-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, NkQRqjRQx/dppYkUiUc8fXdpoWr91ImipmImkRwZzvpokdeOZoNUIcnk82qi8s7d hEKg7YmAFA92PV4Fi2RSZQ== 0000950135-94-000525.txt : 19940822 0000950135-94-000525.hdr.sgml : 19940822 ACCESSION NUMBER: 0000950135-94-000525 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UST CORP CENTRAL INDEX KEY: 0000316901 STANDARD INDUSTRIAL CLASSIFICATION: 6021 IRS NUMBER: 042436093 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-09623 FILM NUMBER: 94544374 BUSINESS ADDRESS: STREET 1: 40 COURT ST CITY: BOSTON STATE: MA ZIP: 02108 BUSINESS PHONE: 6177267000 10-Q 1 UST CORP FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED JUNE 30, 1994 COMMISSION FILE #0-9623 ------------------------ UST CORP. (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-2436093 (State or other jurisdiction of incorporation (I.R.S. Employer Identification No.) or organization)
40 COURT STREET, BOSTON, MASSACHUSETTS 02108 (Address of principal executive offices) (617) 726-7000 (Registrant's telephone number, including area code) NO CHANGE (Former name, former address and former fiscal year, if changed since last year) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. At July 31, 1994, there were issued and outstanding 17,381,904 shares of common stock, par value $0.625 per share. 2 UST CORP. TABLE OF CONTENTS
PAGE ----- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets -- June 30, 1994 and December 31, 1993............. 3 Consolidated Statements of Income -- Three and Six Months Ended June 30, 1994 and 1993..................................................................... 4 Consolidated Statements of Changes in Stockholders' Investment -- Six Months Ended June 30, 1994 and 1993....................................................... 5 Consolidated Statements of Cash Flows -- Six Months Ended June 30, 1994 and 1993.......................................................................... 6 Notes to Consolidated Financial Statements..................................... 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8 PART II. OTHER INFORMATION Item 1. Legal Proceedings........................................................ 18 Item 4. Submission of Matters to a Vote of Security Holders...................... 18 Item 5. Other Information........................................................ 19 Item 6. Exhibits and Reports on Form 8-K......................................... 19 SIGNATURES.......................................................................... 19
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS UST CORP. CONSOLIDATED BALANCE SHEETS
DECEMBER JUNE 30, 31, 1994 1993 ----------- ----------- (DOLLARS IN THOUSANDS) (UNAUDITED) ASSETS Cash, due from banks and interest-bearing deposits.............. $ 74,173 $ 90,198 Excess funds sold to banks and other short-term investments..... 50,162 96,647 Securities available-for-sale: Mortgage-backed securities................................. 213,822 263,435 U.S. Treasury, corporate notes, and other.................. 206,416 210,474 ----------- ----------- Total securities available-for-sale................... 420,238 473,909 Loans: Loans-net of unearned discount of $7,438,000 in 1994 and $7,026,000 in 1993....................................... 1,287,676 1,338,807 Reserve for possible loan losses (Note 2).................. (61,041) (62,547) ----------- ----------- 1,226,635 1,276,260 Premises, furniture and equipment, net.......................... 31,800 32,661 Goodwill........................................................ 2,132 2,192 Other real estate owned......................................... 10,138 19,468 Other assets.................................................... 46,162 52,931 ----------- ----------- Total Assets.......................................... $1,861,440 $2,044,266 =========== ============ LIABILITIES AND STOCKHOLDERS' INVESTMENT Deposits: Demand: Noninterest bearing........................................ $ 342,616 $ 373,793 Interest bearing........................................... 162,295 170,642 Savings: Money market............................................... 277,514 323,979 Other...................................................... 319,626 320,924 Time: Certificates of deposit over $100,000...................... 69,343 72,911 Other...................................................... 344,702 378,549 ----------- ----------- Total deposits............................................. 1,516,096 1,640,798 Short-term borrowings........................................... 181,434 226,268 Other borrowings................................................ 14,286 14,286 Other liabilities............................................... 11,675 10,095 ----------- ----------- Total liabilities..................................... 1,723,491 1,891,447 Commitments and contingencies (Note 3) Stockholders' investment: Preferred stock $1 par value; Authorized -- 4,000,000 shares; Outstanding--None Common stock $0.625 par value; Authorized--30,000,000 shares; Outstanding--17,378,704 and 17,304,795 shares in 1994 and 1993, respectively.............................. 10,862 10,815 Additional paid-in capital................................. 70,116 69,694 Retained earnings.......................................... 70,763 68,437 Unrealized gain (loss) on securities available-for-sale, net of tax............................................... (14,372) 3,335 Deferred compensation, net................................. 580 538 ----------- ----------- Total stockholders' investment........................ 137,949 152,819 ----------- ----------- Total Liabilities and Stockholders' Investment........ $1,861,440 $2,044,266 =========== ============
The accompanying notes are an integral part of these consolidated financial statements. 3 4 UST CORP. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------- --------------------- 1994 1993 1994 1993 ------- -------- ------- -------- (DOLLARS IN THOUSANDS) Interest income: Interest and fees on loans............... $25,212 $ 28,154 $49,730 $ 56,192 Interest and dividends on securities: Taxable............................. 6,903 7,003 13,624 14,823 Nontaxable.......................... 53 66 105 138 Dividends........................... 42 107 78 148 Interest on overnight funds and deposits............................... 505 80 1,066 102 ------- -------- ------- -------- Total interest income.......... 32,715 35,410 64,603 71,403 ------- -------- ------- -------- Interest expense: Interest on deposits..................... 8,203 10,193 16,656 21,122 Interest on short-term borrowings........ 1,511 1,649 2,819 3,461 Interest on other borrowings............. 322 387 644 774 ------- -------- ------- -------- Total interest expense......... 10,036 12,229 20,119 25,357 ------- -------- ------- -------- Net interest income...................... 22,679 23,181 44,484 46,046 Provision for possible loan losses............ 6,575 42,650 12,025 53,033 ------- -------- ------- -------- 16,104 (19,469) 32,459 (6,987) ------- -------- ------- -------- Noninterest income: Asset management fees.................... 3,383 4,220 7,696 8,878 Service charges on deposit accounts...... 1,232 1,362 2,466 2,743 Gain on sale of securities, net.......... 496 102 518 3,646 Corporate services income................ 1,901 2,172 3,921 4,150 Other.................................... 604 1,001 916 1,982 ------- -------- ------- -------- Total noninterest income....... 7,616 8,857 15,517 21,399 ------- -------- ------- -------- Noninterest expense: Salary and employee benefits............. 10,289 9,237 20,429 18,489 Net occupancy expense.................... 1,914 1,947 4,290 3,982 Credit card processing expense........... 904 948 1,834 1,841 Deposit insurance assessment............. 1,174 1,268 2,348 2,587 Foreclosed asset and workout expense..... 1,552 9,685 4,145 15,444 Other.................................... 6,188 4,802 11,575 9,362 ------- -------- ------- -------- Total noninterest expense...... 22,021 27,887 44,621 51,705 ------- -------- ------- -------- Income (loss) before income taxes............. 1,699 (38,499) 3,355 (37,293) Income tax provision (benefit)........... 376 (13,567) 1,029 (12,885) ------- -------- ------- -------- Net income (loss) before change in accounting method...................................... 1,323 (24,932) 2,326 (24,408) Cumulative effect of change in method of accounting for income taxes (Note 4)........ 750 ------- -------- ------- -------- Net income (loss)............................. $ 1,323 $(24,932) $ 2,326 $(23,658) ======= ======== ======= ======== Per Share Data: Net income (loss)........................ $ .07 $ (1.76) $ .13 $ (1.68) Cash dividends declared.................. -- -- -- -- Weighted average number of common shares (Note 5).......................................... 17,864,532 14,148,280 17,820,022 14,098,522
The accompanying notes are an integral part of these consolidated financial statements. 4 5 UST CORP. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT (UNAUDITED)
SIX MONTHS ENDED JUNE 30, --------------------- 1994 1993 --------- --------- (DOLLARS IN THOUSANDS) Balance, January 1,................................................... $152,819 $143,880 Net income (loss)................................................ 2,326 (23,658) Exercise of stock options and vesting of restricted stock........ 469 334 Proceeds from stock sold through private placement............... 2,040 Change in deferred compensation.................................. 41 1,278 Change from unrealized gain to loss on securities available-for-sale.............................................. (17,706) Change in unrealized loss on marketable equity securities........ 17 -------- -------- Balance, June 30,..................................................... $137,949 $123,891 ======== ======== The accompanying notes are an integral part of these consolidated financial statements.
5 6 UST CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, -------------------------------- 1994 1993 ------------- ------------- (DOLLARS IN THOUSANDS) Cash flows from operating activities: Net income (loss)..................................... $ 2,326 $ (23,658) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Cumulative effect of change in accounting method......................................... (750) Provision for possible loan losses............... 12,025 53,033 Depreciation and amortization.................... 2,688 2,688 Amortization of gain on sale/leaseback........... (192) (192) Amortization of security premiums, net........... 296 682 Gain on sale of securities available-for-sale, net............................................ (518) (3,646) (Gain)/loss on sale of other real estate owned, net............................................ (399) 1,503 Writedowns of other real estate owned............ 2,558 11,093 Deferred income tax benefit...................... (251) (10,806) Increase in accruals and other, net.............. 14,338 5,268 ----------- ----------- Net cash provided by operating activities.................. 32,871 35,215 Cash flows provided by investing activities: Proceeds from sales of securities available-for-sale.................................. 50,585 151,654 Proceeds from maturities of securities available-for-sale.................................. 105,205 23,599 Purchases of securities available-for-sale............ (125,690) (91,878) Net decrease in short-term investments................ 46,485 252 Net loans paid........................................ 39,124 21,118 Sale of other real estate owned....................... 5,652 8,170 Purchases of premises and equipment................... (1,143) (499) ----------- ----------- Net cash provided by investing activities.................. 120,218 112,416 Cash flows used by financing activities: Net decrease in nontime deposits...................... (87,287) (143,433) Net payments on certificates of deposit............... (37,415) (33,218) Net (payments) proceeds on short-term borrowings...... (44,834) 18,688 Issuance of common stock for cash, net................ 422 2,264 ----------- ----------- Net cash used by financing activities...................... (169,114) (155,699) ----------- ----------- Decrease in cash and cash equivalents................. (16,025) (8,068) Cash and cash equivalents at beginning of year........ 90,198 116,529 ----------- ----------- Cash and cash equivalents at end of period............ $ 74,173 $ 108,461 =========== =========== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest......................................... $ 20,103 $ 25,691 Income taxes..................................... $ 1,902 $ 1,748 Noncash transactions: Transfers from investment portfolio to securities held for sale.................................. $ 453 Transfers from loans to other real estate owned.......................................... $ 2,999 $ 28,473 Financed other real estate owned sales........... $ 4,523 $ 9,511 Stock issuance................................... $ 46 $ 109 The accompanying notes are an integral part of these consolidated financial statements.
6 7 UST CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: The consolidated financial statements of UST Corp. and Subsidiaries (the "Company") included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The Company, however, believes that the disclosures are adequate to make the information presented not misleading. Certain prior period amounts have been reclassified to conform to current classifications. The amounts shown reflect, in the opinion of management, all adjustments necessary for a fair presentation of the financial statements for the periods reported. All such adjustments were of a normal recurring nature, except as disclosed herein. It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's Report on Form 10-K for the fiscal year ended December 31, 1993. The results of operations for the three-and six-month periods ended June 30, 1994 are not necessarily indicative of the results of operations for the full year or any other interim period. NOTE 2: An analysis of the reserve for possible loan losses for the six months ended June 30, 1994 and 1993 follows:
1994 1993 -------- -------- (DOLLARS IN THOUSANDS) Balance at beginning of period.................... $ 62,547 $ 50,126 Loans charged off................................. (15,629) (29,628) Recoveries on loans previously charged off........ 2,098 1,344 -------- -------- Net chargeoffs.................................... (13,531) (28,284) Provided from operations.......................... 12,025 53,033 -------- -------- Balance at end of period.......................... $ 61,041 $ 74,875 ======== ========
The reserve for possible loan loss is based on a consistent, systematic method which analyzes the size and risk of the loan portfolio on a monthly basis. See Credit Quality and Reserve for Possible Loan Loss in Management's Discussion and Analysis of Financial Condition and Results of Operations herein. The increase in the reserve for 1993 resulted from a change in the second quarter in the Company's strategy regarding the management of problem assets. As a result, a $30 million special provision for loan losses was recorded in June 1993. NOTE 3: At June 30, 1994, the Company had the following off-balance sheet financial instruments whose contract amounts represent credit risk:
AMOUNT -------------------- (DOLLARS IN THOUSANDS) Commitments to extend credit......................... $277,000 Standby letters of credit and financial guarantees... 66,000 Commercial letters of credit......................... 5,000
NOTE 4: Cumulative effect of accounting change: See "Income Taxes" in Management's Discussion and Analysis of Financial Condition and Results of Operations herein for information. NOTE 5: The weighted average number of common shares for calculating earnings per share includes shares related to the directors deferred compensation plan and dilutive options totaling 505,258 and 479,498 for the three and six month periods ended June 30, 1994, respectively. For the periods with net losses, three and six months ended June 30, 1993, shares related to the directors deferred compensation plan and options have been excluded from the earnings per share calculations due to their antidilutive effect. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION AT JUNE 30, 1994 INTRODUCTION The Company's primary loan market, the New England region, continues to experience an uneven and slow recovery from the weak economic environment of 1990 to 1993. A majority of the Company's outstanding loans are collateralized by real estate located in Eastern Massachusetts. While the economic climate contributed to a decline in real estate values, there is recent evidence that these values are stabilizing. Generally, real estate prices and activity have both improved from earlier levels. The economic environment over the last few years has also adversely affected both the net worth of certain borrowing customers of the Company's subsidiary banks and the Company's collateral position with respect to certain loans. The New England region has seen both an exodus and failure of a number of businesses. However, recently there have been indicators that show improvement in the local economy as evidenced by an unemployment rate for the region that is below the national average, growth in the housing market in response to lower interest rates and pockets of growth in certain industries. The foregoing factors continued to influence the Company's financial results for both the second quarter and first six months of 1994, particularly with regard to the provision for possible loan losses and expenses associated with foreclosed asset and workout expense, and may continue to influence future results. The recent rise in interest rates has had a positive impact on interest margins. Securities holdings have and will continue to depreciate in value should rates continue upward with the resultant unrealized loss on securities reported as a reduction in shareholders' investment. Moreover, a continued rise in interest rates could adversely affect the cash flow on some real estate loans. Management of the Company has identified the reduction of the aggregate amount of nonperforming and classified assets as a high priority. Regulations covering standards for safety and soundness at banks and bank holding companies have been proposed by the Company's primary federal banking regulators and continue to be monitored by the Company. Included in the proposal are standards which would, in effect, limit the amount of the Company's "classified assets" and establish a minimum earnings amount. If the proposed regulations were to be adopted in their present form, the Company believes it would have been in compliance as of June 30, 1994. At June 30, 1994 the Company's "classified assets" under the proposed regulations would have been approximately $190 million, while the maximum amount permitted at that date under the proposed regulations would have been $209 million. Management of the Company is unable at this time to determine whether it would be required to take any actions out of the ordinary course of business if and when the proposed new standards are adopted. That would depend not only upon the level of the Company's "classified assets" at that time but also on the terms of the final regulations, including any transition/implementation period allowed, which may differ from the proposed regulations. "Classified assets" include $10.1 million of Other Real Estate Owned with the remainder consisting of loans, essentially all of which are collateralized. As of June 30, 1994, approximately 80 percent of classified loans were collateralized with real estate, most of which is located in Eastern Massachusetts, and the remainder were collateralized with accounts receivable, inventory, equipment and other business assets. Of the loans secured by real estate, approximately 60 percent were collateralized by commercial real estate development, approximately 20 percent by owner occupied commercial properties and approximately 15 percent by residential real estate. The remainder were collateralized by real estate construction and raw land. This discussion should be read in conjunction with the financial statements, notes, and tables included in the Company's Report on Form 10-K for the fiscal year ended December 31, 1993. ASSETS Total assets at June 30, 1994 were $1.9 billion compared with $2.0 billion at December 31, 1993. The Company's loan portfolio decreased by 4%, or $51 million, since December 31, 1993, but remained unchanged from March 31, 1994. The decrease is primarily due to the continued weak demand in the Company's market 8 9 area consistent with the economic conditions noted above, along with repayments and increased competition for the small-to-middle market credits. Another factor in the reduction of the portfolio was the chargeoffs of certain credits. See "Credit Quality and Reserve for Loan Loss" herein. Securities available-for-sale totaled $420 million at June 30, 1994, compared with $474 million at December 31, 1993, a decrease of 11%, reflecting the maturity of short-term U.S. Treasury securities. At June 30, 1994, securities available-for-sale were comprised of mortgage-backed securities, U.S. Treasury and Agency securities, and corporate notes. On December 31, 1993, the Company adopted Statement of Financial Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments in Debt and Equity Securities," issued by the Financial Accounting Standards Board. This Standard addresses the accounting and reporting for debt and equity securities that have readily determinable market values. According to SFAS 115, these securities must be classified as either held-to-maturity, available-for-sale, or trading and are reported at either amortized cost or fair value, depending upon the classification. At both June 30, 1994 and December 31, 1993, all securities in the Company's portfolio were classified in the available-for-sale category. Between December 31, 1993 and June 30, 1994, the application of SFAS 115 resulted in a decrease of $17.7 million in stockholders' investment, representing the change from an unrealized gain of $3.3 million after tax at December 31, 1993 to an unrealized loss of $14.4 million after tax at June 30, 1994. In light of the size of the unrealized loss and projections for future income, the Company has concluded that $3.7 million, net of valuation allowance, is the appropriate deferred tax asset related to unrealized loss to be recorded at June 30, 1994. The decline in value reflects the rapid increase in interest rates during the first half of 1994 and corresponding decline in market prices for bonds. LIQUIDITY AND FUNDING Liquidity is defined as a Company's ability to fulfill its existing and anticipated financial obligations. It is provided through the maturity or sale of an entity's assets, such as loans and securities, liability sources such as increased deposits and purchased or borrowed funds, and access to the capital markets. While the Company's securities portfolio is classified as available-for-sale, the Company has no present intention to sell any of its existing loan portfolio, other than an insignificant aggregate principal amount of originated residential mortgage loans to be sold to investors as they are originated. At June 30, 1994, liquidity, which includes excess cash, excess funds sold and unpledged securities, totaled approximately $273 million, or 15% of quarter-end assets. That percentage is unchanged from December 31, 1993. The funds needed to support the Company's loan and securities portfolios are provided primarily by retail deposits, which are relatively low cost and account for 73% of total deposits. Total deposits decreased $124.7 million, or 7.6%, since December 31, 1993. Approximately 68% of the decline occurred in savings and time deposits as the average yield has fallen from 2.91% for the fourth quarter of 1993 to 2.74% for the second quarter of 1994. Generally, investors are increasingly utilizing mutual funds and other nonbank vehicles to obtain higher rates of return. As shown in the Consolidated Statements of Cash Flows, cash and cash equivalents decreased by approximately $16 million during the six-month period ended June 30, 1994. Cash provided by operations resulted largely from net interest income from loans and securities, less the net difference of noninterest expense over noninterest income. Net cash provided by investing activities was due principally to the net decreases in short-term investments, loans through repayment, and by the excess of proceeds from sales and maturities of securities over securities purchases. Net cash used for financing activities was primarily the result of decreases in both nontime deposits and certificates of deposit and a net decrease in short-term borrowings. At June 30, 1994, the parent company had $12.5 million in cash and due from banks and $20.0 million in short-term investments. The cash and due from banks balance is largely due to a federal tax refund. During July, applicable refunds were distributed to the Company's subsidiaries, and at July 31, 1994, the parent had approximately $2.2 million in cash. The balance in short-term investments results from the August 1993 sale of 2.87 million shares of the Company's common stock to more than sixty institutional investors in a European offering made under Regulation S of the United States Securities and Exchange Commission. These 9 10 investments were later reduced to $16 million as the Company paid its third annual principal installment of $4 million on its 8.5% senior notes on July 31, 1994. For the six months ended June 30, 1994, the Company received a total of $2.0 million in dividends from United States Trust Company ("USTC"). During the same period $2.9 million was contributed as capital to to UST Bank/Connecticut ("UST/Conn") and $500 thousand was contributed to USTrust by the Company. INTEREST RATE RISK Volatility in interest rates requires the Company to manage interest rate risk. Interest rate risk arises from mismatches between the repricing or maturity characteristics of assets and the liabilities which fund them. Management monitors and adjusts the difference between interest-sensitive assets and interest-sensitive liabilities ("GAP" position) within various time horizons. An institution with more assets repricing than liabilities within a given time horizon is considered asset sensitive ("positive GAP") and in time horizons with more liabilities repricing than assets it is liability sensitive ("negative GAP"). Within GAP limits established by the Board of Directors, the Company seeks to balance the objective of insulating the net interest margin from rate exposure with that of taking advantage of anticipated changes in rates in order to enhance income. The Company's policy is to limit its one-year cumulative GAP position to 2.5 times equity, presently equal to approximately 18% of total assets. The Company manages its interest rate GAP primarily by lengthening or shortening the maturity structure of the Company's securities portfolio. The Company's GAP presentation may not reflect the degrees to which interest-earning assets and core deposit costs respond to changes in market interest rates. The Company's rate-sensitive assets consist primarily of loans tied to the prime rate. As interest rates rose during the first half of 1994, the prime rate and, therefore, the Company's yield on earning assets increased faster than the rate paid on interest-bearing liabilities. The following table summarizes the Company's GAP position at June 30, 1994. The majority of loans are included in 0-30 days as they reprice in response to changes in the interest rate environment. Securities and demand deposits are categorized according to their expected lives. They are evaluated in conjunction with the Company's asset/liability management strategy and securities may be purchased or sold in response to expected or actual changes in interest rates, prepayment risk, loan growth and similar factors. The reserve for possible loan losses is included in the "Over 1 Year" category of loans. At June 30, 1994, the one-year cumulative GAP position was slightly negative at $57 million, or approximately 3% of total assets. INTEREST SENSITIVITY PERIODS
0-30 DAYS 31-90 DAYS 91-365 DAYS OVER 1 YEAR TOTAL --------- ---------- ----------- ----------- ------ (DOLLARS IN MILLIONS) Loans............................ $ 834 $ 21 $ 92 $ 341 $1,288 Short-term investments........... 30 30 Securities....................... 8 11 58 343 420 Other assets..................... 2 121 123 ------- -------- -------- -------- ------ Total assets..................... 872 32 152 805 $1,861 ====== ------- -------- -------- -------- Interest-bearing deposits........ 640 76 176 281 1,773 Borrowed funds................... 180 4 2 9 195 Demand deposits.................. 10 333 343 Other liabilities and stockholders' equity........... 25 125 150 ------- -------- -------- -------- ------ Total liabilities and equity..... 855 80 178 748 $1,861 ====== ------- -------- -------- -------- GAP for period................... $ 17 $ (48) $ (26) $ 57 ======= ======== ======== ======== Cumulative GAP................... $ 17 $ (31) $ (57) $ 0 ======= ======== ======== ======== As a percent of total assets..... .91% (1.67)% (3.06)% ======= ======== ========
10 11 CREDIT QUALITY AND RESERVE FOR POSSIBLE LOAN LOSS The Company maintains a reserve for possible loan losses to reduce the carrying value of its loans to an amount estimated to be collectible. Adequacy of the reserve for possible loan losses is determined using a consistent, systematic methodology which analyzes the size and risk of the loan portfolio on a monthly basis. Factors in this analysis include historical loan loss experience and asset quality, as reflected by delinquency trends, nonaccrual and restructured loans and the Company's credit risk rating profile. The Company's credit risk rating profile uses categories of risk based on those currently used by its primary regulators while accuracy of the ratings is monitored by an ongoing evaluation by the Company's Loan Review Department. Consideration is also given to the current and expected economic conditions and in particular how such conditions affect the types of credits in the portfolio and the market area in general. This analysis is documented monthly using a combination of numerical, statistical and qualitative analysis (including sensitivity tests) and a written conclusion discussing the rationale supporting the monthly adequacy of the loan loss reserve. The following table measures the Company's performance regarding some key indicators of asset quality:
JUNE 30, MARCH 31 DECEMBER 31, JUNE 30, 1994 1994 1993 1993 -------- --------- ----------- -------- (DOLLARS IN MILLIONS) Nonperforming assets: Nonaccrual loans................................ $ 63.2 $48.6 $ 49.3 $ 61.7 Accruing loans 90 days or more past due......... 1.0 1.3 .5 .8 Other real estate owned (OREO), net............. 10.1 16.2 19.5 41.4 Restructured loans.............................. 18.4 25.8 41.5 31.8 -------- --------- ----------- -------- Total nonperforming assets................. $ 92.7 $91.9 $ 110.8 $135.7 ======= ========= =========== ======= Reserve for loan losses.............................. $ 61.0 $60.9 $ 62.5 $ 74.9 Net chargeoffs for quarter........................... 6.5 7.1 51.8** 22.8 OREO reserve......................................... 3.1 6.6 6.6 9.2 Ratios: Reserve to nonaccrual loans..................... 96.6% 125.2% 127.0% 121.4% Reserve to total of nonaccrual loans, accruing loans 90 days or more past due and restructured loans............................ 74.0% 80.5% 68.5% 79.4% Reserve to period-end loans..................... 4.7% 4.7% 4.7% 5.3% Nonaccrual loans to period-end loans............ 4.9% 3.8% 3.7% 4.3% Nonaccrual and accruing loans over 90 days past due to period-end loans....................... 5.0% 3.9% 3.8% 4.4% Nonperforming assets to period-end loans, and OREO.......................................... 7.1% 7.1% 8.3% 9.3% Nonperforming assets to total assets............ 5.0% 4.6% 5.4% 6.8% Net chargeoffs to average loans................. 2.0%* 2.2%* 3.7%** 6.3%* OREO reserve to OREO............................ 23.4% 28.9% 25.2% 18.2%
- - --------------- * Quarter annualized ** Full year 1993 Toward the end of the second quarter of 1993, a strategy was adopted which recognized that many troubled credit situations would require resolution in an expeditious manner (including the possibility of bulk sales) in order to reduce the management and staff involvement and associated carrying costs. This strategy would increase the up-front cost of the workouts, but would allow the Company's resources to be redirected toward new business. One result of this change in strategy was to record a $30 million special loan loss provision in the second quarter of 1993 to reflect management's estimate of possible losses based upon the level of classified and nonperforming assets. Total nonperforming assets at June 30, 1994 have decreased $18.1 million, or 16%, to $92.7 million since December 31, 1993, and have increased slightly from the $91.9 million reported at March 31, 1994. 11 12 Nonperforming assets have declined $43 million, or 32%, from the second quarter of 1993 due primarily to paydowns, OREO sales, and chargeoffs. Future economic conditions could result in further deterioration of the Company's loan portfolio and the value of its OREO portfolio. Adverse developments could produce increases in delinquencies, nonperforming assets, restructured loans, and OREO writedowns which individually or collectively could have a material negative effect on future earnings. These factors could negatively affect the Company's income statement through reduced interest income, increased provisions for loan losses, and higher costs to collect loans and maintain repossessed collateral. CAPITAL AND REGULATORY AGREEMENTS There are three capital requirements which bank and bank holding companies must meet. Two requirements take into consideration varying risk inherent in assets for both on-balance and off-balance sheet items on a weighted basis ("risk-based assets"). Under these requirements, the Company must meet minimum Tier 1 and Total risk-based capital ratios (capital, as defined in the regulations, divided by risk-based assets) of 4% and 8%, respectively. Tier 1 capital is essentially shareholders' investment, net of intangible assets and Tier 2 capital is the allowable portion of the loan loss reserve (as defined) and discounted subordinated debt. Total capital is the combination of Tier 1 and Tier 2. The Company's risk-based assets were $1.55 billion at June 30, 1994 and $1.64 billion at December 31, 1993. The third requirement is a leverage capital ratio, defined as Tier 1 capital divided by total average assets, net of intangibles. It requires a minimum of 3% for the highest regulatory rated institutions and higher percentages for others. At June 30, 1994 and December 31, 1993, the Company's ratios and the regulatory minimum requirements applicable to the Company were:
DECEMBER 31, JUNE 30, 1994 1993 ---------------- ---------------- AMOUNT PERCENT AMOUNT PERCENT ------ ------- ------ ------- (DOLLARS IN MILLIONS) Tier 1 capital: Actual.............................................. $145.2 9.40% $141.7 8.68% Minimum required.................................... 61.8 4.00 65.3 4.00 Total (Tier 1 and Tier 2) capital: Actual.............................................. 166.9 11.11 164.5 10.35 Minimum required.................................... 120.3 8.00 130.6 8.00 Tier 1 leverage capital:*................................ 145.2 7.65 141.7 7.06
- - --------------- * See discussion below. The Company has not been notified of a specific minimum requirement above the 3% for highest rated institutions. However, two of the Company's banking subsidiaries, comprising almost all of the consolidated assets, have a 6% Tier 1 leverage capital requirement. Capital ratios have been calculated consistent with current regulatory policy which excludes the impact of SFAS 115 and the recording of an unrealized gain/loss on securities available-for-sale. The Company understands that a modification to current regulations is under consideration which would disallow, for regulatory capital calculations, the amount of deferred tax assets that are dependent upon future taxable income for a period greater than one year. If adopted, Tier 1, Total capital and Tier 1 leverage capital ratios at June 30, 1994 would be 9.30%, 11.01%, and 7.57%, respectively. The Company further understands that a new proposal by Federal regulators would reduce capital by the unrealized loss resulting from SFAS 115. If adopted, Tier 1, Total capital and Tier 1 leverage capital ratios at June 30, 1994 would be 8.46%, 10.14% and 6.93%, respectively. In February 1992, the Company's two Massachusetts-based banking subsidiaries, USTC and USTrust, each entered into a Consent Agreement and Order with the Federal Deposit Insurance Corporation ("FDIC") and the Commissioner of Banks in the Commonwealth of Massachusetts ("Massachusetts 12 13 Commissioner"). In accordance with these agreements, the banks agreed to, among other things, maintain a Tier 1 leverage capital ratio at or in excess of 6% by February 1993. At June 30, 1994 the Tier 1 leverage capital ratio of USTrust was 6.99% and was 23.31% for USTC. This compares with 6.49 and 23.75%, respectively, at December 31, 1993. In February 1994 the FDIC and Massachusetts Commissioner terminated and lifted the Consent Agreement and Order with USTC. Since June 1991, the Company's Connecticut-based banking subsidiary, UST/Conn has been operating under a Stipulation and Agreement with the Commissioner of Banks for the State of Connecticut. This agreement was amended in August 1992, November 1993, and July 1994 and requires UST/Conn to maintain a 6% Tier 1 leverage capital ratio. During the second quarter of 1994, regulators for UST/Conn required that a portion of its deferred tax asset not be included in capital calculations. UST/Conn's Tier 1 leverage capital ratio as modified in the preceding sentence at June 30, 1994 was 6.22% compared with 6.21% at December 31, 1993. Effective August 3, 1992, the Company entered into a written agreement with the Federal Reserve Bank of Boston and the Massachusetts Commissioner which requires the Company to maintain Tier 1, Total risk-based and Tier 1 leverage capital ratios which conform to the Capital Adequacy Guidelines of the Board of Governors of the Federal Reserve Board, and which take into account the current and future capital requirements of the subsidiary banks, without specifying a numeric minimum for the Tier 1 leverage capital ratio. The Company believes its consolidated ratios meet the required minimums. Additionally, per these agreements, the Company has agreed not to pay any dividends to stockholders, nor take any dividends from its banking subsidiaries, without prior regulatory approval. Similarly, the banking subsidiaries have agreed to refrain from transferring funds in the form of dividends to the Company without prior regulatory approval. The FDIC and Massachusetts Commissioner terminated and lifted the Consent Agreement and Order with USTC in February 1994; however, USTC has agreed to continue to request regulatory consent prior to the payment of dividends. The Company and each of its subsidiary banks is currently in compliance with its respective capital requirements under these regulatory agreements. The Company and each of its subsidiary banks is also in satisfactory compliance with the other terms of the respective regulatory agreements. See Part II, item 1. RESULTS OF OPERATIONS COMPARISON OF 1994 WITH 1993 The Company reported net income of $1.3 million, or $.07 per share, in the second quarter of 1994 and $2.3 million, or $.13 per share in the first six months of 1994. This compares with net loss of $24.9 million, or $1.76 and $23.7 million, or $1.68 per share, for the same periods in 1993. The results for both the second quarter and first six months of 1993 include the aforementioned $30 million special provision for possible loan loss resulting from the change in the Company's strategy regarding problem asset resolution. The results for both the second quarter and first six months of 1994 reflect declines in net interest income and noninterest income from the second quarter and first six months of 1993, which were more than offset by lower loan loss provisions and decreases in foreclosed asset and workout expense. The Company's net interest income on a fully taxable equivalent basis was $22.9 million in the second quarter of 1994 compared with $22.0 million in the first quarter of 1994 and $23.5 million for the same period in 1993. For the first six months of 1994, net interest income on a fully taxable basis was $45.0 million compared with $46.6 million for the same period in 1993. The Company's interest rate spread and margin increased from the first quarter of 1994, and were equal to both the second quarter and first six months of 1993. The improved interest rate spread and margin this quarter was due primarily to the yield on earning assets rising faster than the yield on interest-bearing liabilities. See "Net Interest Income Analysis" below. Although net interest income increased in the second quarter of 1994 from the first, a continued decline in the volume of interest earning assets may not allow net interest income to continue to increase. 13 14 NET INTEREST INCOME ANALYSIS Due to the recent rise in interest rates, increases occurred in yields on the Company's interest-earning assets which outpaced increases in the cost of interest-bearing liabilities. Specifically, the yield on interest-earning assets increased to 7.38% for the second quarter of 1994 compared with 7.10% for the first quarter of 1994. The cost of interest-bearing liabilities increased from 2.79% last quarter to 2.89% this quarter. The rise in interest rates was the primary reason net interest income increased $872 thousand on a fully taxable basis from the first quarter of 1994 to the second quarter. Although rates have risen recently, they are lower than both the second quarter and first six months of 1993. The yield on interest-earning assets for the first six months of 1994 was 7.24% compared to 7.65% in 1993, and the cost of interest-bearing liabilities was 2.84% compared to 3.23% in 1993. Average loans outstanding decreased $33 million this quarter compared to first quarter of 1994 and interest-bearing deposits have decreased $46 million. For the first six months of 1994 as compared to 1993, average loans outstanding decreased $149 million and interest-bearing deposits decreased $83 million. The continued rise in interest rates which pushed loan yields upward while deposit rates remained relatively stable, resulted in an increase in the interest rate spread and margin this quarter as compared to the first quarter of 1994. There was little change in the margin or spread in 1994 as compared to 1993. However, the spread in the second quarter of 1994 was 4.50% compared with 4.25% for the first quarter of 1994. The margin was 5.13% in the second quarter of 1994 compared with 4.87% last quarter. The spread was 4.40% and the margin was 5.00% for the first six months of 1994. See "Financial Condition" above for a discussion regarding loans and deposits. 14 15 The following tables attribute changes in interest income, interest expense and the related net interest income for the quarter and six months ended June 30, 1994 when compared with the three and six month periods ended June 30, 1993, either to changes in average balances or to changes in average rates on interest-bearing assets and liabilities. In this table, changes attributable to both rate and volume are allocated on a weighted basis.
INCREASE (DECREASE) FROM THREE MONTHS ENDED THREE JUNE 30, 1993 MONTHS --------------------------- ENDED AMOUNTS DUE TO JUNE CHANGES IN 30, TOTAL ----------------- 1994 CHANGE VOLUME RATE ------- ------- ------- ------- (DOLLARS IN THOUSANDS) Interest income: Interest and fees on loans*.......................... $25,412 $(2,976) $(3,123) $ 147 Interest and dividends on securities: Taxable.................................... 6,915 (108) 966 (1,074 ) Nontaxable*................................ 123 (103) (44) (59 ) Income on overnight funds and deposits..... 505 425 406 19 ------- ------- ------- ------- Total interest income*.......................... 32,955 (2,762) (1,795) (967 ) ------- ------- ------- ------- Interest expense: Interest on deposits................................. 8,203 (1,990) (590) (1,400 ) Interest on short-term borrowings.................... 1,511 (138) (379) 241 Interest on other borrowings......................... 322 (65) (88) 23 ------- ------- ------- ------- Total interest expense.......................... 10,036 (2,193) (1,058) (1,135 ) ------- ------- ------- ------- Net interest income*...................................... $22,919 $ (569) $ (737) $ 168 ======= ======= ======= =======
- - --------------- * Fully taxable equivalent at the Federal income tax rate of 35% and includes applicable state taxes net of Federal benefit.
INCREASE (DECREASE) FROM SIX MONTHS ENDED JUNE 30, 1993 ----------------------------------- SIX MONTHS AMOUNTS DUE TO ENDED CHANGES IN JUNE 30, TOTAL ------------------- 1994 CHANGE VOLUME RATE ---------- ------- ------- ------- (DOLLARS IN THOUSANDS) Interest income: Interest and fees on loans*.............. $ 50,134 $(6,528) $(5,776) $ (752) Interest and dividends on securities: Taxable........................ 13,647 (1,202) 804 (2,006) Nontaxable*.................... 235 (147) (84) (63) Income on overnight funds and deposits..................... 1,066 964 956 8 --------- ------- ------- ------- Total interest income*.............. 65,082 (6,913) (4,100) (2,813) --------- ------- ------- ------- Interest expense: Interest on deposits..................... 16,656 (4,466) (1,277) (3,189) Interest on short-term borrowings........ 2,819 (642) (774) 132 Interest on other borrowings............. 644 (130) (177) 47 --------- ------- ------- ------- Total interest expense.............. 20,119 (5,238) (2,228) (3,010) --------- ------- ------- ------- Net interest income*.......................... $ 44,963 $(1,675) $(1,872) $ 197 ========= ======= ======= =======
- - --------------- * Fully taxable equivalent at the Federal income tax rate of 35% and includes applicable state taxes net of Federal benefit. 15 16 NONINTEREST INCOME Total noninterest income decreased $1.2 million in the second quarter of 1994 compared with the same period in 1993. For the six-month comparison the decrease is $5.9 million. The decreases in the three and six month periods are primarily due to fluctuations and variances in asset management fee-based income contingent on transaction volume and other factors. In addition, a decline in securities gains from $3.6 million in 1993 to $.5 million in 1994 contributed to the decrease in noninterest income for the six-month period. Sales of securities were lower in 1994 compared with 1993 when sales were made in response to decrease in deposits in the first quarter. Other noninterest income decreased $397 thousand in the second quarter and $1.1 million in the first six months of 1994 compared with the same periods in 1993, and the following are the more significant reasons: Lease income decreased $122 thousand for the quarter and $499 thousand for the six-month period due to a decline in residuals on completed leases. Income from home equity loans purchased from the Resolution Trust Corporation at a substantial discount in late 1991 decreased $108 thousand in the second quarter and $319 thousand in the six-month period compared with the same period in 1993. All other miscellaneous noninterest income declined $167 thousand in the quarter and $248 thousand in the six-month comparisons. NONINTEREST EXPENSE Total noninterest expense for the second quarter of 1994 decreased to $22.0 million from $27.9 million for the same period in 1993. For the six-month comparison the decrease is $7.1 million. Foreclosed asset and workout expense declined $8.1 million and $11.3 million in the quarter and six-month comparisons due primarily to decreases in writedowns to fair value minus estimated costs to sell foreclosed real estate properties. As previously discussed under "Credit Quality and Reserve for Loan Loss," local economic or market conditions may prevent this reduction from continuing. Personnel-related costs increased $1.1 million for the quarter and $1.9 million for the six months due to additional staffing, severance payments and merit increases. Net occupancy expense in the first half of 1994 includes a writedown of $300 thousand to market value on one of the Company's branch buildings which is being offered for sale. Other noninterest expense increased $1.4 million in the second quarter and $2.2 million in the six-month comparisons. These increases were due in large part to an increase of $272 thousand in the quarter and $781 thousand in the first six months in fees paid for consulting services on a number of planning and operational improvement initiatives and for consulting services by certain former Company executives. Appraisal fees increased $239 thousand in the quarter and $506 thousand in the six months as the Company ordered new appraisals on a large number of collateral-based loans. Advertising expense increased $473 thousand in the quarter and $482 thousand in the six-month comparisons due to the Spring 1994 advertising campaign. INCOME TAXES The Company had a tax provision of $376 thousand in the second quarter, and $1.0 million for the first half of 1994. This compares with a tax benefit of $13.6 million in the second quarter of 1993. For the first half of 1993, the tax benefit was also $13.6 million, including the effect of SFAS No. 109 noted below. The variations in operating income taxes are attributable to the level and composition of pretax income or loss. In February 1992 the Financial Accounting Standards Board issued a new standard, SFAS No. 109 "Accounting for Income Taxes," a modification of SFAS No. 96, which changes the accounting for deferred income tax to the "liability method." The Company adopted SFAS No. 109 on January 1, 1993. This change increased net income $750 thousand in January 1993. This represented the cumulative effect of the new standard on the balance sheet. As of June 30, 1994, the Company had recorded net deferred tax assets of approximately $11.2 million. Of that amount, approximately $3.7 million may be recovered against taxes paid in carryback periods, while the remainder is expected to be realized against future taxable income. Management believes that it is more likely than not that the Company will realize the benefit of these deferred tax assets. 16 17 RECENT ACCOUNTING DEVELOPMENTS The Financial Accounting Standards Board (FASB) has issued Statement No. 112, "Employers' Accounting for Postemployment Benefits," which requires accrual of a liability for all types of benefits paid to former or inactive employees after employment but before retirement. The Company has determined that this FASB statement will have no material effect on its financial statements. Adoption of the statement is required for fiscal years beginning after December 15, 1993. FASB has issued Statement No. 114, "Accounting by Creditors for Impairment of a Loan," which requires that all creditors value all loans for which it is probable that the creditor will be unable to collect all amounts due according to the terms of the loan agreement at the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. This statement would apply for fiscal years beginning after December 15, 1994. The effect on the Company's results of operations has not yet been determined. 17 18 PART II. OTHER INFORMATION For the quarter ended June 30, 1994, Items 2 and 3 of Part II are either inapplicable or would elicit a response of "NONE" and therefore no reference thereto has been made herein. ITEM 1. LEGAL PROCEEDINGS In the ordinary course of operations, the Company and its subsidiaries become defendants in a variety of judicial and administrative proceedings. In the opinion of management, however, there is no proceeding pending, or to the knowledge of management threatened, which in the event of an adverse decision would be likely to result in a material adverse change in the financial condition or results of operations of the Company and its subsidiaries. With respect to the potential regulatory penalties referred to under Item 1 -- Recent Developments -- Potential Regulatory Sanctions of the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 1993, while the Company does not know whether the FDIC will attempt to assess any penalties with respect to this matter, the person or persons upon whom any penalty would be assessed or the amounts of any such penalties, were they to be assessed, management of the Company believes that it is unlikely that this matter will have a material adverse effect on its financial condition or results of operations. Consequently, no provision in respect of penalties has been made in the Company's Consolidated Financial Statements. In the event penalties are imposed, the Company and its legal counsel will evaluate the grounds upon which the penalties are based, consider the size of such penalties, note upon which entities or individuals such penalties are imposed and determine whether it will independently (or jointly with the directly affected entity or individual) contest the imposition of the penalty. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) the Annual Meeting of Stockholders of the Company was held on May 17, 1994. (b) the following matters were submitted to a vote of the Stockholders of the Company; (a) to amend the Company's Stock Compensation Plan, to increase the number of shares of the Company's Common Stock that may be granted under the Plan in 1994 by 350,000 additional shares; and (b) the election of each of the following four (4) directors: Domenic Colasacco Francis X. Messina Samuel B. Sheldon James V. Sidell The following votes were cast in connection with the amending of the Company's Stock Compensation Plan, to increase the number of shares of the Company's Common Stock that may be granted under the Plan in 1994 by 350,000 additional shares: IN FAVOR...................................... 10,363,721.054 -------------- AGAINST....................................... 1,928,908.233 -------------- ABSTAIN....................................... 926,233.306 -------------- DELIVERED, NOT VOTED.......................... - 0 - --------------
The following votes were cost with respect to the election of directors:
WITHHOLD NOMINEES FOR AUTHORITY - - -------------------------------------------------------------- -------------- ------------- Domenic Colasacco............................................. 12,788,321.326 430,531.268 Francis X. Messina............................................ 12,537,357.399 681,495.194 Samuel B. Sheldon............................................. 12,744,943.235 473,909.358 James V. Sidell............................................... 12,106,998.244 1,111,854.349
18 19 The following is a list of the ten (10) additional directors of the Company whose term of office as a director continued after the meeting: James M. Breiner Gerald M. Ridge Robert L. Culver William Schwartz Neal F. Finnegan Paul M. Siskind Walter A. Guleserian Paul D. Slater Wallace M. Haselton Michael J. Verrochi, Jr. As of May 17, 1994, Mr. Louis T. Falcone resigned as a Director. Accordingly, as of the date of this Report, four vacancies exist on the Board of Directors. ITEM 5. OTHER INFORMATION (a) SEPARATION AGREEMENT WITH MR. SHEDIAC The Company entered into a Separation Agreement with Theodore M. Shediac, former Chairman of the Board of the Company's principal banking subsidiary, USTrust which become effective on June 30, 1994. Under the Separation Agreement, Mr. Shediac receives salary continuation and other benefits in an aggregate value of approximately $369,000. The Board of Directors also accelerated vesting of options to acquire 7,675 shares of the Company's Common Stock and of 5,433 shares of the Company's Restricted Common Stock. (b) APPOINTMENT OF MR. HUNT AS NEW CHIEF FINANCIAL OFFICER As of July 8, 1994, James K. Hunt was appointed Executive Vice President, Treasurer and Chief Financial Officer of the Company and of USTrust. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS Material Contracts (each filed herewith) (i) Separation Agreement, effective as of June 30, 1994, between the Company and Theodore M. Shediac, former Chairman of the Board of the Company's principal banking subsidiary, USTrust. (ii) Press Release, dated July 13, 1994, concerning the appointment of James K. Hunt as Executive Vice President, Treasurer and Chief Financial Officer of the Company. (b) REPORTS ON FORM 8-K. -- None. Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. UST CORP. August 15, 1994 /S/ NEAL F. FINNEGAN Date:............................... By:............................... NEAL F. FINNEGAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER August 15, 1994 /S/ JAMES K. HUNT Date:............................... By:............................... JAMES K. HUNT, EXECUTIVE VICE PRESIDENT, TREASURER AND CHIEF FINANCIAL OFFICER 19 EX-99.I 2 SEPERATION AGREEMENT 1 UST [LOGO] Separation Agreement for Theodore Shediac ----------------------------------------- Mr. Theodore M. Shediac April 6, 1994 52 Old Nugent Rd. Gloucester, MA 01930 Dear Ted: As we have discussed and agreed, your employment with UST Corp., and its affiliated companies (collectively "UST") will terminate on June 30, 1994 and you will be paid through UST's payroll system through that date. The purpose of this letter agreement is to set forth the terms and conditions related to your separation from UST. 1. Salary continuation: Salary will continue for 12 months after June 30, 1994. The form of payment will be in one lump sum of $268,500 payable to you during the first week of July 1994. 2. Continuation of benefits: USTrust will continue to pay the life insurance premiums on your current policy through June 30, 1994. Thereafter, if coverage is to continue, you will have to convert the policy to an individual contract. Disability insurance provided through USTrust will cease as of your termination date. Medical insurance premiums will continue to be paid to provide coverage for you and your family under the Baystate Health Care plan, through June 30, 1994. During this period, you will continue to pay normal monthly contributions of $128.65. Effective July 1, 1994, you will be able to continue medical insurance coverage through COBRA for up to 18 months. 3. Vested profit sharing: You will be paid the account balance credited to you under the company's profit sharing plan after the 6/30/94 valuation. It is understood that as of 6/30/93 your vested balance was $214,520.33. It is further understood that at the time of the valuation and payout, these amounts may be higher or lower depending on the valuation. 4. Vested ESOP: You will be paid out the value of your vested ESOP account after the 6/30/94 valuation. It is undertood that as of 6/30/93 your vested balance was 6,028.9514 shares plus a cash balance of $79.26. It is further understood that at the time of the valuation and payout, these amounts may be higher or lower depending on the valuation. 5. It is understood that you are 100% vested in the USTrust qualified retirement plan. A schedule has been provided to you, indicating the projected pay-out amounts at age 65. UST CORP. 40 Court Street, Boston, Massachusetts 02108 (617) 726-7000 Telex 951494 UST BSN 2 6a. Incentive stock options (ISO): You will receive acceleration of unvested Incentive Stock Options so that as of June 30, 1994, you will be fully vested in 18,375 shares at a purchase price of $6.0714 and 5,000 shares at a purchase price of $8.625. Your options expire 3 months after your termination date. 6b. Restricted stock: As of June 30, 1994, you will be vested in 5,433 shares of restricted stock. The value of the vested shares, determined as of the vesting date, will be includible in your income for federal income tax and Massachusetts tax purposes, and will be treated as "wages" subject to withholding for employment tax (including FICA) purposes, as of the time of vesting. A certificate representing the vested shares will be delivered to you once you have made arrangements satisfactory to the Company to pay all required withholding taxes. You may satisfy this withholding obligation by: (i) providing a certified or bank check to the Company for the required withholding taxes, or (ii) delivering stock powers to the Company authorizing the sale of sufficient shares to pay the withholding taxes. It is further understood that there are limitations on your ability to sell these newly acquired shares in UST Corp. stock. Shares must be held for six months after the date of termination (i.e. after 6/30/94). 7. The above matter was presented to the UST Corp. Board of Directors on March 15, 1994 and was preliminarily approved. Pending a third party certification by The Wyatt Co. and a definitive vote scheduled for April 19, 1994 of Board approval based upon the Wyatt certificate, the above matters will be subject only to the written approval of the Federal Reserve Bank of Boston and the Massachusetts Commissioner of Banks. 8. Attached to this letter agreement as EXHIBIT A is a General and Specific Release signed by you which releases UST Corp. and its successors, assigns, subsidiaries, and its and their respective officers, directors, employees, agents and representatives from various liabilities and claims. The foregoing Release, attached as EXHIBIT A, is incorporated into this letter agreement and made a part hereof. If the foregoing is agreeable to you and you wish to accept the terms and conditions of this letter agreement, please indicate your assent and agreement by signing this letter agreement below and by attaching a signed and notorized copy of EXHIBIT A. Very truly yours, /s/ NEAL F. FINNEGAN -------------------- Neal F. Finnegan ACCEPTED AND AGREED: /s/ THEODORE SHEDIAC - - -------------------- Theodore Shediac 3 EXHIBIT A --------- General and Specific Release ---------------------------- FOR AND IN CONSIDERATION of payments to be made to me in connection with my separation of employment, as set out in the Separation Agreement between UST Corp. and me, dated March 31, 1994, I, Theodore M. Shediac, hereby release UST Corp. ("UST") and its successors, assigns, subsidiaries and its and their respective officers, directors, employees, agents and representatives (all collectively, "Releasees") from any and all liability, claims, demands, actions, causes of action of any type by reason of any matter, cause, act or omission arising out of or in connection with my employment or separation from employment with UST Corp. and/or its subsidiaries, including without limitation, claims, demands or actions under Title VII of Civil Rights Act of 1964, as amended, the Rehabilitation Act of 1973, the Civil Rights Act of 1866, the Massachusetts Fair Employment Practices Act, and any other Federal, state or local statute or regulation regarding employment, discrimination in employment or termination of employment; and I, Theodore M. Shediac, shall at no time take any action that I am aware is inconsistent with this Release; provided that I am not releasing and shall not be deemed to have released (i) any claim arising under the terms of the Separation Agreement or the terms of UST's employee pension plan, profit sharing plan, or stock ownership plan, each as amended to the effective time of my termination of employment, or (ii) any right of indemnification or contribution that may exist at or may arise after such effective time and that I am or may be entitled to enforce against UST if any claim is asserted or proceedings are brought against me by any governmental or regulatory agency, or by any customer, creditor, employee or shareholder of UST, or any self-regulatory organization, stock exchange or the like, related or alledgedly related to my having been an officer or employee of UST, or to any of my activities as an officer or employee of UST. By acceptance of or reliance upon this Release, UST promises that neither it nor any other of the Releases affiliated with UST, will take any action that is designed, specifically with respect to me or with respect to a class of similarly situated former employees, to reduce or abrogate, or may reasonably be expected to result in an abridgement or elimination of, any rights of indemnification or contribution available to me under state law or pursuant to the Articles of Organization or Bylaws of UST, or under any policy or policies of directors and officers liability insurance affording coverage to former officers and in effect from time to time. IN WITNESS WHEREOF, I Theodore M. Shediac, have set my and seal this 20th day of April, 1994. /s/ THEODORE M. SHEDIAC ----------------------- Theodore M. Shediac EX-99.II 3 PRESS RELEASE 1 UST CORP. [LOGO] N E W S R E L E A S E For: Immediate Release Contact: Sheila Celata (617) 726-7120 UST CORP. APPOINTS JAMES K. HUNT CHIEF FINANCIAL OFFICER BOSTON, MASS.... JULY 13, 1994... Neal F. Finnegan, President and Chief Executive Officer of UST Corp. (NASDAQ:USTB), parent company of USTrust and United States Trust Company in Boston and UST Bank/Connecticut in Bridgeport, today announced the appointment of James K. Hunt as Executive Vice President, Treasurer and Chief Financial Officer of the Company. Mr. Hunt brings 27 years of experience to his new position. He joins UST Corp. from Peoples Bancorp of Worcester, Inc., where he served as Executive Vice President since 1987. Mr. Hunt began his career in 1967 at Depositors Corporation, a bank holding company headquartered in Augusta, Maine. "We are delighted to welcome Jim Hunt to UST Corp.," notes Mr. Finnegan. "His depth of experience in financial, regulatory and investor activities is a tremendous asset, and we look forward to the benefit of his insight and expertise as we guide UST in the years ahead." Comments Mr. Hunt: "I have followed UST Corp. for many years and watched its evolution as a major presence in the small and medium-sized business market. I welcome the challenge and opportunity to serve as chief financial officer and to help the Company grow and prosper. I look forward to working with Neal Finnegan to achieve those goals." Mr. Hunt is a native of Hanover, Massachusetts and a graduate of Husson College in Bangor, Maine, where he earned a degree in accounting. He and his wife reside in Shrewsbury, Massachusetts. UST Corp. is a $2 billion bank holding company headquartered in Boston. -----END PRIVACY-ENHANCED MESSAGE-----