<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
X SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1994
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-8408
THE ADVEST GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-0950444
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
One Commercial Plaza - 280 Trumbull Street
Hartford, Connecticut 06103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 525-1421
NONE
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $.01 par value 8,611,241 shares
Class Outstanding at July 29, 1994
Total of sequentially numbered pages 17.
Exhibit index sequential page number page 16.
<PAGE>
THE ADVEST GROUP, INC.
INDEX
Page No.
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1994 and September 30, 1993 1
Consolidated Statements of Operations
Three and Nine Months Ended June 30, 1994 and 1993 3
Consolidated Statements of Cash Flows
Nine Months Ended June 30, 1994 and 1993 4
Consolidated Statement of Changes in Shareholders' Equity
Nine Months Ended June 30, 1994 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. Other Information
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 15
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE ADVEST GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, September 30,
(In thousands, except share and per share amounts) 1994 1993
- - --------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Assets
Cash and short-term investments
Cash and cash equivalents $ 3,091 $ 19,232
Cash and securities segregated under
federal and other regulations 43,362 106,173
Interest-earning deposits and
investments 4,000 35,000
----------------------------
50,453 160,405
----------------------------
Receivables
Brokerage customers, less reserve for
doubtful accounts of $1,142 and $1,305 316,615 269,639
Loans, less allowance for loan
losses of $5,573 and $5,782 264,431 244,932
Brokers and dealers 66,059 32,261
Interest and dividends 3,130 2,729
Other 9,998 12,292
----------------------------
660,233 561,853
----------------------------
Securities
Investment securities (market values
of $56,702 and $48,065) 57,334 48,104
Securities inventory, at market value 37,696 25,716
Securities available for sale (market values
of $10,989 and $38,763) 10,990 38,662
----------------------------
106,020 112,482
----------------------------
Other assets
Other real estate owned, net 18,146 22,683
Equipment and leasehold improvements,
less accumulated depreciation and
amortization of $27,607 and $25,724 9,194 6,980
Exchange memberships, at cost (latest
sales prices of $3,164 and $2,827) 998 998
Other 22,293 19,768
----------------------------
50,631 50,429
----------------------------
Total Assets $ 867,337 $ 885,169
============================
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<PAGE>
THE ADVEST GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, September 30,
(In thousands, except share and per share amounts) 1994 1993
- - --------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Liabilities & Shareholders' Equity
Liabilities
Brokerage customers $ 313,454 $ 328,150
Deposits 300,149 346,712
Brokers and dealers 77,556 48,597
Short-term borrowings 23,602 1,652
Compensation and benefits 13,305 16,118
Checks payable 12,941 15,007
Interest and dividends 2,565 2,022
Securities sold, not yet purchased, at market value 2,153 2,630
Other 14,540 13,879
----------------------------
760,265 774,767
Long-term borrowings 12,050 15,038
Subordinated borrowings 21,139 21,375
----------------------------
793,454 811,180
----------------------------
Shareholders' Equity
Preferred stock, par value $.01,
authorized 2,000,000 shares, none issued - -
Common stock, par value $.01,
authorized 25,000,000 shares, issued
10,567,222 shares and 10,563,422 shares 106 105
Paid-in capital 67,393 67,378
Retained earnings 16,196 13,552
Less: Treasury stock, at cost,
1,925,408 shares and 1,498,805 shares (9,812) (7,046)
----------------------------
73,883 73,989
----------------------------
Total Liabilities and Shareholders' Equity $ 867,337 $ 885,169
============================
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
THE ADVEST GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------- -------------------
(In thousands, except per share amount) 1994 1993 1994 1993
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Commissions $ 17,323 $ 19,931 $ 62,259 $ 57,966
Interest 11,664 10,377 33,432 31,801
Principal transactions 7,219 7,487 24,098 23,967
Investment banking 6,289 6,591 20,911 21,570
Asset management and administration 4,073 3,349 12,155 10,544
Other 1,256 753 3,304 2,084
----------------------------------------------
Total revenues 47,824 48,488 156,159 147,932
----------------------------------------------
Expenses
Compensation and benefits 26,565 26,815 88,290 81,139
Interest 5,607 5,596 16,311 17,653
Communications 4,574 4,353 14,058 12,252
Occupancy and equipment 3,846 3,696 11,510 11,681
Provision for credit losses
and asset devaluation 1,443 651 4,519 2,460
Professional 1,575 1,142 4,457 3,668
Business development 1,003 953 3,345 3,123
Brokerage, clearing and exchange 894 898 2,849 2,761
Other 1,966 2,426 6,181 7,529
----------------------------------------------
Total expenses 47,473 46,530 151,520 142,266
----------------------------------------------
Income before taxes and extraordinary credit 351 1,958 4,639 5,666
Provision for income taxes 151 787 1,995 1,953
----------------------------------------------
Income before extraordinary credit 200 1,171 2,644 3,713
Extraordinary credit - utilization
of operating loss carryforward - 637 - 1,503
----------------------------------------------
NET INCOME $ 200 $ 1,808 $ 2,644 $ 5,216
==============================================
Net income per common and common equivalent share:
Income before extraordinary credit $ 0.02 $ 0.12 $ 0.29 $ 0.39
Extraordinary credit - 0.07 - 0.16
----------------------------------------------
Net income $ 0.02 $ 0.19 $ 0.29 $ 0.55
==============================================
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
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<PAGE><TABLE>
THE ADVEST GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine Months Ended
June 30,
(In thousands) 1994 1993
- - -------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,644 $ 5,216
Adjustments to reconcile net income to net cash
provided by operating activites:
Amortization 3,752 3,410
Depreciation 1,586 1,395
Provision for credit losses and asset devaluation 4,519 2,460
Other 1,517 39
Deferred ESOP contribution - 1,000
(Increase) decrease in operating assets:
Receivables from brokerage customers (47,227) 10,072
Receivables from brokers and dealers (33,798) ( 4,601)
Securities inventory (11,980) ( 5,957)
Cash and securities segregated under federal and other regulations 62,811 (85,197)
Other 1,646 (4,960)
Increase (decrease) in operating liabilities:
Brokerage customers (14,696) 66,083
Brokers and dealers 28,959 13,856
Checks payable ( 2,066) 6,319
Other (5,427) (1,850)
--------------------
Net cash (used for) provided by operating activities (7,760) 7,285
--------------------
FINANCING ACTIVITIES
Net decrease in deposits (46,563) (28,533)
Proceeds from short-term borrowings 10,000 -
Repayment of short-term borrowings (1,488) (3,488)
Short-term brokerage borrowings, net 8,450 8,610
Proceeds from long-term borrowings 2,000 5,000
Other (2,984) (1,213)
--------------------
Net cash used for financing activities (30,585) (19,624)
--------------------
INVESTING ACTIVITIES
Proceeds from sales of investments 14,683 28,457
Proceeds from maturities of investments 119,302 148,298
Purchase of investment securities and short-term investments (85,191) (179,249)
Principal collections on loans 43,405 36,038
Proceeds from other real estate owned, net 5,692 9,493
Loans originated (65,429) (42,531)
Other (10,258) ( 3,541)
--------------------
Net cash provided by (used for) investing activities 22,204 ( 3,035)
--------------------
Decrease in cash and cash equivalents (16,141) (15,374)
Cash and cash equivalents at beginning of period 19,232 31,118
--------------------
Cash and cash equivalents at period end $ 3,091 $ 15,744
====================
Interest paid $ 16,080 $ 17,365
Income taxes paid $ 1,004 $ 2,029
Non-cash transfers:
Loans to OREO $ 1,325 $ 2,055
Securities available for sale to Investment securities $ 27,910 $ -
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
THE ADVEST GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
<CAPTION>
(In thousands, $.01 Par Value Total
except share and Common Stock Paid-in Retained Treasury Stock Shareholders'
----------------- -------------------
per share amounts) Shares Amount Capital Earnings Shares Amount Equity
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, as of
September 30, 1993 10,563,422 $105 $67,378 $13,552 (1,498,805) ($7,046) $73,989
Net Income 2,644 2,644
Exercise of Stock
Options 3,800 1 15 16
Purchase of
Treasury Stock (426,603) (2,766) (2,766)
-------------------------------------------------------------------------
Balance, as of
June 30, 1994 10,567,222 $106 $67,393 $16,196 (1,925,408) ($9,812) $73,883
=========================================================================
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Financial Statements:
The consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q and do not include all
of the information and notes required by generally accepted accounting
principles for complete financial statements. The consolidated
financial statements include the accounts of The Advest Group, Inc.
and all subsidiaries (the "Company"), including Advest, Inc.
("Advest"), a broker dealer; Advest Bank (the "Bank"), a state-
chartered savings bank; Boston Security Counsellors, an investment
management company; and Billings & Company, Inc., a real estate
services company. All significant intercompany transactions and
accounts have been eliminated in consolidation. All normal recurring
adjustments which, in the opinion of management, are necessary for a
fair presentation of the consolidated financial condition and results
of operations for the interim periods presented have been made.
Certain fiscal 1993 amounts have been reclassified in the accompanying
consolidated financial statements to provide comparability with the
current year presentation. The results of operations for the interim
periods are not necessarily indicative of the results for a full year.
The statements should be read in conjunction with the Notes to the
Consolidated Financial Statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations included in
the Company's Annual Report for the year ended September 30, 1993, as
filed with the Securities and Exchange Commission on Form 10-K.
2. Summary of Significant Accounting Policies:
On October 1, 1993, the Company prospectively adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). SFAS 109 requires an asset and liability approach for
financial accounting and reporting for income taxes. Deferred tax
assets and liabilities are recognized for the future tax consequences
of events that have been reported in the Company's financial
statements or tax returns, including net operating losses. If it is
more likely than not that some or all of a deferred tax asset will not
be realized, a valuation reserve must be provided. The adoption of
SFAS 109 did not have a material effect on the Company's financial
condition or results of operations.
During the quarter ending December 31, 1993, the Bank transferred
approximately $28.0 million of FNMA and FHLMC adjustable rate mortgage
backed securities from the available for sale portfolio to the held
for investment portfolio. The transfer reflected a reevaluation of
management's intent with respect to these securities, which have
relatively short weighted-average remaining lives (4 to 5 years) and
will not be needed to meet liquidity needs. Consistent with Company
accounting policies, investments held to maturity are carried at
amortized cost. Investments available for sale are carried at the
lower of aggregate cost or market.
- 6 -
<PAGE>
In general, the Company classifies its securities portfolios as
follows. Securities designated as investment securities are purchased
with the intent they will be held to maturity in portfolio for
purposes of earning interest and dividends. Securities available for
sale have been identified as assets which are held for indefinite time
periods and are likely to be sold prior to maturity. Securities
inventory consists of trading account securities which are generally
held for resale within a relatively short time frame.
3. Capital and Regulatory Requirements:
Advest is subject to the net capital rule adopted and administered
by the New York Stock Exchange, Inc. ("NYSE") and the Securities and
Exchange Commission. Advest has elected to compute its net capital
under the alternative method of the rule which requires the
maintenance of minimum net capital equal to 2% of aggregate debit
balances arising from customer transactions, as defined. The NYSE
also may require a member firm to reduce its business if net capital
is less than 4% of aggregate debit balances and may prohibit a member
firm from expanding its business and declaring cash dividends if net
capital is less than 5% of aggregate debit balances.
At June 30, 1994, Advest's regulatory net capital of $30.7 million
was 9.5% of aggregate debit balances and exceeded required net capital
by $24.3 million.
The Federal Deposit Insurance Corporation ("FDIC") requires most
banks to establish and maintain leverage capital of 4% to 5%.
Pursuant to a Memorandum of Understanding (the "MOU") with the
Regional Director of the FDIC and the Banking Commissioner of the
State of Connecticut, the Bank is required to exercise all reasonable
good faith efforts to achieve (generally within unspecified time
periods) certain goals, including among others: to achieve and
maintain a leverage capital ratio of at least 6% and comply with
existing risk-based capital requirements, to ensure that there are
adequate loan loss reserves and quarterly evaluations of such
reserves, to reduce the level of adversely classified assets to not
more than 40% of total capital and reserves and to provide periodic
progress reports to regulatory agencies.
At June 30, 1994, the Bank's leverage capital ratio was 6.47%
which met the regulatory requirements. In addition, the Bank must
maintain risk-based capital of 8.0%, including at least 4.0% Tier 1
capital. At June 30, 1994, the Bank's total risk-based capital ratio
was 10.69% and the Tier 1 ratio was 9.43%, which exceeded the
regulatory requirements.
4. Income per share calculations:
Primary income per common share is computed by dividing net
income, respectively, by the weighted average number of common stock
and common stock equivalents outstanding during the period. Fully
diluted income per common share assumes conversion of outstanding
convertible debentures as well.
- 7 -
<PAGE>
The weighted average number of common stock and common stock
equivalents included in the primary and fully diluted per share
calculations are as follows (in thousands):
For the quarters For the nine months
ended June 30, ended June 30,
1994 1993 1994 1993
---------------- -------------------
Primary 8,878 9,486 9,068 9,526
===== ===== ===== =====
Assuming full dilution 8,878 9,486 9,068 9,526
===== ===== ===== =====
5. Income Taxes:
The implementation of SFAS 109 on October 1, 1993 had no material
effect on the Company's results of operations and financial condition.
At October 1, 1993, deferred tax assets and liabilities were comprised
of (in thousands):
Deferred Tax Assets:
Loss reserves $ 3,623
Employee benefits 3,655
Loss carryforwards and
tax credits 2,035
Other 298
------
9,611
------
Deferred Tax Liabilities:
Partnerships 2,069
Employee benefits 1,733
Loss reserves 620
Depreciation 403
Other 92
------
4,917
------
Net deferred income taxes $ 4,694
======
The above amounts are net of valuation reserves of $1.6 million
primarily related to state net operating loss carryforwards and loan loss
allowances which are not expected to be realized. As of October 1, 1993,
the Company had federal and state net operating losses of $4.1 million and
$5.0 million, respectively. The federal carryforwards expire in 2008 and
the state carryforwards expire on various dates through 1998.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Business Environment
General
The Advest Group, Inc. is a financial services holding company engaged
with its operating subsidiaries (the "Company") in securities brokerage,
trading, investment banking, commercial and consumer lending, asset
- 8 -
<PAGE>
management and related financial services. All aspects of the business of
the Company are highly competitive and impacted by a variety of factors
outside of its control including economic conditions, the political climate
and investor sentiment. Consequently, revenues and operating results can
vary significantly from one reporting period to the next. Although
management strives to monitor costs to ensure expenses are in line with
revenue projections, certain of the Company's operating costs are of a
fixed nature. Consequently, periods of reduced stock market activity will
have an adverse impact on profitability. Principal operating subsidiaries
are Advest, Inc. ("Advest"), a broker-dealer; Advest Bank (the "Bank"), a
state-chartered savings bank and Boston Security Counsellors ("BSC"), an
investment advisor.
The Company reported its eighth consecutive quarterly profit for the
June 1994 quarter, posting net income of $.2 million ($.02 per share). For
the 1993 quarter, which included a $.6 million ($.07 per share)
extraordinary credit from the utilization of operating loss carryforwards,
net income was $1.8 million ($.19 per share). Pre-tax income declined $1.6
million (82%) in the 1994 quarter as higher net interest margins and asset
management revenues were offset by lower brokerage commissions and
increased loss provisions at the holding company.
Advest, Inc.
Rising interest rates, ongoing inflation fears and a falling dollar
sustained the downward trend on Wall Street begun in the prior quarter. In
particular, underwritings declined significantly as new offerings for the
June 1994 quarter were at their lowest level since the September 1991
quarter. June also marked the first quarter since December 1990 that
underwritings were down on a year to year basis. In addition, the sharpest
declines were posted for higher fee producing issues such as investment
grade corporate debt. After posting gains in April and May, stock prices
fell and both the DOW and S&P 500 closed slightly down for the quarter.
And the Nasdaq Composite was off 5% from the March close.
Advest's quarterly results reflected retail investor uncertainty and
the downward trend in the investment markets. The broker-dealer posted
pre-tax income of $2.0 million in the current quarter compared with $3.0
million in the prior year, a 35% decline. Advest's results include the
activities of Lyons, Zomback & Ostrowski ("LZO"), the Company's financial
consulting subsidiary, which was made an operating division of Advest on
January 1. Net revenues, revenues less interest expense, were $38.7
million, substantially unchanged from the 1993 quarter. A $2.6 million
(13%) decline in commission revenue virtually negated across the board
increases of other revenues. Expenses, excluding interest, increased 2% to
$36.8 million.
Advest Bank
Advest Bank reported a pre-tax loss of $71,000 in the current quarter
compared with a pre-tax loss of $119,000 in the prior year, the seventh in
the past eight quarters where results have improved on a year to year
basis. The loss was primarily due to mark-to-market charges of
approximately $280,000 (net of gains) to the Income Statement derived from
the available for sale and Trading Securities portfolios of the Bank.
Values of these portfolios decreased during the quarter due to rising
market interest rates. Net interest income increased by approximately
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<PAGE>
$342,000, reflecting the higher volume of residential mortgage loans, and
improved spreads between certain of the Bank's assets and deposits. The
provision for credit losses was reduced by $.2 million from the same
quarter last year, although this was offset by increased operating expenses
at the Bank. Operating expenses were higher than last year primarily due
to the increased size of the Bank's residential mortgage lending and Trust
units. The ratio of interest earning assets to interest bearing
liabilities improved to 99.05% from 98.65% in the prior year.
Other
BSC posted pre-tax income of $.3 million, a 20% increase from 1993.
Assets under management, including the Company's proprietary mutual funds,
increased 23% to $.7 billion. Pre-tax results for Billings & Co., a real
estate services subsidiary, improved $.2 million (55%).
Results Of Operations
Three Months Ended June 30, 1994 Versus
Three Months Ended June 30, 1993
Net revenues, total revenues less interest expense, were $42.2
million, a decline of 2% and expenses, excluding interest, rose 2% to $41.9
million. Pre-tax income declined 82% to $.4 million and net income
declined 89% to $.2 million. The decline in net income was higher due to
an extraordinary credit in the 1993 quarter, as previously noted as well as
a lower effective tax rate.
Commission revenue was $17.3 million, a $2.6 million (13%) decline
from the 1993 quarter. Commissions on listed securities were down $1.8
million (18%). Commissions and distribution fees related to proprietary
and other mutual funds and over-the-counter issues were off $.7 million
(12%) and $.3 million, respectively. Income from commodities and
insurance products each rose $.1 million, (73%) and (8%), respectively.
Revenue from principal transactions was $7.2 million, a decline of $.3
million (4%). The Bank posted a $.3 million loss on its trading
inventories while Advest's results were essentially unchanged between
periods.
Investment banking revenues declined $.3 million (5%) to $6.3 million.
Advest's revenues, excluding its Financial Institutions Group ("FIG")
increased $.2 million (4%), as a $1.3 million gain on the exercise of stock
warrants related to a past underwriting was substantially offset by
declines in underwriting activity. Revenue for the FIG was $.2 million, a
decline of $.5 million from its prior year results as LZO.
The Company continues to emphasize the development of more fee-based
income which has resulted in significant increases in assets under
management in the Company's proprietary mutual funds as well as private
accounts. Asset management and administration revenue increased $.7
million (22%) as Advest and BSC, respectively, posted increases of 23% and
17% in managed account income. Other income increased $.5 million (67%) in
the current quarter primarily due to higher service-related fees.
Net interest income was $6.1 million in the current quarter, a $1.3
million (27%) improvement from the prior year. Advest's net interest rose
$.9 million (31%) primarily due to higher average margin debits and related
spreads. The Bank's net interest income rose $.3 million (14%) from the
- 10 -
<PAGE>
year earlier quarter. The improvement in the Bank's net interest income is
attributable to the higher volume of residential mortgage loans, and
improved spreads between certain of the Bank's earning assets and deposits.
These positive effects are, as mentioned elsewhere, partially offset by the
lower volume of total bank assets.
On the expense side, professional fees increased 38% to $1.6 million,
primarily related to higher legal fees at Advest and the Bank.
Communications costs rose $.2 million (5%) primarily as a result of higher
clearance and service costs and prior year one-time credits related to the
back office outsourcing. The provision for credit losses and asset
devaluation increased $.8 million (122%) in the current quarter as a result
of a $1.1 million provision booked by the holding company. Based upon
management's analysis of the adequacy of the Allowance for Credit losses,
the Bank's provision for credit losses decreased $.2 million (64%) in the
current quarter. Other expenses declined $.5 million (19%) primarily due
to decreases in OREO-related costs of the Bank and lower settlement
expenses of Advest.
Nine Months Ended June 30, 1994 Versus
Nine Months Ended June 30, 1993
Net revenues increased $9.6 million (7%) to $139.8 million while net
expenses rose $10.6 million (9%) to $135.2 million. Year-to-date, pre-tax
income was $4.6 million, a decline of $1.0 million (18%) and net income was
$2.6 million, down $2.6 million (49%). Net income for the 1993 period was
higher as a result of a 34% effective tax rate (compared with 43% in the
current year) and a $1.5 million ($.16 per share) extraordinary credit from
the utilization of operating loss carryforwards.
Commission revenue was up $4.3 million (7%) to $62.3 million, as a
$1.4 million (4%) decline in listed issues was more than offset by other
gains. Sales and distribution fees related to proprietary and other mutual
funds increased $1.6 million (10%). Commissions from insurance sales,
primarily variable annuities, gained $1.5 million (59%). Commissions on
over-the-counter stocks and commodities increased $1.4 million (20%) and
$1.1 million (281%), respectively.
Revenue from principal transactions increased $.1 million (1%) to
$24.1 million. Advest posted a $.4 million increase as equity commissions
rose $1.3 million (22%) but were partially offset by a $.4 million (62%)
decline in related trading profits. Commissions on debt securities were up
$.5 million (3%) as a $.6 million (13%) increase in the current quarter
offset declines in the first half of the year. Trading profits declined
for all debt inventories of the broker-dealer. The Bank posted a loss of
$.3 million on its trading accounts.
Investment banking revenues were $20.9 million, a decline of $.7
million (3%) from the 1993 period. Advest, excluding its FIG division,
posted a $.3 million (2%) increase due to a $1.3 million gain on the
exercise of warrant in the current quarter. Revenue for the FIG division
declined approximately $1.0 million from 1993.
- 11 -
<PAGE>
Asset management and administration revenue from continuing operations
increased $2.2 million (22%). Advest and BSC posted revenue increases of
$1.4 million (18%) and $.6 million (26%), respectively, due to increased
assets under management. The 1993 period included $.6 million in revenue
related to Shore & Reich, Ltd., a pension plan administrator which was sold
in November 1992. Other income increased $1.2 million (59%) due to
increases in various fee-based services.
Net interest income increased $3.0 million (21%). Advest's net
interest increased $2.2 million (26%) primarily due to higher average
margin debits and related spreads and higher yields on short-term
investments. The Bank's net interest income rose $.7 million (9%) due to
the higher volume of residential mortgage loans, and improved spreads
between certain of the Bank's earnings assets and deposits. These positive
effects were in part offset by interest reversals on newly nonperforming
loans in the second quarter and by the lower volume of total bank assets in
the current year in comparison to last year.
Compensation and benefits expenses increased $7.2 million (9%) to
$88.3 million due higher general payroll, brokerage commissions and sales
and volume-related incentive payments. Communications expenses increased
$1.8 million (15%) primarily due to the ADP conversion and communication
upgrades to the branch office network. Professional fees increased $.8
million (22%) primarily due to increased legal expenses of Advest and the
Bank.
The provision for credit losses and asset devaluation increased $2.1
million (84%) primarily due to $1.1 million of provisions booked by the
holding company in the current quarter and to chargeoffs associated with a
commercial loan of the Bank in the previous quarter. Other expenses
decreased $1.3 million (18%) primarily due to smaller settlement costs,
lower public finance syndicate expenses and reduced OREO-related charges.
Liquidity and Capital Resources
Nine Months Ended June 30, 1994
The Company continues to acquire shares of its common stock in the
open market under a repurchase program that was announced in August 1990.
Since September 30, 1993, 426,603 additional shares have been acquired at a
cost of $2.8 million.
During the first three quarters of 1994, the Bank increased borrowings
by a net $11 million. Long term borrowings decreased by a net $2.5
million, and short term borrowings increased by a net $13.5 million. The
additional borrowings were primarily acquired to fund the increase in the
Bank's residential mortgage portfolio, which increased by a net $30.3
million; and to support other assets. During the current year, the Bank's
deposits decreased by a net $46.7 million, which reflected both market
conditions and the Bank's balance sheet and net interest income management
strategies.
There have been no other material changes to the Company's liquidity
or capital resources since September 30, 1993.
- 12 -
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company has been named as defendant in various legal actions.
These actions have arisen principally from the securities and investment
banking business. In the opinion of management, based on discussion with
counsel, the outcome of these matters will not result in a material adverse
effect on the financial condition or future operating results of the
Company.
Item 6. Exhibits and Reports on Form 8-K
Page
(a) Exhibits
Exhibit 11 - Computation of Net Earnings Per Share
Coopers & Lybrand report on limited review performed
on financial statements contained herein 14
(b) Reports on Form 8-K
None
- 13 -
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
The Advest Group, Inc.:
We have reviewed the accompanying consolidated balance sheet of The Advest
Group, Inc. and subsidiaries as of June 30, 1994, and the related
consolidated statements of operations for the three and nine-month periods
ended June 30, 1994 and 1993, the statement of cash flows for the nine-
month periods ended June 30, 1994 and 1993, and changes in shareholders'
equity for the nine-month period ended June 30, 1994. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the aforementioned consolidated financial statements for
them to be in comformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of September 30, 1993, and the
related consolidated statements of operations, changes in shareholders'
equity and cash flows for the year then ended (not presented herein); and
in our report dated October 28, 1993, we expressed an unqualified opinion
on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
September 30, 1993, is fairly stated, in all materials respects, in
relation to the consolidated balance sheet from which it has been derived.
Coopers & Lybrand
Hartford, Connecticut
July 20, 1994
- 14 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant duly caused this report to be signed on its behalf by
the thereunto duly authorized.
The Advest Group, Inc.
----------------------------
Registrant
Date July 29, 1994 Allen Weintraub
------------------------- -------------------------
(Allen Weintraub)
Chairman of the Board and
Chief Executive Officer
Date July 29, 1994 Martin M. Lilienthal
------------------------- -------------------------
(Martin M. Lilienthal)
Senior Vice President and
Chief Financial Officer
- 15 -
<PAGE>
EXHIBIT INDEX
Exhibit Description Page Number
-------- ----------- -----------
11 Computation of Net Income Per Share 17
- 16 -
<PAGE>
Exhibit 11
THE ADVEST GROUP, INC. AND SUBSIDIARIES
Computation of Net Income Per Common Share
For the quarters For the nine months
(In thousands, except ended June 30, ended June 30,
---------------- -------------------
per share amounts) Primary* Primary*
---------------- -------------------
1994 1993 1994 1993
---- ---- ---- ----
Income before
extraordinary credit $ 200 $1,171 $2,644 $3,713
Extraordinary credit -- 637 -- 1,503
-----------------------------------------
Net income applicable
to common stock and
other dilutive
securities $ 200 $1,808 $2,644 $5,216
=========================================
Average number of common
shares outstanding
during the period 8,681 9,236 8,829 9,287
Additional shares assuming:
Exercise of stock options 197 250 239 239
-----------------------------------------
Average number of common
and common equivalent
shares used to calculate
net income per common
share 8,878 9,486 9,068 9,526
=========================================
Income per common and
common equivalent share:
Income before
extraordinary credit $ .02 $ .12 $ .29 $ .39
Extraordinary credit -- .07 -- .16
-----------------------------------------
Net income $ .02 $ .19 $ .29 $ .55
=========================================
* For the quarter and nine months ended June 30, 1994 and 1993, the
primary and fully diluted net income per common share were equal.
- 17 -
