 million and $2.6
million in 1999, 1998 and 1997, respectively. Excluding the after-tax impact of
amortization of intangible assets, diluted earnings per share would have been
$3.98, $3.17 and $2.51 for the years ended December 31, 1999, 1998 and 1997,
respectively.
Other operating expenses includes the cost of the outsourcing agreement with
The Chase Manhattan Bank ("Chase"). Pursuant to this agreement, Chase furnishes
necessary securities processing, custodial, data processing and other operations
support services to the Corporation. The initial term of this agreement expires
on August 31, 2000. The Corporation has exercised its option to extend the term
of the agreement for two additional years to August 31, 2002. During the initial
five-year term of the agreement, the Corporation pays Chase an annual base fee
of $10 million plus additional volume charges. Total charges under the Chase
agreement were $12.1 million in 1999, $10.6 million in 1998 and $10.2 million in
1997. The base fee for the two year option period will increase by 10% of total
charges (excluding certain items) incurred in the final year of the initial term
of the agreement.
Management is considering various possible alternatives for obtaining the
services currently provided under the agreement after its expiration on August
31, 2002. These alternatives include obtaining the services from third-party
providers, including Chase, or providing such services itself. Although the
cost of obtaining or providing such services are expected to increase from the
current level, Management believes, at this time, that such an increase will
not have a material adverse effect on the Corporation's results of operations.
9
<PAGE> 14
- --------------------------------------------------------------------------------
YEAR 2000 STATUS
In 1996, the Corporation established a Year 2000 Committee with the
responsibility for developing an effective plan for identifying, renovating,
testing and implementing simulated solutions for Year 2000 processing (the
"Year 2000 Plan"). The Year 2000 Plan consisted of the following five phases:
(1) awareness of the problem and commitment by senior management to dedicate
the necessary resources to address this problem; (2) a comprehensive inventory
assessment of all hardware and software, vendor interfaces and service
providers to understand the magnitude of the issue; (3) a systems code
remediation schedule for all affected software sytems; (4) a comprehensive
validation methodology to test all affected applications; and (5) production
implementation of the corrected software systems.
The first two phases of the Year 2000 Plan were completed in June 1997. The
remaining phases of the Year 2000 Plan, software code remediation and testing
of critical systems were substantially completed as of December 31, 1998.
During these phases the Corporation worked with Chase and Marshall & Illsley
Data Services, providers of the Corporation's most significant data processing
systems (collectively, the "Service Providers") to assure compliance with
required systems changes. The Service Providers were responsible for and bear
the cost of effecting all necessary changes to such systems.
As of September 30, 1999, all mission critical systems of the Corporation
were in full production. The Corporation ran all of its corrected systems in a
production environment during the balance of 1999. Point-to-point street-wide
testing for connectivity and data exchange with regulatory and depository
agencies also took place in 1999. All testing with these entities was
successfully completed.
In addition, the Corporation contacted its outside vendors and suppliers to
determine the status of their Year 2000 efforts and to track the renovation and
readiness of their systems for the Year 2000. Where appropriate, testing was
conducted between the Corporation and these vendors. A final follow-up
regarding these entities' Year 2000 readiness was conducted during the third
quarter of 1999. In the event that a product or service provided by a vendor
was not Year 2000 ready, alternative providers were employed.
As a result of its Year 2000 Plan, the Corporation has not encountered any
adverse effects in the year beginning January 1, 2000.
- --------------------------------------------------------------------------------
Year 2000 Issues - The Cost
The total cost of remediating the Corporation's Year 2000 issues was $4.5
million, which was incurred over a three-year period. These costs included the
costs of remediation, testing, third party assessment, and contingency
planning. All of the external remediation costs are recorded as other operating
expenses. This amount does not include the cost associated with substantial
managerial time that senior officers and employees have dedicated on Year 2000
issues. Since the Service Providers were responsible for and bear the cost of
effecting all necessary changes to the Corporation's most significant data
processing systems, most of the Corporation's costs were incurred to test the
system modifications. While the Corporation deferred certain projects as a
result of efforts regarding Year 2000, the Corporation believes that the delays
in system development did not have a material impact on its operating results.
- --------------------------------------------------------------------------------
Year 2000 Issues - Contingency Plan
The Corporation developed a contingency plan to deal with Year 2000 and related
issues, including (1) identifying likely contingencies; (2) developing
procedures to be followed in the event of each contingency; and (3) identifying
personnel responsible for each of the Corporation's businesses that may be
involved in any actual contingency. In the event of an operational disruption,
the Corporation has in place contingency plans for its mission critical
functions. Key area and command recovery personnel within each business sector
were identified and trained to initiate the necessary action steps in
maintaining overall control and business continuity. The Corporation's
contingency plan was completed, and approved by it's Board of Directors, and
reviewed by the Corporation's internal audit department.
- --------------------------------------------------------------------------------
Year 2000 Issues - Risk
Although it is not possible to predict accurately the consequences of a Year
2000 failure, the Corporation is confident that its efforts at remediation
greatly reduced any disruption on and subsequent to January 1, 2000. While not
anticipated, the most reasonable likely worst-case scenario would be a failure
by either one of the Corporation's mission critical systems or the Service
Providers systems. In this case, the Corporation would lose the ability to
service its clients for a period of time. If any of these failures
10
<PAGE> 15
were not corrected within a reasonable period of time, it could have a material
negative effect on the operations and financial condition of the Corporation.
The disclosure contained in this 8-K as well as the information previously
filed by the Corporation regarding regarding its Year 2000 readiness are
designated as Year 2000 readiness disclosure related to the Year 2000
Information and Readiness Disclosure Act.
- --------------------------------------------------------------------------------
RISK MANAGEMENT
Risk is an intrinsic part of the Corporation's business. The extent to which
the Corporation properly and effectively identifies, measures, controls and
reports the various types of risk inherent in its activities is critical to its
soundness and profitability. The following are the principle risks involved in
the Corporation's business: fiduciary risk, credit risk, operational risk,
legal risk, capital and liquidity risk and market risk.
It is the policy of the Corporation to maintain a proactive, integrated and
consistent risk management process as a critical component of how the
Corporation conducts its business in an ever changing risk environment. The
process meets all regulatory and legal requirements and provides value added to
the businesses of the Corporation.
Risk management at the Corporation is a multi-faceted process with
independent oversight, which requires timely communication, judgment and the
knowledge of specialized products and markets. The Corporation's senior
management takes an active role in the risk management process and has
developed policies and procedures that require specific administrative and
business functions to assist in the identification, assessment and control of
various risks. In recognition of the varied and changing nature of its
financial services business, the Corporation's risk management policies and
procedures are evolutionary in nature and are subject to ongoing review and
modification.
Implementation of risk management systems are developed on a consistent
basis using common definitions and standard documentation. It is the
responsibility of each business unit to manage the process of creating and
implementing an effective risk management system. This system provides the basis
to identify, measure, control and monitor risk using an appropriate combination
of policies, procedures, processes, personnel, controls and monitoring systems.
Through the direction of the Risk Management Division, the Corporation
recommends appropriate risk parameters for each of its businesses, oversees
communication of the Corporation's overall risk tolerance limits, monitors the
development and implementation of its internal risk management system,
including the risk self-assessment process required of each business unit, and
coordinates appropriate reporting to the Risk Policy Committee on all risk
related matters.
The Risk Policy Committee, which reports directly to the Audit Committee of
the Board of Directors and is composed of the Corporation's most senior
officers, approves the overall risk management policies for the Corporation and
reviews the Corporation's performance relative to these policies. The Risk
Policy Committee has created various committees to assist it in approving,
monitoring and reviewing the inherent risks in the respective business units.
The Risk Management, Comptrollers, Treasury and General Counsel Divisions, all
of which are independent of the Corporation's business units, assist senior
management and the Risk Policy Committee in monitoring and controlling the
Corporation's overall risk profile.
In addition, the Internal Audit Department, which also reports directly to
the Audit Committee of the Board of Directors, evaluates the Corporation's
operations and control environment through periodic evaluations. The
Corporation continues to be committed to employing qualified personnel with
appropriate expertise in each of its various administrative and business areas
to implement effectively the Corporation's risk management and monitoring
systems and processes.
The following is a description of the Corporation's principal risks. This
discussion and the estimated amounts of the Corporation's market risk exposure
generated by the Corporation's statistical analyses are forward looking
statements. The analyses used to compute the amounts at risk are not projections
of future events, and actual results may vary significantly from such analyses
due to actual events in the markets in which the Corporation operates and
certain other factors described below.
- --------------------------------------------------------------------------------
Fiduciary Risk
Fiduciary risk refers to the risk of financial or reputational loss through the
breaching of fiduciary duties to a client. Fiduciary risk is an integral
component in practically all of the Corporation's client related activities.
Fiduciary activities, include but are not limited to, individual and corporate
trust, investment management, custody and cash and securities processing. To
limit this risk, the
11
<PAGE> 16
Corporation establishes procedures to ensure that obligations to clients are
discharged faithfully and in compliance with applicable legal and regulatory
requirements. Business units have the primary responsibility for adherence to
the procedures applicable to their business.
Guidance and control is provided through the creation and approval and
ongoing review of specific applicable policies and procedures with appropriate
oversight and review by relevant committees comprised of senior members of the
business units.
- --------------------------------------------------------------------------------
Credit Risk
The Corporation's exposure to credit risk arises from the possibility that
a customer or counterparty to a transaction may fail to perform under their
contractual commitment, resulting in the Corporation incurring a loss.
Management of the credit approval process is premised on sound and
disciplined underwriting standards with clear lines of accountability and
authority. Counterparties that generate credit exposure are given empirical
risk ratings and are approved by appropriate senior officers depending on the
exposure level and/or risk rating.
Counterparty credit exposure is actively managed on a continuous basis
through individual and portfolio reviews performed on a timely basis by account
officers and senior line management. Independent periodic assessment of the
validity of credit ratings, credit quality and the credit management process is
conducted by the Risk Review Department of the Risk Management Division. This
work is supplemented by additional reviews conducted by the Internal Audit
Division. Reports are issued to senior line management as well as the Risk
Policy Committee.
In addition, senior line management regularly reviews asset quality with
the Risk Policy Committee including concentrations, delinquencies,
non-performers, losses and recoveries. All are factors in the determination of
an appropriate allowance for credit losses, which is reviewed quarterly by
senior management. See Notes 6 and 7 to Notes to the Consolidated Financial
Statements for an analysis of the Corporation's loan portfolio and allowance
for credit losses.
- --------------------------------------------------------------------------------
Operational Risk
Operational risk refers to the risk of loss resulting from improper processing
of transactions or deficiencies in the Corporation's operating systems or
control processes. With respect to its investment management activities, the
Corporation has developed and continues to enhance specific policies and
procedures that are designed to provide, among other things, that all
transactions are accurately recorded and properly reflected in the
Corporation's books and records and confirmed on a timely basis; portfolio
valuations are subject to periodic independent review procedures; and
collateral and appropriate documentation (e.g., master agreements) are obtained
from counterparties in appropriate circumstances. With respect to its lending
activities, operating systems are designed to provide for the efficient
servicing of loan accounts. The Corporation manages operational risk through
its system of internal controls which provides checks and balances to ensure
that transactions and other account-related activity (e.g., transaction
authorization and processing, billing and collection of delinquent accounts)
are properly approved, processed, recorded and reconciled. Disaster recovery
plans are in place on a Corporation-wide basis for critical systems, and
redundancies are built into the systems as deemed appropriate.
- --------------------------------------------------------------------------------
Legal Risk
Legal risk includes the risk of non-compliance with applicable legal and
regulatory requirements and the risk that a counterparty's performance
obligations will be unenforceable. The Corporation is generally subject to
extensive regulation in the different jurisdictions in which it conducts its
business. The Corporation has established policies and procedures based on
legal and regulatory requirements that are designed to ensure compliance with
applicable statutory and regulatory requirements. The Corporation also has
established procedures that are designed to ensure that senior management's
policies relating to conduct, ethics and business practices are followed
throughout the firm. In connection with its business, the Corporation has
various procedures addressing issues, such as regulatory capital requirements,
sales and marketing practices, new products, use and safekeeping of customer
funds and securities, credit granting, collection activities, money-laundering
and record keeping. The Corporation also has established procedures to mitigate
the risk that a counterparty's performance obligations will be unenforceable,
including consideration of counterparty legal authority and capacity, adequacy
of legal documentation, the permissibility of a transaction under applicable
law and whether applicable bankruptcy or insolvency laws limit or alter
contractual remedies.
12
<PAGE> 17
- --------------------------------------------------------------------------------
Capital and Liquidity Management
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. The Corporation 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,
repurchases of its common stock and capital required for acquisitions or for
additions to its subsidiaries.
The Parent has authorization from the Board of Directors to repurchase up
to 4.0 million shares of common stock. The repurchased shares are available to
meet the Parent's obligations under its stock-based benefit plans and for
general capital management purposes. During 1999, 655,785 shares were
repurchased at a weighted average purchase price of $82.23 per share. As of
December 31, 1999, the Parent could repurchase an additional 1,533,225 common
shares. In January 2000, the Parent suspended the repurchase of any additional
shares due to the pending business combination (see Note 1 to Notes to the
Consolidated Financial Statements). On January 25, 2000, the Parent announced
its regular quarterly common stock dividend of $0.22 per share. Future
dividends declared are subject to approval by the Parent's Board of Directors
and regulatory capital limitations.
The Parent's sources of liquidity are derived primarily from dividends from
its subsidiaries, issuances of common stock and issuances of long and
short-term debt instruments. During 1999, the subsidiaries remitted $41.0
million in cash dividends to the Parent. As of January 1, 2000, the
subsidiaries have the ability to pay dividends of approximately $77.3 million
without prior approval of the regulatory authorities.
The Parent has credit facilities totaling $80.0 million which are based on
LIBOR or Prime and mature on March 31, 2002. On December 31, 1999, there was
$35.0 million outstanding under these facilities.
The Parent is authorized to issue up to 5 million, $1.00 par value,
preferred shares. As of December 31, 1999, no preferred shares have been
issued.
In addition to traditional interest and non-interest bearing deposit
raising capabilities, the banking subsidiaries have established their own
external funding sources. Certain subsidiaries have established credit
facilities with the Federal Home Loan Bank System ("FHLB") totaling
approximately $426.0 million. On December 31, 1999, $13.0 million was
outstanding under these credit facilities.
The subsidiaries also generate liquidity from the types of financial
instruments that they carry as investment securities. As of December 31, 1999,
approximately $849 million or 79% of the investment securities portfolio is
comprised of U.S. Treasury or federal agency obligations. These securities are
readily marketable and may be sold or financed through repurchase agreements,
as appropriate. At December 31, 1999, securities sold under agreements to
repurchase aggregated $64.4 million. The subsidiaries may also pledge these
securities to secure public deposits, to qualify for fiduciary powers and to
use as collateral for FHLB and other borrowings. Pledged assets at December 31,
1999 totaled $254.4 million.
- --------------------------------------------------------------------------------
Market Risk and Asset/Liability Management
The objective of market risk assessment and asset and liability management is
to maximize net interest revenue while maintaining acceptable levels of
interest rate sensitivity, high asset quality and adequate liquidity.
The Corporation does not trade financial instruments nor does the
Corporation invest in financial instruments denominated in foreign currencies.
The Corporation invests in only high quality securities (primarily U.S.
Treasury and federal agency obligations). The Corporation's principal risk is
interest rate related. Interest rate risk results from differences in the
maturity and/or repricing of the Corporation's interest earning assets (which
consist primarily of mortgage loans, mortgage backed securities and other fixed
rate investments) and its interest bearing liabilities, (predominately floating
rate deposits). The Corporation uses interest rate swaps ("Swaps") as hedging
vehicles to mitigate interest rate exposure associated with short-term floating
interest-rate deposits.
The Corporation employs net interest income ("NII") simulation modeling
techniques to evaluate and manage the effect of changing interest rates. The
Corporation's simulation model includes all on-
13
<PAGE> 18
balance sheet and off-balance sheet financial instruments and measures NII
under various interest rate scenarios. Key variables in the NII simulation
include changes to the level and term structure of interest rates, the
repricing of financial instruments, prepayment and reinvestment assumptions,
loan and deposit pricing and volume assumptions. These simulations involve
assumptions that are inherently uncertain and as a result, the simulation
models cannot precisely estimate NII or precisely predict the impact of changes
in interest rates on NII. Actual results may differ from simulated results due
to the timing, magnitude and frequency of interest rate changes as well as
changes in market conditions and management strategies, including changes in
asset and liability mix.
The Corporation's simulation model facilitates the evaluation of a
potential range of net interest revenue under various interest rate scenarios.
The simulation model at December 31, 1999 indicates that a 50 to 100 basis
point increase in interest rates would decrease simulated NII for the year
ending December 31, 2000 by approximately $3 to $7 million whereas an increase
in interest rates of 150 to 200 basis points would decrease simulated NII by
approximately $11 to $15 million for the twelve month period. Conversely, a 50
to 100 basis point decrease in interest rates would increase simulated NII by
approximately $3 to $7 million and a 150 to 200 basis point decrease in
interest rates would increase simulated NII by approximately $10 to $13
million.
At December 31, 1998, a 50 to 100 basis point increase in interest rates
would have decreased simulated 1999 NII by approximately $3 to $7 million. An
increase in interest rates of 150 to 200 basis points would have decreased
simulated 1999 NII by approximately $11 to $15 million. Conversely, a 50 to 100
basis point decrease in interest rates would have increased simulated 1999 NII
by approximately $3 to $6 million and a 150 to 200 basis point decrease in
interest rates would have increased simulated 1999 NII by approximately $8 to
$12 million.
Each of these simulations assumes that the asset and liability structure of
the balance sheet would not be changed as a result of the simulated changes in
interest rates. As the Corporation actively manages its balance sheet and
interest rate exposure, in all likelihood the Corporation would take steps to
ameliorate any additional interest rate exposure that would result from the
simulated changes in the interest rate environment.
The following table provides details 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>
December 31, 1999:
Fixed pay swaps.................................... $ 175,000 $ 895,000 -- $ 1,070,000
Average rate paid.................................. 6.86% 6.28% -- 6.38%
Average rate received*............................. 6.17% 6.15% -- 6.15%
December 31, 1998:
Fixed pay swaps.................................... $ 70,000 $ 490,000 -- $ 560,000
Average rate paid.................................. 6.72% 6.56% -- 6.58%
Average rate received*............................. 5.26% 5.25% -- 5.25%
December 31, 1997:
Fixed pay swaps.................................... $ 106,500 $ 475,000 $ 85,000 $ 666,500
Average rate paid.................................. 6.45% 6.65% 6.17% 6.56%
Average rate received*............................. 5.84% 5.84% 5.80% 5.84%
</TABLE>
- --------------------------------------------------------------------------------
*Represents the average variable rate that would 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 years ended December 31, 1999, 1998 and 1997, are detailed in the
following table.
14
<PAGE> 19
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(DOLLARS IN ---------------------------------------
THOUSANDS) 1999 1998 1997
- ---------------------- ------------ ---------- ------------
<S> <C> <C> <C>
Net interest revenue:
As reported $117,130 $102,030 $ 91,125
Excluding hedging
activities $124,703 $107,646 $ 96,839
Net yield on interest
earning assets:
As reported 3.26% 3.24% 3.12%
Excluding hedging
activities 3.47% 3.42% 3.32%
</TABLE>
The difference between the results "As reported" and "Excluding hedging
activities" in each year reflects the cost of using Swaps to hedge interest
rate risk.
- --------------------------------------------------------------------------------
REGULATION AND SUPERVISION
The Parent is a bank holding company within the meaning of the Bank Holding
Company Act of 1956 (the "Act"). As such, the Parent is required to file
certain reports with and is subject to examination by the Board of Governors of
the Federal Reserve System (the "Board of Governors").
The Superintendent of Banks of the State of New York has the authority to
examine the affairs of the Corporation for the purpose of determining the
financial condition of United States Trust Company of New York (the "Trust
Company"). The Trust Company and its operations are subject to federal and New
York State laws applicable to commercial banks and trust companies and to
regulation and examination by both federal and New York State banking
authorities.
On November 12, 1999, the President signed the Gramm-Leach-Bliley Financial
Modernization Act of 1999 ("The Modernization Act") into law. The Modernization
Act will:
- allow bank holding companies meeting certain management and capital
standards and achieving specified rankings under the Community
Reinvestment Act, to engage in a substantially broader range of
nonbanking activities than currently is permissible, including insurance
underwriting and merchant banking investments in commercial and financial
companies;
- allow insurers and other financial services companies to acquire banks;
- remove various restrictions that currently apply to bank holding company
ownership of securities firms and mutual fund advisory companies; and
- establish an overall regulatory structure applicable to bank holding
companies that also engage in insurance and securities operations.
The different parts of the Modernization Act will take effect at different
times, as provided in the Modernization Act.
The Parent as a result of its ownership of U.S. Trust Company of Florida
Savings Bank ("Florida") is a savings bank holding company. Accordingly, the
Corporation and Florida are subject to regulation and examination by the Office
of Thrift Supervision. U.S. Trust Company, N.A. and U.S. Trust Company of
Texas, N.A. are subject to regulation and examination by the Office of the
Comptroller of the Currency. U.S. Trust Company of New Jersey is subject to
regulation and examination by the Banking Department of the State of New Jersey
and the Federal Deposit Insurance Corporation ("FDIC"). U.S. Trust Company of
Connecticut is subject to regulation and examination by the Department of
Banking of the State of Connecticut and the FDIC. U.S. Trust Company of North
Carolina is subject to regulation and examination by the North Carolina Office
of the Commissioner of Banks.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") provides for cross-guarantees of the liabilities of insured
depository institutions pursuant to which any bank subsidiary of the Parent may
be required to reimburse the FDIC for any loss or anticipated loss to the FDIC
that arises from a default of any of the Parent's other bank subsidiaries or
assistance provided to such an institution in danger of default.
The Parent and its FDIC insured subsidiaries are subject to risk-based and
leverage capital guidelines issued by the federal bank regulators. These
regulatory agencies are required by law to take specific prompt actions with
respect to institutions that do not meet minimum capital standards and have
defined five capital tiers, the highest of which is "well capitalized". The
Parent and each of its bank subsidiaries were "well capitalized" as of December
31, 1999. See Note 21 to Notes to the Consolidated Financial Statements.
- --------------------------------------------------------------------------------
Government Monetary Policies
Monetary authorities have a significant impact on the operating results of the
Corporation and other financial services institutions. The decisions of the
Board of Governors affect the supply of money and Federal Reserve System member
bank reserves through open market operations in U.S. Government securities or
by changes in the discount rate or reserve requirements. The Board of Governors
15
<PAGE> 20
actions have an important influence on the growth of bank loans and investments
and the level of interest charged for loans and paid on deposits. Because of
changing conditions in the money markets, as a result of actions by the Board
of Governors and other regulatory authorities, interest rates, credit
availability, deposit levels and bond and stock prices may change materially
due to circumstances beyond the control of the Corporation.
- --------------------------------------------------------------------------------
LEGAL PROCEEDINGS
Various actions and claims are pending or are threatened against the
Corporation in which liability has been denied and which will be vigorously
contested. Management, after consultation with counsel, is of the opinion that
the ultimate resolution of such matters is unlikely to have any future material
adverse effect on the Corporation's financial position, results of operations
or cash flows.
- --------------------------------------------------------------------------------
PROPERTIES
The Corporation's principal executive office is located at 114 West 47th
Street, New York, New York 10036 and its telephone number at that office is
(212) 852-1000. The Parent and its subsidiaries lease substantially all of its
premises. The Trust Company rents approximately 550,000 square feet of office
space in New York City, principally at its 47th Street location under a lease
expiring in 2014. The Corporation has operations which lease office space in
Costa Mesa, Larkspur, Los Angeles and San Francisco, California; Stamford,
Greenwich and West Hartford, Connecticut; Washington, D.C.; Naples, Palm Beach
and Vero Beach, Florida; Jersey City, Morristown and Princeton, New Jersey;
Garden City, Long Island, New York; Charlotte, Greensboro and Raleigh, North
Carolina; Wayne, Pennsylvania; Portland, Oregon; Dallas and Houston, Texas. The
Corporation owns buildings in New York City, New York; Boca Raton, Florida and
Essex, Connecticut from which it conducts business.
- --------------------------------------------------------------------------------
ADOPTION OF NEW ACCOUNTING STANDARDS
Computer Software Costs
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 adopted SOP
98-1 on January 1, 1999. The adoption of SOP 98-1 has not had a material effect
on the Corporation's financial condition or results from operations.
- --------------------------------------------------------------------------------
Accounting for Derivatives
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. Fair market valuation adjustments for derivatives meeting hedge criteria
will be recorded in either comprehensive income or earnings depending on their
classification. The Corporation's use of derivatives to date has been limited
to utilizing interest rate swaps as hedges to mitigate interest rate exposure
associated with short-term floating interest rate deposits. As such this use of
interest rate swaps would be categorized as a cash flow hedge under FAS 133 and
the effective portion of the gain or loss on the interest rate swaps would be
recorded in comprehensive income. The fair value of the Corporation's interest
rate swap portfolio was a pre-tax gain of $16 million as of December 31, 1999
compared to pre-tax losses of $18 million and $11 million at December 31, 1998
and 1997, respectively. Substantially all of the fair value of the interest
rate swap portfolio for these periods would be recorded as a component of
comprehensive income.
In June 1999, Statement of Financial Accounting Standards No. 137,
"Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FAS 133" ("FAS 137") was issued. FAS 137 delayed the
effective date of FAS 133 one year to fiscal years beginning after June 15,
2000. Management has evaluated the impact of adopting FAS 133 and does not
believe that it will have a material impact on the Corporation's financial
condition or results from operations.
16
<PAGE> 21
EXHIBIT NO. 99.5
U.S. TRUST CORPORATION
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUE
Fee Revenue.................................................................. $ 424,467 $ 339,619 $ 281,691
1999 1998 1997
----------- ------------ ------------
Interest Revenue.................. $ 246,929 $ 224,743 $ 212,521
Interest Expense.................. (129,816) (122,117) (120,862)
Provision for Credit Losses....... -- (600) (750)
Securities Gains, Net............. 17 4 216
----------- ------------ ------------
Net Interest Revenue......................................................... 117,130 102,030 91,125
------------ ------------ ------------
Total Revenue................................................................ 541,597 441,649 372,816
------------ ------------ ------------
OPERATING EXPENSES
Salaries..................................................................... 141,417 117,889 100,997
Performance Compensation..................................................... 58,303 41,028 32,472
Sales Commissions and Incentives............................................. 29,012 19,448 14,050
Other Employee Benefits...................................................... 34,039 32,373 24,904
------------ ------------ ------------
Total Salaries, Performance
Compensation and Other Benefits............................................ 262,771 210,738 172,423
Occupancy.................................................................... 41,786 36,574 39,294
Amortization of Intangibles.................................................. 6,950 5,799 3,521
Other........................................................................ 102,414 87,444 73,919
------------ ------------ ------------
Total Operating Expenses..................................................... 413,921 340,555 289,157
------------ ------------ ------------
Income Before Income Taxes................................................... 127,676 101,094 83,659
Income Taxes................................................................. 50,107 39,427 32,627
------------ ------------ ------------
Net Income................................................................... $ 77,569 $ 61,667 $ 51,032
============ ============ ============
Basic Earnings Per Share..................................................... $ 4.18 $ 3.29 $ 2.64
============ ============ ============
Diluted Earnings Per Share................................................... $ 3.72 $ 2.96 $ 2.39
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 22
U.S. TRUST CORPORATION
CONSOLIDATED STATEMENT OF CONDITION
DECEMBER 31,
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and Due from Banks............................................................... $ 407,329 $ 108,346
Short-Term Investments................................................................ 425,456 459,263
Securities Available for Sale......................................................... 1,079,158 1,058,088
Loans, Net of Allowance for Credit Losses ($20,169 in 1999 and $19,414 in 1998)....... 2,689,206 2,171,393
Premises and Equipment, Net........................................................... 79,447 77,020
Other Assets.......................................................................... 342,455 268,752
----------------- -----------------
Total Assets.......................................................................... $ 5,023,051 $ 4,142,862
----------------- -----------------
LIABILITIES
Deposits:
Non-Interest Bearing................................................................ $ 1,247,252 $ 824,585
Interest Bearing.................................................................... 2,957,691 2,590,206
----------------- -----------------
Total Deposits........................................................................ 4,204,943 3,414,791
Short-Term Credit Facilities.......................................................... 141,157 140,925
Accounts Payable and Accrued Liabilities.............................................. 312,110 274,738
Long-Term Debt........................................................................ 63,000 67,773
----------------- -----------------
Total Liabilities..................................................................... 4,721,210 3,898,227
----------------- -----------------
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Preferred Stock, Par Value $1.00; Authorized 5,000,000;
Issued, None........................................................................ -- --
Common Stock, Par Value $1.00; Authorized 70,000,000 Shares;
Issued 20,087,780 in 1999 and 19,970,842 in 1998.................................... 20,088 19,971
Capital Surplus....................................................................... 36,819 18,902
Retained Earnings..................................................................... 354,510 293,289
Treasury Stock, at Cost (1,427,179 Shares in 1999 and
1,502,184 Shares in 1998)........................................................... (96,742) (87,768)
Loan to ESOP.......................................................................... -- (3,773)
Accumulated Other Comprehensive Income (Loss)......................................... (12,834) 4,014
----------------- -----------------
Total Stockholders' Equity............................................................ 301,841 244,635
----------------- -----------------
Total Liabilities and Stockholders' Equity............................................ $ 5,023,051 $ 4,142,862
================= =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 23
U.S. TRUST CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED
OTHER TOTAL
(DOLLARS IN THOUSANDS, EXCEPT PER COMMON CAPITAL RETAINED TREASURY LOAN TO COMPREHENSIVE STOCKHOLDERS'
SHARE AMOUNTS) STOCK SURPLUS EARNINGS STOCK ESOP INCOME (LOSS) EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 $ 19,971 $ 18,902 $ 293,289 $ (87,768) $ (3,773) $ 4,014 $ 244,635
Net Income............................. 77,569 77,569
Change in Net Unrealized Gain (Loss) on
Securities Available for Sale........ (16,848) (16,848)
------------ ----------- -----------
Total Comprehensive Income............. 77,569 (16,848) 60,721
------------ ----------- -----------
Purchases of Treasury Stock
(655,785 Shares)..................... (53,924) (53,924)
Principal Payment by ESOP.............. 3,773 3,773
Cash Dividends Declared ($0.88
Per Share)........................... (16,366) (16,366)
Issuance of Shares for Acquisitions
(525,077 Shares)..................... 12,564 32,181 44,745
Issuance of Shares Under Employee
Benefit Plans (322,651
Shares).............................. 117 3,301 12,769 16,187
Tax Benefits From Stock Based Awards... 2,052 18 2,070
---------- ---------- ------------ ------------ ---------- ----------- -----------
Balance, December 31, 1999............. $ 20,088 $ 36,819 $ 354,510 $ (96,742) $ -- $ (12,834) $ 301,841
========== ========== ============ ============ ========== =========== ===========
Balance, January 1, 1998 $ 19,895 $ 12,325 $ 244,980 $ (42,627) $ (7,254) $ 3,827 $ 231,146
Net Income............................. 61,667 61,667
Change in Net Unrealized Gain on
Securities Available for Sale........ 187 187
------------ ----------- -----------
Total Comprehensive Income............. 61,667 187 61,854
------------ ----------- -----------
Purchases of Treasury Stock
(866,900 Shares)..................... (58,173) (58,173)
Principal Payment by ESOP.............. 3,481 3,481
Cash Dividends Declared ($0.72
Per Share)........................... (13,451) (13,451)
Issuance of Shares for Acquisitions
(173,593 Shares)..................... 2,917 9,538 12,455
Issuance of Shares Under Employee
Benefit Plans (146,886
Shares).............................. 76 2,018 3,494 5,588
Tax Benefits From Stock Based Awards... 1,642 93 1,735
---------- ---------- ------------ ------------ ---------- ----------- -----------
Balance, December 31, 1998............. $ 19,971 $ 18,902 $ 293,289 $ (87,768) $ (3,773) $ 4,014 $ 244,635
========== ========== ============ ============ ========== =========== ===========
Balance, January 1, 1997............... $ 19,630 $ 3,575 $ 205,384 $ (4,728) $ (10,468) $ 705 $ 214,098
Net Income............................. 51,032 51,032
Change in Net Unrealized Gain on
Securities Available for Sale........ 3,122 3,122
------------ ----------- -----------
Total Comprehensive Income............. 51,032 3,122 54,154
------------ ----------- -----------
Purchases of Treasury Stock (820,090
Shares).............................. (40,492) (40,492)
Principal Payment by ESOP.............. 3,214 3,214
Cash Dividends Declared ($0.60 Per
Share)............................... (11,579) (11,579)
Issuance of Shares for Acquisitions
(204,218 Shares)..................... 204 6,943 7,147
Issuance of Shares Under Employee
Benefit Plans (125,389 Shares)....... 61 549 2,593 3,203
Tax Benefits From Stock Based Awards... 1,258 143 1,401
---------- ---------- ------------ ------------ ---------- ----------- -----------
Balance, December 31, 1997............. $ 19,895 $ 12,325 $ 244,980 $ (42,627) $ (7,254) $ 3,827 $ 231,146
========== ========== ============ ============ ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 24
U.S. TRUST CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income......................................................... $ 77,569 $ 61,667 $ 51,032
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Provision for Credit Losses................................... -- 600 750
Amortization of Restricted Stock Units........................ 4,190 2,560 1,133
Depreciation and Amortization of Premises
and Equipment and Other Assets.............................. 24,435 20,053 14,023
Net Amortization of Premium on Securities..................... 4,677 3,384 2,778
Deferred Income Taxes......................................... 352 (3,279) (2,938)
Net Change in Accrued Interest and Accounts Receivable........ (9,985) (3,865) (3,185)
Net Change in Accounts Payable and Other Liabilities.......... 19,750 16,866 25,117
Other, Net.................................................... 3,047 3,271 1,266
----------------- -------------- ---------------
Net Cash Provided by Operating Activities.......................... 124,035 101,257 89,976
----------------- -------------- ---------------
Cash Flows From Investing Activities:
Net Change in Short-Term Investments............................... 33,807 (71,655) (101,658)
Purchases of Securities Available for Sale......................... (469,596) (368,657) (625,721)
Proceeds from Sales of Securities Available for Sale............... 10,019 1,315 20,804
Proceeds from Maturities, Calls and
Mandatory Redemptions of Securities
Available for Sale............................................... 420,330 437,599 642,546
Net Change in Loans................................................ (518,621) (251,983) (250,762)
Purchases of Premises and Equipment................................ (18,343) (13,416) (10,942)
Cash used in Acquisitions.......................................... (2,809) (22,184) --
Other, Net......................................................... (2,858) (7,183) (12,240)
----------------- -------------- ---------------
Net Cash Used in Investing Activities.............................. (548,071) (296,164) (337,973)
----------------- -------------- ---------------
Cash Flows From Financing Activities:
Net Change in Non-Interest Bearing
Deposits......................................................... 422,667 78,271 58,372
Net Change in Interest Bearing Deposits............................ 367,485 262,618 251,741
Net Change in Short-Term Credit
Facilities....................................................... 232 (38,663) (60,695)
Repayment of Long-Term Debt........................................ (4,773) (4,481) (4,214)
Issuance of Long-Term Debt......................................... -- -- 50,000
Issuance of Common Stock........................................... 6,937 1,767 755
Purchases of Treasury Stock........................................ (53,924) (58,173) (40,492)
Dividends Paid..................................................... (15,605) (12,973) (11,149)
----------------- -------------- ---------------
Net Cash Provided by Financing Activities.......................... 723,019 228,366 244,318
----------------- -------------- ---------------
Net Change in Cash and Cash Equivalents............................ 298,983 33,459 (3,679)
Cash and Cash Equivalents at Beginning of Year..................... 108,346 74,887 78,566
Cash and Cash Equivalents at End of Year........................... ----------------- -------------- ---------------
$ 407,329 $ 108,346 $ 74,887
================= ============== ===============
Cash Payments:
Income Taxes..................................................... $ 46,156 $ 43,697 $ 34,372
Interest Expense................................................. 127,210 121,887 119,064
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 25
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. PENDING BUSINESS COMBINATION
U.S. Trust Corporation (individually, the "Parent" collectively with its wholly
owned subsidiaries, the "Corporation") is an investment management company with
fiduciary and banking powers.
The Parent has entered into an agreement and plan of merger (the "Merger
Agreement") dated January 12, 2000 with The Charles Schwab Corporation
("Schwab") and a wholly owned subsidiary of Schwab pursuant to which all of the
outstanding common shares of the Parent will be exchanged for shares of Schwab
common stock. The transaction, which is subject to, among other things,
regulatory approvals and Parent shareholder approval, is expected to be
consummated by July 2000.
Under the terms of the Merger Agreement, Patriot Merger Corporation, a
wholly owned subsidiary of Schwab, will merge with and into the Parent. The
surviving legal entity will be the Parent which will thereafter be a wholly
owned subsidiary of Schwab. The Parent's shareholders will receive 3.427 shares
of Schwab common stock for each common share of the Parent in a tax-free
exchange. The total transaction value was estimated at $2.7 billion as announced
on January 13, 2000 in a joint press release from Schwab and the Corporation.
The Parent and Schwab expect the transaction to qualify for pooling of interests
accounting treatment.
The Merger Agreement provides for a retention bonus program of
approximately $150 million (consisting of approximately $125 million in cash and
$25 million of value in Schwab stock options). Starting with the second
anniversary of the consummation of the business combination, employees will be
eligible to receive the benefits under the retention program, if employed at
that time. One-half of the stock options will vest on the third anniversary of
the consummation of the business combination and the remaining half will vest
on the fourth anniversary.
In connection with the change-in-control provisions of certain of the
Parent's compensation plans, all outstanding stock options and substantially all
restricted stock awards will vest and be paid on the closing of the transaction.
Payment in respect of these awards will be made in Schwab common stock.
The Notes to the Consolidated Financial Statements have been prepared under
the presumption (e.g., Notes 19 and 20 Performance Compensation and Retirement
and Other Employee Benefits) that the Corporation is a going concern and do not
attempt to take into consideration the impact, if any, that the Pending Business
Combination may have on the matters discussed therein.
- --------------------------------------------------------------------------------
2. ACCOUNTING POLICIES
The Corporation is an investment management company with fiduciary and banking
powers. Through its subsidiaries, including its principal subsidiary, United
States Trust Company of New York (the "Trust Company"), the Corporation provides
investment management, private banking, special fiduciary and corporate trust
services to affluent individuals, families and institutions located throughout
the United States.
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 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 and deferred taxes) as of the financial
statement dates and the reported amounts of revenues and expenses during the
reporting periods. Since management's judgment involves making estimates
concerning the likelihood of future events, the actual results could differ from
those estimates which will have a positive or negative effect on future period
results.
The following is a summary of the significant financial accounting
policies:
(a) BASIS OF PRESENTATION -- The consolidated financial statements include the
accounts of the Corporation. All material intercompany accounts and transactions
have been eliminated in consolidation. In the opinion of management, all
adjustments necessary for a fair presentation of the consolidated financial
position and results of operations for the periods have been made. Such
adjustments, unless otherwise noted in these Notes to the Consolidated Financial
Statements and/or Management's Discussion and Analysis, are of a normal
recurring nature.
(b) TRUST ASSETS -- Property (other than cash deposits) held by the Trust
Company or the Corporation's other bank subsidiaries in a fiduciary
5
<PAGE> 26
or agency capacity for customers is not an asset of the Corporation and is not
included in the Consolidated Statement of Condition.
(c) INTEREST EARNING/BEARING FINANCIAL INSTRUMENTS -- Interest income and
expense are accrued on interest earning/bearing financial instruments based upon
the contractual terms of the instruments. Premiums and discounts are amortized
or accreted, as applicable, on a basis that approximates the effective yield
method.
Securities that may be sold prior to maturity as part of asset/liability
management or in response to other factors are classified as securities
available for sale and carried at their estimated fair value with unrealized
gains and losses reported in a separate component of stockholders' equity, net
of taxes. Realized gains and losses from sales of securities are determined on a
specific identification cost basis.
(d) NONPERFORMING ASSETS -- Nonperforming assets consist of non-accrual
financial instruments and other real estate owned. Interest accruals are
discontinued when principal or interest is contractually past due ninety days or
more. In addition, interest accruals may be discontinued when principal or
interest is contractually past due less than ninety days if, in the opinion of
management, the amount due is not likely to be paid in accordance with the terms
of the contractual agreement, even though the financial instruments are
currently performing. Any accrued but unpaid interest previously recorded on a
non-accrual financial instrument is reversed and recorded as a reduction of
interest income. Interest received on non-accrual financial instruments is
applied either to the outstanding principal balance or recorded as interest
income, depending on management's assessment of the ultimate collectibility of
principal. Non-accrual financial instruments are generally returned to accrual
status only when all delinquent principal and interest payments become current
and the collectibility of future principal and interest on a timely basis is
reasonably assured.
Other real estate owned ("ORE") acquired through foreclosure in
satisfaction of the loan is recorded in other assets at the lower of the
carrying amount of the loan or the ORE's estimated fair value less estimated
selling and disposition costs. After the acquisition date of the ORE, operating
expenses and revenue, additional writedowns, as appropriate, and gains and
losses on the ultimate disposition of ORE are reported in other expenses.
(e) ALLOWANCE FOR CREDIT LOSSES -- The allowance for credit losses is
established through charges to income based on management's evaluation of the
adequacy of the allowance in meeting losses in the existing credit portfolio.
The adequacy of the allowance is reviewed continually by management, taking
into consideration current economic conditions, past loss experience and risks
inherent in the credit portfolio, including the value of impaired loans.
(f) PREMISES AND EQUIPMENT -- Premises and equipment, including leasehold
improvements, are stated at cost less accumulated depreciation and amortization.
Depreciation and amortization are computed by the straight-line method over the
lesser of the term of the lease or the estimated useful lives of the assets.
(g) INTANGIBLE ASSETS -- The fair value of intangible assets recorded as a
result of the acquisition of investment management enterprises is reported in
other assets on the Consolidated Statement of Condition and is amortized over
the estimated period benefited. An impairment review is performed periodically
on these assets.
(h) PERFORMANCE COMPENSATION -- The Corporation's performance compensation plans
provide for awards in the form of cash, stock options and restricted stock
units. Cash awards are accrued and paid annually. The exercise price of stock
options is the fair market value on the date of grant and no compensation
expense is recorded. Restricted stock units are recorded as compensation expense
ratably over the vesting period of the award based on the fair market value of
the award at the grant date.
(i) INCOME TAXES -- The Corporation files a consolidated Federal income tax
return. Deferred income taxes are provided for items that are recognized for
income tax purposes in years other than those in which they are recognized for
financial reporting purposes.
(j) DERIVATIVE FINANCIAL INSTRUMENTS -- As part of its asset and liability
management activities, the Corporation employs interest rate swaps ("Swaps") to
ameliorate the interest rate risk associated with nontrading-related balance
sheet financial instruments. The Corporation utilizes Swaps solely as hedging
instruments.
To be effective as a hedge, Swaps must reduce interest rate risk and must
be designated as a hedge at the inception of the derivative contract. That is,
Swaps are linked to the related liability, whereby the terms of the Swap
generally equal the terms of the related liability, at the inception and
throughout the term of the derivative contract.
Swaps that qualify as hedges are accounted for under the accrual method;
the interest component associated with Swaps is recognized over the life of
6
<PAGE> 27
the contract in net interest revenue and there is no recognition of unrealized
gains and losses on the Swap in the statement of financial condition. It has
been the Corporation's practice not to terminate its Swaps or sell the
underlying financial instruments that are being hedged by the Swaps. However, if
the Corporation did terminate a Swap, any amounts received from (a gain) or paid
to (a loss) the counterparty would be deferred and amortized over the shorter of
the remaining original life of the hedged item or the terminated Swap. In
addition if the hedged item was sold, the fair value of the Swap would be
recognized as an adjustment to the gain or loss of the hedged item.
(k) SHORT-TERM INVESTMENTS -- Included in Short-Term Investments are $50.5
million and $204.3 million of interest bearing deposits with banks and $375.0
million and $255.0 million of federal funds sold at December 31, 1999 and 1998,
respectively.
(l) CASH AND CASH EQUIVALENTS -- For purposes of the Consolidated Statement of
Cash Flows, the Corporation considers the Consolidated Statement of Condition
caption cash and due from banks as cash and cash equivalents. For purposes of
the U.S. Trust Corporation (Parent Company Only) Statement of Cash Flows, the
Corporation considers due from banks (which is included in the Statement of
Condition caption other assets) as cash and cash equivalents.
(m) RECLASSIFICATIONS -- Certain amounts presented in prior periods have been
reclassified to conform with the current year's presentation.
- --------------------------------------------------------------------------------
3. ACQUISITIONS
During 1999, the Corporation acquired NCT Holdings, Inc., the parent of North
Carolina Trust Company, a non-deposit banking corporation headquartered in
Greensboro, North Carolina and Radnor Capital Management, Inc., an investment
management company located in Wayne, Pennsylvania. Assets under management at
the closing dates from these acquisitions totaled approximately $2.8 billion.
The initial consideration paid at the closing of these business combinations was
approximately $49.3 million, substantially in the form of the Parent's common
stock.
During 1998, the Corporation acquired Wood Island Associates, Inc., Maier &
Siebel, Inc., and McMurrey Investments Advisors, Inc. These firms provide
investment management services to high net worth individuals and institutions.
The aggregate amount of assets under management at the closing dates was
approximately $1.6 billion. The Corporation also acquired Strategic Trading
Corporation which provides consultation and agency services on in-kind stock
distributions and derivative hedging strategies to high net worth individuals.
The initial consideration paid at the closing of these business combinations was
approximately $32.9 million.
Each of these transactions provide for additional payments of cash and the
Parent's common stock based upon business retention and future profitability.
Each transaction was accounted for as a purchase.
- --------------------------------------------------------------------------------
4. CASH AND DUE FROM BANKS
The average non-interest earning balances held at the Federal Reserve Bank for
the years ended December 31, 1999 and 1998 were $38.7 million and $32.9 million,
respectively. These amounts represent reserve requirements which must be
maintained on deposits. There are no other restrictions on cash and due from
banks.
- --------------------------------------------------------------------------------
5. SECURITIES
The amortized cost, estimated fair value and gross unrealized gains and losses
on securities available for sale as of December 31, 1999, 1998 and 1997, are
presented in the following table.
7
<PAGE> 28
<TABLE>
<CAPTION>
AGGREGATE GROSS GROSS
AMORTIZED FAIR UNREALIZED UNREALIZED
(DOLLARS IN THOUSANDS) COST VALUE GAINS LOSSES
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1999:
U.S. treasury securities................ $ 178,068 $ 176,816 $ 24 $ 1,276
U.S. government sponsored agencies
and corporations..................... 690,450 672,103 2,507 20,854
State and municipal obligations......... 119,633 117,936 185 1,882
Collateralized mortgage
obligations(1)....................... 5,185 5,209 24 --
All other............................... 107,658 107,094 370 934
--------------- ----------------- --------------- ---------------
Total..................................... $ 1,100,994 $ 1,079,158 $ 3,110 $ 24,946
=============== ================= =============== ===============
December 31, 1998:
U.S. treasury securities................ $ 274,553 $ 276,562 $ 2,050 $ 41
U.S. government sponsored agencies
and corporations..................... 561,095 564,256 5,631 2,470
State and municipal obligations......... 98,726 100,423 1,715 18
Collateralized mortgage
obligations(1)....................... 10,076 10,128 53 1
All other............................... 106,408 106,719 435 124
--------------- ----------------- --------------- ---------------
Total..................................... $ 1,050,858 $ 1,058,088 $ 9,884 $ 2,654
=============== ================= =============== ===============
December 31, 1997:
U.S. treasury securities................ $ 417,545 $ 419,189 $ 1,832 $ 188
U.S. government sponsored agencies
and corporations..................... 508,389 512,442 7,047 2,994
State and municipal obligations......... 72,650 73,658 1,009 1
Collateralized mortgage
obligations(1)....................... 15,186 15,299 113 --
All other............................... 110,701 110,887 234 48
--------------- ----------------- --------------- ---------------
Total..................................... $ 1,124,471 $ 1,131,475 $ 10,235 $ 3,231
=============== ================= =============== ===============
</TABLE>
- --------------------------------------------------------------------------------
(1)Collateralized by either GNMA, Federal National Mortgage Association, or
Federal Home Loan Corporation obligations.
8
<PAGE> 29
A profile of the maturities of the securities portfolio as of December 31, 1999,
and the related weighted average yield on such securities is presented in the
following table.
<TABLE>
<CAPTION>
WITHIN 1-5 5-10 OVER 10
(DOLLARS IN THOUSANDS) 1 YEAR YEARS YEARS YEARS TOTAL
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. government obligations...... $ 52,991 $ 125,078 -- -- $ 178,069
Federal agency obligations....... 31,324 552,064 $ 63,666 $ 43,397 690,451
State and municipal
obligations.................... 14,554 66,685 38,393 -- 119,632
Collateralized mortgage
obligations(1)................. -- -- -- 5,185 5,185
Other securities(2).............. 63,147 17,345 2,706 18 83,216
------------ ------------ ------------ ----------- -------------
Total at amortized cost(2)....... 162,016 761,172 104,765 48,600 1,076,553
Estimated fair value(2).......... 161,702 741,203 102,844 48,968 1,054,717
------------ ------------ ------------ ----------- -------------
Net unrealized gains (losses) ... $ (314) $ (19,969) $ (1,921) $ 368 $ (21,836)
============ ============ ============ =========== =============
Weighted average yield(3)........ 5.31% 6.04% 6.45% 6.35% 5.99%
============ ============ ============ =========== =============
</TABLE>
------------------------------------------------------------------------------
(1) Collateralized Mortgage Obligations have been allocated over maturity
groupings based on contractual maturities. Expected maturities may differ
from contractual maturities because borrowers have the right to prepay
obligations with or without prepayment penalties.
(2) Excludes Federal Reserve Bank and Federal Home Loan Bank stock of
approximately $24 million.
(3) Yields have been computed by dividing annualized interest revenue, on a
taxable equivalent basis, by the amortized cost of the respective
securities as of December 31, 1999.
The components of net securities gains for the years ended December 31, 1999,
1998 and 1997 are presented in the following table.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross realized gains from
sales, maturities, calls, and
mandatory redemptions $ 17 $ 4 $ 218
Gross realized (losses) from
sales, maturities, calls, and
mandatory redemptions -- -- (2)
-------- ------------ -------------
Securities gains, net $ 17 $ 4 $ 216
======== ============ =============
</TABLE>
At December 31, 1999 and 1998, financial instruments in the amount of
$254.4 million and $230.3 million, respectively, were pledged to secure public
deposits, to qualify for fiduciary powers and for other purposes or as
collateral for borrowings.
- --------------------------------------------------------------------------------
6. LOANS
The following is an analysis of the composition of the loan portfolio.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Private banking:
Residential real estate
mortgages....................... $ 1,984,732 $ 1,630,500 $ 1,358,003 $ 1,093,107 $ 937,856
Other.............................. 663,977 525,614 537,024 525,446 457,843
-------------- --------------- --------------- -------------- --------------
Total private banking loans.......... 2,648,709 2,156,114 1,895,027 1,618,553 1,395,699
-------------- --------------- --------------- -------------- --------------
Loans to financial institutions for
purchasing and carrying
securities......................... 57,686 31,972 41,064 62,866 61,372
All other............................ 2,980 2,721 2,758 6,722 2,624
-------------- --------------- --------------- -------------- --------------
Total................................ $ 2,709,375 $ 2,190,807 $ 1,938,849 $ 1,688,141 $ 1,459,695
============== =============== =============== ============== ==============
</TABLE>
An analysis of nonperforming assets is presented in the following table.
9
<PAGE> 30
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans............... $ 1,673 $ 6,203 $ 9,666 $ 8,882 $ 13,285
Other real estate owned, net.... -- 534 -- 727 9,586
-------------- ------------- ------------- ----------- -----------
Total nonperforming assets...... $ 1,673 $ 6,737 $ 9,666 $ 9,609 $ 22,871
============== ============= ============= =========== ===========
Average non-accrual loans....... $ 832 $ 8,322 $ 8,829 $ 12,261 $ 8,475
============== ============= ============= =========== ===========
</TABLE>
The Corporation considers all non-accrual loans impaired. The impact of interest
revenue which would have been earned on non-accrual loans versus interest
revenue recognized on these loans was negligible for the years 1995 through
1999.
There was no reserve for ORE in 1997 through 1999. The reserve for ORE was
$477,000 and $978,000 in 1996 and 1995, respectively.
- --------------------------------------------------------------------------------
7. ALLOWANCE FOR CREDIT LOSSES
An analysis of the allowance for credit losses is presented for the five-year
period ended December 31, 1999.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Analysis of allowance for credit losses:
Balance, January 1.......................... $ 19,414 $ 18,294 $ 16,693 $ 16,086 $ 14,699
------------ ------------ ------------ ------------ ------------
Charge-offs:
Private banking........................... (292) (327) (160) (658) (1,910)
Other..................................... -- -- -- (517) (1,520)
------------ ------------ ------------ ------------ ------------
Total charge-offs......................... (292) (327) (160) (1,175) (3,430)
------------ ------------ ------------ ------------ ------------
Recoveries:
Private banking........................... 1,047 800 684 702 2,844
Other..................................... -- 47 327 80 373
------------ ------------ ------------ ------------ ------------
Total recoveries.......................... 1,047 847 1,011 782 3,217
------------ ------------ ------------ ------------ ------------
Net (charge-offs) recoveries................ 755 520 851 (393) (213)
------------ ------------ ------------ ------------ ------------
Provision charged to income................. -- 600 750 1,000 1,600
------------ ------------ ------------ ------------ ------------
Balance, December 31........................ $ 20,169 $ 19,414 $ 18,294 $ 16,693 $ 16,086
============ ============ ============ ============ ============
</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
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 other economic and
financial considerations.
- --------------------------------------------------------------------------------
8. PREMISES AND EQUIPMENT
An analysis of premises and equipment is presented in the following table.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Land $ 1,675 $ 1,675
Building 14,063 13,820
Leasehold improvements 71,111 74,670
Furniture and equipment 53,524 50,520
------------------- ---------------
140,373 140,685
Less: accumulated amortization
and depreciation (60,926) (63,665)
=================== ===============
Total $ 79,447 $ 77,020
=================== ===============
</TABLE>
Amortization and depreciation expense amounted to $17.1 million, $14.0 million
and $10.3 million for 1999, 1998 and 1997, respectively.
Included in Other Operating Expenses is approximately $15.3 million in
1999, $12.4 million in 1998 and $9.2 million in 1997 of equipment expense.
- --------------------------------------------------------------------------------
9. INTANGIBLE ASSETS
An analysis of intangible assets is presented in the following table.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C>
Balance, January 1 $ 54,839 $ 29,497
Acquisitions 44,760 31,141
Less: amortization 6,950 5,799
---------------- ----------------
Balance, December 31 $ 92,649 $ 54,839
================ ================
</TABLE>
Intangible assets are amortized over a period not to exceed fifteen years.
10
<PAGE> 31
- --------------------------------------------------------------------------------
10. SHORT-TERM CREDIT FACILITIES
An analysis of borrowings under short-term credit facilities is presented in the
following table.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1999 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Federal funds purchased:
Year-end balance $ 14,630 $ 30,250 $ 10,175
Daily average balance 51,830 45,271 63,965
Maximum end-of-month
balance 127,690 34,075 194,765
Weighted average
interest rate during
year 4.96% 5.37% 5.48%
Weighted average
interest rate at year-
end 4.50% 4.75% 6.65%
Securities sold under
agreements to
repurchase:
Year-end balance $ 64,429 $ 90,309 $ 169,413
Daily average balance 79,306 116,740 108,007
Maximum end-of-month
balance 104,164 148,185 177,851
Weighted average
interest rate during
year 4.76% 5.11% 5.29%
Weighted average
interest rate at year-
end 4.50% 4.86% 5.87%
Other borrowed funds:
Year-end balance $ 62,098 $ 20,366 $ --
Daily average balance 15,388 6,145 114,479
Maximum end-of-month
balance 62,098 50,066 163,086
Weighted average
interest rate during
year 5.72%* 5.94% 5.68%
Weighted average
interest rate at year-
end 6.62%* 5.98% --%
</TABLE>
- --------------------------------------------------------------------------------
*The calculation of the weighted average interest rate during the year 1999
excludes $402,000 on an average daily basis of an overdraft balance in the
Corporation's clearing account with Chase and the year-end calculation excludes
$26.8 million of overdrafts. In 1998 and 1997 there were no overdraft balances
in other borrowed funds.
- --------------------------------------------------------------------------------
The term of federal funds purchased and securities sold under agreements to
repurchase generally do not exceed one week.
Included in other borrowed funds at December 31, 1999 is the utilization of
$35.0 million of the Corporation's $80.0 million unsecured revolving credit
facility. The weighted average interest rate on this facility is 6.62% at
December 31, 1999. At December 31, 1998, the amount outstanding under similar
credit facilities was $20.0 million at an interest rate of 5.98%. There were no
funds borrowed under these facilities at December 31, 1997.
- --------------------------------------------------------------------------------
11. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
(DOLLARS IN THOUSANDS) 1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C>
8.414% Trust preferred capital
securities $ 50,000 $ 50,000
8.35% Senior unsecured ESOP
notes due 1999 -- 3,773
Federal home loan banks 13,000 14,000
------------ ------------
Total $ 63,000 $ 67,773
============ ============
</TABLE>
The Trust Preferred Capital Securities qualify as Tier 1 Capital under
guidelines of the Board of Governors of the Federal Reserve System (the "Board
of Governors") and have no voting rights. Holders of the Trust Preferred Capital
Securities are entitled to receive cumulative cash distributions semi-annually.
The Corporation has the right to redeem the Trust Preferred Capital Securities
prior to their stated maturity of February 1, 2027, on or after February 1,
2007, upon approval (if then required) of the Board of Governors.
The Federal Home Loan Bank ("FHLB") borrowings have maturities ranging from
2000 to 2002. The FHLB borrowings bear interest at rates ranging from 6.59% to
6.76% and are collateralized by the pledge of qualifying assets.
The 8.35% Senior Unsecured ESOP Notes due 1999 ("ESOP Notes") matured
February 1, 1999.
- --------------------------------------------------------------------------------
12. NET INTEREST REVENUE
The following is an analysis of the composition of net interest revenue. See the
"Financial and Other Data Supplement" for average balance and related yield
analyses on a tax equivalent basis.
11
<PAGE> 32
<TABLE>
<CAPTION>
(DOLLARS YEARS ENDED DECEMBER 31,
--------------------------------------------------
IN THOUSANDS) 1999 1998 1997
- -----------------------------------------------------------------------------
Interest revenue:
<S> <C> <C> <C>
Loans $ 174,514 $ 149,493 $ 133,433
Securities:
Taxable 55,441 58,622 68,053
Tax-exempt 4,705 3,878 3,893
Short-term
investments 8,671 10,144 5,467
Deposits with
banks 3,598 2,606 1,675
-------------- -------------- --------------
Total interest
revenue 246,929 224,743 212,521
-------------- -------------- --------------
Interest expense:
Deposits 117,489 107,846 99,623
Short-term credit
facilities 7,198 8,755 15,714
Long-term debt 5,129 5,516 5,525
-------------- -------------- --------------
Total interest
expense 129,816 122,117 120,862
-------------- -------------- --------------
Net interest income 117,113 102,626 91,659
Provision for
credit losses -- (600) (750)
Securities gains,
net 17 4 216
-------------- -------------- --------------
Net interest
revenue $ 117,130 $ 102,030 $ 91,125
============== ============== ==============
</TABLE>
- -----------------------------------------------------------------------------
13. INCOME TAXES
The current and deferred portions of income tax expense (benefit) included in
the Consolidated Statement of Income are presented in the following table.
<TABLE>
<CAPTION>
(DOLLARS YEARS ENDED DECEMBER 31,
-----------------------------------------------
IN THOUSANDS) 1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 41,214 $ 34,920 $ 26,876
State and local 8,541 7,786 8,689
-------------- -------------- -------------
Total current
income taxes 49,755 42,706 35,565
-------------- -------------- -------------
Deferred:
Federal 641 (2,626) (1,380)
State and local (289) (653) (1,558)
-------------- -------------- -------------
Total deferred
income taxes
(benefits) 352 (3,279) (2,938)
-------------- -------------- -------------
Total $ 50,107 $ 39,427 $ 32,627
============== ============== =============
</TABLE>
A reconciliation of the Federal statutory income tax rate with the Corporation's
effective income tax rate is presented in the following table.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax Expense at U.S. Federal income tax rate......... $ 44,687 35.0 % $ 35,383 35.0 % $ 29,281 35.0 %
Increase (decrease) in effective rate resulting
from:
Tax-exempt interest revenue....................... (1,403) (1.1) (1,150) (1.1) (1,298) (1.5)
State and local taxes, net of federal income
tax benefit..................................... 5,363 4.2 4,636 4.6 4,635 5.5
Miscellaneous items............................... 1,460 1.2 558 0.5 9 --
------------- ---------- ------------ --------- ------------- --------
Total tax expense and effective rate................ $ 50,107 39.3 % $ 39,427 39.0 % $ 32,627 39.0 %
============= ========== ============ ========= ============= ========
</TABLE>
12
<PAGE> 33
The components of total income tax expense for the years ended December 31,
1999, 1998 and 1997 that are applicable to operations and stockholders' equity
are presented in the following table.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(DOLLARS --------------------------------------------------
IN THOUSANDS) 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes
applicable to:
operations $ 50,107 $ 39,427 $ 32,627
Stockholders' equity:
Change in fair
value of
securities
available for
sale (12,217) 37 2,573
Tax benefit on
stock-based
awards (2,052) (1,642) (1,258)
Tax benefit on
dividends paid to
the ESOP on
unallocated
shares (18) (93) (143)
-------------- -------------- --------------
Total $ 35,820 $ 37,729 $ 33,799
============== ============== ==============
</TABLE>
The net deferred tax asset is included in "other assets" in the Consolidated
Statement of Condition. Deferred tax (assets) liabilities as of December 31,
1999 and 1998 resulted from the items listed in the following table.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
(DOLLARS IN THOUSANDS) 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax (assets):
Employee benefits $ (48,919) $ (45,570)
Trust and fiduciary
activities (10,698) (11,980)
Net unrealized losses on
securities available for sale (9,002) --
Allowance for credit losses (8,965) (8,591)
Property and equipment
leasing (7,007) (9,433)
Other (5,003) (4,090)
--------------- --------------
(89,594) (79,664)
=============== ==============
Deferred tax liabilities:
Premises and equipment 4,539 7,503
Net unrealized gains on
securities available for sale -- 3,214
Other 12,387 8,144
--------------- --------------
16,926 18,861
--------------- --------------
Net deferred tax (asset) $ (72,668) $ (60,803)
=============== ==============
</TABLE>
Deferred tax assets are attributable to temporary differences primarily
generated from expenses recognized for financial reporting purposes that are not
yet deductible on the tax return. The Corporation believes it is more likely
than not that it will generate sufficient taxable income in future periods to
absorb these items as they are recognized as deductions on the tax return.
- --------------------------------------------------------------------------------
14. STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE
The Parent is authorized to issue 5,000,000 shares of preferred stock, $1.00 par
value per share. As of December 31, 1999, no preferred shares have been issued.
In 1999, stockholders' approved the proposal to amend the Corporation's
Certificate of Incorporation to increase the authorized number of shares of
common stock from 40 million shares to 70 million shares.
The calculations of basic earnings per share and diluted earnings per share
for the three-year period ended December 31, 1999 are reflected in the following
table. The impact of the stock split distributed on February 21, 1997 has been
reflected in all earnings per share calculations.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
(IN THOUSANDS) 1999 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income for basic
earnings per share $ 77,569 $ 61,667 $ 51,032
Dividend equivalents
on stock based
benefit plans
(after-tax) 836 682 550
------------- ------------- -------------
Net income for
diluted earnings
per share $ 78,405 $ 62,349 $ 51,582
============= ============= =============
Weighted average
shares outstanding
for basic earnings
per share 18,568 18,750 19,354
Dilutive effect of
stock based
benefit plans 2,518 2,335 2,267
------------- ------------- -------------
Total dilutive
shares
outstanding 21,086 21,085 21,621
============= ============= =============
Basic earnings per
Share $ 4.18 $ 3.29 $ 2.64
============= ============= =============
Diluted earnings per
Share $ 3.72 $ 2.96 $ 2.39
============= ============= =============
</TABLE>
- --------------------------------------------------------------------------------
15. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business, the Corporation enters into various
transactions involving off-balance sheet financial instruments to meet the needs
of its customers and to reduce its own exposure to interest rate risk. These
transactions may be subject to credit risk. As compensation for the risks
assumed, these
13
<PAGE> 34
instruments generate interest or fee revenue or expense. The controls used to
monitor the credit and market risks of off-balance sheet financial instruments
are consistent with those associated with the Corporation's on-balance sheet
activities.
- --------------------------------------------------------------------------------
Credit-Related Financial Instruments
Credit-related financial instruments include firm commitments to extend credit
("commitments") and standby letters of credit ("standbys"). The credit risk
associated with these instruments varies depending on the creditworthiness of
the customer and the value of any collateral held. Collateral requirements vary
by type of instrument. The contractual amounts of these instruments represent
the amounts at risk should the contract be fully drawn upon, the client default,
and the value of any existing collateral become worthless.
Commitments are legally binding agreements to lend to a customer that
generally have fixed expiration dates or other termination clauses, may require
payment of a fee and are not secured by collateral until funds are advanced. The
Corporation evaluates each customer's creditworthiness on a case-by-case basis
prior to approving a commitment or advancing funds under a commitment and
determining the related collateral requirement. Collateral held includes
marketable securities, real estate mortgages or other assets. The majority of
the Corporation's commitments are related to mortgage lending to private banking
clients. Commitments totaled $306.7 million and $248.9 million at December 31,
1999 and 1998, respectively.
Standbys are conditional commitments issued by the Corporation to guarantee
the performance of a customer to a third party. For example, standbys are issued
to satisfy margin requirements incurred by investment banking and broker/dealer
financial institutions for their activities conducted on organized exchanges, or
in other situations standbys guarantee performance under lease and other
agreements by professional business corporations and for other purposes. The
credit risk involved in issuing standbys is essentially the same as that
involved in extending loans. Standbys outstanding at December 31, 1999 and 1998
amounted to $79.8 million and $87.0 million, respectively. Standbys are
generally partially or fully collateralized by cash, marketable equity
securities, marketable debt securities (including corporate and U.S. Treasury
debt securities) and other assets.
- --------------------------------------------------------------------------------
Derivative Financial Instruments
As part of its overall asset and liability management process, the Corporation
utilizes Swaps as hedges. Swaps are used to ameliorate the interest rate
characteristics of nontrading-related balance sheet instruments. The Corporation
enters into Swaps with counterparties as a principal.
The market values of Swaps can vary depending on movements in interest
rates. The measurement of the market risks associated with Swaps is meaningful
only when all related and offsetting transactions are identified. The notional
or contractual amounts of Swaps are indications of the volume of transactions
and do not represent amounts at risk. The amounts at risk upon default are
generally limited to the unrealized market value gains of the Swaps, if any, and
will vary based on changes in interest rates. The risk of default depends on the
creditworthiness of the counterparty. The Corporation evaluates the
creditworthiness of its counterparties as part of its normal credit review
procedures.
At December 31, 1999 and 1998, the Corporation was a counterparty to Swaps
with a total notional principal amount of $1,070.0 million and $560.0 million,
respectively. Outstanding Swaps had a weighted average maturity of approximately
3.3 years at December 31, 1999 and 2.4 years at December 31, 1998.
- --------------------------------------------------------------------------------
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments may be estimated using various
valuation methodologies. Quoted market prices, when available, are used as the
measure of fair value. Where quoted market prices are not available, fair values
may be estimated using primarily discounted cash flow analyses and other
valuation techniques. Assumptions used, principally the timing of future cash
flows and the discount rate significantly affect these derived fair values.
Because assumptions are inherently subjective, the estimated fair values may not
be substantiated by comparison to third party evidence and may not be indicative
of the value that could be realized in a sale or settlement of the financial
instrument.
A discussion of the fair value estimation methodologies used for material
financial instruments follows.
- --------------------------------------------------------------------------------
Securities
The estimated fair value of securities is based upon quoted bid market prices,
where available, or fair value quotes obtained from third party pricing
services. Securities are reported in the Consolidated Statement of Condition at
estimated fair value.
14
<PAGE> 35
- --------------------------------------------------------------------------------
Loans
The estimated fair value of the Corporation's loans (primarily residential real
estate mortgages) was calculated by discounting contractual cash flows adjusted
for current prepayment estimates. The discount rates were based on the interest
rates charged to current customers for comparable loans.
- --------------------------------------------------------------------------------
Long-Term Debt
The estimated fair value of the trust preferred capital securities was obtained
from quotes by third party investment bankers.
The estimated fair value of other long-term debt was calculated using a
discounted cash flow method, where the estimated cash flows considered
contractual principal and interest payments. The discount rate used was the
current rate for borrowings with comparable remaining maturities.
- --------------------------------------------------------------------------------
Interest Rate Swap Agreements
The Corporation is the net fixed rate payor under all of its Swaps and at
December 31, 1999 and 1998 had an accrued net payable of $274,000 and $908,000,
respectively. The estimated fair value of Swaps is obtained from dealer quotes.
These values represent the estimated amount that the Corporation would have to
pay or receive to terminate the Swaps, taking into account current interest
rates and, when appropriate, the current creditworthiness of the counterparties.
- --------------------------------------------------------------------------------
Other Financial Instruments
The Corporation's other financial instruments are generally short-term in nature
and contain negligible credit risk. These instruments consist of cash and due
from banks, short-term investments, accrued interest receivable and accounts
receivable, demand deposit liabilities, time deposit liabilities, short-term
credit facilities and accrued interest payable and accounts payable.
Consequently, carrying amounts of these assets and liabilities approximate their
estimated fair value.
The estimated fair values of the Corporation's significant, long-term
financial instruments are reflected in the following table.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------------------
1999 1998
------------------------------------------ --------------------------------------
PAR VALUE/ UNREALIZED PAR VALUE/ UNREALIZED
NOTIONAL FAIR GAIN NOTIONAL FAIR GAIN
(DOLLARS IN MILLIONS) AMOUNT* VALUE (LOSS) AMOUNT* VALUE (LOSS)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Securities.......................... $ 1,101 $ 1,079 $ (22) $ 1,051 $ 1,058 $ 7
Loans............................... 2,689 2,631 (58) 2,171 2,192 21
Long-term debt...................... 63 59 4 68 70 (2)
Interest rate swap agreements....... 1,070 16 16 560 (18) (18)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Par value is the amortized cost for securities, the carrying amount net of
the allowance for credit losses for loans, the carrying amount for long-term
debt and the notional amount for interest rate swaps.
- --------------------------------------------------------------------------------
17. RENTAL COMMITMENTS ON PREMISES AND EQUIPMENT
Most of the Corporation's operations are conducted from premises that are
leased. The initial lease periods expire between 2000 and 2020. The lease for
the Corporation's headquarters building expires in 2014 and is renewable at the
Corporation's option for two successive terms of ten years each at the then
current market rate.
Rent expense on operating leases for the years 1999, 1998 and 1997 was
$30.0 million, $26.4 million and $30.1 million, respectively. Operating lease
rent expense includes rent escalation adjustments of $6.7 million in 1999, $7.0
million in 1998 and $11.0 million in 1997 for increases in certain operating
expenses of the landlords as defined in the lease agreements.
Minimum rental commitments, including the current level of escalation
costs, on non-cancelable leases as of December 31, 1999 follows.
<TABLE>
<CAPTION>
MINIMUM
(DOLLARS IN THOUSANDS) RENTALS
- ----------------------------------------------------------------------------
<S> <C>
Year ending December 31:
2000 $ 32,651
2001 33,083
2002 32,767
2003 32,044
2004 31,148
Later years 256,237
------------------
Total minimum payments required $ 417,930
==================
</TABLE>
- --------------------------------------------------------------------------------
18. 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
15
<PAGE> 36
future material adverse effect on the Corporation's financial position, results
of operations or cash flows.
- --------------------------------------------------------------------------------
19. PERFORMANCE COMPENSATION
Cash-Based Performance Compensation
The Corporation's cash-based performance compensation award plans provide for
annual cash performance awards to eligible employees. The overall size of the
cash-based performance compensation award is determined by the achievement of
certain corporate financial objectives established by the Board of Directors at
the beginning of each year. Eligible employee awards are determined on an
individual basis based upon an employee's contribution to the overall success of
the Corporation. Total cash-based performance compensation was $54.1 million,
$38.5 million and $31.3 million in 1999, 1998 and 1997, respectively.
- --------------------------------------------------------------------------------
Stock-Based Compensation
Stock-based compensation may be made in the form of Restricted Stock Units
("RSUs") or stock options. The overall size of the stock-based awards are
determined by the achievement of certain corporate financial objectives
established by the Board of Directors at the beginning of each year. Eligible
employee awards are determined on an individual basis based upon an employee's
contribution to the overall success of the Corporation. RSUs accrue dividend
equivalent credits and generally cliff vest (the entire award typically vests at
the end of a five year vesting period) at which time they may be converted into
shares of the Parent's common stock. During 1999, the Corporation granted
125,697 RSUs with a weighted average fair value of $78.26 per unit. During 1998,
94,915 RSUs were granted with a weighted average fair value of $64.64 per unit.
The fair value of a RSU is determined by averaging the high and low prices of a
share of common stock of the Parent on the date of grant. The value of the grant
is recorded as a component of compensation expense ratably over the vesting
period. Total stock-based compensation expense which is included as a component
of performance compensation in the consolidated statement of income was $4.2
million, $2.6 million and $1.1 million in 1999, 1998 and 1997, respectively. At
December 31, 1999, the unamortized cost of RSUs was $12.2 million. Through
December 31, 1999, the Corporation had issued 344,017 RSUs and had 202,820 RSUs
available for future issuance.
The 1995 Stock Option Plan (the "Option Plan") provides for stock option
grants to eligible employees. The Option Plan authorizes the issuance of a
maximum of 3,200,000 options to acquire shares of the Parent's common stock. At
December 31, 1999, the Parent had 501,081 shares of common stock available for
issuance. Under the Option Plan, the Corporation awards either incentive stock
options or non-qualified stock options. The stock options expire ten years from
the date of grant and their exercise price is not less than the fair market
value of a common share on the date of grant. Awards generally vest in four
equal annual installments. Options granted are issued with the exercise price at
least equal to the fair market value of a common share of the Parent.
The following is a summary of stock option transactions which occurred
under the Option Plan for the three-year period ended December 31, 1999.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
UNDER OPTION PRICE PER
OPTION PER SHARE SHARE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31,
1996 1,483,576 $ 20.69 - $27.63 $ 22.93
Granted 576,350 44.69 - 56.63 47.75
Exercised (40,425) 20.69 - 23.63 21.72
Canceled (34,900) 20.69 - 47.88 31.10
------------- -------------------- ------------
Balance, December 31,
1997 1,984,601 20.69 - 56.63 30.02
Granted 385,750 59.13 - 74.88 63.84
Exercised (76,057) 20.69 - 47.88 25.62
Canceled (19,439) 20.69 - 62.63 45.13
------------- -------------------- ------------
Balance, December 31,
1998 2,274,855 20.69 - 74.88 35.78
Granted 455,350 63.63 - 93.72 76.39
Exercised (116,938) 20.69 - 63.63 27.58
Canceled (20,751) 20.69 - 75.75 53.67
------------- -------------------- ------------
Balance, December 31,
1999 2,592,516 $ 20.69 - $93.72 $ 43.13
============= ==================== ============
</TABLE>
Options outstanding at December 31, 1999 are further detailed in the following
table:
<TABLE>
<CAPTION>
REMAINING
SHARES WEIGHTED
UNDER OPTION PRICE AVERAGE
OPTION PER SHARE LIFE
- ------------------------------------------------------------------------------
<S> <C> <C>
1,253,796 $20.69 -- $27.63 5.9 Years
518,317 44.69 -- 59.13 7.2 Years
795,403 62.63 -- 78.28 8.7 Years
25,000 82.25 -- 93.72 9.4 Years
------------
2,592,516
============
</TABLE>
- --------------------------------------------------------------------------------
The number of options exercisable and their weighted average exercise price for
the three-year period ended December 31, 1999 are detailed in the
16
<PAGE> 37
following table:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Options
exercisable 1,046,975 693,020 351,493
================ ============== ===============
Weighted
average
exercise
price of
exercisable
options $ 31.82 $ 26.86 $ 21.63
================ ============== ===============
</TABLE>
The fair value of each option grant is estimated using the Black-Scholes option
pricing model. The weighted average assumptions used for grants made in 1999,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
GRANTS GRANTS GRANTS
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividend yield 1.1% 2.6% 2.7%
Expected volatility 29.4% 24.7% 22.2%
Risk-free interest
rate 4.6% 5.6% 6.4%
Expected option life 5 Years 5 Years 5 Years
</TABLE>
The weighted average fair value of options granted in 1999, 1998 and 1997 was
$23.30 per option, $15.45 per option and $11.25 per option, respectively. If
compensation cost for the Corporation's Option Plan had been recorded based on
the fair value at grant date and recognized over the vesting period of the
award, the impact on the Corporation's net income and earnings per share would
have been as follows:
<TABLE>
<CAPTION>
AS PRO
(DOLLARS IN THOUSANDS) REPORTED FORMA
- ------------------------------------------------------------------------------
<S> <C> <C>
For the year ended
December 31, 1999:
Net income $ 77,569 $ 72,773
Diluted earnings per share $ 3.72 $ 3.49
For the year ended
December 31, 1998:
Net income $ 61,667 $ 58,256
Diluted earnings per share $ 2.96 $ 2.80
For the year ended
December 31, 1997:
Net income $ 51,032 $ 48,327
Diluted earnings per share $ 2.39 $ 2.26
</TABLE>
- -----------------------------------------------------------------------------
EMPLOYEE STOCK PURCHASE PLAN
The Employee Stock Purchase Plan ("ESPP"), which commenced on January 1, 1999,
permits eligible employees to deduct between one and ten percent of their base
pay on an after-tax basis to purchase shares under the ESPP, subject to a limit
of $25,000 in any calendar year. The per-share purchase price is the lower of
85% of the fair market value on the first or the last day of the applicable
offering period. Up to 350,000 shares of common stock have been authorized for
issuance under the ESPP. As of December 31, 1999, 61,802 shares were purchased
by ESPP. The fair value of shares issued to the ESPP exceeded the proceeds
received by the Corporation by $1.0 million. The ESPP is non-compensatory in
nature and accordingly, no charge to earnings was recorded.
- --------------------------------------------------------------------------------
20. RETIREMENT AND OTHER EMPLOYEE BENEFIT PLANS
Deferred Contribution Plan
The Corporation sponsors a 401(k) Plan and ESOP covering all employees who
satisfy the specified service requirement.
On February 1, 1999 the final debt service payment on the ESOP debt was
made (see Note 11 to Notes to the Consolidated Financial Statements) and all
remaining shares were allocated to eligible participants. As of December 31,
1999 the ESOP held a total of 1,517,836 shares of the Parent's common stock.
Dividends on ESOP shares used for debt repayment were $0.3 million, $1.2 million
and $1.1 million in 1999, 1998 and 1997, respectively.
Dividends declared on ESOP shares are recorded as deductions from retained
earnings. The Corporation receives a tax benefit for dividends paid on ESOP
shares. These tax benefits are recorded in the Consolidated Statement of Income
as a reduction of income tax expense. For earnings per share purposes, shares
held by the ESOP are considered to be outstanding.
Employees can participate in the 401(k) plan by making contributions, on a
tax-deferred basis, up to the maximum annual amount allowed by law. The
Corporation matched the employees' contribution at the rate of 60% of the first
5% of each participant's eligible compensation contributed to the 401(k) plan.
The provisions of the 401(k) plan which provide for the company match became
effective as of January 1, 1999. The Corporation's match is made in the form of
the Corporation's common stock. For the year ended December 31, 1999,
approximately 33,260 shares were credited to participant's accounts. The cost of
the employer matching contribution ($2.7 million) was included in Other
Employee Benefits expense based upon the fair value of the Parent's common
stock at December 31, 1999.
17
<PAGE> 38
- --------------------------------------------------------------------------------
PENSION AND OTHER POSTRETIREMENT BENEFITS
The Corporation provides pension and other postretirement benefits to qualifying
employees.
The pension plan is a trusteed, noncontributory, qualified defined benefit
pension plan that provides pension benefits to substantially all employees.
Benefits are based upon years of service, average compensation over the final
years of service and the social security covered compensation. The Corporation's
funding policy is consistent with the funding requirements of Federal laws and
regulations. The pension plan's investment assets are managed by the Trust
Company. The pension plan's investment assets principally are invested in shares
of various domestic and international equity, fixed income and money market
portfolios of the Excelsior Series of mutual funds. The Trust Company is the
investment advisor of the Excelsior funds.
The Corporation uses the projected unit credit cost method to compute the
vested benefit obligation, where the vested benefit obligation is the actuarial
present value of the vested benefits to which the employee is entitled based on
the employee's expected date of separation or retirement.
The Corporation provides certain health care and life insurance benefits
for all employees, certain qualifying retired employees and their dependents.
Postretirement medical and life insurance benefits are accrued during the years
that the employee renders service to reflect the expected cost of providing
health care and life insurance and other benefits to an employee upon
retirement.
The following table summarizes the components of retirement and
postretirement benefit expenses (credits), the funded status of the
Corporation's qualified retirement plan, changes in the benefit obligations
related to these plans and the major assumptions used to determine these
amounts.
18
<PAGE> 39
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------- --------------------------------- ----------------------------------
Pension Health & Pension Health & Pension Health &
Plan Life Total Plan Life Total Plan Life Total
- ------------------------------------------------------------ --------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Components of expense
(credit):
Service cost and
expenses............. $ 9,119 $ 238 $ 9,357 $ 6,617 $ 278 $ 6,895 $ 5,402 $ 309 $ 5,711
Interest cost.......... 14,601 1,394 15,995 14,077 1,779 15,856 12,458 2,182 14,640
Amortization of prior
service cost......... 87 (391) (304) 177 (391) (214) 177 (391) (214)
Actual return on plan
assets............... (84,668) -- (84,668) (46,341) -- (46,341) (45,135) -- (45,135)
Other net amortizations
and deferrals(1)..... 58,987 34 59,021 30,541 (6,759) 23,782 24,455 285 24,740
Special termination
benefits charge...... 193 -- 193 -- -- -- -- -- --
---------- ---------- --------- ---------- ----------- ---------- ----------- ----------- ---------
Net expense
(credit) (2) ...... $ (1,681) $ 1,275 $ (406) $ 5,071 $ (5,093) $ (22) $ (2,643) $ 2,385 $ (258)
========== ========== ========= ========== =========== ========== =========== =========== =========
Change in plan assets:
Fair value of plan assets
at beginning of year... $291,128 $ -- $ 253,442 -- $ 216,070 --
Actual return on plan
assets............... 84,668 -- 46,341 -- 45,135 --
Employer
contribution......... -- 1,630 -- 1,666 -- 1,688
Benefits and expenses
paid................. (9,008) (1,630) (8,655) (1,666) (7,763) (1,688)
---------- ---------- --------- ----------- ----------- -----------
Fair value of plan assets
at end of year...... $366,788 $ -- $ 291,128 $ -- $ 253,442 $ --
---------- ---------- --------- ----------- ----------- -----------
Change in benefit
obligation:
Benefit obligation at
beginning of year.... 220,715 20,821 192,352 31,940 170,045 26,660
Service cost........... 8,919 238 6,417 278 5,402 309
Interest cost.......... 14,601 1,394 14,077 1,779 12,458 2,182
Actuarial (gain)/
loss(1).............. (34,850) (1,822) 16,327 (11,510) 10,071 4,477
Benefits paid.......... (8,717) (1,630) (8,458) (1,666) (7,763) (1,688)
Amendments............. (474) -- -- -- 2,139 --
Special termination
benefits charge...... 193 -- -- -- -- --
---------- ---------- ---------- ----------- ----------- -----------
Benefit obligation at
end of year.......... $200,387 $ 19,001 $220,715 $ 20,821 $ 192,352 $ 31,940
---------- ---------- ---------- ----------- ----------- -----------
Prepaid/(accrued) cost:
Excess of plan assets
over benefit
obligation........... 166,401 (19,001) 70,413 (20,821) 61,090 (31,940)
Unrecognized cumulative
net (gains) losses... (136,391) (1,261) (40,246) 595 (23,630) 5,346
Unrecognized prior
service cost......... 978 (1,582) 1,539 (1,973) 1,716 (2,364)
Unrecognized net
liability (asset) at
date of initial
application.......... (4,797) -- (7,196) -- (9,595) --
---------- ---------- --------- ----------- ----------- ----------
Prepaid (accrued)
cost................. $ 26,191 $(21,844) $ 24,510 $ (22,199) $ 29,581 $ (28,958)
========== ========== ========= =========== =========== ==========
Discount rate............ 8.00% 8.00% 6.75% 6.75% 7.00% 7.00%
Rate of increase
in salary (3) 6.00% 6.00% 6.00% 6.00% 4.50% 4.50%
Health care cost
trend rate............. N/A 8.50% N/A 9.00% N/A 11.30%
Expected rate of return
on plan assets......... 9.00% N/A 9.00% N/A 9.00% N/A
</TABLE>
- --------------------------------------------------------------------------------
(1) Pension plan expense in 1998 includes a charge of $7.3 million arising from
the actuarial recalculation of certain benefit obligations. Health & Life
other net amortization and deferrals for the year ended December 31, 1998
includes a $7.3 million gain reflecting an actuarial gain arising from a
change in actuarial assumptions with regard to future retiree medical
claims.
(2) The pension expense (credit) and postretirement benefit expense are
determined using the assumptions as of the beginning of the year. The
benefit obligations and the funded status are determined using the
assumptions as of the end of the year.
(3) The rate of increase in compensation is based on an age-related table with
assumed rates of increase in compensation ranging from 9.0% to 3.5%. The
amount shown is the average assumed rate of increase for the given plan
year.
19
<PAGE> 40
The assumed rate of future increases in per capita cost of health care benefits
(the health care cost trend rate) is 8.5% in 1999, decreasing gradually to 5.5%
in the year 2005. A one percentage point change in the assumed health care cost
trend rates would have the following effects:
<TABLE>
<CAPTION>
1% 1%
(DOLLARS IN THOUSANDS) INCREASE DECREASE
- ----------------------------------------------------------------------------
<S> <C> <C>
1999:
Effect on total of service and
interest cost components $ 17 $ (16)
Effect on postretirement benefit
obligation $ 208 $ (217)
1998:
Effect on total of service and
interest cost components $ 26 $ (26)
Effect on postretirement benefit
obligation $ 317 $ (333)
1997:
Effect on total of service and
interest cost components $ 80 $ (80)
Effect on postretirement benefit
obligation $ 950 $ (998)
</TABLE>
In addition to the pension plan, the Corporation also maintains an unfunded,
non-trusteed, non-contributory, non-qualified retirement plan ("BEP") for
participants whose retirement benefits under the qualified plan exceed Federal
tax law limits. As of January 1, 1997, the Corporation amended this
non-qualified plan to change the Plan from a "defined benefit" to a "defined
contribution" type of plan. The Corporation's accrued liability for the BEP was
$13.8 million, $11.5 million and $9.3 at December 31, 1999, December 31, 1998
and December 31, 1997, respectively.
- --------------------------------------------------------------------------------
21. PARENT COMPANY ONLY AND REGULATORY MATTERS
Condensed statements of income, condition and cash flows for the Parent follow:
U. S. TRUST CORPORATION (PARENT COMPANY ONLY)
STATEMENT OF INCOME
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Equity in Net Income of Subsidiaries:
Banks.................................... $ 85,508 $ 71,525 $ 56,254
Non-Banks................................ (1,758) (206) (212)
Interest Revenue............................ 442 1,066 1,433
Other Income................................ 142 138 130
----------------- ------------------- ------------------
Total Income.................................. 84,334 72,523 57,605
----------------- ------------------- ------------------
Expenses:
Interest Expense............................ 5,117 4,983 4,705
Professional Fees........................... 996 7,450 367
Other Operating Expense..................... 5,534 6,753 4,832
----------------- ------------------- ------------------
Total Expenses................................ 11,647 19,186 9,904
----------------- ------------------- ------------------
Income Before Income Taxes.................... 72,687 53,337 47,701
Income Taxes (Benefits)....................... (4,882) (8,330) (3,331)
----------------- ------------------- ------------------
Net Income.................................... $ 77,569 $ 61,667 $ 51,032
================= =================== ==================
</TABLE>
20
<PAGE> 41
- --------------------------------------------------------------------------------
U. S. TRUST CORPORATION (PARENT COMPANY ONLY)
STATEMENT OF CONDITION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Equity Investments in Subsidiaries:
Banks........................................................ $ 337,217 $ 306,079
Non-Banks.................................................... 39,666 734
------------------ ----------------
Total Equity Investments in Subsidiaries....................... 376,883 306,813
Short-Term Investments......................................... 21,142 25,503
Securities..................................................... 578 1,042
Other Assets................................................... 115,455 100,335
------------------ ----------------
Total Assets................................................... $ 514,058 $ 433,693
================== ================
LIABILITIES
Short-Term Credit Facilities................................... $ 35,000 $ 20,000
Other Liabilities.............................................. 125,670 113,738
Long-Term Debt(1).............................................. 51,547 55,320
------------------ ----------------
Total Liabilities.............................................. 212,217 189,058
------------------ ----------------
TOTAL STOCKHOLDERS' EQUITY..................................... 301,841 244,635
------------------ ----------------
Total Liabilities and Stockholders' Equity..................... $ 514,058 $ 433,693
================== ================
</TABLE>
- --------------------------------------------------------------------------------
(1) Includes the 8.414% Trust Preferred Capital Securities. Refer to Notes to
the Consolidated Financial Statements No. 11.
21
<PAGE> 42
U. S. TRUST CORPORATION (PARENT COMPANY ONLY)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.............................................. $ 77,569 $ 61,667 $ 51,032
Adjustments to Reconcile Net Income to Net Cash
Provided By Operating Activities:
Equity in Net (Income) of Subsidiaries................ (83,750) (71,319) (56,042)
Dividends Received from Subsidiaries.................. 41,000 51,000 53,000
Deferred Income Taxes................................. 1,834 (739) (849)
Net Change in Other Assets............................ (12,486) (14,571) (20,025)
Net Change in Other Liabilities....................... 13,283 20,661 12,240
Other, Net............................................ 4,741 1,735 1,345
------------------ ------------------- -------------------
Net Cash Provided by Operating Activities............... 42,191 48,434 40,701
------------------ ------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Subsidiaries............................. 576 (240) (8,000)
Net Change in Short-Term Investments.................... 4,361 (17,502) 2,729
Securities:
Proceeds from Sales................................... 464 18,157 --
Purchases............................................. -- -- (17,539)
Principal Payment from ESOP............................. 3,773 3,481 3,214
Other, Net.............................................. -- 525 (1,547)
------------------ ------------------- -------------------
Net Cash Provided by (Used in) Investing Activities..... 9,174 4,421 (21,143)
------------------ ------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Change in Short-Term Credit Facilities.............. 15,000 20,000 (17,000)
Issuance of Long-Term Debt.............................. -- -- 51,547
Repayment of Long-Term Debt............................. (3,773) (3,481) (3,214)
Issuance of Common Stock................................ 6,937 1,767 755
Purchases of Treasury Stock............................. (53,924) (58,173) (40,492)
Dividends Paid.......................................... (15,605) (12,973) (11,149)
------------------ ------------------- -------------------
Net Cash (Used in) Financing Activities................. (51,365) (52,860) (19,553)
------------------ ------------------- -------------------
Net Change in Cash and Cash Equivalents................. -- (5) 5
Cash and Cash Equivalents at Beginning of Year.......... -- 5 --
------------------ ------------------- -------------------
Cash and Cash Equivalents at End of Year................ $ -- $ -- $ 5
================== =================== ===================
Income Taxes Paid....................................... $ 41,100 $ 39,818 $ 30,289
Interest Expense Paid................................... 5,529 5,157 3,173
</TABLE>
22
<PAGE> 43
The Parent's banking subsidiaries are subject to limitations on the amount of
dividends they can pay to the Parent without prior approval of the bank
regulatory authorities. As of January 1, 2000, the Parent's banking subsidiaries
can declare, in aggregate, dividends of approximately $77.1 million without
prior regulatory approval.
There are various statutory and regulatory limitations on the extent to
which banking subsidiaries of the Parent can finance or otherwise transfer funds
to the Parent or its nonbanking subsidiaries. These "covered transactions" are
limited to 20% of all bank subsidiary's regulatory capital and surplus and
covered transactions with any one such affiliate are limited to 10% of a bank
subsidiary's regulatory capital and surplus. Covered transactions include, among
other things, loans and extensions of credit to, purchases of assets from, and
guarantees, acceptances, and letters of credit issued on behalf of, an
affiliate. Such covered transactions must be collateralized by qualifying
collateral as defined by applicable law.
The Federal Reserve Board, the Corporation's primary federal regulator,
establishes regulatory capital requirements. Failure to meet minimum capital
requirements can initiate certain mandatory and discretionary actions by the
Federal Reserve Board that, if undertaken, could have a direct material effect
on the Corporation's financial statements. Under capital adequacy guidelines set
by the Federal Reserve Board, banks and bank holding companies must meet
specific capital guidelines that involve quantitative measures of assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. Capital requirements and classifications are also subject
to qualitative judgments by the Federal Reserve Board about components, risk
weightings and other factors. The capital of the Corporation and its
subsidiaries exceeded minimum requirements at December 31, 1999.
The following table sets forth the Corporation's and Trust Company's
regulatory capital and ratios as of December 31, 1999 and 1998.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF DECEMBER 31,
1999 1998
------------------------------------- -----------------------------------
(DOLLARS IN THOUSANDS) AMOUNT RATE(a) AMOUNT RATE(a)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 capital:
Corporation................. $ 272,044 11.8% $ 235,835 12.0%
Trust Company............... 186,360 9.7% 158,806 9.7%
Total capital:
Corporation................. 292,213 12.7% 255,249 13.0%
Trust Company............... 204,153 10.7% 176,005 10.7%
Leverage:
Corporation................. 272,044 6.2% 235,835 6.2%
Trust Company............... 186,360 5.4% 158,806 5.1%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Minimum tier 1 capital, total capital and tier 1 leverage ratios are 4%, 8%
and 3%-5%, respectively, for bank holding companies and banks.
Under the prompt corrective action provisions of the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), five capital categories were
established for banks. Pursuant to that statute, the federal bank regulatory
agencies have specifically defined these categories by determining that a bank
is well capitalized if it maintains a tier 1 capital ratio of at least 6%, a
total capital ratio of at least 10% and a leverage ratio of at least 5%.
The Federal Reserve Board has also adopted these same thresholds for the
tier 1 capital ratio and total capital ratio in defining a well capitalized bank
holding company. The well capitalized threshold for the leverage ratio may be
set at 3% to 5%, depending on other regulatory criteria.
Based on their respective regulatory capital ratios at December 31, 1999
and December 31, 1998, the Corporation and its subsidiaries are well
capitalized. There are no conditions or events that management believes have
changed the Corporation's and subsidiaries well-capitalized status.
23
<PAGE> 44
22. QUARTERLY CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
1999 1998
----------------------------------------------- -------------------------------------------
(DOLLARS IN THOUSANDS, FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
EXCEPT PER SHARE AMOUNTS) QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fee revenue................. $115,924 $103,478 $105,095 $99,970 $88,814 $88,892 $83,293 $78,620
Net interest revenue........ 30,644 28,557 29,008 28,921 27,282 24,690 24,704 25,354
---------- ---------- ---------- ----------- ---------- ---------- ---------- ---------
Total revenue............... 146,568 132,035 134,103 128,891 116,096 113,582 107,997 103,974
Operating expense........... 113,530 100,021 101,803 98,567 90,199 87,545 82,927 79,884
---------- ---------- ---------- ----------- ---------- ---------- ---------- ---------
Income before income taxes.. 33,038 32,014 32,300 30,324 25,897 26,037 25,070 24,090
Income taxes................ 12,885 12,485 12,759 11,978 10,100 10,155 9,777 9,395
---------- ---------- ---------- ----------- ---------- ---------- ---------- ---------
Net income.................. $20,153 $19,529 $19,541 $18,346 $15,797 $15,882 $15,293 $14,695
========== ========== ========== =========== ========== ========== ========== =========
Earnings per share:
Basic earnings per share.. $1.08 $1.05 $1.05 $0.99 $0.85 $0.85 $0.81 $0.78
---------- ---------- ---------- ----------- ---------- ---------- ---------- ---------
Diluted earnings per share $0.96 $0.93 $0.93 $0.88 $0.76 $0.76 $0.73 $0.70
---------- ---------- ---------- ----------- ---------- ---------- ---------- ---------
Stock price high............ $85.13 $94.88 $95.50 $84.00 $76.75 $84.13 $77.50 $66.50
Stock price low............. 72.50 76.75 71.59 70.75 46.75 58.88 64.00 56.63
Cash dividends declared..... 0.22 0.22 0.22 0.22 0.18 0.18 0.18 0.18
</TABLE>
Since April 23, 1999, the common shares of the Parent have been listed on the
New York Stock Exchange. Prior to this the common shares of the Parent were
traded on the Nasdaq national market. As of January 1, 2000, there were 1,890
record holders of the Parent's common shares.
23. OPERATING SEGMENTS
As of December 31, 1998, U.S. Trust adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information." U.S. Trust has two lines of business as defined by the Statement,
which are Personal Wealth Management and Institutional. Personal is further
subdivided into New York and National Wealth Management.
Further financial information by segment is contained within the "Businesses
of U.S. Trust " section of Management's Discussion and Analysis.
The following is a summary of the lines of business operating results for the
year ended December 31,
<TABLE>
<CAPTION>
NEW YORK NATIONAL INSTITUTIONAL TOTAL
-------------------------- ------------------------ ---------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN
MILLIONS) (1) 1999 1998 1997 1999 1998 1997 1999 1998 1997 1999 1998 1997
- ---------------------------------------------- ------------------------ ---------------------- ----------------------------
Total Revenue...... $309 $255 $221 $132 $92 $70 $100 $95 $82 $542 $442 $373
------ ------ ------ ------ ---- ---- ---- ---- ---- ------ ------ ------
Income Before
Income Tax......... $90 $69 $57 $10 $9 $8 $27 $24 $19 $128 $101 $84
------ ------ ------ ------ ---- ---- ---- ---- ---- ------ ------ ------
Total Assets....... $3,710 $3,069 $2,936 $1,182 $973 $767 $131 $101 $112 $5,023 $4,143 $3,815
------ ------ ------ ------ ---- ---- ---- ---- ---- ------ ------ ------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Columns may not tally due to rounding.
24
<PAGE> 45
REPORT OF INDEPENDENT ACCOUNTANTS
January 31, 2000
To the Board of Directors and Stockholders of U.S. Trust Corporation:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income and changes in stockholders' equity
and of cash flows present fairly, in all material respects, the financial
position of U.S. Trust Corporation and its subsidiaries at December 31, 1999
and 1998, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
LOGO
PricewaterhouseCoopers LLP
25
<PAGE> 46
EXHIBIT NO. 99.6
FINANCIAL AND OTHER DATA SUPPLEMENT
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS, YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
EXCEPT PER SHARE AMOUNTS) (1)(2)(3) 1999 1998 1997 1996 1995(4)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fee revenue................................. $ 424.5 $ 339.6 $ 281.7 $ 244.2 $ 215.3
Fee revenue - processing
business(4)............................... -- -- -- -- 66.1
Net interest revenue and other
income.................................... 117.1 102.0 91.1 78.5 103.4
--------- -------- ----------- ----------- -----------
Total revenue............................... 541.6 441.6 372.8 322.7 384.8
Operating expenses.......................... 413.9 340.6 289.2 253.5 322.6
Restructuring costs(4)...................... -- -- -- -- 155.6
--------- -------- ----------- ----------- -----------
Income (loss)
before income taxes....................... 127.7 101.1 83.7 69.3 (93.4)
Income taxes................................ 50.1 39.4 32.6 28.4 (42.9)
--------- -------- ----------- ----------- -----------
Net income (loss)........................... $ 77.6 $ 61.7 $ 51.0 $ 40.9 $ (50.5)
========= ======== =========== =========== ===========
Basic earnings (loss) per share............. $ 4.18 $ 3.29 $ 2.64 $ 2.09 $ (2.62)
Diluted earnings (loss) per
share..................................... 3.72 2.96 2.39 1.95 (2.62)
Cash dividends declared
per share................................. 0.88 0.72 0.60 0.50 0.63
Dividend pay-out ratio...................... 23.66% 24.32% 25.10% 25.64% N/M
- ------------------------------------------------------------------------------------------------------------------------
At December 31:
Assets under management(3)
Investment management..................... $ 73.8 $ 61.3 $ 47.3 $ 38.0 $ 33.5
Special fiduciary......................... 12.3 13.7 13.9 15.3 13.9
Assets under administration(3).............. 362.6 326.5 268.7 232.3 203.8
Total assets................................ 5,023 4,143 3,815 3,477 2,573
Trust preferred capital securities
and long-term debt........................ 63.0 67.8 72.3 26.5 29.4
Return on average stockholders'
equity................................. 29.22% 26.20% 22.75% 20.99% (23.10)%
Return on average total assets.............. 1.85% 1.68% 1.49% 1.42% (1.52)%
Average stockholders' equity as a
percentage of average total
assets.................................... 6.35% 6.42% 6.54% 6.76% 6.60 %
</TABLE>
- --------------------------------------------------------------------------------
(1)Columns may not tally due to rounding.
(2)All earnings per share and common stock disclosures in this report have been
adjusted for a two-for-one stock split effected in the form of a stock
dividend distributed on February 21, 1997.
(3)Assets under Management and Assets under Administration are expressed in
billions.
(4)The year ended December 31, 1995 includes revenues generated by the
processing businesses sold on September 1, 1995, to The Chase Manhattan
Corporation. This period also includes $86.9 million (after-taxes) of
restructuring charges.
1
<PAGE> 47
ANALYSIS OF CHANGE IN NET INTEREST REVENUE
The following table, on a taxable equivalent basis, is an analysis of the
year-to-year changes in the categories of interest revenue and interest expense
resulting from changes in volume and rate.
<TABLE>
<CAPTION>
1999 COMPARED TO 1998 1998 COMPARED TO 1997
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
CHANGE IN: CHANGE IN:
------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
(DOLLARS IN THOUSANDS) BALANCE RATE TOTAL BALANCE RATE TOTAL
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Short-term investments.................... $ 274 $ (755) $ (481) $ 6,023 $ (415) $ 5,608
Loans(1)(2)............................... 32,659 (7,638) 25,021 18,074 (2,014) 16,060
Securities(3):
U.S. government obligations............. (9,329) (342) (9,671) (7,285) 615 (6,670)
Federal agency obligations.............. 8,160 (1,390) 6,770 (1,703) (1,702) (3,405)
State and municipal obligations......... 1,805 (535) 1,270 765 (1,040) (275)
Collateralized mortgage obligations..... (277) (62) (339) (431) 18 (413)
Other securities........................ 516 (130) 386 404 382 786
----------- ------------ ---------- ----------- ------------ -----------
Total securities.......................... 875 (2,459) (1,584) (8,250) (1,727) (9,977)
----------- ------------ ---------- ----------- ------------ -----------
Total interest earning assets............. 33,808 (10,852) 22,956 15,847 (4,156) 11,691
----------- ------------ ---------- ----------- ------------ -----------
Interest bearing sources of funds:
Interest bearing deposits................. 19,643 (10,000) 9,643 13,371 (5,148) 8,223
Short-term credit facilities.............. (1,083) (474) (1,557) (6,195) (764) (6,959)
Trust preferred capital securities........ -- -- -- 312 65 377
Long-term debt............................ (332) (55) (387) (353) (33) (386)
----------- ------------ ---------- ----------- ------------ -----------
Total sources on which interest is paid... 18,228 (10,529) 7,699 7,135 (5,880) 1,255
----------- ------------ ---------- ----------- ------------ -----------
Change in net interest income- taxable
equivalent basis........................ $ 15,580 $ (323) $ 15,257 $ 8,712 $ 1,724 $ 10,436
=========== ------------ =========== ------------
Tax equivalent adjustment................. (770) 531
---------- -----------
Change in net interest income............. $ 14,487 $ 10,967
========== ===========
</TABLE>
- --------------------------------------------------------------------------------
Changes that are not due solely to volume or rate have been allocated ratably
to their respective categories.
(1) The average principal balances of non-accrual and reduced rate loans are
included in the above figures.
(2) Loans include the Loan to ESOP, which had an average balance of $4.0
million in 1998, $7.5 million in 1997 and was paid off in the first
quarter of 1999.
(3) The average balance and average rate for securities available for sale has
been calculated using their amortized cost.
2
<PAGE> 48
THREE-YEAR NET INTEREST REVENUE (TAX EQUIVALENT BASIS) AND AVERAGE BALANCES FOR
THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
1999
------------------------------------------------
AVERAGE AVERAGE
(DOLLARS IN THOUSANDS) BALANCE INTEREST RATE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Short-term investments and deposits with banks....................... $ 245,570 $ 12,269 5.00%
Securities(1)(2)..................................................... 1,049,060 63,817 6.08
Loans(3)(4).......................................................... 2,404,082 174,514 7.26
------------ --------
Total interest earning assets........................................ 3,698,712 250,600 6.77
------------ --------
Allowance for credit losses.......................................... (19,721)
Cash and due from banks.............................................. 74,500
Other assets......................................................... 429,461
------------
Total Assets......................................................... 4,182,952
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing deposits............................................ 2,779,141 117,489 4.23
Short-term credit facilities......................................... 146,523 7,198 4.91
Long-term credit facilities.......................................... 63,430 5,129 8.09
------------ --------
Total sources on which interest is paid.............................. 2,989,094 129,816 4.34
------------ --------
Non-interest bearing deposits........................................ 641,437
Other liabilities.................................................... 286,973
Stockholders' equity................................................. 265,448
------------
Total Liabilities and Stockholders' equity........................... 4,182,952
============
Net interest revenue-taxable equivalent basis........................ 120,784
Net free funds(4).................................................... $ 709,618
============
Provision for credit losses.......................................... --
Tax equivalent adjustment(2)......................................... (3,671)
Securities gain, net................................................. 17
--------
Net interest revenue................................................. $117,130
========
Net yield on interest earning assets................................. 3.26
</TABLE>
- --------------------------------------------------------------------------------
(1) The average balance and average rate for securities available for sale has
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 approximately 47% for 1999, 1998 and 1997.
(3) The average principal balances of non-accrual and reduced rate loans are
included in the above figures.
(4) Loans and Stockholders' Equity include the Loan to ESOP, which had an
average balance of $4.0 million in 1998 and $7.5 million in 1997 was paid
off in the first quarter of 1999.
3
<PAGE> 49
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 240,402 $ 12,750 5.30% $ 130,418 $ 7,142 5.48%
1,043,323 65,401 6.27 1,178,346 75,378 6.40
1,973,027 149,493 7.58 1,737,652 133,433 7.68
- -------------- ----------- -------------- -----------
3,256,752 227,644 6.99 3,046,416 215,953 7.09
- -------------- ----------- -------------- -----------
(18,960) (17,608)
62,047 68,795
371,429 339,491
- -------------- --------------
3,671,268 3,437,094
============== ==============
2,350,945 107,846 4.59 2,072,750 99,623 4.81
168,156 8,755 5.21 286,451 15,714 5.49
68,396 5,516 8.06 69,754 5,525 7.92
- -------------- ----------- -------------- -----------
2,587,497 122,117 4.72 2,428,955 120,862 4.98
- -------------- ----------- -------------- -----------
571,928 527,206
272,427 249,128
239,416 231,805
- -------------- --------------
3,671,268 3,437,094
============== ==============
105,527 95,091
$ 669,255 $ 617,461
============== ==============
(600) (750)
(2,901) (3,432)
4 216
----------- -----------
$ 102,030 $ 91,125
=========== ===========
3.24 3.12
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 50
LOANS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
1-5
(DOLLARS IN THOUSANDS) WITHIN 1 YEAR YEARS OVER 5 YEARS TOTAL
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maturity schedule of loans at December 31, 1999:
Private banking:
Residential real estate mortgages(1)....................... $ 89,892 $ 161,262 $ 1,733,578 $ 1,984,732
Other...................................................... 607,678 32,801 23,498 663,977
------------- ----------- ---------------- --------------
Total private banking loans.................................. 697,570 194,063 1,757,076 2,648,709
------------- ----------- ---------------- --------------
Loans to financial institutions for purchasing and carrying
securities................................................... 57,686 -- -- 57,686
All other.................................................... 159 525 2,296 2,980
------------- ------------ ---------------- --------------
Total...................................................... $ 755,415 $ 194,588 $ 1,759,372 $ 2,709,375
============= ============ ================= ==============
Interest sensitivity of loans at December 31, 1999:
Loans with predetermined interest rates...................... $ 158,489 $ 1,095,097 $ 1,253,586
Loans with floating or adjustable interest rates............. 36,099 664,275 700,374
----------- ---------------- --------------
Total...................................................... $ 194,588 $ 1,759,372 $ 1,953,960
=========== ================ ==============
</TABLE>
- --------------------------------------------------------------------------------
(1)Maturities are based upon the contractual terms of the loans.
- --------------------------------------------------------------------------------
SUMMARY OF CREDIT LOSS EXPERIENCE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average loans..................................... $ 2,404,082 $ 1,968,978 $ 1,730,134 $ 1,511,527 $ 1,354,975
Allowance to period end loans..................... 0.74% 0.89% 0.94% 0.99% 1.10%
Allowance to nonperforming loans.................. N/M 312.98% 189.26% 187.94% 121.08%
Net (charge-offs) recoveries to average loans..... 0.02% 0.03% 0.05% (0.03)% (0.02)%
Nonperforming assets to average
loans and real estate owned...................... 0.07% 0.34% 0.56% 0.64% 1.68%
</TABLE>
- --------------------------------------------------------------------------------
N/M - Not meaningful, greater than one thousand percent
- --------------------------------------------------------------------------------
At December 31, 1999, the loan portfolio included loans to individuals involved
in the financial services industry of approximately $733 million. Recoveries
exceeded charge-offs from loans to individuals involved in the financial
services industry in 1997 through 1999. Net charge-offs from loans to
individuals involved in the financial services industry amounted to $471,000 in
1996 and $353,000 in 1995. Such net charge-offs as a percentage of average
total loans amounted to three basis points in 1996 and 1995.
5
<PAGE> 51
DEPOSITS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
(DOLLARS IN MILLIONS) AMOUNT RATE AMOUNT RATE AMOUNT RATE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Analysis of average daily deposits:
Non-interest bearing deposits..................... $ 642 -- $ 572 -- $ 527 --
Certificates of deposits of $100,000 or more...... 69 4.62% 56 5.00% 66 5.08%
Money Market and other savings deposits........... 2,710 4.22% 2,295 4.58% 2,007 4.80%
---------- ---------- ---------
Total deposits............................... $ 3,421 $ 2,923 $ 2,600
---------- ---------- ---------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
CERTIFICATES OTHER
(DOLLARS IN MILLIONS) OF DEPOSIT DEPOSITS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maturity distribution of interest bearing deposits in
amounts of $100,000 or more at December 31, 1999:
Three months or less..................................................... $ 45 $ 2,258
Three through six months................................................. 9 --
Six through twelve months................................................ 7 --
Over twelve months....................................................... 1 --
--------- ------------
Total................................................................. $ 62 $ 2,258
--------- ------------
</TABLE>
6
