<PAGE>   1
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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                  -------------

                                    FORM 10-Q

(Mark One)

[X]   QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
      EXCHANGE ACT OF  1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998

                                       OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
      EXCHANGE ACT OF  1934

FOR THE TRANSITION PERIOD FROM              TO

                             COMMISSION FILE #0-9623


                                  -------------


                                    UST CORP.
             (Exact Name of Registrant as Specified in its Charter)

                  MASSACHUSETTS                          04-2436093
           (State or other jurisdiction               (I.R.S. Employer
         of incorporation or organization)           Identification No.)

                 40 COURT STREET
              BOSTON, MASSACHUSETTS                         02108
     (Address of principal executive offices)            (Zip Code)

                                 (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, 1998,
there were 33,102,451 shares of common stock outstanding, par value $.625 per
share.


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<PAGE>   2
                                    UST CORP.

                                TABLE OF CONTENTS

                                                                            PAGE

PART I.  FINANCIAL INFORMATION

          ITEM 1.  Financial Statements

            Consolidated Balance Sheets -- June 30, 1998 and December
              31, 1997.......................................................  3

            Consolidated Statements of Income -- Three and Six Months
              Ended June 30, 1998 and 1997...................................  4

            Consolidated Statements of Changes in Stockholders' Investment
              -- Six Months Ended June 30, 1998 and 1997.....................  5

            Consolidated Statements of Cash Flows -- Six Months Ended June
             30, 1998 and 1997...............................................  6

            Notes to Consolidated Financial Statements.......................  7

          ITEM 2.  Management's Discussion and Analysis of Financial 
                   Condition and Results of Operations....................... 12

          ITEM 3.  Quantitative and Qualitative Disclosures about Market
                   Risk...................................................... 23

PART II. OTHER INFORMATION

          ITEM 1.  Legal Proceedings......................................... 24

          ITEM 4.  Submission of Matters to a Vote of Security Holders....... 24

          ITEM 6.  Exhibits and Reports on Form 8-K.......................... 26

          SIGNATURES ........................................................ 26


                                       2
<PAGE>   3
                          PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                                    UST CORP.
                           CONSOLIDATED BALANCE SHEETS
                  (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                          JUNE 30,         DECEMBER 31,
                                                                                            1998               1997
                                                                                         -----------        -----------
                                                                                         (UNAUDITED)
<S>                                                                                      <C>                <C>        
                                     ASSETS

Cash, due from banks and interest-bearing deposits ...............................       $    89,545        $    95,702
Federal funds sold and other short-term investments ..............................            60,248             67,851
Securities available-for-sale:
  Mortgage-backed securities .....................................................           518,256            490,691
  U.S. Treasury and federal agencies and other securities ........................           168,154            231,741
                                                                                         -----------        -----------
           Total securities available-for-sale ...................................           686,410            722,432
Loans:
  Loans -- net of unearned discount of $33,373 in 1998 and
    $29,053 in 1997 (Note 2) .....................................................         2,957,280          2,835,982
  Reserve for possible loan losses (Note 2) ......................................           (52,816)           (52,230)
                                                                                         -----------        -----------
           Total loans, net ......................................................         2,904,464          2,783,752
Premises, furniture and equipment, net ...........................................            66,251             64,407
Intangible assets, net ...........................................................            54,194             57,807
Other property owned, net ........................................................             1,577              1,334
Other assets .....................................................................            52,669             44,973
                                                                                         -----------        -----------
           Total assets ..........................................................       $ 3,915,358        $ 3,838,258
                                                                                         ===========        ===========

                    LIABILITIES AND STOCKHOLDERS' INVESTMENT

Deposits:
   Noninterest-bearing ...........................................................       $   699,798        $   708,399
   Interest-bearing:
      NOW ........................................................................            49,347             43,116
      Money market ...............................................................           687,539            660,641
      Regular savings ............................................................           725,106            675,087
      Time:
        Certificates of deposit over $100 thousand ...............................           155,017            159,644
        Other ....................................................................           675,089            731,328
                                                                                         -----------        -----------
           Total deposits ........................................................         2,991,896          2,978,215
Short-term borrowings ............................................................           483,744            421,313
Other borrowings .................................................................            26,694             49,338
Other liabilities ................................................................            50,925             49,266
                                                                                         -----------        -----------
           Total liabilities .....................................................         3,553,259          3,498,132
Commitments and contingencies (Note 3)
Stockholders' investment (Note 4):
  Preferred stock $1 par value; Authorized - 4,000,000 shares; Outstanding -- none
  Common stock $.625 par value; Authorized - 75,000,000 and 45,000,000
      shares in 1998 and 1997, respectively
    Issued -- 29,896,928 and 29,762,224 shares in 1998 and 1997, respectively ....            18,686             18,601
  Additional paid-in capital .....................................................           120,272            117,236
  Retained earnings ..............................................................           218,981            201,355
  Accumulated other comprehensive income .........................................             3,565              2,245
  Deferred compensation and other ................................................               595                689
                                                                                         -----------        -----------
           Total stockholders' investment ........................................           362,099            340,126
                                                                                         -----------        -----------
           Total liabilities and stockholders' investment ........................       $ 3,915,358        $ 3,838,258
                                                                                         ===========        ===========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       3
<PAGE>   4
                                    UST CORP.
                        CONSOLIDATED STATEMENTS OF INCOME
                  (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                     THREE MONTHS ENDED JUNE 30,      SIX MONTHS ENDED JUNE 30,
                                                                     ---------------------------      -------------------------
                                                                         1998           1997            1998             1997
                                                                         ----           ----            ----             ----
<S>                                                                  <C>              <C>             <C>              <C>     
Interest income:
  Interest and fees on loans ....................................       $63,919       $ 57,344        $ 126,340        $112,559
  Interest and dividends on securities:
     Taxable ....................................................        10,476         11,131           21,062          23,018
     Nontaxable .................................................           156            271              296             388
  Interest on federal funds sold and other short-term investments           591          1,065            1,557           2,071
                                                                        -------       --------        ---------         -------
             Total interest income ..............................        75,142         69,811          149,255         138,036
                                                                        -------       --------        ---------         -------
Interest expense:
  Interest on deposits ..........................................        20,304         20,301           40,847          40,438
  Interest on borrowings ........................................         6,734          6,947           12,677          13,795
                                                                        -------       --------        ---------         -------
             Total interest expense .............................        27,038         27,248           53,524          54,233
                                                                        -------       --------        ---------         -------
  Net interest income ...........................................        48,104         42,563           95,731          83,803
Provision for possible loan losses (Note 2) .....................           690            300            1,665             300
                                                                        -------       --------        ---------         -------
  Net interest income after provision for possible loan losses ..        47,414         42,263           94,066          83,503
                                                                        -------       --------        ---------         -------

Noninterest income:
  Asset management fees .........................................         3,850          3,188            7,579           6,345
  Deposit account service charges ...............................         2,651          2,172            5,125           4,421
  Corporate services income, net ................................         1,522          1,384            2,998           2,759
  Securities gains (losses), net ................................            30           (584)           1,471            (573)
  Gain on sale of loans .........................................                                                         1,804
  Other .........................................................         1,996          2,314            4,198           4,646
                                                                        -------       --------        ---------         -------
             Total noninterest income ...........................        10,049          8,474           21,371          19,402
                                                                        -------       --------        ---------         -------
Noninterest expense:
  Salary and employee benefits ..................................        19,163         18,740           38,441          37,121
  Occupancy, net ................................................         3,309          2,930            6,730           6,300
  Equipment depreciation and maintenance ........................         2,372          1,655            4,633           3,409
  Intangible asset amortization .................................         1,747          1,162            3,521           3,275
  Data processing services ......................................         1,701          1,512            3,081           2,716
  Professional and consulting fees ..............................         1,308          1,548            2,276           2,574
  Advertising and promotion .....................................         1,240          1,177            2,413           2,353
  Year 2000 readiness expense ...................................           845                           1,339
  Foreclosed asset and workout expense ..........................           136            179              272             321
  Acquisition and merger-related expense ........................            11                              25           2,850
  Restructuring charges .........................................                                                        11,751
  Other .........................................................         5,587          7,143           11,844          12,586
                                                                        -------       --------        ---------         -------
             Total noninterest expense ..........................        37,419         36,046           74,575          85,256
                                                                        -------       --------        ---------         -------
Income before income taxes ......................................        20,044         14,691           40,862          17,649
  Income tax provision ..........................................         7,511          5,922           15,472           7,976
                                                                        -------       --------        ---------         -------
             Net income .........................................       $12,533       $  8,769        $  25,390         $ 9,673
                                                                        =======       ========        =========         =======

  Per share data (Note 4):
    Basic earnings per share ....................................       $  0.42       $   0.30        $    0.85         $  0.33
    Diluted earnings per share ..................................       $  0.41       $   0.29        $    0.83         $  0.32
    Cash dividends declared per share ...........................       $  0.14       $   0.10        $    0.26         $  0.20
</TABLE>


                 The accompanying notes are an integral part of
                    these consolidated financial statements.


                                       4
<PAGE>   5
                                    UST CORP.
         CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                               ACCUMULATED
                                                                        ADDITIONAL                 OTHER        DEFERRED
                                              COMPREHENSIVE   COMMON     PAID-IN    RETAINED   COMPREHENSIVE  COMPENSATION
                                              INCOME (LOSS)    STOCK     CAPITAL    EARNINGS   INCOME (LOSS)    AND OTHER   TOTAL
                                              -------------    -----     -------    --------   -------------    ---------   -----

<S>                                              <C>         <C>        <C>         <C>           <C>              <C>     <C>
Balance December 31, 1996 ..................                 $ 18,328   $ 111,158   $ 181,645     $(2,576)         $466    $309,021

Comprehensive income (Note 6):
  Net income ...............................     $  9,673                               9,673                                 9,673
                                                 --------
  Other comprehensive income:
     Unrealized securities losses, net of
       $521 tax benefit ....................       (1,012)
     Less:  Reclassification of securities
       losses included in net income,
       net of $238 tax benefit .............         (335)
                                                 --------
         Total other comprehensive
            income (loss) ..................         (677)                                           (677)                     (677)
                                                 --------
         Total comprehensive income ........     $  8,996
                                                 ========

Cash dividends declared ....................                                           (5,689)                               (5,689)

Activity related to stock option, restricted
  stock and stock purchase plans ...........                      204       4,966                                             5,170

Activity in Directors Deferred
  Compensation Program and other, net ......                                                                       (221)       (221)
                                                             --------   ---------   ---------     -------          ----    --------
Balance June 30, 1997 ......................                 $ 18,532   $ 116,124   $ 185,629     $(3,253)         $245    $317,277
                                                             ========   =========   =========     =======          ====    ========

Balance December 31, 1997 ..................                 $ 18,601   $ 117,236   $ 201,355     $ 2,245          $689    $340,126

Comprehensive income (Note 6):
  Net income ...............................     $ 25,390                              25,390                                25,390
                                                 --------
  Other comprehensive income:
     Unrealized securities gains, net of
       $1,577 tax expense ..................        2,181
     Less:  Reclassification of securities
       gains included in net income,
       net of $610 tax expense .............          861
                                                 --------
         Total other comprehensive income ..        1,320                                           1,320                     1,320
                                                 --------
         Total comprehensive income ........     $ 26,710
                                                 ========

Cash dividends declared ....................                                           (7,764)                               (7,764)

Activity related to stock option, restricted
  stock and stock purchase plans ...........                       85       3,036                                             3,121

Activity in Directors Deferred
  Compensation Program and other, net ......                                                                        (94)        (94)
                                                             --------   ---------   ---------     -------          ----    --------
Balance June 30, 1998 ......................                 $ 18,686   $ 120,272   $ 218,981     $ 3,565          $595    $362,099
                                                             ========   =========   =========     =======          ====    ========
</TABLE>






                 The accompanying notes are an integral part of
                    these consolidated financial statements.


                                       5
<PAGE>   6
                                    UST CORP.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                           SIX MONTHS ENDED JUNE 30,
                                                                                           -------------------------
                                                                                             1998             1997
                                                                                             ----             ----
<S>                                                                                       <C>              <C>      
Cash flows from operating activities:
  Net income ......................................................................       $  25,390        $   9,673
  Adjustments to reconcile net income to net cash provided by operating activities:
    Provision for possible loan losses ............................................           1,665              300
    Depreciation and amortization .................................................           7,788            6,640
    Accretion of securities discount, net .........................................            (625)            (124)
    Securities gains (losses), net ................................................          (1,471)             573
    Gain on sale of other property owned, net .....................................             (11)             (99)
    Gain on sale of loans held-for-sale ...........................................                           (1,804)
    Writedowns of other property owned ............................................                               47
    Writedowns of fixed assets ....................................................             670            1,255
    Deferred income tax benefit ...................................................          (1,765)
    Net change in other assets and other liabilities ..............................          (4,305)         (18,275)
                                                                                          ---------        ---------
         Net cash provided (used) by operating activities .........................          27,336           (1,814)
Cash flows from investing activities:
  Proceeds from sales of securities available-for-sale ............................         147,507          175,177
  Proceeds from maturities of securities available-for-sale .......................          80,640           99,298
  Purchases of securities available-for-sale ......................................        (187,743)        (148,949)
  Net decrease in federal funds sold and other ....................................           7,603           37,759
  Net increase in loans ...........................................................        (126,035)        (116,209)
  Proceeds from other property owned ..............................................           3,430            2,980
  Proceeds from loans held-for-sale ...............................................                           14,250
  Proceeds from sale of fixed assets ..............................................              40
  Purchases of premises and equipment .............................................          (6,729)         (12,751)
                                                                                          ---------        ---------
         Net cash (used) provided by investing activities .........................         (81,287)          51,555
Cash flows from financing activities:
  Net increase (decrease) in nontime deposits .....................................          74,547          (42,726)
  Net (decrease) increase in certificates of deposit ..............................         (60,866)           2,224
  Net increase (decrease) in short-term and other borrowings ......................          39,787          (10,354)
  Cash dividends paid .............................................................          (7,148)          (5,135)
  Issuance of common stock for cash, net ..........................................           1,474            2,202
                                                                                          ---------        ---------
         Net cash provided (used) by financing activities .........................          47,794          (53,789)
                                                                                          ---------        ---------
  Decrease in cash and cash equivalents ...........................................          (6,157)          (4,048)
  Cash and cash equivalents at beginning of year ..................................          95,702          140,263
                                                                                          ---------        ---------
  Cash and cash equivalents at end of period ......................................       $  89,545        $ 136,215
                                                                                          =========        =========
Supplemental disclosure of cash flow information:
  Cash paid during the period for:
    Interest ......................................................................       $  52,990        $  49,089
                                                                                          =========        =========
    Income taxes ..................................................................       $  26,472        $   6,214
                                                                                          =========        =========
Noncash transactions:
  Transfers from securities held-to-maturity to available-for-sale ................                        $ 145,564
                                                                                                           =========
  Transfers from loans to other property owned ....................................       $   5,635        $   2,922
                                                                                          =========        =========
  Common stock issuance ...........................................................       $   1,647        $   1,048
                                                                                          =========        =========
</TABLE>


                 The accompanying notes are an integral part of
                    these consolidated financial statements.


                                       6
<PAGE>   7
                                    UST CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)       BASIS OF PRESENTATION

               The consolidated financial statements of UST Corp. and its
         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. All applicable prior period
         amounts included in this Form 10-Q have been restated to reflect the
         October 1997 acquisition of Firestone Financial Corp. as a pooling of
         interests. Refer to Note 5 for a further discussion of acquisitions.
         The amounts shown reflect, in the opinion of management, all
         adjustments necessary for a fair presentation of the financial
         statements for the periods reported. These financial statements should
         be read in conjunction with the financial statements and the notes
         thereto included in the Company's Annual Report on Form 10-K for the
         fiscal year ended December 31, 1997. Certain prior period amounts have
         been reclassified to reflect current reporting classifications.

               The results of operations for the three and six months ended June
         30, 1998 and 1997 are not necessarily indicative of the results of
         operations for the full year or any other interim period.

(2)      RESERVE FOR POSSIBLE LOAN LOSSES

               Analysis of the reserve for possible loan losses for the six
         months ended June 30, 1998 and 1997 is as follows:

<TABLE>
<CAPTION>
                                                                 1998          1997
                                                               -------       -------
                                                               (DOLLARS IN THOUSANDS)

<S>                                                            <C>           <C>    
              Balance at beginning of period ...........       $52,230       $51,984

              Chargeoffs ...............................         5,540         2,887
              Recoveries on loans previously charged-off         4,461         2,487
                                                               -------       -------
              Net chargeoffs ...........................         1,079           400
              Provision for possible loan losses .......         1,665           300
                                                               -------       -------
              Balance at end of period .................       $52,816       $51,884
                                                               =======       =======
</TABLE>

               The reserve for possible loan losses is determined 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 Losses" in Management's Discussion and Analysis of
         Financial Condition and Results of Operations, herein.


                                       7
<PAGE>   8
                                    UST CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(3)        COMMITMENTS AND CONTINGENCIES

               At June 30, 1998, the Company had the following off-balance sheet
         financial instruments whose contract amounts represent credit risk:

<TABLE>
<CAPTION>
                                                          CONTRACT OR NOTIONAL AMOUNT
                                                          ---------------------------
                                                             (DOLLARS IN THOUSANDS)

<S>                                                       <C>     
                 Commitments to extend credit ..........            $958,000

                 Standby letters of credit and financial
                    guarantees written .................              77,000

                 Loans sold with recourse ..............              11,000

                 Commercial letters of credit ..........               7,000

                 Foreign exchange contracts ............               5,000
</TABLE>

(4)      EARNINGS PER SHARE CALCULATION

               The Company computes earnings per share in accordance with SFAS
         No. 128. This Statement supersedes APB No. 15 regarding the
         presentation of earnings per share ("EPS") on the face of the income
         statement. SFAS No. 128 replaced the presentation of Primary EPS with a
         Basic EPS calculation that excludes the dilutive effect of common stock
         equivalents. The Statement requires a dual presentation of Basic and
         Diluted EPS, which is computed similarly to Fully Diluted EPS pursuant
         to APB No. 15, for all entities with complex capital structures. This
         Statement was effective for fiscal years ending after December 15, 1997
         and requires restatement of all prior period EPS data presented,
         including quarterly information. The Company's common stock equivalents
         consist primarily of dilutive outstanding stock options computed under
         the treasury stock method. Basic and Diluted EPS computations for the
         three and six months ended June 30, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED JUNE 30,          SIX MONTHS ENDED JUNE 30,
                                                             ---------------------------          -------------------------
                                                               1998              1997              1998              1997
                                                               ----              ----              ----              ----
                                                                          (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<S>                                                         <C>               <C>               <C>               <C>        
Basic earnings per share computation:
   Numerator:
      Net income ....................................       $    12,533       $     8,769       $    25,390       $     9,673
   Denominator:
      Weighted average shares outstanding ...........            29,879            29,612            29,840            29,528
Basic earnings per share ............................       $      0.42       $      0.30       $      0.85       $      0.33

Diluted earnings per share computation:
   Numerator:
      Net income ....................................       $    12,533       $     8,769       $    25,390       $     9,673
   Denominator:
      Weighted average shares outstanding ...........            29,879            29,612            29,840            29,528
      Dilutive stock options ........................               604               442               587               438
                                                            -----------       -----------       -----------       -----------
        Weighted average diluted shares outstanding .            30,483            30,054            30,427            29,966
                                                            ===========       ===========       ===========       ===========

Diluted earnings per share ..........................       $      0.41       $      0.29       $      0.83       $      0.32
</TABLE>


                                       8
<PAGE>   9
                                    UST CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(5)      ACQUISITIONS

         Walden Bancorp, Inc.

            On January 3, 1997, the Company completed its acquisition of Walden
         Bancorp, Inc. ("Walden"), a $1.0 billion multi-bank holding company
         headquartered in Acton, Massachusetts. The transaction was accounted
         for as a pooling of interests and was structured as a tax-free exchange
         of 1.9 shares of the Company's common stock for each share of Walden
         common stock. The Company's outstanding stock increased by 10,125,540
         shares to a total of 28,144,163 shares on the date of acquisition.
         Based on the closing price of the Company's stock as of January 3,
         1997, the market value of the shares exchanged totaled $207 million.
         Walden's two subsidiary banks, The Braintree Savings Bank and The
         Co-operative Bank of Concord operated a total of seventeen branches
         located in the Massachusetts counties of Middlesex, Norfolk and
         Plymouth. The Co-operative Bank of Concord and The Braintree Savings
         Bank were merged into USTrust during the second quarter of 1997. In the
         first quarter of 1997 the Company recognized a nondeductible charge of
         $2.8 million in nonrecurring acquisition and merger-related expense and
         a pre-tax $11.8 million restructuring charge associated with the
         transaction.

         Firestone Financial Corp.

            On October 15, 1997, the Company completed its acquisition of 
         Firestone Financial Corp. ("Firestone"), an $85 million small business
         equipment finance company headquartered in Newton, Massachusetts. The
         transaction was accounted for as a pooling of interests and was
         structured as a tax-free exchange of 0.59 shares of the Company's
         common stock for each share of Firestone common stock. The Company's
         outstanding stock increased by 1,180,000 to a total of 29,716,593
         shares on the date of acquisition. Based on the closing price of the
         Company's stock as of October 15, 1997, the market value of the shares
         exchanged totaled $31 million. Firestone operates as a wholly-owned
         subsidiary of USTrust.

         Somerset Savings Bank

            Subsequent to June 30, 1998, on July 20, 1998, the Company completed
         its acquisition of Somerset Savings Bank ("Somerset"), a Massachusetts
         savings bank headquartered in Somerville. The transaction was accounted
         for as a pooling of interests and was structured as a tax-free exchange
         of 0.19 shares of the Company's common stock for each share of Somerset
         common stock. The Company's outstanding stock increased by 3,203,373
         shares to a total of 33,100,551 shares on the date of acquisition.
         Based on the closing price of the Company's stock as of July 20, 1998,
         the market value of the shares exchanged totaled $88.9 million.
         Somerset operated six branches in Middlesex County. At the date of
         acquisition, Somerset was merged with and into USTrust, a subsidiary
         bank of the Company. At June 30, 1998, Somerset had total net loans and
         total assets of $403 million and $524 million, respectively, and total
         deposits and total stockholders' investment of $444 million and $40
         million, respectively.


                                       9
<PAGE>   10
                                    UST CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(5)      ACQUISITIONS (CONT'D.)

         Affiliated Community Bancorp, Inc.

               Subsequent to June 30, 1998, on August 7, 1998, the Company
         completed its acquisition of Affiliated Community Bancorp, Inc.
         ("Affiliated"), a multi-bank holding company headquartered in Waltham,
         Massachusetts. The transaction was accounted for as a pooling of
         interests and was structured as a tax-free exchange of 1.41 shares of
         the Company's common stock for each share of Affiliated common stock.
         The Company's outstanding stock increased by 9,439,735 shares to a
         total of 42,542,386 shares on the date of acquisition. Based on the
         closing price of the Company's stock as of August 7, 1998, the market
         value of the shares exchanged was $225 million. Affiliated's three
         subsidiary banks, The Federal Savings Bank ("Federal"), Lexington
         Savings Bank ("Lexington") and Middlesex Bank & Trust Company
         ("Middlesex"), operate a total of thirteen branch offices in Middlesex
         County. It is expected that Federal and Lexington will be merged with
         and into USTrust during the fourth quarter. As contemplated by the
         agreement to the terms of which the Affiliated acquisition was
         consummated, Middlesex Bank & Trust Company, a $28 million bank was
         sold for $8.24 million to a private investor unaffiliated with the
         Company following the consummation of the Affiliated acquisition. At
         June 30, 1998, Affiliated had total net loans and total assets of $684
         million and $1.123 billion, respectively, and total deposits and total
         stockholders' investment of $734 million and $119 million,
         respectively.

               The following unaudited pro forma condensed consolidated
         financial information as of June 30, 1998 and for the three and six
         months ended June 30, 1998 and 1997, has been prepared to give effect
         to the Somerset and Affiliated acquisitions using the pooling of
         interests method of accounting. The unaudited pro forma consolidated
         statements of income data have been derived from the unaudited
         statements of income of the Company, Somerset and Affiliated for the
         three and six months ended June 30, 1998 and 1997 as if these
         transactions were effective as of January 1 of each year. The unaudited
         pro forma balance sheet data have been derived from the unaudited pro
         forma consolidated balance sheets of the Company, Somerset and
         Affiliated as of June 30, 1998. Such unaudited pro forma consolidated
         financial information is not necessarily indicative of the results of
         operations or financial condition which would have actually been
         reported had the mergers of the Company with Somerset and Affiliated
         occurred on the assumed dates, nor is it necessarily indicative of the
         future results of operations or financial condition of the Company. The
         unaudited pro forma June 30, 1998 balance sheet data reflects an
         after-tax charge for estimated merger and reorganization expenses
         related to both acquisitions as of the date of this filing of $14.0
         million ($19.5 million pre-tax), net of an estimated 40 percent tax
         benefit (after excluding $5.8 million of nondeductible expense);
         however, since these expenses are nonrecurring, they have not been
         reflected in the unaudited pro forma statements of income data. The pro
         forma statements of income data also do not give effect to any
         anticipated cost savings in connection with the combination.


                                       10
<PAGE>   11
         Unaudited Pro Forma Condensed Consolidated Statements of Income Data:

<TABLE>
<CAPTION>
                                                         THREE MONTHS ENDED JUNE 30,    SIX MONTHS ENDED JUNE 30,
                                                         ---------------------------    -------------------------
                                                             1998           1997           1998           1997
                                                             ----           ----           ----           ----
                                                                 (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<S>                                                        <C>             <C>           <C>            <C>     
         Net interest income .......................       $ 62,083        $56,351       $124,851       $111,076
         Provision (credit) for possible loan losses           (880)           850            221          1,350
         Noninterest income ........................         11,106          9,215         23,584         20,852
         Noninterest expense .......................         47,210         44,221         92,836         98,440
         Net income ................................         17,450         13,419         36,184         18,248
         Basic earnings per share ..................       $   0.41        $  0.32       $   0.86       $   0.43
         Diluted earnings per share ................       $   0.40        $  0.31       $   0.84       $   0.43
</TABLE>

         Unaudited Pro Forma Condensed Consolidated Balance Sheet Data:

<TABLE>
<CAPTION>
                                                                       JUNE 30, 1998
                                                                       -------------
                                                                  (DOLLARS IN THOUSANDS)

<S>                                                               <C>       
         Total loans, net of reserve for possible loan losses          $3,991,728
         Total assets .......................................           5,562,487
         Total deposits .....................................           4,169,926
         Total stockholders' investment .....................             507,667
</TABLE>

(6)      COMPREHENSIVE INCOME

               On January 1, 1998, the Company adopted Statement of Financial
         Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
         No. 130"), which requires companies to report all changes in
         stockholders' investment during a period, except those resulting from
         investment by owners and distribution to owners, in a financial
         statement for the period in which they are recognized. The Company has
         chosen, as allowed by SFAS No. 130, to disclose Comprehensive Income,
         which encompasses net income and unrealized gains or losses on
         securities available-for-sale, in the Consolidated Statements of
         Changes in Stockholders' Investment. Prior years have been restated to
         conform to SFAS No. 130 requirements. The impact of this Statement for
         the six months ended June 30, 1997 was to reduce reported net income of
         $9.7 million to a total comprehensive net income of $9.0 million. The
         impact for the six months ended June 30, 1998 was to increase reported
         income of $25.4 million to a total comprehensive net income of $26.7
         million.


                                       11
<PAGE>   12
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

         The following discussion should be read in conjunction with the
financial statements, notes, and tables included in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997. The discussion
contains certain forward-looking statements regarding the future performance of
the Company. All forward-looking information is inherently uncertain and actual
results may differ materially from the assumptions, estimates or expectations
reflected or contained in the forward-looking information. Please refer to
"Cautionary Statement Regarding Forward-looking Information" of this Form 10-Q
for a further discussion. All applicable prior period financial data included in
this discussion has been restated to reflect the 1997 acquisition of Firestone
Financial Corp. ("Firestone") as a pooling of interests.

HIGHLIGHTS

         Net income for the quarter ended June 30, 1998 was $12.5 million, or
$0.41 per diluted share, compared with $8.8 million, or $0.29 per diluted share,
for the same period last year. The earnings improvement was mainly the result of
higher net interest income from earning asset growth and favorable changes in
asset and liability mix. Noninterest income also reflected growth in fee-based
services such as asset management, deposit account services and corporate
services income. Excluding nonrecurring items, quarterly earnings results during
the past two years of acquisition activity have continued to improve. This
favorable earnings trend is reflective of the synergies and operating
efficiencies of the acquisitions, improvement in net interest income and growth
in fee-based noninterest income. For the six months ended June 30, 1998, net
income was $25.4 million, or $0.83 per diluted share, compared with $9.7
million, or $0.32 per diluted share for the first half of 1997. Results for the
1997 period included a nonrecurring charge of $2.8 million for certain
nondeductible, merger-related expenses and pre-tax charges of $11.8 million for
restructuring expenses associated with the acquisition of Walden Bancorp Inc.
("Walden") in January of 1997.

         The increase in earnings this quarter was favorably reflected in return
on average equity and return on average assets, which improved to 14.12 percent
and 1.30 percent, respectively, from 11.24 percent and .97 percent,
respectively, last year.

NET INTEREST INCOME ANALYSIS

         Net interest income on a fully taxable equivalent basis was $48.2
million for the quarter ended June 30, 1998, compared with $42.8 million for the
same period a year ago. For the first six months of 1998, net interest income
was $96.0 million compared with $84.2 million last year. The increase in net
interest income in both comparisons was due to the combination of, earning asset
growth, favorable changes in earning asset and deposit mix, noninterest and low
cost deposit growth and lower borrowing costs.

         Average loans increased over 12 percent in both the three- and
six-month periods, or $327 million and $313 million, respectively, from the same
periods last year to $2.927 billion and $2.868 billion, respectively. As
exhibited in the table below, loan growth was the largest contributor to the
improvement in net interest income, a $7.2 million volume-related interest
income increase for the quarter and $13.8 million for the six months ended June
30. Lower-yielding assets, such as securities, decreased $63 million and $88
million for the three- and six-month periods, respectively, and Federal Funds
sold decreased $44 million and $26 million for the same periods. Low-cost
savings deposits, including regular savings, NOW and money market increased $35
million and $22 million from the three- and six-month periods last year while
higher-cost certificates of deposit decreased $68 million and $47 million,
respectively. Noninterest-bearing deposits increased $191 million and $169
million from the three- and six-month periods last year. The effect on net
interest income from these favorable changes in volume of interest-earning
assets and interest-bearing liabilities was an increase of $5.9 million and
$11.5 million for the three and six months ended June 30, 1998 compared with the
same periods last year.


                                       12
<PAGE>   13
         Yield on earning assets increased 8 basis points to 8.30 percent for
the three months ended June 30 and 16 basis points to 8.37 percent for the
six-month period due to the improvement in yields on securities from a portfolio
restructuring and sale of lower-yielding securities in the latter half of 1997,
and reflects the effect of an increase in loans, which are higher yielding, in
the asset mix. The cost of interest-bearing liabilities remained at last year's
levels as the effect of increased savings deposit rates of 17 basis points and a
smaller increase in certificates of deposit rates in both comparisons was offset
with lower borrowing costs. Borrowing costs declined approximately 35 basis
points from last year in both the three- and six-month periods ended June 30 due
to the maturity and pay down of higher cost, longer-term borrowings replaced
with lower cost, short-term maturity borrowings. Cost of interest-bearing
liabilities was 3.88 percent for the three months and 3.91 percent for the six
months ended June 30, 1998. The net effect of rate changes on net interest
income for the three and six months ended June 30, 1998, compared with the same
periods last year, was a decrease of $454 thousand and an increase of $274
thousand, respectively.

         As a result of the favorable changes in earning asset mix, yield on
securities improvement and more favorable deposit mix, the interest rate margin
and spread improved from 5.02 percent and 4.33 percent for the three-month
period last year to 5.32 percent and 4.42 percent, respectively, this year and
from 4.99 percent and 4.30 percent for the six-month period last year to 5.38
percent and 4.46 percent this year, respectively.

         The following table attributes changes in interest income and interest
expense to changes in interest rates and changes in the volume of
interest-earning assets and interest-bearing liabilities for the three- and
six-month periods ended June 30, 1998 when compared with the three and six
months ended June 30, 1997. Changes attributable to both rate and volume are
allocated on a weighted basis.

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED JUNE 30,                 SIX MONTHS ENDED JUNE 30,
                                                         1998 COMPARED WITH 1997                    1998 COMPARED WITH 1997
                                                  INCREASE (DECREASE) DUE TO CHANGE IN:      INCREASE (DECREASE) DUE TO CHANGE IN:
                                                  -------------------------------------      -------------------------------------
                                                   AVERAGE       AVERAGE                      AVERAGE      AVERAGE
                                                    VOLUME        RATE          TOTAL          VOLUME        RATE          TOTAL
                                                   -------       -------       -------        -------      -------       --------
                                                                                (DOLLARS IN THOUSANDS)
<S>                                                <C>           <C>           <C>            <C>          <C>           <C>     

Interest income:
  Interest and fees on loans* ..............       $ 7,156        $(612)       $ 6,544        $ 13,795      $   (79)     $ 13,716
  Interest and dividends on securities:
        Taxable ............................          (947)         292           (655)         (2,792)         836        (1,956)
        Nontaxable* ........................           (50)        (134)          (184)             54         (214)         (160)
  Interest on federal funds sold and other .          (698)         224           (474)           (777)         263          (514)
                                                   -------        -----        -------        --------      -------      --------
        Total interest income* .............         5,461         (230)         5,231          10,280          806        11,086
                                                   -------        -----        -------        --------      -------      --------
Interest expense:
  Interest on regular savings, NOW and
    money market deposits ..................           214          599            813             263        1,174         1,437
  Interest on time deposits ................          (898)          88           (810)         (1,263)         235        (1,028)
  Interest on borrowings ...................           250         (463)          (213)           (241)        (877)       (1,118)
                                                   -------        -----        -------        --------      -------      --------
        Total interest expense .............          (434)         224           (210)         (1,241)         532          (709)
                                                   -------        -----        -------        --------      -------      --------
Net interest income ........................       $ 5,895        $(454)       $ 5,441        $ 11,521      $   274      $ 11,795
                                                   =======        =====        =======        ========      =======      ========
</TABLE>
-------------

* Fully taxable equivalent at the federal income tax rate of 35 percent, and
  includes applicable state taxes, net of federal benefit. The tax equivalent
  adjustments were $66 and $135 thousand on loans and $67 and $127 thousand on
  nontaxable and preferential rate taxable securities for the three and six
  months ended June 30, 1998, respectively.



                                       13
<PAGE>   14
NONINTEREST INCOME

         Total noninterest income increased $1.6 million and $2.0 million for
the three- and six-month periods ended June 30, 1998, respectively. The
improvement was led by increases of $662 thousand and $1.2 million in asset
management fees, the largest component of noninterest income, for the three- and
six-month periods, respectively. The increases in asset management fees were the
result of growth of 16 percent or approximately $480 million in trust and money
management balances from a year ago to $3.4 billion at June 30, 1998. Deposit
account service charges increased $479 thousand and $704 thousand for the same
periods, respectively, consistent with the growth in noninterest-bearing and
savings deposit balances. The 1997 periods reflect realized securities losses of
$584 thousand and $573 thousand, respectively, for the three- and six-month
periods ended June 30 due to the portfolio restructuring. Realized securities
gains this year were nominal in the second quarter, while year-to-date net
realized gains totaled $1.5 million due to the sale of equity investments held
by a venture capital subsidiary. The first six months of 1997 also reflects a
$1.8 million gain on sale of loans. The decreases in other noninterest income
in both comparisons reflects lower residual income on terminated equipment
leases.

NONINTEREST EXPENSE

         Total noninterest expense was $37.4 million, $1.4 million higher than
the second quarter last year. The increase reflects $845 thousand of expenses
related to the Company's Year 2000 readiness efforts, $717 thousand increase in
equipment depreciation and maintenance reflective of the Company's investment in
computer hardware and software, a $379 thousand increase in occupancy due mostly
to the addition of new branches, and a $423 thousand increase in personnel
costs. Amortization of intangible asset expense increased $585 thousand from
last year due to a 1997 expense adjustment related to the re-allocation of
purchase price of assets assumed in the late 1996 acquisition of twenty banking
branches from Bank of Boston Corporation. Partially offsetting these increases
was a $1.5 million decrease in other noninterest expense due mostly to a $1.2
million settlement of litigation expense in 1997 and lower checkbook charges in
1998 compared with last year which included charges for free replacements for
acquired Bank of Boston customers.

         For the six months ended June 30, 1998, total noninterest expense was
$74.6 million, $10.7 million lower than the same period last year. Included in
1997 were the Walden acquisition and merger-related expenses of $2.9 million and
restructuring charges of $11.8 million. Other noninterest expense was lower than
last year due to the aforementioned settlement of litigation expense in 1997 and
lower checkbook charges this year. Partially offsetting these expense decreases
was a $1.3 million increase in personnel cost, $1.2 million increase in
equipment depreciation and maintenance related to investment in technology and
$1.3 million in Year 2000 readiness expense.

Year 2000

         In 1997 the Company assembled a project team of senior officers and
outside consultants to assess the impact of the so-called Year 2000 problem on
its systems and certain systems of its customers, vendors and other parties that
service or otherwise interact with the Company. The Year 2000 problem, which is
common to most corporations, concerns the inability of information systems,
primarily (but not exclusively), computer software programs, to recognize
properly and process date-sensitive information as the Year 2000 approaches.
Data processing for the Company's major operating systems (loans and deposits)
is conducted in-house using programs developed primarily by third-party vendors.
Inventory and Year 2000 readiness assessment of all information and
noninformation systems and applications have been completed and all third-party
vendors who provided applications to the Company have been contacted. Efforts to
bring the major operating systems, and certain outsourced applications, into
compliance with Year 2000 requirements have or will be accomplished primarily
through the installation of updated or replacement programs developed by third
parties. In addition, the status of all Company facilities and all significant
third party providers of goods and services to the Company has been assessed.
Starting in March 1998, the Company retained the services of Arthur Andersen
LLP, Atlantic Data Services, Inc. and certain additional outside advisors and
programmers to augment the Company's efforts in addressing its Year 2000
compliance. Arthur Andersen's efforts have been focused upon assisting the
Company in project management and progress assessment.

                                       14
<PAGE>   15

         Bank regulatory agencies have issued guidance as to the standards they
will use when assessing Year 2000 readiness. The failure of a financial
institution, such as the Company, to take appropriate steps to address
deficiencies in their Year 2000 project management process may result in
regulatory enforcement actions which could have a material adverse effect on
such institution, result in the imposition of civil money penalties, or result
in the delay (or receipt of an unfavorable or critical evaluation of management
of a financial institution in connection with regulatory review) of applications
seeking to acquire other entities or otherwise expand the institution's
activities.

         The Company's Year 2000 Readiness Program contains a number of discrete
segments, including Awareness and Assessment, Project Planning, Remediation,
Unit Test Plans, Unit Testing, Commercial (including evaluation and monitoring
stages), Retail, Contingency Plans for Information Systems and Contingency Plans
for Business Continuation. Awareness and Assessment, Project Planning for all
aspects and Unit Test Plans for mission critical technology systems have been
completed. Mission critical systems are defined by the Company as those vital to
the successful continuance of core business activities. Test Plans for
noncritical applications are in process of development and are expected to be
completed during the second half of 1998. The Remediation phase, wherein
software and hardware are either modified or replaced, is well underway and
presently scheduled to be substantially completed by year-end 1998 for mission
critical applications and early 1999 for nonmission critical applications.
Mission critical systems testing is targeted to be substantially complete by
December 31, 1998 and nonmission critical systems are expected to be completely
tested by the end of the first quarter of 1999. To assure the completion of
testing for nonmission critical applications, the Company has recently engaged
the services of an additional third-party vendor. The Commercial phase, which
includes the evaluation of credit risk stemming from problems borrowers may have
in resolving their own Year 2000 issues, is in process and monitoring of the
remediation efforts of high risk customers will be ongoing. During the
monitoring stage the Company will implement a course of action and procedures
designed to reduce any increased potential credit risk as a result of borrowers'
Year 2000 issues. Also encompassed in this phase is the in-process evaluation,
assessment and monitoring of the state of readiness of the Company's funds
providers and the capital markets. The Retail phase is largely focused on
customer communications as to the state of the Company's Year 2000 readiness.
This effort has begun and is ongoing. Contingency Planning (other than business
continuation planning) for all technology systems has been completed. The
process of updating the Company's existing Business Continuation Plan to address
Year 2000 issues began July 1 and will establish reasonably likely worst case
scenerios. Utilizing the resources of the Company's existing Disaster Recovery
consultant, all Business Continuation Plans will address Year 2000 issues.

         The Company believes that it will be able to modify or replace any
affected systems in time to minimize any detrimental effects on the Company's
operations. In a number of cases, Year 2000 compliant systems have been
installed or are already in the process of installation in the normal course of
upgrade and functionality improvement. The Company expects that it will incur
costs to replace existing hardware and software which will be capitalized and
amortized in accordance with the Company's existing accounting policy while
maintenance or modification costs will be expensed as incurred. At June 30, 1998
Year 2000 readiness expense totaled $1.3 million, all of which was recorded
during the first half of 1998. Although total costs for the entire project have
yet to be determined, the Company expects to incur, as current operating expense
(including the above $1.3 million), costs in the range of $3 million to $4
million to assure Year 2000 readiness. Capital expenditures for new equipment
and software purchases are expected to total an additional $1 million. This
estimate does not include the cost of a number of system installations
previously planned by the Company in the normal course of business. Costs of the
Year 2000 project are based on current estimates and actual results could vary
significantly from such estimates. If the Company's Year 2000 Readiness Program
were unsuccessful, it would have a material adverse effect on its future
operating results and the financial condition of the Company. Accordingly, the
Company's Board of Directors is actively involved in monitoring management's
efforts to address Year 2000 readiness and has instructed management to allocate
appropriate resources to address these matters.

         Ultimately, an estimation of the efforts of the Company in addressing
the Year 2000 issue in a successful and timely manner depends to a large extent
not only on the corrective measures that the Company undertakes, but also on the
efforts undertaken by businesses and other independent entities who provide data
to, or receive data from, the Company as borrowers, vendors or customers. In
particular, the Company's credit risk associated with its borrowers may increase
as a result of problems such borrowers may have in resolving their own Year 2000
issues. Because the Company has not yet completed its evaluation, it is not
possible to quantify the magnitude of any potential increased credit risk at
this time. The impact of the Year 2000 problem on borrowers, however, could
result in increases in problem loans and credit losses in future years.

                                       15
<PAGE>   16
INCOME TAXES

         The Company recorded income taxes of $7.5 million compared with $5.9
million for the same quarter last year, an increase of $1.6 million, consistent
with the higher level of pre-tax income this year. The effective tax rate for
the quarter was 37 percent compared with 40 percent last year. The decrease in
effective rate was attributable to the formation of a wholly-owned real estate
investment trust ("REIT") subsidiary earlier this year. The REIT holds a
substantial portion of the Company's commercial real estate loan portfolio,
which was originated by and transferred from USTrust. Income earned by a REIT
is taxed at a lower state tax rate than a bank. Included in other assets as of
June 30, 1998 was a deferred tax asset of approximately $15.9 million. The
Company believes that it is more likely than not that the benefit of this
deferred asset will be realized in future periods.

ASSETS

         Total assets at June 30, 1998 were $3.915 billion, an increase of $77
million since the beginning of the year. Loan growth of $121 million to $2.957
billion was partially offset by a $36 million decrease in securities and a lower
balance of cash and federal funds sold.

         The following table presents the composition of the loan portfolio:

<TABLE>
<CAPTION>
                                             JUNE 30,         MARCH 31,       DECEMBER 31,       JUNE 30,
                                               1998             1998             1997              1997
                                            ----------       ----------       ----------       ----------
                                                               (DOLLARS IN THOUSANDS)

<S>                                         <C>              <C>              <C>              <C>       
Commercial and financial ............       $1,083,357       $1,077,033       $1,023,783       $  939,217
Commercial real estate:
  Construction ......................           41,726           39,773           41,834           47,392
  Developer, investor and land ......          244,796          226,057          236,263          283,481
Commercial lease financing ..........           65,366           58,965           56,260           54,007
Consumer:
  Residential mortgage ..............          571,588          632,780          697,874          772,157
  Home equity .......................          101,023          106,433          111,151          111,692
  Indirect automobile installment ...          753,362          676,999          605,486          401,154
  Other consumer ....................           33,943           34,327           37,048           40,051
  Indirect automobile lease financing           62,119           40,822           26,283              275
                                            ----------       ----------       ----------       ----------
        Total loans .................       $2,957,280       $2,893,189       $2,835,982       $2,649,426
                                            ==========       ==========       ==========       ==========
</TABLE>

         The Company's commercial loan portfolios listed above totaled $1.370
billion at June 30, 1998, reflecting a net increase of $70 million since year
end and $100 million from a year ago. The increase in commercial loans was the
result of the purchase of an $80 million commercial loan portfolio during the
first quarter and continued growth within the commercial loan portfolio.

         Residential loans decreased $126 million during the first six months to
$572 million due to high levels of prepayment and normal amortization. The
currently low interest rate environment has accelerated the prepayment rates in
this portfolio and is expected to continue in the near term.

         The indirect automobile loan portfolio grew 24 percent, or $148
million, in the first six months of this year to $753 million. In comparison
with a year ago, the portfolio grew 88 percent, or $352 million, due to the
exiting of some larger competitors from the market during the latter half of
1997. Management expects growth in this portfolio to be at a more moderate
pace as competition has recently intensified. These loans are subjected
to the Company's credit quality standards and are not what is referred to in the
industry as "subprime" automobile loans.


                                       16
<PAGE>   17
         In 1997, the Company made available indirect automobile lease financing
through existing client automobile dealers. This portfolio totaled $62 million
at June 30, 1998, reflecting an increase of 136 percent, or $36 million, since
year end.

LIQUIDITY AND FUNDING

         Liquidity involves the Company's ability to raise or gain access to
funds in order to fulfill its existing and anticipated financial obligations. It
may be provided through amortization, maturity or sale of assets such as loans
and securities, liability sources such as increased deposits, utilization of the
Federal Home Loan Bank credit facility, purchased or other borrowed funds, and
access to the capital markets. The Company's securities portfolio is classified
entirely as available-for-sale, which provides the flexibility to sell certain
securities based upon changes in economic or market conditions, interest rate
risk and the Company's financial position and liquidity.

         At June 30, 1998, liquidity, which includes excess cash, funds sold and
unpledged securities, totaled approximately $363 million, or 9 percent of total
assets.

         The funds needed to support the Company's loan and securities
portfolios are provided through a combination of commercial and retail deposits
and short-term and other borrowings. Total deposits increased $14 million since
year-end 1997 to $2.992 billion. Noninterest-bearing deposits decreased $9
million. Savings deposits increased $83 million while certificates of deposit
decreased $61 million. Short-term and other borrowings, which consist
principally of securities sold under agreement to repurchase and borrowings from
the Federal Home Loan Bank, increased $40 million to $510 million.

         As shown in the Consolidated Statements of Cash Flows, cash and cash
equivalents decreased $6 million during the six-month period ended June 30,
1998. Cash provided by operations resulted largely from net income earned during
the period. Cash used by investing activities was due to net new loan fundings
partially offset with an excess of securities sales and maturities over
securities purchases. Net cash provided by financing activities was primarily
due to a shift in the deposit mix from certificates of deposit to nontime
deposits and increased short-term and other borrowings.

         At June 30, 1998, the parent Company had $6 million in cash and $4
million in repurchase agreements consistent with year-end as cash dividends
paid to stockholders approximated dividends received from subsidiaries during
the year.

INTEREST RATE RISK

         Volatility in interest rates requires the Company to manage interest
rate risk which arises from differences in the timing of repricing of assets and
liabilities. Management monitors and adjusts the difference between
interest-sensitive assets and interest-sensitive liabilities ("GAP" position)
within various time frames. 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 23 percent of total assets. The Company manages its interest rate
GAP primarily by lengthening or shortening the maturity structure of its
securities portfolio.


                                       17
<PAGE>   18
         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 or the London Interbank Offered Rate ("LIBOR"). The
following table summarizes the Company's GAP position at June 30, 1998. The
majority of loans are included in 0-30 days as they reprice in response to
changes in the interest rate environment. Interest-bearing deposits are
classified according to their expected interest rate sensitivity. Actual
sensitivity of these deposits is reviewed periodically and adjustments are made
in the Company's GAP analysis that management deems appropriate. Securities and
noninterest-bearing deposits are categorized according to their expected lives
based on published industry prepayment estimates in the case of securities and
current management estimates for noninterest-bearing deposits. Securities are
evaluated in conjunction with the Company's asset/liability management strategy
and may be purchased or sold in response to expected or actual changes in
interest rates, credit risk, 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, 1998, the one-year cumulative GAP position was positive at
$21 million, or approximately 1 percent of total assets.

<TABLE>
<CAPTION>
                                                                   INTEREST SENSITIVE PERIODS
                                                ----------------------------------------------------------------
                                                0-30 DAYS     31-90 DAYS    91-365 DAYS   OVER 1 YEAR      TOTAL
                                                ---------     ----------    -----------   -----------      -----
                                                                     (DOLLARS IN MILLIONS)

<S>                                              <C>          <C>           <C>           <C>             <C>   
Loans, net of reserve ....................       $   968         $ 163         $490         $ 1,283       $2,904
Federal funds sold and other .............            60                                                      60
Securities ...............................            27            53          108             498          686
Other assets .............................                                                      265          265                    
                                                 -------         -----         ----         -------       ------
       Total assets ......................       $ 1,055         $ 216         $598         $ 2,046       $3,915
                                                 -------         -----         ----         -------       ======
                                                                                          
Interest-bearing deposits ................       $   581         $ 146         $443         $ 1,122       $2,292
Borrowed funds ...........................           494                          8               8          510
Noninterest-bearing deposits .............           160                                        540          700
Other liabilities and stockholders' equity            16                                        397          413
                                                 -------         -----         ----         -------       ------
       Total liabilities and equity ......       $ 1,251         $ 146         $451         $ 2,067       $3,915
                                                 -------         -----         ----         -------       ======
                                                                                          
GAP for period ...........................       $  (196)        $  70         $147         $   (21)
                                                 =======         -----         ----         -------
Cumulative GAP ...........................                       $(126)        $ 21         $     0
                                                                 =====         ====         =======
                                                                                         
As a percent of total assets .............         (5.01%)       (3.22%)       0.54%
</TABLE>


CREDIT QUALITY AND RESERVE FOR POSSIBLE LOAN LOSSES

         At June 30, 1998, substandard loans were $21.4 million compared with
$36.0 million at December 31, 1997. Loans reported as substandard include loans
classified as Substandard or Doubtful as determined by the Company in its
internal credit risk rating profile. Under the Company's definition, Substandard
loans, which include nonaccruals, are characterized by the distinct possibility
that some loss will be sustained if the credit deficiencies are not corrected.
The Substandard classification, however, does not necessarily imply ultimate
loss for each individual loan so classified. Loans classified as Doubtful have
all the weaknesses inherent in Substandard loans with the added characteristic
that the weaknesses make collection of 100 percent of the assets questionable
and improbable.


                                       18
<PAGE>   19
         At June 30, 1998, approximately 58 percent of loans classified as
Substandard or Doubtful were collateralized by real estate, and the remainder
were collateralized by accounts receivable, inventory, equipment and other
business assets. Of the loans secured by real estate, approximately 27 percent
were collateralized by owner-occupied commercial properties, approximately 64
percent were collateralized by commercial real estate, and approximately 7
percent by residential real estate. The remaining loans were collateralized by
real estate under construction and raw land.

         The following table displays the Company's total nonperforming assets
and measures performance regarding certain key indicators of asset quality:

<TABLE>
<CAPTION>
                                                        JUNE 30,         MARCH 31,        DECEMBER 31,       JUNE 30,
                                                          1998             1998              1997             1997
                                                        ---------        ---------         ---------        ---------
                                                                            (DOLLARS IN THOUSANDS)

<S>                                                     <C>              <C>              <C>               <C>      
Nonperforming assets:
   Nonaccrual loans .............................       $  19,857        $  24,640         $  25,518        $  27,037
   Accruing loans 90 days or more past due ......           1,252            1,192             1,069              989
   Other property owned (OPO), net* .............           1,577            1,370             1,334              880
                                                        ---------        ---------         ---------        ---------
Total nonperforming assets ......................       $  22,686        $  27,202         $  27,921        $  28,906
                                                        =========        =========         =========        =========

Reserve for possible loan losses ................       $  52,816        $  54,060         $  52,230        $  51,884
Net chargeoffs (recoveries) for the quarter .....           1,934             (855)              654              351
OPO reserve .....................................             154              154               623              367

Ratios:
   Reserve to nonaccrual loans ..................           266.0%           219.4%            204.7%           191.9%
   Reserve to total of nonaccrual loans, accruing
     loans 90 days or more past due, and
     restructured loans .........................           250.2%           209.3%            196.4%           185.1%
   Reserve to period-end loans ..................             1.8%             1.9%              1.8%             2.0%
   Nonaccrual loans and accruing loans over
     90 days past due to period-end loans .......             0.7%             0.9%              0.9%             1.1%
   Nonperforming assets to period-end
     loans and OPO ..............................             0.8%             0.9%              1.0%             1.1%
   Annualized net (recoveries) chargeoffs
     to average loans ...........................             0.3%            (0.1%)             0.1%             0.1%
   OPO reserve to OPO ...........................             8.9%            10.1%             31.8%            29.4%
</TABLE>

         ------------

             *   Included in other property owned ("OPO") are other real estate,
                 automobiles and equipment acquired through foreclosure or in
                 settlement of loans.

         As shown in the table above, total nonperforming assets were $22.7
million, a $5.2 million decrease from the $27.9 million at year end. Nonaccrual
loans remain at a level appropriate to the size of the loan portfolio, while
other nonperforming assets remain at low levels. The net chargeoffs of $1.1
million and provision for possible loan losses this year of $1.7 million
resulted in a reserve which increased to $52.8 million. The reserve to
nonaccrual loan ratio increased to 266 percent while reserve to total loans
remained consistent with the year-end level.


                                       19
<PAGE>   20
         The Company's consumer loan delinquency rates (greater than 30 days
past due including nonaccruals) continue to remain at favorable levels. The
delinquency rate for the indirect automobile loans, the largest component of the
Company's consumer loan portfolio excluding residential mortgage loans, was 2.78
percent at June 30, 1998 favorably lower than the 3.20 percent at December 31,
1997. The Company anticipates that the current high growth rate experience in
the indirect automobile loan portfolio will subside in future periods as well as
experience seasonal fluctuations. This factor, combined with the eventual
maturity of the existing portfolio, may result in an increase in the delinquency
rate and subsequent level of chargeoffs in future periods.

         At June 30, 1998, total impaired loans were $10.9 million, comprised of
$787 thousand that required a reserve for possible loan losses of $410 thousand
and $10.1 million that did not require a related reserve. Impaired loans, as
defined in Statement of Financial Accounting Standards No. 114 ("SFAS No. 114")
are commercial and commercial real estate loans recognized by the Company as
nonaccrual and restructured.

         The Company maintains a reserve for possible loan losses to absorb
future chargeoffs of loans and leases in the existing portfolio. The reserve is
increased when a loan loss provision is recorded in the income statement. When a
loan, or portion thereof, is considered uncollectible, it is charged against the
reserve. Recoveries on amounts previously charged off are added to the reserve
when collected. Adequacy of the reserve for possible loan losses is evaluated on
a monthly basis using a consistent, systematic methodology which analyzes the
size and risk of the loan and lease portfolio. Factors in this analysis include
historical loss experience and asset quality, as reflected by delinquency
trends, nonaccrual and restructured loans and the Company's credit risk rating
profile. 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
using a combination of numerical and qualitative analysis and includes
sensitivity testing and a written conclusion.

         No portion of the reserve is restricted to any loan or group of loans,
and the entire reserve is available to absorb future realized losses. The amount
and timing of realized losses and future reserve allocations may vary from
current estimates. An allocation of the reserve for possible loan losses to each
category of loans is presented below:

<TABLE>
<CAPTION>
                                                 JUNE 30,      MARCH 31,    DECEMBER 31,    JUNE 30,
                                                   1998          1998           1997          1997
                                                 --------      ---------    ------------    --------
<S>                                               <C>          <C>          <C>             <C>    
Reserve for possible loan losses allocation
  to loans outstanding:
   Commercial and financial ...............       $17,121       $19,652       $19,449       $18,666
   Commercial real estate:
      Construction ........................           582           614           747           897
      Developer, investor and land ........         3,417         2,452         3,057         4,241
   Commercial lease financing .............         1,202         1,138           974           690
   Consumer* ..............................        21,089        20,949        20,745        18,626
   Unallocated ............................         9,405         9,255         7,258         8,764
                                                  -------       -------       -------       -------
      Total loan loss reserve .............       $52,816       $54,060       $52,230       $51,884
                                                  =======       =======       =======       =======
</TABLE>

-------------

 *   Consumer loans include indirect automobile installment loans and leases,
     residential mortgages, home equity lines of credit, credit cards, check
     credit and other consumer loans.

         The reserve for possible loan losses was $52.8 million at June 30,
1998, an increase of $586 thousand since December 1997 and an increase of $932
thousand from June 1997. The unallocated portion of the reserve was 18
percent at June 30, 1998 compared with 14 percent at year end reflecting the
reduction in reserve allocated to the commercial loan portfolios consistent with
the improvement in asset quality. A 13 percent increase in reserve for consumer
loans from a year ago was consistent with the strong growth in the consumer
indirect automobile portfolio.


                                       20
<PAGE>   21
CAPITAL AND DIVIDENDS

         The Company and its banking subsidiaries are subject to various
regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory--and
possibly additional discretionary--actions by regulators that, if undertaken,
could have a direct material effect on the Company's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company and its subsidiary banks must meet specific capital
guidelines that involve quantitative measures of assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting
practices. The capital amounts and classifications are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.

         Quantitative measures established by regulation to ensure capital
adequacy require the Company and its banking subsidiaries to maintain minimum
amounts and ratios (set forth in the table below) of Total and Tier I capital
(as defined in the regulations) to risk-weighted assets (as defined), and of
Tier I capital (as defined) to average assets (as defined). Management believes,
as of June 30, 1998, that the Company and its subsidiary banks meet all of their
respective capital adequacy requirements.

         The actual capital amounts and ratios of the Company and its banking
subsidiaries as of June 30, 1998 are presented in the following summary:

<TABLE>
<CAPTION>
                                                       AMOUNT                                 PERCENT
                                          -----------------------------------     -----------------------------------

                                                     ADEQUATELY       WELL                   ADEQUATELY      WELL
                                                    CAPITALIZED   CAPITALIZED               CAPITALIZED   CAPITALIZED
                                          ACTUAL      MINIMUMS      MINIMUMS      ACTUAL      MINIMUMS     MINIMUMS
                                          ------      --------      --------      ------      --------     --------
                                                                    (DOLLARS IN MILLIONS)
<S>                                       <C>       <C>           <C>             <C>       <C>           <C>  

UST Corp. Consolidated:
  Tier 1 leverage capital .........       $304.5       $151.8         *            8.02%        4.00%         *
  Tier 1 capital ..................        304.5        133.5         *            9.12%        4.00%         *
  Total (Tier 1 and Tier 2) capital        346.2        266.1         *           10.41%        8.00%         *

USTrust:
  Tier 1 leverage capital .........        284.5        151.1       $188.9         7.53%        4.00%       5.00%
  Tier 1 capital ..................        284.5        132.9        199.4         8.56%        4.00%       6.00%
  Total (Tier 1 and Tier 2) capital        326.0        264.9        331.2         9.85%        8.00%      10.00%

United States Trust Company:

  Tier 1 leverage capital .........          4.8          0.9          1.1        21.75%        4.00%       5.00%
  Tier 1 capital ..................          4.8          0.5          0.7        40.51%        4.00%       6.00%
  Total (Tier 1 and Tier 2) capital          4.9          1.0          1.2        40.58%        8.00%      10.00%
</TABLE>


--------------

         * Not applicable

         On June 16, 1998, a regular quarterly dividend to stockholders was
declared of $0.14 per share for a total of $4.2 million payable on July 24,
1998. This quarter's dividend was an increase of 17 percent, or $0.02, over the
first quarter of this year and $0.04 higher than the same quarter last year. For
the first six months of this year dividends declared totaled $7.8 million, or
$0.26 per share compared with $5.7 million, or $0.20 per share for the same
period last year.


                                       21
<PAGE>   22
RECENT ACCOUNTING DEVELOPMENTS

         In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income." Refer to Note 6 to the Notes to
Consolidated Financial Statements for a further discussion.

         In June 1997, FASB also issued Statement of Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related Information." This
Statement changes the way public companies report segment information in annual
financial statements and requires public companies to report selected segment
information in interim financial reports to shareholders. Under the Statement's
"management approach," public companies are to report financial and descriptive
information about their operating segments. Operating segments are components of
an enterprise for which separate financial information is produced internally
and are subject to evaluation by the chief operating decision maker in deciding
how to allocate resources to segments and assess segment performance. This
Statement is effective for fiscal years beginning after December 15, 1997;
however, it is not required to be applied for interim reporting in the initial
year of application. These disclosure requirements will have no material impact
on the Company's financial position or results of operations.

         In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This Statement does not
change the recognition or measurement associated with pension or postretirement
plans. It standardizes certain disclosures, requires additional information
about changes in the benefit obligations and about change in the fair value of
plan assets to facilitate analysis, and it eliminates certain disclosures that
were not deemed useful. This Statement is effective for financial statements
issued for periods beginning after December 15, 1997. These disclosure
requirements will have no material impact on the Company's financial position or
results of operations.

         In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments and hedging activities. The
Statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. The Company does not expect that the adoption of this Statement
will have a material impact on the Company's financial position or results of
operations.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

         The preceding Management's discussion and Notes to Consolidated
Financial Statements of this Form 10-Q contain certain forward-looking
statements, including without limitation statements regarding (i) rates of loan
growth and amortization; (ii) the rate of delinquencies and amounts of
chargeoffs; (iii) the level of reserve for possible loan losses; (iv) the amount
and timing of acquisition and restructuring charges related to the Somerset and
Affiliated transactions; (v) the Company's ability to minimize any detrimental
effects of the Year 2000 problem and associated expense; and (vi) utilization of
deferred tax assets. Moreover, the Company may from time to time, in both
written reports and oral statements by Company management, express its
expectations regarding future performance of the Company and estimates of the
effects of its acquisition activities. These forward-looking statements are
inherently uncertain, and actual results may differ from Company expectations.
Risk factors that could impact current and future performance include but are
not limited to: (i) adverse changes in asset quality and resulting credit
risk-related losses and expenses; (ii) adverse changes in the economy of the New
England region, the Company's primary market, which could further accentuate
credit-related losses and expenses; (iii) adverse changes in the local real
estate market can also negatively affect credit risk as most of the Company's
loans are concentrated in Eastern Massachusetts and a substantial portion of
these loans have real estate as primary and secondary collateral; (iv) the
consequences of continued bank acquisitions and mergers in the Company's market,
resulting in fewer but much larger and financially stronger competitors which
could increase competition for financial services to the Company's detriment;
(v) fluctuations in market rates and prices can negatively affect net interest
margin, asset valuations and expense expectations; and (vi) changes in the
regulatory requirements of federal and state agencies applicable to bank holding
companies and banks, such as the Company and its Subsidiary Banks, which could
have a materially adverse effect on the Company's future operating results.


                                       22
<PAGE>   23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         There have been no material changes in market risk exposures that
affect the quantitative or qualitative disclosures presented in the Company's
annual report on Form 10-K for the year ended December 31, 1997.


                                       23
<PAGE>   24
                           PART II. OTHER INFORMATION

         For the quarter ended June 30, 1998, Items 2, 3 and 5 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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Annual Meeting of Stockholders

         The Annual Meeting of Stockholders of the Company was held on May 19,
1998, at which time the election of each of the following six Directors of the
Company, each of whom will serve for a three-year term with the exception of
Sydney L. Miller (who, in accordance with the Company's mandatory retirement
policy for Directors, will serve until December 8, 1999, the date of his 70th
birthday) was submitted to a vote of the Stockholders of the Company:

              Chester G. Atkins             Sydney L. Miller
              Robert L. Culver              Barbara C. Sidell
              Neal F. Finnegan              Paul D. Slater

         The following votes were cast with respect to the election of
Directors:

<TABLE>
<CAPTION>
                                                  Withhold
                                      For         Authority    Abstain    Nonvoting
                                      ---         ---------    -------    ---------

<S>                                <C>            <C>          <C>        <C>
          Chester G. Atkins        22,550,444      89,128         0           0
          Robert L. Culver         22,559,055      80,517         0           0
          Neal F. Finnegan         22,558,099      81,473         0           0
          Sydney L. Miller         22,515,119      124,453        0           0
          Barbara C. Sidell        22,454,774      184,797        0           0
          Paul D. Slater           22,511,374      128,197        0           0
</TABLE>

         Two (2) vacancies were retained for this year's class of Directors
which will serve until the 2001 Annual Meeting of Stockholders.


                                       24
<PAGE>   25
         The following is a list of the fifteen (15) additional Directors of the
Company whose terms of office as Directors continued after the meeting:

              David E. Bradbury             Vikki L. Pryor
              Robert M. Coard               Gerald M. Ridge
              Alan K. DerKazarian           William Schwartz
              Donald C. Dolben              James V. Sidell
              Edward Guzovsky               Edward J. Sullivan
              Brian W. Hotarek              G. Robert Tod
              Francis X. Messina            Michael J. Verrochi, Jr.
                                Gordon M. Weiner

         Subsequent to the Annual Meeting, on July 20, 1998, in connection with
the Company's acquisition of Somerset Savings Bank, James F. Drew became a
Director of the Company. On August 3, 1998, Edward Guzovsky resigned from his
Directorship at the Company, but continues as a Director of the Company's
principal banking subsidiary, USTrust.

         The approval and ratification of the proposed new Annual Incentive Plan
for key executives of the Company was also submitted to a vote of the
Stockholders of the Company at the Annual Meeting of Stockholders held on May
19, 1998. The new Annual Incentive Plan was designed to advance the Company's
interest by enhancing its ability to attract and retain key executives of the
Company through the grant of performance-based incentive awards. The Plan was
designed so that awards under the Plan to Executive Officers will qualify for
the performance-based compensation exemption under Section 162(m) of the
Internal Revenue Code.

         The following votes were cast with respect to the approval and
ratification of the proposed new Annual Incentive Plan:

<TABLE>
<CAPTION>
                 In Favor       Against      Abstain      Delivered Not Voted
                 --------       -------      -------      -------------------

<S>             <C>             <C>          <C>          <C>   
                21,380,103      907,698      285,112            66,659
</TABLE>


Special Meeting of Stockholders

         At a Special Meeting of Stockholders held on June 10, 1998, the
Stockholders were asked to consider and vote upon proposals (i) to ratify and
approve an Affiliation Agreement and Plan of Reorganization dated as of December
15, 1997, by and among UST Corp., Affiliated Community Bancorp, Inc. ("AFCB")
and a wholly-owned acquisition subsidiary of UST Corp. and each of the
transactions contemplated thereby; and (ii) to amend the Company's Restated
Articles of Organization to increase the number of authorized shares of the
Company's common stock from 45,000,000 to 75,000,000.

         The following votes were cast with respect to the two proposals:

<TABLE>
<CAPTION>
                                                                         Delivered,
                                   In Favor      Against     Abstain     Note Voted
                                   --------      -------     -------     ----------

<S>                               <C>            <C>         <C>         <C>      
        AFCB Affiliation          17,066,110      36,792      64,782      3,397,885

        Common Stock Increase     20,244,825     233,858      96,886          0
</TABLE>


                                       25
<PAGE>   26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

         (a)  Exhibits.

              The Notice of Annual Meeting of Stockholders dated April 15, 1998
              and related proxy card for the Annual Meeting of Stockholders to
              be held on May 19, 1998 was previously filed with the Securities
              and Exchange Commission on April 15, 1998 in hard copy and EDGAR
              electronic formats.

              The Notice of Special Meeting of Stockholders dated May 11, 1998
              and related proxy card for the Special Meeting of Stockholders to
              be held on June 10, 1998 was previously filed with the Securities
              and Exchange Commission on May 11, 1998 in hard copy and EDGAR
              electronic formats.

              27.1 Article 9 Summary Financial Information for the six months
              ended June 30, 1998.

              27.2 Article 9 Restated Summary Financial Information for the six
              months ended June 30, 1997.

         (b)  Reports on Form 8-K.

              None.

         In accordance with the requirements of the Securities Exchange Act of
1934, the Company has caused this report to be signed on its behalf by the
undersigned duly authorized officers of the Company.

Date:  August 14, 1998            By:   /s/  Neal F. Finnegan
                                       -----------------------------------------
                                       Neal F. Finnegan, President and Chief
                                        Executive Officer

Date:  August 14, 1998            By:   /s/  James K. Hunt
                                       -----------------------------------------
                                       James K. Hunt, Executive Vice President,
                                        Treasurer and
                                       Chief Financial Officer (Principal
                                        Financial Officer and
                                       Principal Accounting Officer)


                                       26