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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the fiscal year ended September 30, 1994
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 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
Securities registered pursuant to Section 12(b) of the Act: Yes
Name of each exchange on
Title of each class which registered
Common Stock, $.01 Par Value New York Stock Exchange, Inc.
9% Convertible Subordinated Debentures New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by an (X) whether the Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by an (X) if disclosure of delinquent filers pursuant to item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant was $41,998,724 as of December 1, 1994.
On December 1, 1994, the Registrant has outstanding 8,511,115 shares of common
stock of $.01 par value, which is the Registrant's only class of common stock.
Parts I, II and IV incorporate information by reference from the Registrant's
1994 Annual Report to Shareholders. Part III incorporates information by
reference from the Registrant's definitive proxy statement for the annual
meeting to be held on January 26, 1995.
Total of sequentially numbered pages 91.
Exhibit index sequential page number page 29.
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PART I
Item 1. Business
General Development of Business
(1) The Advest Group, Inc. ("AGI"), a Delaware corporation, is a financial
services holding company engaged, with its operating subsidiaries (collectively
the "Company"), in securities brokerage, trading, investment banking,
commercial and consumer lending and leasing, asset management and related
financial services. It is organized under the laws of Delaware and commenced
operations on January 1, 1977. AGI is successor to a partnership which
resulted from mergers of five New York Stock Exchange, Inc. ("NYSE") member
firms organized between 1898 and 1919. The Company's broker-dealer subsidiary,
Advest, Inc. ("Advest"), was organized to succeed the business of the
partnership, effective January 1, 1977. Since that date, a number of other
operating subsidiaries in the brokerage and financial services industries have
been established or acquired.
In addition to Advest, operating subsidiaries include Advest Bank (the
"Bank"), a Connecticut-chartered capital stock savings bank; Boston Security
Counsellors, Inc. ("BSC"), an investment management company; and Billings &
Company, Inc. ("Billings"), a real estate services company. Material
acquisitions and dispositions of the Company during the past five years follow.
In April 1990, Advest acquired Ulin, Mortin, Bradley & Welling,
Incorporated ("UMBW"), a Boston-based firm specializing in mergers and
acquisitions, financings and valuations. The purchase price approximated the
net book value of furniture, fixtures and leaseholds acquired. UMBW operated
as a division of Advest through fiscal 1992 when it was merged with Advest's
corporate finance department.
In November 1992, the Company sold substantially all the assets, the
business and name of Shore & Reich, Ltd. ("S&R"), its subsidiary specializing
in pension plan administration, to an unrelated third party. Consideration
included an initial cash payment of $600,000 and future payments over a five
year period based on revenues of the business sold. The Company realized a
pre-tax loss of $170,000 related to the disposition in its 1993 fiscal year.
In January 1994, Lyons, Zomback & Ostrowski, Inc., a financial consulting
company specializing in the banking industry and a subsidiary of AGI, was
merged into the corporate finance division of Advest as the Financial
Institutions Group (the "FIG"). The FIG unit will focus its efforts on serving
as an advisor to small and medium-sized community banks.
(2) Advest is engaged in a broad range of activities in the securities
brokerage and investment banking business, including retail brokerage
transactions, institutional sales, origination of and participation in
underwritings and distribution of corporate and municipal securities issues,
market making and trading activities in corporate securities and municipal
bonds, mutual fund distribution, custodial and money management, option
transactions and research services.
Advest has been classified by the Securities and Exchange Commission
("SEC") and the Securities Industry Association as a "large regional" brokerage
firm. "Regional" is a term commonly used in the securities industry to
indicate that a firm's headquarters are located outside New York City. Advest
has retail clients in all fifty states with the largest concentration in the
Northeast and Midwest regions and also services institutional accounts
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throughout the country. During fiscal 1994 Advest opened 3 new sales offices
and closed 1. At September 30, 1994, Advest had sales offices and account
executives in 17 states and the District of Columbia as follows:
Number of
Number of Account
State Offices Executives
Connecticut 7 65
District of Columbia 1 11
Florida 6 50
Illinois 2 9
Kentucky 3 13
Maine 3 23
Maryland 1 4
Massachusetts 5 49
Missouri 3 22
New Hampshire 2 7
New Jersey 3 17
New York 16 125
Ohio 11 52
Pennsylvania 11 69
Rhode Island 1 8
Vermont 1 3
Virginia 3 13
West Virginia 1 1
80 541
Advest is a member of all major securities exchanges in the United States,
the National Association of Securities Dealers ("NASD") and the Securities
Investor Protection Corporation ("SIPC"). In addition, Advest is registered
with the Commodity Futures Trading Commission as a commodity trading advisor
and a futures commission merchant.
The Bank is a Connecticut-chartered capital stock savings bank which opened
for business in 1984. The Bank's offices and single retail branch are located
at 280 Trumbull Street, Hartford, Connecticut 06103. The Bank's principal
business has consisted of attracting deposits and investing such deposits,
together with funds from capital and other borrowings, in various types of
loans, primarily residential, and investments. The Bank's loan portfolio
includes single and multi-family residential mortgages, consumer, commercial
mortgages and commercial and construction loans. Investments include
government and agency obligations, mortgage-backed securities and money market
instruments. In addition to providing deposit, lending and trust services
within the Bank's primary market area, a significant portion of the Bank's
activities have been directed toward providing such products and services to
clients of AGI's brokerage and other subsidiaries. The Bank does not
currently have a material source of deposits other than those obtained through
Advest. Deposits in the Bank are insured by the Bank Insurance Fund of the
FDIC, subject to applicable limits.
In fiscal 1991, the Office of Thrift Supervision ("OTS") approved requests
by AGI and the Bank for the Bank to be deemed a "savings association" by virtue
of its meeting the test for a qualified thrift lender and for AGI, as the sole
shareholder of a "savings association", to be treated as a unitary thrift
holding company. In order to retain its status as a "savings association" the
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Bank must continue to satisfy the "qualified thrift lender" test. This test
generally requires that an institution maintain a minimum of 65% of its assets
in residential real estate and related investments. At September 30, 1994,
76.0% of the Bank's assets consisted of such assets.
(3) The Company's principal executive offices are located at One Commercial
Plaza, 280 Trumbull Street, Hartford, Connecticut, 06103 (telephone number
(203) 525-1421). At September 30, 1994, the Company employed 1,525 persons.
Financial Information about Industry Segments
The information required by this item is disclosed in Exhibit 13 on pages 86
and 87 of this filing under the caption "Note 18 Segment Reporting".
Narrative Description of Business
(1) Revenues
The principal sources of revenue for the last five years are disclosed in
Exhibit 13 on page 54 of this filing under the caption "Five Year Financial
Summary". A discussion of the components of services provided and related
compensation follows.
Commissions:
Listed Advest acts as an agent for its customers in the purchase and sale
of securities on the major securities exchanges. Commissions generated by
these customers represent a large portion of the Company's revenue.
Mutual funds Advest executes purchases and redemptions of shares for its
clients in many diverse mutual funds. Income from proprietary mutual funds is
derived from 12(b)1 distribution fees, contingent deferred sales load and
advisory fees (see also Asset Management and Administration Revenues). Under
distribution agreements, Advest serves as sole distributor for The Advantage
Family of Mutual Funds, unincorporated Massachusetts business trusts. In July
1994, the Advantage Strategic Income Fund was introduced. The fund invests in
the fixed income sectors: U.S. Government, high yield and international and is
part of the Advantage Family of Funds. In July 1993, Advest launched the
Advantage Municipal Bond Fund, a series fund consisting of three portfolios:
National, New York and Pennsylvania. In addition, Advest acts as distributor
of the Scottish Widows International Fund, which is also sold through
distribution agreements with other brokers.
Over-the-counter In executing customers' orders in the over-the-counter
market, Advest generally acts as agent with another firm which is a market
maker in the securities being purchased or sold. The market price executed
represents the best inter-dealer market price available.
Insurance Advest acts as agent for several life insurance companies and
sells life insurance and tax-advantaged annuities to its brokerage clients. A
principal objective of Advest's insurance department is to assist account
executives in protecting the assets of high net worth individuals and
businesses. The department provides customized advice and recommends
appropriate products to meet unique individual, professional or business needs.
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Options Advest also effects for its customers the purchase and sale of
put and call options traded on the Chicago Board of Option Exchange, American
Stock Exchange and Philadelphia Stock Exchange. Advest offers a fully
discretionary options management program for suitable accounts.
Other Other commissions include commissions from commodity trading,
international stocks and bonds, certificates of deposit and income from
correspondent brokers. In addition, Advest markets private placement and
registered offerings of limited partnerships investing in various ventures,
primarily real estate. Certain of these limited partnerships are originated by
Advest or Billings who, consequently, receive management and other fees.
Principal transactions
Revenue from principal transactions includes realized and unrealized gains
and losses on securities held for resale by Advest and the Bank and related
brokerage commissions of Advest. The Company does not actively participate in
the high yield securities market.
Advest actively engages in trading as principal in various phases of the
over-the-counter securities business and acts as principal to facilitate the
execution of customers' orders. Advest buys, sells and maintains an inventory
of a security in order to "make a market" in that security. As of September
30, 1994, Advest made dealer markets in the common stock or other equity
securities of approximately 188 corporations. Advest also actively engages in
trading municipal bonds and unit trust instruments.
Investment banking
Advest manages and participates as an underwriter of corporate and
government securities, mutual funds and private placement offerings. The
Syndicate Department is responsible for Advest's participation in underwritings
managed by Advest and other firms. The Corporate Finance and Public Finance
Departments are responsible for offerings managed or co-managed by Advest. The
Syndicate Department participated in 365 underwritings (allocations of $477
million) in 1994 and 464 underwritings (allocations of $487 million) in 1993, a
record year. It also co-managed 9 closed-end mutual fund offerings which
raised $2.1 billion in 1994 (26 offerings raised $5.6 billion in 1993).
Corporate Finance managed 12 and 11 offerings in 1994 and 1993, respectively,
raising $330 million and $268 million, respectively. In 1994 and 1993, Public
Finance managed or co-managed 49 and 56 offerings, respectively, aggregating
$2.4 billion and $4.4 billion, respectively.
Underwriting involves both economic and regulatory risks. An underwriter
may incur losses if it is unable to resell the securities it is committed to
purchase or if it is forced to liquidate its commitments at less than the
agreed purchase price. In addition, under the Securities Act of 1933, other
laws and court decisions with respect to underwriters' liability and limitation
on indemnification of underwriters by issuers, an underwriter is subject to
substantial potential liability for material misstatements or omissions in
prospectuses and other communications with respect to underwritten offerings.
Further, underwriting commitments constitute a charge against net capital and
Advest's underwriting commitments may be limited by the requirement that it
must at all times be in compliance with the net capital Rule 15c3-1 of the SEC.
Advest also provides merger and acquisition advisory services, appraisals
and related services. Billings develops private placement offerings of limited
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partnerships in real estate and other industries. The Company does not engage
in bridge financing activities.
Asset management and administration
BSC provides advisory services to a diverse clientele and is the investment
advisor to The Advantage Family of Mutual Funds, the Advantage Municipal Bond
Fund and the Scottish Widows International Fund. BSC has entered into an
arrangement with a third-party to act as subadvisor for the Scottish Widows
Fund. As of September 30, 1994, BSC had approximately $731 million of assets
under management, including $620 million in the Advest-sponsored proprietary
mutual funds for which BSC acts as advisor.
Advest provides money management services to its brokerage customers
through its Investment Management Group ("IM"). IM provides various services
to brokerage clients including client profiling, asset allocation, manager
selection, due diligence and performance measurement. Recommended portfolio
managers include managers in the proprietary Advest Managed Portfolio Services
as well as managers not affiliated with the Company. Revenue is generated from
fees and/or commissions.
Advest Transfer Services, Inc., a subsidiary of AGI, acts as transfer agent
and provides dividend disbursing and reinvestment services for the Company's 10
proprietary mutual funds. Advest provides dividend reinvestment for more than
550 equities and closed-end funds as well as 19 families of mutual funds
representing over 540 individual funds.
The Advest Reserve Cash Account "ARCA" enables brokerage clients to
participate in an integrated financial services program. ARCA clients have
access to their assets through unlimited checkwriting and a VISA debit card
issued by a major third party bank as well as on-request loan against margined
securities. Direct deposit is available to ARCA accounts who can select among
several automatic investment options for idle cash balances, including an FDIC-
insured money market account with the Bank and 5 money market mutual funds.
Other services offered to all brokerage clients include retirement plan
servicing, securities custody and safekeeping.
Advest Bank net interest income
Net interest income is the excess of the interest income and loan fee
income over interest expense. The Bank derives interest income from loans
extended for the purposes of residential, commercial and consumer credit.
Funds not used in lending are invested primarily in money market instruments
and short and intermediate-term mortgage-backed securities. The Bank's loans
and investments are funded by interest bearing deposits, by debt (primarily
advances from the Federal Home Loan Bank of Boston), and by the Bank's equity
capital. The Bank's interest and loan fee income has historically exceeded the
interest expense of funding and has produced positive net interest income.
The Bank is subject to interest rate risk to the degree that the Bank's
interest-bearing liabilities reprice or mature more rapidly, and in greater
volume, as is the case currently, than its interest-earning assets (see
Distribution of assets, liabilities and shareholder's equity; interest rates
and interest differentials as disclosed in Item 1(c) 4 of this filing and in
Exhibit 13 filed herewith on pages 85 and 86 under the caption "Note 17
Financial Instruments with Off-Balance Sheet Concentrations of Credit Risk".
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Interest income and customer financing
Customers' transactions in securities are effected on either a cash or
margin basis. In a margin account, the customer pays less than the full cost
of a security purchased and the broker-dealer makes a loan for the balance of
the purchase price which is secured by the securities purchased, or other
securities owned by the investor. The amount of the loan is subject to the
margin regulations (Regulation T) of the Board of Governors of the Federal
Reserve System, NYSE margin requirements, and the firm's internal policies
which in some instances are more stringent than Regulation T or NYSE
requirements. Currently, in most transactions, Regulation T requires that the
amount loaned to a customer for a particular purchase not exceed 50% of the
purchase price of a security, so that initially the customer's equity in the
purchase exceeds the NYSE's rules. A member firm is required to have the
customer deposit cash or additional securities so that the loan to the customer
for which marginable equity securities are pledged as collateral is no greater
than 75% of the value of the securities in the account.
Interest is charged on the amount borrowed to finance customers' margin
transactions. The rate of interest charged customers is based primarily on the
brokers' call rate (the charge on bank loans to brokers secured by firm and
customers' securities), to which an additional amount is added up to 2.75%.
The amount of this interest surcharge is dependent on the average net margin
account balance and the dollar amount of commissions charged on account
transactions during the month.
Customer credit balances, retained earnings and, to a lesser extent,
short-term borrowings and cash received from stock loan activities, are the
primary source for financing customer margin accounts.
Other income
Other income includes execution fees, exchange and other marketing credits,
transfer and service fees as well as investment gains and losses.
Research
Through the combined resources of its in-house research staff and
correspondent research provided by three leading outside research firms, Advest
provides its brokerage clients with a full range of research services. These
include corporate data, financial analysis, identification of emerging trends
and objective recommendations. In-house analysts specialize in health care,
financial services, and consumer and business products and services.
Correspondent research provides information and recommendations on
approximately 3,000 domestic and international equities in over 60 industries
in 30 countries.
(2) Competition
All aspects of the business of the Company are highly competitive. Advest
competes with numerous regional and national broker-dealers and other entities,
many of which have greater financial resources than the Company. Because of
the variety of financial services offered by the Company and the various types
of entities that provide such services (including other brokers, banks,
insurance companies and retail merchandise outlets), it is not possible to
estimate the number of companies that compete with the Company for investor
assets. Advest competes with other firms on the basis of transaction prices,
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quality of service, product availability and locations. With respect to price,
service and product, the Company believes it is competitively well-positioned;
it is impossible to predict, however, the effect of the broader distribution
locales offered by competing entities or the lower costs which may be offered
by certain discount brokers. In addition, there is competition for investment
professionals among the large number of companies now in the financial services
field.
In attracting deposits, the Bank faces strong competition from numerous
savings banks, savings and loan associations, commercial banks, broker-dealers,
credit unions, insurance companies, investment firms and mutual funds with
offices located both within and without its primary market area. The Bank also
faces significant competition for investors' funds from short-term money market
funds and other corporate and government securities.
The Bank's deposit base is substantially derived from Advest's brokerage
clients. A portion of these deposits, primarily certificates of deposits, are
acquired on a fee basis and are considered "brokered" under FDIC rules. The
Bank does not possess branch operations with which it may attract significant
additional retail deposits other than those obtained through Advest. Pursuant
to the terms of federal banking regulations, concerning brokered deposits, the
Bank is deemed to be an "adequately capitalized bank", and as such is
limited in the maximum interest rates it may offer on its brokered deposit
products to rates which do not exceed (1) the rate paid on deposits of similar
maturity in the Bank's normal market area for deposits accepted or (2) the
"national rate" paid on deposits of comparable maturity for deposits accepted
outside the Bank's normal market area. The Bank, as of September 30, 1994, had
$64.5 million of brokered deposits and $224.2 million of special money market
accounts. Prior to January 1, 1993, these money market accounts were also
classified as brokered. The Bank notified the FDIC of this change in
classification in January 1993. To date, the FDIC has neither affirmed or
disaffirmed this treatment but has approved a brokered deposit waiver which
excluded money market and certain other accounts from the category of brokered
deposits.
The Bank also competes with other financial institutions for retail loans
such as residential mortgages. These other competitors include banks, savings
and loans, insurance companies, credit unions and mortgage banking companies.
This market is also highly sensitive to the level and volatility of interest
rates, which affects the volume of business being conducted.
(3) Regulation
The securities industry in the United States is subject to extensive
regulation under both Federal and state laws. The SEC is the Federal agency
charged with administration of the Federal securities laws. Much of the
regulation of broker-dealers has been delegated to self-regulatory authorities,
principally the NASD and the securities exchanges. These self-regulatory
organizations conduct periodic examinations of member broker-dealers in
accordance with the rules they have adopted and amended from time to time,
subject to approval by the SEC. Securities firms are also subject to
regulation by state securities commissions in those states in which they do
business.
Broker-dealers are subject to regulations which cover all aspects of the
securities business, including sales methods, trading practices among broker-
dealers, uses and safekeeping of customers' funds and securities, capital
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structure of securities firms, recordkeeping and the conduct of directors,
officers and employees. Additional legislation, changes in rules promulgated
by the SEC and self-regulatory authorities, or changes in the interpretation or
enforcement of existing laws and rules, may directly affect the mode of
operation and profitability of broker-dealers. The SEC, self-regulatory
authorities and state securities commissions may conduct administrative
proceedings which can result in censure, fine, suspension or expulsion of a
broker-dealer, its officers or employees. Such administrative proceedings,
whether or not resulting in adverse findings, can require substantial
expenditures. The principal purpose of regulation and discipline of broker-
dealers is the protection of customers and the securities markets, rather than
protection of creditors and stockholders of broker-dealers.
The Company's investment advisory subsidiaries and its proprietary mutual
funds are also subject to extensive Federal and state regulations by the SEC
and state securities commissions.
Advest is required by Federal law to belong to the Securities Investor
Protection Corporation ("SIPC"). The SIPC fund provides protection for
securities held in customer accounts up to $500,000 per customer, with a
limitation of $100,000 on claims for cash balances. The Company purchases
coverage which provides an additional $24.5 million of coverage per customer
for securities held in customers' accounts.
As a Connecticut-chartered capital stock savings bank whose deposits are
insured by the FDIC, subject to applicable limits, the Bank is subject to
extensive regulation and supervision by both the Commissioner of the Department
of Banking of the State of Connecticut and the Regional Director of the FDIC.
The Bank is also subject to various regulatory requirements of the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board")
applicable to FDIC insured financial institutions. This governmental
regulation is primarily intended to protect depositors, rather than
shareholders, and concerns, among other matters, capital requirements, safety
and soundness, permissible investments, community reinvestment and credit
discrimination. AGI, for the purpose of ownership of the Bank, is a Unitary
Savings and Loan holding company, and is subject to limited regulation of and
certain reporting requirements to the Office of Thrift Supervision.
The Bank has posted losses in each of the last five fiscal years, resulting
primarily from the significant deterioration in the Bank's loan portfolio. In
July 1991, the Bank entered into a Memorandum of Understanding ("MOU") with its
regulators to address certain concerns arising out of an examination of the
Bank. In February 1993, the Bank entered into a new MOU with its regulators
with terms similar to the original MOU. The Bank has also requested and
received a waiver from the FDIC permitting it to continue to accept brokered
deposits through September 30, 1995. If the Bank's condition were to
deteriorate significantly, the Bank could be subject to regulatory sanctions,
which potentially could include additional restrictions on the Bank's
operations (including its ability to accept brokered deposits), revocation of
the Bank's deposit insurance and the appointment of a conservator or receiver
or the closing of the Bank.
Refer to Exhibit 13 on pages 45 through 53 of this filing under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and on pages 72 through 73 under the caption "Note 7 Deposits" and
on pages 79 through 80 under the caption "Note 14 Capital and Regulatory
Requirements" for a further description of capital and regulatory
considerations concerning the Bank.
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Certain legislative and regulatory proposals that could affect the Bank and
the banking business in general are pending, or may be introduced, before the
United States Congress, the Connecticut General Assembly and various
governmental agencies. These proposals include measures that may further alter
the structure, regulation and competitive relationship of financial
institutions and that may subject financial institutions to increased
regulation, disclosure and reporting requirements. The Bank in its present
status is restricted by state bank regulations from the declaration of
dividends. (For further discussion concerning the dividend restriction
applicable to the Bank refer to pages 79 through 80 of Exhibit 13 of this
filing under the caption "Note 14 Capital and Regulatory Requirements"). It
cannot be predicted whether or in what form any future legislation or
regulations will be enacted or to what extent the business of the Bank may be
affected.
On December 19, 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") was enacted. FDICIA substantially revises the bank
regulatory and funding provisions of the Federal Deposit Insurance Act and
makes revisions to several other federal banking statutes. The FDIC has
adopted final rules and regulations relating to FDICIA, including new
regulations regarding the "prompt corrective action" powers of the FDIC
regarding undercapitalized banking institutions. FDICIA defines five
categories of capital adequacy for all insured depository institutions,
including categories that would prompt supervisory actions. These categories
include "Well Capitalized" (with total risk based capital of greater than 10%
of risk adjusted assets, Tier One Risk Based Capital of greater than 6% of risk
adjusted assets and Leverage Capital of greater than 5% of assets), "Adequately
Capitalized" (greater than 8%, 5% and 4% respectively), "Undercapitalized"
(less than 8%, less than 4% and less than 4%, respectively), "Significantly
Undercapitalized" (less than 6%, 3% and 3%, respectively) and "Critically
Undercapitalized" (Tangible Capital of less than 2% of total assets.) In
addition, an institution may not be categorized as "Well Capitalized" if it is
subject to a regulatory order. Financial institutions classified as one of the
three undercapitalized categories are subject to progressively more restrictive
limitations on activities and may be subject to orders to increase capital and
to cease certain activities and practices. A "Critically Undercapitalized"
institution, among other additional restrictions, may, under certain
conditions, be placed in a receivership or a conservatorship. Holding Company
guarantees apply if an insured institution is classified "Undercapitalized".
Such holding company guarantees include guarantee of compliance with banking
rules, regulations and laws and the improvement of the Bank, including limited
capital support. As previously disclosed, Advest Bank, which is classified as
an "Adequately Capitalized" bank, has been subject to successive Memoranda of
Understanding since July 1991.
(4) Disclosure requirements for nonbank holding companies
Article 9 of Regulation S-X and Industry Guide 3 specify financial
statement and certain disclosure requirements for bank holding companies. SEC
Staff Accounting Bulletin #69 ("SAB 69") details the view of the SEC staff
concerning the applicability of Article 9 and Industry Guide 3 to registrants
which are not bank holding companies. The bulletin concludes that a nonbank
holding company registrant engaged in similar lending and deposit activities
should provide certain disclosures relevant to an understanding of the
Registrant's operations. In accordance with SAB 69, the Company, a nonbank
holding company, makes the following disclosures regarding the Bank.
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Distribution of assets, liabilities and shareholder's equity; interest rates
and interest differentials
The following table presents for the periods indicated (I) average assets,
liabilities and shareholder's equity, (II) interest income and expense, (III)
average yields on interest-earning assets and average rates incurred on
interest-bearing liabilities, (IV) the net interest spread and (V) net interest
margin on interest- earning assets. Yields and rates are computed on a tax
equivalent basis at tax rates of 34% for each of the three years ended
September 30, 1994.
<TABLE>
<CAPTION>
1994 1993 1992
---------------------------- ---------------------------- ----------------------------
Interest Average Interest Average Interest Average
Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/
(Dollars in thousands) Balance Expense Rates Balance Expense Rates Balance Expense Rates
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets
CD's, time deposits, federal funds
and other short-term investments $23,861 $785 3.29% $57,206 $1,807 3.16% $65,090 $2,916 4.48%
Investment securities: (1) <F1>
U.S. government and agency obligations 2,163 160 7.40% 513 21 4.09% 547 34 6.22%
Other 827 41 4.96% 823 47 5.71% 1,090 53 4.88%
Mortgage backed securities 66,312 2,574 3.88% 66,635 2,118 3.18% 95,552 4,744 4.96%
Federal Home Loan Bank stock 2,127 162 7.62% 2,590 197 7.61% 2,590 201 7.76%
Loans (net of unearned income) (2)<F2> 247,075 18,987 7.68% 233,708 19,594 8.38% 257,136 23,178 9.01%
---------------------------- ---------------------------- ----------------------------
Total interest-earning assets 342,365 22,709 6.63% 361,475 23,784 6.58% 422,005 31,126 7.38%
---------------------------- ---------------------------- ----------------------------
Non-interest earning assets
Cash and equivalents 1,472 1,361 1,440
Property and equipment 663 695 901
Interest receivable 1,818 1,930 2,993
OREO and other assets 26,209 32,980 35,820
Due from affiliates 115 11 17
Prepaid commissions 178 253 446
---------- ---------- ----------
Total non-interest earning assets 30,455 37,230 41,617
---------- ---------- ----------
$372,820 $398,705 $463,622
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Liabilities and shareholder's equity
Interest-bearing liabilities
Total deposits (3)<F3> $325,993 $11,045 3.39% $355,442 $12,981 3.65% $410,873 $19,401 4.72%
FHLB advances (4)<F4> 15,991 1,033 6.46% 12,896 978 7.58% 16,957 1,387 8.18%
---------------------------- ---------------------------- ----------------------------
Total interest-bearing liabilities 341,984 12,078 3.53% 368,338 13,959 3.79% 427,830 20,788 4.86%
---------------------------- ---------------------------- ----------------------------
Non-interest bearing liabilities
Accrued interest payable 1,201 1,305 1,890
Other liabilities 5,506 4,029 7,108
Accrued expenses 969 849 2,594
Due to affiliates 58 32 58
---------- ---------- ----------
Total non-interest-bearing liabilities 7,734 6,215 11,650
---------- ---------- ----------
Shareholder's equity 23,102 24,152 24,142
---------- ---------- ----------
$372,820 $398,705 $463,622
---------- ---------- ----------
Net interest income (tax equivalent basis) $10,631 $9,825 $10,338
--------- --------- ---------
Net interest spread(tax equivalent bases) 3.10% 2.79% 2.52%
--------- --------- ---------
Net interest income as a percentage of
interest-earning assets (tax equivalent basis) 3.11% 2.72% 2.45%
--------- --------- ---------
</TABLE>
11
<PAGE>
Analysis of changes in interest income and interest expense
The following table presents an analysis of increases and decreases in interest
income and expense in terms of changes in volume and interest rates for the
periods indicated. Changes not due solely to either a change in volume or a
change in rate have been allocated based on the respective percentage changes
in average balances and average rates. The table is presented on a tax
equivalent basis at tax rates of 34% for fiscal years 1994 and 1993.
<TABLE>
<CAPTION>
1994 vs. 1993 1993 vs. 1992
Increase (decrease) due to change in Increase (decrease) due to change i
(In thousands) Volume Rate Total Volume Rate Total
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income
CD's, time deposits, federal funds
and other short-term investments ($1,247) $225 ($1,022) ($249) ($860) ($1,109)
Investment securities: (1)<F1>
U.S. government and agency obligations 17 122 139 (1) (12) (13)
Other - (6) (6) (15) 9 (6)
Mortgage backed securities (23) 479 456 (919) (1,707) (2,626)
Federal Home Loan Bank stock (35) - (35) - (4) (4)
Loans (net of unearned income) (2)<F2> 28 (635) (607) (1,964) (1,620) (3,584)
----------------------------------------------------------------------
Total interest income (1,260) 185 (1,075) (3,148) (4,194) (7,342)
----------------------------------------------------------------------
Interest expense
Total deposits (3)<F3> (1,131) (805) (1,936) (2,024) (4,396) (6,420)
FHLB advances (4)<F4> 200 (145) 55 (308) (101) (409)
----------------------------------------------------------------------
Total interest expense (931) (950) (1,881) (2,332) (4,497) (6,829)
----------------------------------------------------------------------
Change in net interest income ($329) $1,135 $806 ($816) $303 ($513)
----------------------------------------------------------------------
<FN>
<F1> (1) Securities available for sale and trading securities are included in
investment securities.
<F2> (2) Non accrual loans at year end are included in the total loan
portfolio.
<F3> (3) Includes net cost of interest rate swaps and caps.
<F4> (4) FHLB advances (short term) are disclosed in Schedule IX - Short Term
Borrowings.
</TABLE>
Investment activities
The following table summarizes the composition of the securities portfolio
(book values) for the three years ended September 30, 1994:
<TABLE>
<CAPTION>
1994 1993 1992
------------------ ------------------ -------------------
(Dollars in thousands) Amount % Amount % Amount %
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. government and agency obligations $493 1% $494 1% $499 1%
Mortgage backed securities 48,003 79% 39,374 48% 37,582 38%
Other 818 1% 817 1% 816 1%
Federal Home Loan Bank stock 2,045 3% 2,590 3% 2,590 3%
Securities available for sale (5)<F5> 4,902 8% 38,662 47% 57,129 58%
Trading securities (6)<F6> 4,395 7% - - - -
-----------------------------------------------------------
Total $60,656 100% $81,937 100% $98,616 100%
-------------------------------------------------------------
</TABLE>
The following table sets forth the maturities of investment securities at
September 30, 1994 and the weighted average (tax equivalent) yields on such
securities.
<TABLE>
<CAPTION>
Within After one but Five to ten After ten
one year within five year years years To
------------------ ------------------ ------------------ ------------------- ------------
(Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government and agency obligation $493 5.01% - - - - - - $493
Mortgage backed securities - - - - - - $48,003 4.92% 48,003
Other 568 5.27% - - $250 6.75% - - 818
Federal Home Loan Bank stock 2,045 8.11% - - - - - - 2,045
Securities available for sale (5)<F5> 4,902 4.81% - - - - - - 4,902
Trading securities (6)<F6> 4,395 6.94% - - - - - - 4,395
---------------------------------------------------------------------------------------------
$12,403 6.14% - - $250 6.75% $48,003 4.92% $60,656
---------------------------------------------------------------------------------------------
Total
<FN>
<F5>(5) Securities available for sale are detailed in Note 5 of Notes to
Consolidated Financial Statements in the 1994 Annual Report.
<F6>(6) Trading securities are detailed in Note 4 of Notes to Consolidated
Financial Statements of the 1994 Annual Report.
</TABLE>
As of September 30, 1994, the Bank held an investment in the following floating
rate collateralized mortgage obligation (CMO) securities, each of which
exceeded 10% of shareholder's equity.
<TABLE>
<CAPTION>
Maturity
Issuer Name Book value Market value Coupon date
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FNMA SERIES 1992 151 CLASS F 2,990,362 2,998,125 1 Month LIBOR + 35bp 08/25/2007
FNMA SERIES 1993-59 CLASS F 4,107,826 4,102,985 1 Month LIBOR + 50bp 05/25/2008
FNMA SERIES 1486 CLASS FB 3,387,595 3,370,717 1 Month LIBOR + 50bp 04/15/2023
</TABLE>
12
<PAGE>
Lending activities
The following table summarizes the composition of loan portfolio for the three
years ended September 30, 1994:
<TABLE>
<CAPTION>
1994 1993 1992
-------------------- ---------------------------- -------------------
(Dollars in thousands) Amount % Amount % Amount %
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and financial $7,021 3% $6,483 3% $15,035 6%
Real estate construction 2,819 1% 9,783 4% 10,467 4%
Real estate mortgage 262,797 95% 222,450 92% 212,673 89%
Installment 913 - 375 - 445 -
Lease financing 2,199 1% 2,835 1% 2,900 1%
-------------------- ------------------- --------------------
Gross total loans $275,749 100% $241,926 100% $241,520 100%
---------- --------- ----------
Less: Allowance for loan loss 4,645 5,433 5,925
---------- ---------- ----------
Net total loans $271,104 $236,493 $235,595
---------- ---------- ----------
</TABLE>
Commercial loans, primarily to individuals and small to medium sized firms,
were made at a variety of repayment terms and are primarily collateralized by
equipment, marketable securities or inventory primarly located in
Connectitcut. Real estate mortgage and construction balances as of September
30, 1994 are comprised of residential, commercial and multifamily mortgages of
approximately $158.8 million, $75.3 million and $31.5 million, respectively.
Commercial real estate loans are primarily located in the Northeast and include
as collateral multifamily, health care, office and industrial property. The
Bank is no longer an active loan originator in the commercial real estate
market. The Bank's residential loan portfolio is primarily collateralized by
mortgages on 1-4 family residential properties located throughout the Eastern
United States with concentrations in CT, MA, NY and PA. Installment loans are
made to individuals. The Bank also occasionally purchases residential mortgage
loans for its portfolio from other financial institutions and mortgage bankers
for its portfolio. Such purchases are primarily loans collateralized by
property located in Connecticut. There were no such purchases during fiscal
1994.
The following tables show the interest rate sensitivities of loans outstanding
as of September 30, 1994 which are due in the periods indicated. Loans due
within one year include demand loans.
<TABLE>
<CAPTION>
After one
Within but within After five
(In thousands) one year five years years Total
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and financial $6,751 $270 $ - $7,021
Real estate construction 1,456 1,363 - 2,819
Real estate mortgage 110,665 69,992 82,140 262,797
Installment 302 254 357 913
Lease financing 160 189 1,850 2,199
-------------------------------------------------------------------
Total $119,334 $72,068 $84,347 $275,749
-------------------------------------------------------------------
Fixed interest rate $6,665 $76,705
Variable interest rate 65,403 7,642
----------------------------
Total $72,068 $84,347
----------------------------
</TABLE>
Nonperforming assets
A summary of nonperforming assets by type follows for the three years ended
September 30, 1994:
<TABLE>
<CAPTION>
(Dollars in thousands) 1994 1993 1992
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans $6,730 $4,474 $4,977
Accruing loans contractually past due 90 days or more 960 19 388
Restructured loans 638 665 381
Other real estate owned, net 13,414 22,683 34,151
------------------------------------------------
Total nonperforming assets $21,742 $27,841 $39,897
------------------------------------------------
Nonperforming assets as a percentage of loans
and other real estate owned 7.5% 10.4% 14.3%
------------------------------------------------
</TABLE>
OREO is shown net of the reserve for OREO losses. The 1994 activity in the
reserve account reflects a beginning balance of $2,201,000, provisions for
possible OREO losses of $772,000, total OREO reserve chargeoffs of $1,922,000,
total recoveries of $150,000; and an ending balance in the reserve for OREO
losses of $1,201,000.
13
<PAGE>
Generally loans are placed in nonaccrual status when interest or principal is
past due for ninety days or earlier if circumstances indicate collection is
doubtful. The Bank resumes the accrual of interest on such loans if, in the
opinion of management, the borrower has demonstrated adequate financial
resources and intent to meet the terms and conditions of the loan, and all
payments are again current. Interest income forgone on nonperforming loans in
fiscal years 1994, 1993, and 1992 amounted to $754,000, $700,000 and
$1,036,000, respectively.
Summary of loan loss experience
The following table summarizes the Bank's loan loss experience for each of the
three years ended September 30, 1994:
<TABLE>
<CAPTION>
(Dollars in thousands) 1994 1993 1992
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $5,433 $5,925 $4,553
Acquired portfolio of ACC lease financings - - 464
---------------------------------------------
5,433 5,925 5,017
---------------------------------------------
Chargeoffs:
Real estate mortgage 2,640 1,051 3,111
Installment 27 - 9
Commercial 52 70 735
Lease financing 97 - 285
---------------------------------------------
2,816 1,121 4,140
---------------------------------------------
Recoveries:
Real estate mortgage 136 50 2
Commercial 16 19 161
Lease financing 22 - -
---------------------------------------------
174 69 163
---------------------------------------------
Net charge-offs 2,642 1,052 3,977
Additions charged to operations 1,854 560 4,885
---------------------------------------------
Balance at end of period $4,645 $5,433 $5,925
---------------------------------------------
Ratio of net charge-offs to average loans
outstanding during the period 1.07% 0.45% 1.55%
---------------------------------------------
</TABLE>
The Bank maintains general reserves for potential losses from its loan
portfolio in an Allowance for Losses from Loans and Leases (the "ALLL"). The
ALLL is maintained at a level considered by management to be adequate. The
adequacy of the ALLL is reveiwed quarterly by the Bank's management and its
Board of Directors, and is determined primarily by management's informed
judgement concerning the amount of risk inherent in the portfolio at a point in
time. Management's judgement is based on a number of factors including: 1) a
detailed risk rating system for commercial loans in which loans are
individually reviewed with respect to such criteria as the estimated value of
underlying loan collateral and the financial condition of borrowers, 2) recent
historical loan loss experience, 3) industry and geographic concentrations, 4)
the results of the most recent regulatory examination available, 5) current
national and local economic conditions, and 6) other relevant information as
may be available. The balance of each risk rating category has a reserve
percentage applied for the purpose of estimating each component of the ALLL.
A substantial portion of outstanding commerical loan portfolio balances on an
annualized basis are reviewed periodically by a third party that is independent
from the Bank and the results of such review are factored into the risk rating
system.
Management also reviews monthly, certain monitored performing and all
non-performing loans individually and makes further reserve allocation
adjustments. The Bank's one to four family residential mortgage portfolio
reserves are evaluated primarily upon the basis of portfolio historical
performance. The Bank also maintains an unallocated and supplemental reserve
that reflects management's assessment of local and national economic, business
and real estate market trends, and the Bank's procedures, controls and
personnel.
Loans are charged off against the ALLL when management believes that collection
is unlikely. Loan charge-offs are identified during the loan review process.
The charge-offs recorded during 1994 were primarily associated with the real
estate mortgage portfolio and resulted from the decline in the value of the
properties serving as collateral for the loans.
14
<PAGE>
The following table presents the allocation of the reserve for loan and lease
losses by loan categories for the three years ended September 30, 1994:
<TABLE>
<CAPTION>
1994 1993 1992
------------------- ------------------- -------------------
Loans in Loans in Loans in
Amount category Amount category Amount category
of as a % of of as a % of of as a % of
(Dollars in thousands) reserve total loans reserve total loans reserve total loans
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and financial $86 3% $1,033 3% $951 6%
Real estate construction 37 1% 291 4% 305 4%
Real estate mortgage 4,198 95% 3,144 92% 3,483 89%
Installment 18 - 17 - 9 -
Lease financing 105 1% 381 1% 370 1%
Unallocated 201 - 567 - 807 -
---------------------------------------------------------------------------
Total $4,645 100% $5,433 100% $5,925 100%
---------------------------------------------------------------------------
</TABLE>
Deposits
The Bank offers a variety of deposit accounts designed to attract both short
and long term funds. The Bank provides a money market deposit account to
Advest's customers as a component of various cash management products available
to those customers. The Bank primarily markets brokered Certificates of
Deposit (CD's) through Advest. The Bank also markets retail deposit accounts,
such as money market accounts, primarily through Advest. At September 30,
1994, deposits obtained through Advest constituted 90% of all deposits at the
Bank. Additional deposit information is disclosed in Note 7 of Notes to
Consolidated Financial Statements in the 1994 Annual Report.
The following table presents the average balances of and average rates paid on
deposits for the three years ended September 30, 1994:
<TABLE>
<CAPTION>
1994 1993 1992
------------------- ------------------- -------------------
Average Average Average Average Average Average
(Dollars in thousands) balance rate balance rate balance rate
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Savings-non interest bearing $58 $63 $43
Savings 243 2.00% 354 2.51% 165 3.93%
Money market 274,715 2.76% 306,722 2.96% 339,346 3.57%
Time certificates 50,977 6.17% 48,303 8.00% 71,319 8.07%
---------------------------------------------------------------------------
Total deposits $325,993 3.39% $355,442 3.65% $410,873 4.72%
---------------------------------------------------------------------------
</TABLE>
The following table sets forth the maturity distribution of time deposits in
excess of $100,000 as of September 30, 1994:
<TABLE>
<CAPTION>
(In thousands) Amount
-------------------------------------------------------------------------------
<S> <C>
Three months or less $985
Over three months to six months 5,146
Over six months to twelve months 11,756
Over twelve months 5,638
---------
$23,525
---------
</TABLE>
<TABLE>
<CAPTION>
Years ended September 30,
-----------------------------------------------
Return on equity and assets 1994 1993 1992
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Return on assets (net income/average total assets) * * *
Return on equity (net income/average equity) * * *
Net interest margin 2.85% 2.46% 2.21%
Equity to assets (average equity/average assets) 6.20% 6.06% 5.21%
<FN>
* As a result of net losses in 1994, 1993, and 1992, this information is not
meaningful.
</TABLE>
15
<PAGE>
Item 2. Properties
The Company conducts all of its operations from leased premises,
generally under non-cancelable leases with terms up to 15 years.
Item 3. Legal Proceedings
The Company has been named as defendant in various legal actions some of
which claim substantial damages. The actions have arisen principally from the
securities and investment banking business. In the opinion of management,
based on discussions with counsel, the outcome of these matters will not result
in a material adverse effect on the results of operations and financial
condition of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The information required by this item is disclosed in Exhibit 13 on
pages 74 through 75 of this filing under the caption "Note 11 Common Stock" and
on page 88 under the captions "Quarterly Financial Information" and
"Shareholder Information".
Item 6. Selected Financial Data
The information required by this item is disclosed in Exhibit 13 on page
54 of this filing under the caption "Five Year Financial Summary".
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this item is disclosed in Exhibit 13 of this
filing on pages 45 through 53 under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
Item 8. Financial Statements and Supplementary Data
The information required by this item is disclosed in the Consolidated
Financial Statements and Notes thereto of the 1994 Annual Report to
Shareholders excerpted in Exhibit 13 of this filing on pages 60 though 87 and
under the caption "Quarterly Financial Information" on page 88 of Exhibit 13.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no disagreements with the Company's independent accountants on
any accounting or financial disclosure matters.
16
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required for "Directors" by this item is included under
the caption "Election of Directors" of the Company's Proxy Statement to be
filed with the Securities and Exchange Commission in connection with the
Company's annual meeting to be held January 26, 1995. Such information is
hereby incorporated by reference.
The following table sets forth the executive officers of the Company at
December 1, 1994. Executive officers of the Company are appointed annually by
the Board of Directors to hold office until their successors are appointed and
qualify.
Officer
Name Age Office Since
Allen Weintraub 59 President, Chief Executive
Officer and Chairman of the Board 1977
Charles Bassos 52 President and Chief Executive
Officer of Advest Bank 1991
Allen G. Botwinick 51 Group Vice President, Operations 1980
George A. Boujoukos 60 Executive Vice President - Capital
Markets of Advest, Inc. 1977
Lee G. Kuckro 53 Senior Vice President and Secretary 1978
Grant Kurtz 52 Senior Executive Vice President
and President of Advest, Inc. 1985
Martin M. Lilienthal 52 Senior Vice President, Treasurer and
Chief Financial Officer 1977
Robert L. Thomas 57 President of Boston Security
Counsellors, Inc. and Executive
Vice President - Director of
Investment Policy of Advest, Inc. 1977
Harry H. Branning 43 Executive Vice President
of Advest, Inc. 1994
Item 11. Executive Compensation
The information required by this item is included under the caption
"Remuneration of Directors and Officers" and "Certain Transactions" of the
Company's Proxy Statement to be filed with the Securities and Exchange
Commission in connection with the Company's annual meeting to be held January
26, 1995. Such information is hereby incorporated by reference.
Item 12. Security Ownership Of Certain Beneficial Owners And Management
The information required by this item is contained under the caption
"Election of Directors" in the Company's Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the Company's annual
meeting to be held January 26, 1995. Such information is hereby incorporated
by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this item is included under the caption
"Certain Transactions" of the Company's Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the Company's annual
meeting to be held January 26, 1995. Such information is hereby incorporated
by reference.
17
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Page Reference
(a) 1. Financial Statements Exhibit 13 10-K
The Consolidated Financial Statements and the
Report of Independent Accountants contained
in the 1994 Annual Report to Shareholders
are incorporated herein by reference:
Report of Independent Accountants 55
Consolidated Balance Sheets 57
Consolidated Statements of Operations 56
Consolidated Statements of Cash Flows 58
Consolidated Statements of Changes in
Shareholders' Equity 59
Notes to Consolidated Financial Statements 60-87
2. Financial Statements Schedules
Report of Independent Accountants 23
Schedule III - Condensed Financial Information of
Registrant 24-26
Schedule VIII - Valuation and Qualifying Accounts 27
Schedule IX - Short-Term Borrowings 28
3. Exhibits
The following is a list of exhibits to this report on Form 10-K
filed herewith or incorporated by reference herein.
Prior Filing(s) to which
Exhibit Description reference is made, if applicable
3(a) Restated Certificate of Exhibit 3(a) of Registrant's
Incorporation of Report on Form 10-Q for the
Registration quarter ended March 31, 1989
3(b) By-laws of Registrant, as Exhibit 3(b) of Registrant's Report
restated on Form 10-Q for the quarter ended
March 31, 1989 and Exhibit 3(a) to
to Registrant's Report on Form 10-Q
for the quarter ended June 30, 1990
18
<PAGE>
Prior Filing(s) to which
Exhibit Description reference is made, if applicable
4(a) Shareholder Rights Agreement Exhibit to Registrant's
dated as of October 31, 1988 Report on Form 8-K dated
between Registrant and The November 1, 1988
Connecticut Bank and Trust
Company, N.A., as Rights Agent
4(b) Indenture pertaining to Exhibit 4(e) to Registrant's
Registrant's 9% Convertible Registration Statement on
Subordinated Debentures Form S-1, File No. 2-81977
10(a) Registrant's Employees' Exhibit 10(a) to Registrant's
Retirement Plan, Amended and Report on Form 10-K for the fiscal
Restated as of October 1, 1989 year ended September 20, 1989
10(b) Registrant's 1986 Stock Exhibit 10 to Registrant's Report
Option Plan, as amended on Form 10-Q for the quarter ended
March 31, 1987; Exhibit 10(a) to
Registrant's Report on Form 10-Q
for the quarter ended March 31, 1988
10(c) Registrant's Incentive Exhibit 10(c) to Registrant's
Savings Plan Under IRC Report on Form 10-K for the fiscal
Section 401-K, Amended and year ended September 30, 1989 and
restated as of January 1, Exhibit 10(a) to Registrant's Report
1989 on Form 10-Q for the quarter ended
June 30, 1990
10(d) Registrant's 1981 and 1983 Exhibit A to Registrant's Proxy
Incentive Stock Option Statements dated December 15, 1981
Plans, as amended and December 21, 1983; Exhibit 10(a)
to Registrant's Report on Form 10-Q
for the quarter ended March 31, 1988
10(e) Registrant's Deferred Exhibit 10(f) to Registrant's
Compensation Savings and Report on Form 10-K for the fiscal
Investment Plan, Amended and year ended September 30, 1989
Restated as of November 17, 1989
10(f) First Amendment to Registrant's Exhibit 10(j) to Registrant's
Deferred Compensation Savings Report on Form 10-K for its fiscal
and Investment Plan year ended September 30, 1990
10(g) Amendments Nos. 2 and 3 to Exhibit 10(b) of Registrant's
Registrant's Deferred Report on Form 10-Q for the
Compensation Savings and quarter ended December 31, 1992
Investment Plan
10(h) Registrant's Employee Stock Exhibit 10(h) to Registrant's
Ownership Plan effective Report on Form 10-K for its fiscal
as of October 1, 1988 year ended September 30, 1988
19
<PAGE>
Prior Filing(s) to which
Exhibit Description reference is made, if applicable
10(i) The Advest Thrift Plan of Exhibit 10(a) of Registrant's
Registrant, effective as of Report on Form 10-Q for the
December 31, 1992 quarter ended December 31, 1992
10(j) Registrant's 1990 Top AE Exhibit 10(i) to Registrant's
Stock Option Plan, effective Report on Form 10-K for its fiscal
as of October 26, 1990 year ended September 30, 1990
10(k) Registrant's 1991 Top AE Exhibit 10(k) to Registrant's
Stock Option Plan, effective Report on Form 10-K for its fiscal
as of November 22, 1991. year ended September 30, 1991
10(l) Registrant's 1992 Top AE Exhibit 10(c) of Registrant's
Stock Option Plan Report on Form 10-Q for the
quarter ended December 31, 1992
10(m) Registrant's Account Exhibit 10(m) of Registrant's
Executive Nonqualified Report on Form 10-K for its fiscal
Defined Benefit Plan year ended September 30, 1993
10(n) Registrant's Nonqualified Filed herewith
Executive Post-employment
Income Plan
10(o) Registrant's 1995 Equity Exhibit 4.1 to Registrant's
Plan, effective as of Regulation Statement on
December 1, 1994 Form S-8, File No. 33-56275
11 Statement Regarding Filed herewith
Computation of Net Earnings
per Common Share
13 Selected Excerpts from the Filed herewith
Annual Report to Shareholders
for fiscal year ended September
30, 1994
21 Subsidiaries Filed herewith
23 Consent of Independent Filed herewith
Accountants
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the
year ended September 30, 1994.
20
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
THE ADVEST GROUP, INC.
By Martin M. Lilienthal November 18, 1994
(Martin M. Lilienthal)
Senior Vice President and Treasurer
(Chief Financial and Principal Accounting
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
President, Chief Executive
Officer, Chairman of the
Board and Director
(Principal Executive
Allen Weintraub Officer) November 18, 1994
(Allen Weintraub)
Senior Vice President and
Treasurer (Chief Financial
and Principal Accounting
Martin M. Lilienthal Officer) November 18, 1994
(Martin M. Lilienthal)
George A. Boujoukos Director November 18, 1994
(George A. Boujoukos)
Anthony E. Cascino Director November 18, 1994
(Anthony E. Cascino)
Richard G. Dooley Director November 18, 1994
(Richard G. Dooley)
Grant Kurtz Director November 18, 1994
(Grant Kurtz)
Vice Chairman of the
Anthony A. LaCroix Board and Director November 18, 1994
(Anthony A. LaCroix)
21
<PAGE>
Signatures
Charles T. Larus Director November 18, 1994
(Charles T. Larus)
Corine T. Norgaard Director November 18, 1994
(Corine T. Norgaard)
John A. Powers Director November 18, 1994
(John A. Powers)
Robert L. Thomas Director November 18, 1994
(Robert L. Thomas)
22
<PAGE>
Report of Independent Accountants
The Board of Directors and Shareholders
of The Advest Group, Inc.
Our report on the consolidated financial statements of The Advest Group, Inc.
and Subsidiaries has been incorporated by reference in this Form 10-K from
page 14 of the 1994 Annual Report to Shareholders of The Advest Group, Inc.
In connection with our audits of such financial statements, we have also
audited the related financial statement schedules listed in the index on page
18 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Hartford, Connecticut
October 27, 1994
23
<PAGE>
Schedule III
Condensed Financial Information of Registrant
The Advest Group, Inc.
(Parent Company)
Condensed Balance Sheets
September 30,
(In thousands) 1994 1993
Assets
Cash $ 352 $ 1,939
Short-term investment 3,000 5,000
Investment in subsidiaries, equity
method(a) 92,955 86,683
Receivables from subsidiaries(a) 2,788 2,617
Loans 8,371 8,325
Investment securities 2,344 4,665
Other assets 8,609 10,404
Total assets $118,419 $119,633
Liabilities
Accounts payable and accrued expenses $ 11,708 $ 12,104
Payable to subsidiaries(a) 6,696 6,477
Borrowings 5,038 5,688
Subordinated liabilities 20,997 21,375
Total liabilities 44,439 45,644
Shareholders' Equity(b) 73,980 73,989
Total liabilities and shareholders' equity $118,419 $119,633
(a) Eliminated in consolidation.
(b) For an analysis of Shareholders' Equity and its components, see
Consolidated Balance Sheets and Statements of Changes in Shareholders'
Equity on pages 57 and 59 in Exhibit 13 of this filing.
24
<PAGE>
Schedule III
(Continued)
The Advest Group, Inc.
(Parent Company)
Condensed Statements of Operations
For the years ended September 30,
(In thousands) 1994 1993 1992
Interest and other income $ 284 $ 293 $ (113)
Interest and other expenses 5,149 3,586 11,330
Loss before income tax benefit,
extraordinary credit and
equity in earnings of
subsidiaries (4,865) (3,293) (11,443)
Income tax benefit 2,787 2,711 6,172
Loss before extraordinary credit
and equity in earnings of
subsidiaries (2,078) (582) (5,271)
Extraordinary credit -- 2,103 --
Income (loss) before equity in
income of subsidiaries (2,078) 1,521 (5,271)
Equity in income of subsidiaries 5,131 5,750 674
Net income (loss) $ 3,053 $ 7,271 $(4,597)
25
<PAGE>
The Advest Group, Inc. Schedule III
(Parent Company) (Continued)
Condensed Statements of Cash Flows
For the years ended September 30,
(In thousands) 1994 1993 1992
Operating Activities
Net income (loss) $ 3,053 $ 7,271 $(4,597)
Equity in loss of subsidiaries (5,131) (5,750) (674)
Adjustments to reconcile net loss to net
cash from operating activities 3,391 189 6,832
Deferred ESOP contribution -- 1,000 1,000
Net decrease (increase)in operating assets 24 (111) 512
Net decrease in operating liabilities (1,365) (450) (5,695)
Net cash (used for) provided by operating
activities (28) 2,149 (2,622)
Financing Activities
Proceeds from long term borrowing -- -- 6,500
Repayment of long term borrowings -- (67) (1,000)
Repayment of short term borrowings (650) (1,050) (396)
Employee stock transaction 27 84 15
Repurchase of sub. debentures (366) (281) (114)
Net (decrease) increase in payables to
subsidiaries (747) 6,358 5,787
Purchase of treasury stock (3,090) (2,022) (2,095)
Net cash (used for) provided by financing
activities (4,826) 3,022 8,697
Investing Activities
(Increase) decrease in investments in
subsidiaries (548) (1,050) 2,131
Proceeds from sales of investment securities 8,975 -- --
Proceeds from maturities of investment
securities 39,000 30,000 24,000
Purchases of investment securities (44,114) (37,108) (24,001)
Loans originated (56) -- (8,344)
Principal collections on loans 10 19 284
Recovery on write-offs -- 291 392
Net cash provided by (used for) investing
activities 3,267 (7,848) (5,538)
(Decrease) increase in cash (1,587) (2,677) 537
Cash at beginning of period 1,939 4,616 4,079
Cash at period end $ 352 $ 1,939 $ 4,616
Supplemental Information
Interest paid $ 2,426 $ 2,792 $ 3,918
Income taxes paid $ 1,058 $ 2,406 $ 4,188
Non-cash transfers (reduction of payable
to subsidiaries effected in the form of
dividends $ -- $ 7,000 $35,500
26
<PAGE>
Schedule VIII
The Advest Group, Inc. and Subsidiaries
Valuation and Qualifying Accounts
Additions
Balance at charged to Chargeoffs Balance at
beginning cost and and end
(In thousands) of period expenses recoveries of period
For the years ended
September 30,
1994
Credit Losses
Brokerage customers $ 1,305 $ 265 $ (701) $ 869
Loans 5,782 2,499 (3,501) 4,780
Other -- 6 (6) --
Asset Devaluation
Other real estate owned 2,201 772 (1,772) 1,201
Other investments/assets 1,383 1,869 (914) 2,338
$10,671 $ 5,411 $ (6,894) $ 9,188
1993
Credit Losses
Brokerage customers $ 1,674 $ 364 $ (733) $ 1,305
Loans 5,986 1,690 (1,894) 5,782
Other -- 5 (5) --
Asset Devaluation
Other real estate owned 2,830 2,190 (2,819) 2,201
Other investments/assets 1,626 43 (286) 1,383
$12,116 $ 4,292 $ (5,737) $10,671
1992
Credit Losses
Brokerage customers $ 1,455 $ 1,049 $ (830) $ 1,674
Loans 6,004 11,134 (11,152) 5,986
Asset Devaluation
Other real estate owned 2,200 5,762 (5,132) 2,830
Other investments/assets -- 8,499 (6,873) 1,626
$ 9,659 $26,444 $(23,987) $12,116
27
<PAGE>
<TABLE>
Schedule IX
The Advest Group, Inc. and Subsidiaries
Short-term Borrowings
(Dollars in thousands)
<CAPTION>
Weighted Maximum amount Average amount Weighted
Category of Balance average outstanding outstanding average interest
aggregate short at end interest rate during the during the rate during
term borrowings of period end of period period (a) period (b) the period
For the years ended
September 30,
<S> <C> <C> <C> <C> <C>
1994
Bank loans payable $22,502 5.27% $42,422 $5,347 4.29%
Federal Home Loan
Bank advances 9,500 5.58 17,300 6,154 5.45
Other 650 9.00 650 650 7.83
1993
Bank loans payable $ 2 3.72% $14,202 $1,399 3.64%
Federal Home Loan
Bank advances 1,000 8.03 7,000 4,553 7.09
Other 650 7.25 650 650 7.25
1992
Bank loans payable $ 1,502 4.42% $11,502 $ 885 4.76%
Federal Home Loan
Bank advances 6,000 6.67 7,500 4,789 7.50
Other 650 7.25 650 26 7.25
<FN>
(a) Highest month end balance during period.
(b) Average daily balance during period.
</TABLE>
28
<PAGE>
Form 10-K
Exhibit Index
Exhibit Description Page
10(n) Registrant's Nonqualified Executive
Post-employment Income Plan 30
11 Statement Regarding Computation
of Net Earnings per Common Share 44
13 Selected Excerpts from the
Annual Report to Shareholders
for fiscal year ended September
30, 1994 45
21 Subsidiaries 89
23 Consent of Independent Accountants 90
29
<PAGE>
Exhibit 10(n)
THE ADVEST GROUP, INC.
NONQUALIFIED EXECUTIVE
POST-EMPLOYMENT
INCOME PLAN
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 "Annual Benefit" . . . . . . . . . . . . . . . . . . . . 1
1.2 "Authorized Leave" . . . . . . . . . . . . . . . . . . . 1
1.3 "Average Earnings" . . . . . . . . . . . . . . . . . . . 1
1.4 "Beneficiary". . . . . . . . . . . . . . . . . . . . . . 1
1.5 "Board of Directors" . . . . . . . . . . . . . . . . . . 1
1.6 "Change of Control". . . . . . . . . . . . . . . . . . . 1
1.7 "Commencement Date". . . . . . . . . . . . . . . . . . . 1
1.8 "Committee". . . . . . . . . . . . . . . . . . . . . . . 1
1.9 "Company". . . . . . . . . . . . . . . . . . . . . . . . 2
1.10 "Compensation". . . . . . . . . . . . . . . . . . . . . 2
1.11 "Fiscal Year" . . . . . . . . . . . . . . . . . . . . . 2
1.12 "Participant" . . . . . . . . . . . . . . . . . . . . . 2
1.13 "Permanent Disability". . . . . . . . . . . . . . . . . 2
1.14 "Plan". . . . . . . . . . . . . . . . . . . . . . . . . 2
1.15 "Retirement Plan Offset". . . . . . . . . . . . . . . . 2
1.16 "Social Security Offset". . . . . . . . . . . . . . . . 3
ARTICLE II
ELIGIBILITY TO PARTICIPATE. . . . . . . . . . . . . . . . . . 3
2.1 Eligibility. . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III
BENEFITS. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.1 Determination of Commencement Date . . . . . . . . . . . 3
3.2 Annual Benefit . . . . . . . . . . . . . . . . . . . . . 4
3.3 Forfeiture of Benefits . . . . . . . . . . . . . . . . . 4
3.4 Deductions of Taxes from Amounts Payable . . . . . . . . 5
3.5 Facility of Payment. . . . . . . . . . . . . . . . . . . 5
ARTICLE IV
ACCOUNTING AND FUNDING. . . . . . . . . . . . . . . . . . . . 5
4.1 Book Reserve . . . . . . . . . . . . . . . . . . . . . . 5
4.2 Nonalienation of Payment . . . . . . . . . . . . . . . . 5
4.3 Source of Payment. . . . . . . . . . . . . . . . . . . . 6
4.4 Further Provisions . . . . . . . . . . . . . . . . . . . 6
ARTICLE V
AMENDMENT AND TERMINATION . . . . . . . . . . . . . . . . . . 6
5.1 Amendments . . . . . . . . . . . . . . . . . . . . . . . 6
5.2 Plan Termination . . . . . . . . . . . . . . . . . . . . 6
ARTICLE VI
ADMINISTRATION OF THE PLAN. . . . . . . . . . . . . . . . . . 7
6.1 Appointment of Committee; Authority and Responsibility . 7
6.2 Committee Duties . . . . . . . . . . . . . . . . . . . . 7
6.3 Records. . . . . . . . . . . . . . . . . . . . . . . . . 8
6.4 Committee Decisions Final. . . . . . . . . . . . . . . . 8
6.5 Committee as Agent . . . . . . . . . . . . . . . . . . . 8
6.6 Plan Expenses. . . . . . . . . . . . . . . . . . . . . . 8
6.7 Correction of Error. . . . . . . . . . . . . . . . . . . 8
6.8 Allocations and Delegations of Responsibility. . . . . . 8
31
<PAGE>
ARTICLE VII
BENEFICIARY; UNCLAIMED BENEFITS . . . . . . . . . . . . . . . 9
7.1 Designation of Beneficiary . . . . . . . . . . . . . . . 9
7.2 Unclaimed Benefit. . . . . . . . . . . . . . . . . . . . 9
ARTICLE VIII
MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . . .10
8.1 Merger . . . . . . . . . . . . . . . . . . . . . . . . .10
8.2 Liquidation. . . . . . . . . . . . . . . . . . . . . . .10
8.3 Indemnification. . . . . . . . . . . . . . . . . . . . .10
8.4 Contract of Employment . . . . . . . . . . . . . . . . .10
8.5 Disclosure . . . . . . . . . . . . . . . . . . . . . . .10
8.6 Headings . . . . . . . . . . . . . . . . . . . . . . . .10
8.7 Invalidity of Certain Provisions . . . . . . . . . . . .10
8.8 Law Governing. . . . . . . . . . . . . . . . . . . . . .11
8.9 Limitation on Liability. . . . . . . . . . . . . . . . .11
8.10 Gender. . . . . . . . . . . . . . . . . . . . . . . . .11
32
<PAGE>
THE ADVEST GROUP, INC.
NONQUALIFIED EXECUTIVE
POST-EMPLOYMENT
INCOME PLAN
The Advest Group, Inc. hereby establishes the Nonqualified Executive
Post-Employment Income Plan, effective October 1, 1993, for a select group of
highly compensated senior executives. The purpose of this Plan is to ensure
that the overall effectiveness of the Company's compensation program will
attract, retain and motivate qualified senior executives.
ARTICLE I
DEFINITIONS
When used herein, each of the following terms shall have the meaning set
forth below, unless the context clearly indicates otherwise:
1.1 "Annual Benefit" has the meaning set forth in Section 3.2.
1.2 "Authorized Leave" means an absence, with or without compensation,
authorized by the Company under its standard personnel practices, provided the
Participant returns to employment with the Company within the period specified
for the absence. The Committee shall also have the discretion to designate any
absence not described as an Authorized Leave by the first sentence of this
Section 1.2 as an Authorized Leave in any individual case.
1.3 "Average Earnings" for any Participant means the average
Compensation of the Participant during the three consecutive Fiscal Years of
the last 10 Fiscal Years during which the Participant had the highest
Compensation.
1.4 "Beneficiary" means the individual designated by the Participant to
receive benefits payable under this Plan in the event of the Participant's
death.
1.5 "Board of Directors" means the Board of Directors of the Company or
the Executive Committee of such Board.
1.6 "Change of Control" means a transfer or sale of substantially all of
the assets of the Company or merger or consolidation of the Company or Advest,
Inc. into or with any other corporation or entity that occurs after October 1,
1993 provided either (a) the other corporation or entity is engaged in the
retail securities brokerage business at the date of the transaction and such
transaction results in the Company or Advest, Inc. not surviving such merger or
consolidation or (b) a substantial change in the senior management of the
Company occurs within six months as a result of the transaction.
1.7 "Commencement Date" has the meaning set forth in Section 3.1.
1.8 "Committee" means an administrative committee designated to
administer this Plan in accordance with Article VI.
33
<PAGE>
Nonqualified Executive Post-Employment Income Plan Page 2
1.9 "Company" means The Advest Group, Inc. and any successor thereto by
merger, consolidation, purchase or otherwise.
1.10 "Compensation" for any Participant for any year means the sum of
all base pay paid to the Participant during the year, including any salary
deferrals under a plan intended to meet the requirements of either Section
401(k) or Section 125 of the Internal Revenue Code.
1.11 "Fiscal Year" means each 12-month period ended September 30th,
without regard to whether such period actually constitutes the fiscal year of
the Company at any time.
1.12 "Participant" means any employee of the Company (or any affiliated
corporation) who meets the eligibility requirements of Article II.
1.13 "Permanent Disability" means a mental or physical condition which
renders a Participant permanently unable to or incompetent to engage in any
substantial gainful activity.
1.14 "Plan" means this Advest Group, Inc. Nonqualified Executive Post-
Employment Income Plan.
1.15 "Retirement Plan Offset" at a specified date for any Participant
shall equal the Projected Annuity Benefit of the sum of Employer-Contributed
Plan Assets and the Accrued Benefit of the Participant on such date. For
purposes of such computation:
(a) the "Employer-Contributed Plan Assets" of a Participant on a
specified date shall equal the sum of
(i) the actual Advest Thrift Plan account balance of the
Participant on January 1, 1993 attributable to prior balances
in the predecessor Employees' Retirement Plan and Employee
Stock Ownership Plan of the Company,
(ii) all Company contributions to Company tax-qualified retirement
plans on behalf of the Participant which would have been made
after January 1, 1993 had the Participant contributed the
maximum allowable amount (but excluding contributions made as
a reduction of the Participant's compensation), and
(iii)projected earnings computed on each October 1st by applying
the 30-year treasury bond yield rate in effect on the
preceding October 1st to the aggregate of all account
balances, contributions or projected earnings accrued under
clause (a)(i), (a)(ii) or a(iii) prior to that October 1st.
(b) the "Accrued Benefit" of a Participant on a specified date shall
have the meaning set forth in the Advest, Inc. Account Executive
Nonqualified Defined Benefit Plan.
(c) the "Projected Annuity Benefit" of an amount on a specified date
shall equal the annual benefit if such amount is paid in the form
of a 10-year certain annuity
34
<PAGE>
Nonqualified Executive Post-Employment Income Plan Page 3
paying benefits at the end of each year, calculated using an
interest rate equal to the treasury bond yield rate in effect on
such date.
1.16 "Social Security Offset" at a specified date for any Participant
means one half of the estimated, unreduced annual primary old age insurance
amount which the Participant would be entitled to receive commencing on the
first day of the month next following his 65th birthday (or later date at which
primary old age insurance benefits commence) under the Social Security Act in
effect at such date. This amount shall not be affected by any amendment to
said Act after such time. If the Participant's retirement, disability or death
occurs prior to the date old age insurance benefits commence, the Social
Security Benefit will be determined on the assumption that the Participant
would have been credited with the maximum Social Security wages each year until
such time as primary old age insurance benefits commence.
1.17 "Target Percentage" for any Participant, means the sum of:
(a) 1% multiplied by the number of Fiscal Years or fractions of a
Fiscal Year during which the Participant has been employed by the
Company or any subsidiary of the Company from January 1, 1977
through September 30, 1993; plus
(b) 1.5% multiplied by the number of Fiscal Years or fractions of a
Fiscal Year during which the Participant has been employed by the
Company or any subsidiary of the Company from October 1, 1993
through the day preceding such Participant's Commencement Date.
ARTICLE II
ELIGIBILITY TO PARTICIPATE
2.1 Eligibility. A senior executive employee of the Company or any
affiliated corporation is eligible to become a Participant in the Plan;
provided such employee is designated as a Participant by the Board of Directors
or the Stock Option and Compensation Committee or equivalent committee of the
Board of Directors. Once an employee becomes a Participant, such employee
shall remain a Participant until termination of employment with the Company and
thereafter until all benefits, if any, to which such employee or such
employee's Beneficiary is entitled under the plan have been paid.
ARTICLE III
BENEFITS
3.1 Determination of Commencement Date. Each Participant (or such
Participant's Beneficiary) shall begin to receive Annual Benefits commencing on
the first October 1st (referred to herein as the Participant's "Commencement
Date") coincident with or next following:
35
<PAGE>
Nonqualified Executive Post-Employment Income Plan Page 4
(a) Normal Retirement -- the retirement of the Participant on or after
the Participant's 65th birthday, provided that the Participant has
been employed by the Company (or its affiliated corporations) for
at least five years;
(b) Early Retirement -- the retirement of the Participant after
Participant's 55th birthday, provided that either (i) the
Participant has been employed by the Company (or its affiliated
corporations) for at least five years after October 1, 1993 or (ii)
such retirement occurred more than 9 months, but not more than 24
months, following a Change of Control;
(c) Permanent Disability -- the Permanent Disability of the
Participant; or
(d) Death -- the death of the Participant.
3.2 Annual Benefit. The "Annual Benefit" for any Participant shall be
determined as of the applicable Commencement Date (or as of the Plan
termination date, in the case of a termination of the Plan pursuant to Section
5.2) and shall equal the product of the Participant's Target Percentage and
Average Earnings, reduced by the Retirement Plan Offset and Social Security
Offset. Subject to the forfeiture provisions set forth in Section 3.3, on or
promptly after the Commencement Date and October 1 of each of the next nine
years, the Company shall pay the Annual Benefit to the Participant or the
Participant's Beneficiary.
3.3 Forfeiture of Benefits. Notwithstanding any other provisions of
this Plan to the contrary, all payments of benefits to any Participant or
Beneficiary shall be discontinued and forfeited, and the Company will have no
further obligation under the Plan to such Participant or Beneficiary, if any of
the following events occurs:
(a) Early Termination. The Participant's service with the Company is
terminated for any reason before the occurrence of an event listed
in clauses (a), (b), (c) or (d) of Section 3.1;
(b) For Cause. The Participant is terminated at any time from
employment with the Company (or its affiliated corporations) for
cause or the Participant commits actions which would have
constituted a basis for termination for cause during the
Participant's employment and such actions are discovered by the
Company at any time prior to the Participant's death. For purpose
of this Plan, "cause" shall be deemed to include any act of
dishonesty or fraud, gross negligence, gross insubordination or
willful or reckless conduct detrimental to the business of the
Company (or its affiliated corporations).
(c) Solicitation of Employees or Clients. The Participant requests,
induces or otherwise solicits or attempts to influence any employee
of the Company (or its affiliated corporations) to leave such
employment, or the Participant requests, induces or attempts to
influence any client of the Company (or its affiliated
corporations) to curtail or cancel any business they may transact
or propose to transact with the Company or (such affiliated
corporation).
36
<PAGE>
Nonqualified Executive Post-Employment Income Plan Page 5
(d) Confidential Information. The Participant directly or indirectly
divulges, furnishes, uses, publishes or makes accessible to any
person or entity any information of the Company, its affiliated
corporation or its clients which is confidential, secret,
proprietary or otherwise not generally known in the industry,
including but not limited to client lists and records.
(e) Employment with Securities Brokerage Firm. The Participant is
employed by a firm engaging in securities brokerage following
termination of employment with the Company (or its affiliated
corporations), unless such termination of employment occurred more
than 9 months, but not more than 24 months, following a Change of
Control.
Absence from the Company on an Authorized Leave shall not be deemed to be
a termination for purposes of this Section 3.3. The Committee shall have sole
and unlimited discretion with respect to the application of the provisions of
this Section and such exercise of discretion shall be conclusive and binding
upon the Participant, the Beneficiary and all other persons.
3.4 Deductions of Taxes from Amounts Payable. The Company may deduct
from the amounts to be paid to any Participant under the Plan such amounts as
the Company, in its sole discretion, deems proper to protect against liability
for the payment of death, succession, inheritance, income, employment or other
taxes, and out of the money so deducted the Company may discharge any such
liability and pay the amount remaining to the Participant or the Participant's
estate, as the case may be.
3.5 Facility of Payment. If a Participant or Beneficiary is declared an
incompetent or is a minor and a conservator, guardian or other person legally
charged with the Participant's care has been appointed, any benefits to which
such Participant or Beneficiary is entitled shall be payable to such
co-executor, guardian or other person legally charged with the Participant's
care. The decision of the Committee in such matters shall be final, binding
and conclusive upon the Company and upon each Participant, Beneficiary, and
every other person or party interested or concerned. Neither the Company nor
the Committee shall be under any duty to see to the proper application of such
payments.
ARTICLE IV
ACCOUNTING AND FUNDING
4.1 Book Reserve. The Company shall credit to a book reserve those
amounts provided for in this Plan for each Participant.
4.2 Nonalienation of Payment. This Plan shall be binding upon and inure
to the benefit of the Company, its successors and assigns and the Participant
and the Participant's heirs, executors, administrators and legal
representatives. Except as permitted by the preceding sentence, benefits
payable under the Plan shall not be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or charge, and
shall to the extent permissible be exempt from garnishment, execution or levy
37
<PAGE>
Nonqualified Executive Post-Employment Income Plan Page 6
of any kind, either voluntary or involuntary, including any such liability
which is for alimony or other payments for the support of a spouse, former
spouse or children of the Participant, or for any other relative of a
Participant prior to actually being received by the person entitled to the
benefit under the terms of the Plan; any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge, garnish, execute or levy upon, or
otherwise dispose of any right to benefits payable hereunder, shall be void.
The Company shall not in any manner be liable for, or subject to the debts,
contracts, liabilities, engagements or torts of any person entitled to benefits
hereunder.
4.3 Source of Payment. All payments under this Plan shall be from the
general funds of the Company and no special or separate fund shall be
established and no other segregation or assets shall be made to assure payment;
provided, that the Company may establish a revocable or irrevocable trust for
the purposes of paying Benefits under the Plan. The establishment of a
revocable trust shall not require the Company to fund such trust nor shall the
Company be prevented from accessing amounts in such trust for any purpose it
deems appropriate. In no event shall any arrangement be established that would
cause the Plan to be considered "funded" under federal or state income tax
rules. No Participant shall have any right, title, or interest whatever in or
to any such trust or any investments which the Company may make to aid the
Company in meeting its obligations hereunder. Nothing contained in this Plan,
and no action taken pursuant to its provisions, shall create or be construed to
create a trust of any kind or a fiduciary relationship between the Company and
any Participant. To the extent that any person acquires a right to receive
payments from the Company hereunder, such right shall be no greater than the
right of an unsecured creditor of the Company. Nothing contained in the Plan
shall constitute a representation or warranty by the Company or any other
entity or person that the assets of the Company are or will be sufficient to
pay any Benefit hereunder.
4.4 Further Provisions. Nothing contained herein shall be deemed to
exclude the Participant from any supplemental compensation, bonus, pension,
insurance, severance pay or other benefit to which otherwise such Participant
might become entitled as an employee of the Company.
ARTICLE V
AMENDMENT AND TERMINATION
5.1 Amendments. The Board of Directors may amend, modify, change,
revise or discontinue this Plan by amendment at any time, provided, however,
that (a) no amendment shall increase the duties or liabilities of the Board of
Directors or the Committee without written consent of each member and (b) no
amendment shall be made without the written consent of a Participant if the
effect of such amendment would reduce a Participant's Benefit to the extent
accrued as of the date of the amendment. Nothing in the preceding sentence
shall limit or restrict the Committee's right to amend the Plan so as to affect
the manner, mode, form or timing of distributions hereunder.
5.2 Plan Termination. It is the expectation of the Company that it will
continue the Plan indefinitely, but the continuation of the Plan is not assumed
as a contractual obligation of the Company; and the right is reserved by the
38
<PAGE>
Nonqualified Executive Post-Employment Income Plan Page 7
Company at any time to discontinue this Plan. This Plan may be terminated by
the Board of Directors at any time, when in its judgment, business, financial
or other good causes make such termination necessary or appropriate; such
termination to become effective upon the delivery of notice by the Board of
Directors or the Committee to the Participants. Upon any such termination,
each Participant on the termination date shall become vested in his Annual
Benefit as of the termination date. Such Annual Benefit shall be calculated
based upon the Participant's Target Percentage, Average Earnings, 401(k) Offset
and Social Security Offset as of the Plan termination date. Payment of a
Participant's Annual Benefit shall commence on the date for commencement of
Annual Benefits set forth under Section 3.1 and be payable in accordance with
Sections 3.2 and 3.3. This Plan shall terminate automatically when there shall
be no Participants and no claims to Benefits hereunder.
ARTICLE VI
ADMINISTRATION OF THE PLAN
6.1 Appointment of Committee; Authority and Responsibility. The Board
of Directors shall appoint the members of a Committee, which members shall hold
office at the pleasure of the Board. Said Committee shall consist of not less
than three 3 nor more than 8 members, any one or more of whom may, but need
not, be an officer of the Company. If there is at any time a vacancy on the
Committee for any reason, the Board shall fill such vacancy, but the Committee
may act notwithstanding the existence of vacancies as long as there shall
continue to be at least two members of the Committee. The Committee shall
select a Chairman from among its members. The Committee shall have overall
responsibility for the administration and operation of the Plan. The Committee
will have all powers as may be necessary to discharge its duties hereunder.
6.2 Committee Duties. The Committee, on behalf of the Participants and
all other Beneficiaries of the Plan will administer and operate the Plan in
accordance with the terms of the Plan and will have all powers necessary to
accomplish that purpose, including, but not limited to, the following:
(a) To issue rules and regulations necessary for the proper conduct and
administration of the Plan and to change, alter, or amend such
rules and regulations;
(b) To construe this Plan;
(c) To determine all questions arising in the administration of this
Plan, including those relating to the eligibility of persons to
become Participants as according to Article II and the rights of
Participants and their Beneficiaries to receive Benefits under
Article III, and its decision thereon shall be final and binding
upon all persons hereunder;
(d) To authorize all disbursements of Benefits in accordance with the
provisions of the Plan including acceleration of payments in the
event of death;
39
<PAGE>
Nonqualified Executive Post-Employment Income Plan Page 8
(e) To oversee the retention of records relating to Participants and
other matters applicable to this Plan;
(f) To make available to Participants and Beneficiaries upon request,
for examination during business hours, such records as pertain
exclusively to the examining Participant;
(g) To prescribe procedures to be followed by Participants and
Beneficiaries in claiming Benefits;
(h) To make available for inspection and to provide upon request at
such charge as may be permitted and determined by the Company, such
documents and instruments, if any, as may be required to be
disclosed by the Employee Retirement Income Security Act of 1974,
as amended;
(i) To prescribe and adopt the use of necessary forms;
(j) To appoint such agents and other specialists to aid it in the
administration of the Plan as it deems necessary; and
(k) To make periodic reports on the operation and administration of the
Plan to the Board of Directors as may be required in any articles
of incorporation, charter, or by-laws pertaining to the Company.
6.3 Records. The regularly kept records of the Committee and the
Company shall be conclusive evidence as to all matters contained therein
applicable to this Plan.
6.4 Committee Decisions Final. The decision of the Committee in matters
within its jurisdiction shall be final, binding, and conclusive upon the
Company, Participants, Beneficiaries and any other person or party interested
or concerned.
6.5 Committee as Agent. The Committee shall act as agent for the
Company in the administration of the Plan.
6.6 Plan Expenses. All clerical, legal and other expenses of the Plan
shall be paid by the Company.
6.7 Correction of Error. In the event of an error in the adjustment of
a Participant's benefit, the Committee will correct such error by crediting or
charging the adjustment required to make such correction to or against unpaid
amounts.
6.8 Allocations and Delegations of Responsibility.
(a) Delegations. The Committee shall have the authority to delegate,
from time to time, all or any part of its responsibilities under
the Plan to such person or persons as it may deem advisable and in
the same manner to revoke any such delegation or responsibility.
40
<PAGE>
Nonqualified Executive Post-Employment Income Plan Page 9
Any action of the delegate in the exercise of such delegated
responsibilities shall have the same force and effect for all
purposes herein as if such action had been taken by the Committee.
The Board of Directors or the Committee shall not be liable for any
acts or omission of any such delegate. The delegate shall report
periodically to the Committee concerning the discharge of the
delegated responsibilities.
(b) Allocations. The Committee shall have the authority to allocate,
from time to time, all or any part of its responsibilities under
the Plan to one or more of its members as it may deem advisable,
and in the same manner to revoke such allocation of
responsibilities. Any action of the member to whom
responsibilities are allocated in the exercise of such allocated
responsibilities shall have the same force and effect for all
purposes hereunder as if such action had been taken by the
Committee. The Board of Directors or the Committee shall not be
liable for any acts or omissions of such member. The member to
whom responsibilities have been allocated shall report periodically
to the Committee concerning the discharge of the allocated
responsibilities.
(c) Limit on Liability. Duties and responsibilities which are carried
out in good faith by the Committee hereunder or which have been
allocated or delegated pursuant to the terms of the Plan or
Subsections (a) or (b) of this Section 6.8 shall not create any
liability of the Company, Board of Directors, or Committee, or any
member thereof.
ARTICLE VII
BENEFICIARY; UNCLAIMED BENEFITS
7.1. Designation of Beneficiary. The Beneficiary or Beneficiaries
entitled to any payments under Article III will be designated by the
Participant on a form provided by the Committee. The Participant may change
such designation of Beneficiary or Beneficiaries from time to time by filing a
new beneficiary designation form with the Committee. No designation of
Beneficiary or change of Beneficiary shall be effective until filed with the
Committee. If more than one Beneficiary shall be designated, the Beneficiaries
shall share any distribution on a pro rata basis unless otherwise stated. In
absence of any such designation under this Plan the individual designated as
beneficiary by the Participant to receive benefits payable in event of the
Participant's death under the Advest Thrift Plan shall be deemed to be the
Beneficiary. If a Participant shall fail to file a valid beneficiary
designation form under this Plan or the Advest Thrift Plan, or if all persons
designated on the beneficiary form shall have predeceased the Participant, the
Company shall distribute the value of such Participant's Account in one single
sum to the Participant's estate.
7.2 Unclaimed Benefit. Each Participant shall keep the Committee
informed of the Participant's current address and the current address of the
Participant's Beneficiary. The Committee shall not be obligated to search for
the whereabouts of any person. If the location of a Participant is not made
known to the Committee within three years after the date on which any payment
41
<PAGE>
Nonqualified Executive Post-Employment Income Plan Page 10
of the Participant's Benefit may be made, payment may be made as though the
Participant had died at the end of the three-year period. If, within one
additional year after such three-year period has elapsed, or, within three
years after the actual death of a Participant, the Committee is unable to
locate any Beneficiary of the Participant, then the Company shall have no
further obligation to pay any Benefit hereunder to such Participant or
Beneficiary or any other person and such benefit shall be irrevocably
forfeited.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1 Merger. Any successor corporation to the Company, by merger,
consolidation, purchase or otherwise, shall be substituted hereunder for the
Company. This Plan shall be binding on all successors to and assigns of the
Company; provided, that said successors or assigns may terminate the Plan in
accordance with the provisions hereof.
8.2 Liquidation. In the event that the Company is liquidated, pursuant
to a transaction whereby no successor corporation assumes the assets and
liabilities of the Company, the present value of the Participant's Benefit
shall be paid to the Participant, or to the Participant's Beneficiary, in one
single sum.
8.3 Indemnification. The Company shall indemnify and hold harmless to
the extent legally permitted each member of the Board of Directors, the
Committee and each officer and employee of the Company to whom are delegated
duties, responsibilities, and authority with respect to the Plan against all
claims, liabilities, fines and penalties, and all expenses reasonably incurred
by or imposed upon such delegate or agent (including but not limited to
reasonable attorney fees) which arises as a result of actions or failure to act
in connection with the operation and administration of the Plan.
8.4 Contract of Employment. Nothing contained herein shall be construed
to constitute a contract of employment between the Company and any employee or
Participant. Nothing contained herein will confer upon any Participant the
right to be retained in the service of the Company or limit the right of the
Company to discharge or otherwise deal with any Participant without regard to
the existence of the Plan.
8.5 Disclosure. Each Participant shall receive a copy of the summary of
the Plan and the Committee will make available for inspection by any
Participant or Beneficiary a copy of the Plan and any written procedures used
by the Committee in administering the Plan.
8.6 Headings. The headings of Articles and Sections are included solely
for convenience of reference, and if there is any conflict between such
headings and the text of this Plan, the text shall control.
8.7 Invalidity of Certain Provisions. If any provision of this Plan
shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions hereof and the Plan shall be construed
42
<PAGE>
Nonqualified Executive Post-Employment Income Plan Page 11
and enforced as if such provisions, to the extent invalid or unenforceable, had
not been included.
8.8 Law Governing. The Plan shall be construed and enforced according
to the laws of the State of Connecticut (other than its laws respecting choice
of law) to the extent not preempted by the Employee Retirement Income Security
Act of 1974, as amended.
8.9 Limitation on Liability. Neither the Company nor any agent or
representative of the Company who is an employee, officer, or director of the
Company in any manner guarantees the payments to be made under the Plan against
loss or deprecation, and to the extent not prohibited by federal law, none of
them shall be liable (except for their own gross negligence or willful
misconduct), for any act or failure to act, done or omitted in good faith, with
respect to the Plan. The Company shall not be responsible for any act or
failure to act of any agent appointed to administer the Plan.
8.10 Gender. Except when otherwise indicated by the context, any
masculine terminology herein shall also include the feminine, and the
definition of any term herein in the singular shall also include the plural.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by
its duly authorized representative as of the first day of October, 1993.
ADVEST, INC.
By:
Allen Weintraub
Chief Executive Officer
ATTEST:
Dave Horowitz
43
<PAGE>
Exhibit 11
The Advest Group, Inc. and Subsidiaries
Computation of Net Income (Loss) Per Common Share
For the years ended September 30,
Assuming
(In thousands, except per Primary* full dilution
share amounts) 1994 1993 1992 1993
Income (loss) before
extraordinary credit $3,053 $5,168 $(4,597) $5,168
Interest on convertible debentures
outstanding during the period,
net of tax and other related
expenses --- --- --- 1,105
3,053 5,168 (4,597) 6,273
Extraordinary credit --- 2,103 --- 2,103
Net income (loss) applicable
to common stock and other
dilutive securities $3,053 $7,271 $(4,597) $8,376
Average number of common shares
outstanding during the period 8,776 9,248 9,598 9,248
Additional shares assuming:
Exercise of stock options 221 --- --- 258
Conversion of debentures --- --- --- 1,591
Average number of common and
common equivalent shares used
to calculate net income
(loss) per common share 8,997 9,248 9,598 11,097
Income (loss) per common and
common equivalent share:
Income (loss) before
extraordinary credit $ .34 $ .56 $ (.48) $ .56
Extraordinary credit --- .23 --- .19
Net income (loss) $ .34 $ .79 $ (.48) $ .75
* For the years ended September 30, 1994 and 1992, net income (loss) per
share assuming full dilution is the same as primary net income (loss) per
share.
44
<PAGE> Exhibit 13
[page 7 of Annual Report]
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Business Environment
The Advest Group, Inc. ("AGI"), together with its subsidiaries (the
"Company"), provides diversified financial services including securities
brokerage, trading, investment banking, commercial and consumer lending and
asset management. Advest, Inc. ("Advest"), a regional broker-dealer, with
offices in 17 states and the District of Columbia, provides investment services
to a primarily retail client base. Advest Bank (the "Bank"), an FDIC-insured,
Connecticut chartered savings bank offers lending, deposit and trust services
to individuals, businesses and institutions. Other subsidiaries include Boston
Security Counsellors ("BSC"), an investment management company serving private
clients and the Company's proprietary mutual funds and Billings & Co., Inc.
("Billings"), a company specializing in private placement offerings primarily
in real estate.
Lyons, Zomback & Ostrowski, Inc. ("LZO"), a financial consulting subsidiary
of the Company specializing in the banking and thrift industry was merged into
the corporate finance division of Advest in January 1994. Renamed the
Financial Institutions Group (the "FIG"), the unit serves as an advisor to
small and medium-sized community banks.
All aspects of the Company's business are highly competitive and impacted
by regulatory, economic and other factors outside of its control, including the
volatility and price levels of securities markets, the demand for investment
banking services and interest rate changes. Consequently, operating results of
any individual period should not be considered representative of future
performance.
Advest, Inc.
The record setting pace enjoyed by Wall Street for more than three years
ended abruptly in February of the current year. After the DOW achieved a
record high of 3978 in January 31, rising interest rates, inflation fears and
mixed signals concerning the economic recovery contributed to a sustained
downward trend. Trading volumes fell and remained consistently lower. After
falling sharply from its peak, the DOW rebounded in the current quarter to
close at 3843, up 7% from its year-earlier close. However, equity and debt
underwriting levels reached a near four year low and higher interest rates
contributed to substantial declines in trading profits at most institutions.
For fiscal 1994, Advest posted pre-tax earnings of $11.4 million compared
with $14.8 million in the prior year, reflecting the trend in the market arena.
Net revenues, total revenue less interest expense, increased 3% to $167.8
million, as double digit gains in net interest income, asset management and
other revenues and a modest increase in sales credits were partly offset by
reduced revenue from principal trading and a substantial decline in investment
banking revenue. Net expenses (total expenses excluding interest), increased
5% to $156.4 million largely due to the current year inclusion of compensation,
rent and other expenses of the FIG division. In addition, communications costs
increased due to the 1993 outsourcing of back office operations to ADP and
technological upgrades designed to enhance the productivity of the sales force.
45
<PAGE>
Advest Bank
The Bank posted a $1.5 million pre-tax loss in fiscal 1994, a $.6 million
improvement over the prior year. The current year improvement is largely
attributable to decreased costs associated with other real estate owned
("OREO") and a decline in the level of provisions required for loan losses and
asset devaluation.
Economic conditions that adversely impacted business conditions and real
estate values in the Northeast in recent years have improved and a general
stabilization of the economy and property values is occurring. However,
weaknesses still remain in certain localities within the lending area of the
Bank. The current year operating loss is largely due to provisions for OREO
and loan losses and costs associated with carrying OREO, including operating
costs, legal and property taxes as well as carrying value adjustments. At
September 30, 1994, nonperforming assets were $21.7 million, 6.1% of bank
assets, compared with $27.8 million 7.2% of bank assets at the prior year end.
Had interest been accrued at contractual rates on non-accrual and re-negotiated
loans, interest income would have increased by approximately $.8 million, $.8
million and $1.0 million in 1994, 1993 and 1992, respectively.
Other
BSC achieved record results for the second consecutive year, posting pre-
tax earnings of $1.6 million, up 53% from 1993. Increases in assets under
management, particularly the Company's proprietary mutual funds, accounted for
the earnings increase. Billings pre-tax results improved $.5 million and $1.9
million in fiscal 1994 and 1993, respectively, as discussed below.
Billings Management Company ("BIM"), a subsidiary of Billings, has served
as managing general partner of a real estate limited partnership since 1990
when the original general partner filed for bankruptcy protection. The
partnership property is currently fully occupied and generates sufficient cash
flow to meet its operating needs. As a result, Billings' advances to the
property to cover cash flow deficiencies have declined significantly during
[page 8 of Annual Report]
the past two years. Since cash advances are charged directly to earnings,
Billings pre-tax results have been favorably impacted. In February 1993, a
class action lawsuit on behalf of the limited partners was certified. A
settlement is currently being negotiated. Management does not believe the
pending settlement will have a material effect on its results of operations or
financial condition. AGI has also guaranteed one-half of a partnership loan
which is secured by promissory notes of limited partners; the amount was $1.0
million at September 30, 1994.
Results of Operations
Net income for the year ended September 30, 1994 was $3.1 million ($.34 per
share) compared with net income before extraordinary credit of $5.2 million
($.56 per share) in 1993. The 1993 fiscal year also benefitted from a $2.1
million extraordinary credit from utilizing net operating loss carryforwards
resulting in net income of $7.3 million ($.79 per share). The Company posted a
net loss of $4.6 million ($.48 per share) in 1992, despite a record-breaking
year for Advest.
Net revenues were $182.6 million in the current year, a $3.6 million (2%)
increase over fiscal 1993. Increases were posted in most revenue categories,
46
<PAGE>
with significant gains in net interest, asset management and other revenues.
However, a $5.4 million (17%) decline in investment banking revenue offset
these gains to a large extent. Total expenses, excluding interest, increased
4% to $177.3 million with employee compensation costs, communications expenses
and loss provisions at the holding company level accounting for most of the
increase.
In 1993, net revenues declined $9.4 million (5%) to $179.0 million
primarily due to a $6.7 million decline in principal trading revenues (from a
record high in fiscal 1992) and a $1.9 million decline in net interest income.
In addition, asset management revenue declined $1.6 million due to the sale of
Shore & Reich, Ltd. in the first quarter of fiscal 1993. Net expenses were
$170.9 million, down $21.9 million (11%) from 1992. Fiscal 1992 expenses
included $12.2 million in writedowns of corporate assets and a $1.0 million
restructuring provision related to the ADP conversion.
Commissions
Commissions rose $1.7 million (2%) to $79.5 million during fiscal 1994.
Through the first half of the fiscal year, commission revenue had increased
$6.9 million, an 18% pace, however, various factors, most notably ongoing
interest rate increases initiated by the Fed in February 1994 negatively
impacted stock volume and prices during the remainder of the year. On the
year, sales of insurance products, primarily tax deferred annuities, increased
$1.5 million (42%). Revenue from mutual funds, which includes sales,
distribution and contingent deferred sales charges, increased $.9 million (4%)
and commissions from commodity trading more than doubled to $1.6 million.
Commissions on over-the-counter stocks increased $.8 million (9%) during the
current year while sales of listed issues declined $2.7 million.
Commission revenue increased $1.3 million (2%) in 1993 as a fourth quarter
gain of $3.2 million (19%) offset declines through nine months. Mutual fund
sales, including distribution and liquidation fees, advanced $3.0 million (16%)
and insurance commissions rose $.4 million (11%). Commissions on listed and
over-the-counter securities were off $1.8 million (4%) and $.2 million (2%),
respectively.
Principal Transactions
Revenue from principal transactions includes realized and unrealized gains
and losses on Advest's securities inventory and related sales credits. Advest
holds only nominal inventory positions of high yield securities. Since March
1994 the Bank has held trading securities which currently consist exclusively
of U.S. Government debt. In addition, gains and losses on the Bank's available
for sale portfolio are reflected in revenue from principal transactions.
Revenue from principal trading activities declined $1.4 million (4%) to
$32.3 million, as first quarter gains were more than offset by subsequent
declines, primarily in the fourth quarter. Equity commission gains of $1.1
million (12%) during fiscal 1994 were negated by a $1.1 million (5%) decline in
sales credits from debt securities, primarily government and mortgage-backed
obligations. Trading profits were lower on most firm inventories, particularly
municipal and corporate bonds which collectively declined $.8 million. The
Bank posted a $.3 million loss in the current year on its portfolios compared
with a small profit in fiscal 1993.
In 1993, revenue from principal transactions declined $6.7 million (17%) to
$33.7 million. Sales credits on debt securities were down $7.3 million (25%)
47
<PAGE>
primarily due to the first quarter closing of a metropolitan sales office.
Equity sales increased $1.2 million (16%) due to investor dissatisfaction with
low yields on debt securities. Trading profits declined overall, however,
profits on municipal debt sales gained $.5 million (121%) reflecting investor
anticipation of tax increases.
Investment Banking
To generate investment banking revenue, Advest manages and participates in
underwritings of corporate and government securities and mutual funds. Advest
also provides merger and acquisition services and other consulting
[page 9 of Annual Report]
and valuation activities. The Company does not participate in bridge financing
activities. Advest's corporate finance division concentrates its efforts on
raising capital for mid-size companies, primarily in the financial and
healthcare industries. Public finance services healthcare and educational
institutions as well as state and local issuers. As previously noted, during
the current year, LZO was merged into Advest's corporate finance division.
Investment banking revenues were $25.7 million, a decline of $5.4 million
(17%) from 1993. Advest, excluding the FIG, posted a $4.4 million (15%)
revenue decline, reflecting the negative impact of higher interest rates in the
stock and bond markets. Both the volume and size of new issues declined as
well as the underwriting fees earned. Syndicate participations in new debt and
equity issues were down $2.8 million (21%) and mutual fund offerings declined
$.5 million (14%). Corporate finance underwriting fees increased $1.1 million
(101%) primarily due to two deals that closed in the first fiscal quarter,
before the underwriting slowdown commenced. In addition, a $1.3 million gain
was recognized on the exercise of warrants related to a prior underwriting.
These gains were more than offset by declines in merger and acquisition fees,
down $2.0 million (74%) and consulting and valuation service fees, down $.6
million (34%). The FIG division accounted for the balance of the 1994 decline.
Investment banking revenues were $31.1 million in 1993, just over 1% higher
than the prior year. Advest's revenues grew $1.3 million (5%) to $28.3 million
with close to a third of the total coming in a strong fourth quarter.
Corporate finance rebounded strongly in 1993 as merger and acquisition fee
income advanced $2.0 million (302%), consulting and valuation fees rose $.8
million (89%) and underwriting fees gained $.3 million (42%). These gains were
offset by declines in sales credits of $1.7 million (9%); although the number
of underwriting participations was up significantly in 1993, allocations among
firms were lower due to increased investor demand. This also impacted trading
profits which gained less than 2% from 1992. LZO's revenues declined 25% to
$2.8 million in 1993.
Asset Management and Administration
BSC provides advisory services to a diverse clientele and serves as
investment advisor for the Company's proprietary mutual funds. Advest's
investment management department provides various services for its managed
account base including client profiling, asset allocation, manager selection
and performance measurement. The Company acts as transfer agent and provides
dividend disbursing and reinvestment for its proprietary mutual funds as well
as dividend reinvestment for more than 1000 equities, mutual and closed-end
funds. Other services include retirement plan servicing, securities custody
and safekeeping. Prior to its sale in the first quarter of fiscal 1993, Shore
& Reich, Ltd. ("S&R") provided administrative and consulting services to a
variety of retirement plans.
48
<PAGE>
Asset management and administration revenues reached record levels during
fiscal 1994. Revenues were $16.4 million, a $2.3 million (16%) increase over
1993. Excluding S&R revenues from fiscal 1993, revenue from continuing
operations increased $2.8 million (21%). BSC posted revenues of $4.3 million,
up 24% from fiscal 1993. Assets under management increased 10% to $731
million, led by the Advantage funds which gained 12% to $580 million. In July
1994, the Advantage Strategic Income Fund, which invests in three diverse fixed
income sectors, was introduced, bringing to 10 the number of proprietary funds
offered by the Company. Advest's 1994 revenues were $12.0 million, a 19%
increase, and managed account assets surpassed the $1 billion mark.
In 1993, asset management and administration revenue, excluding S&R,
increased $2.1 million (18%) to $13.6 million. BSC posted $3.4 million in fee
revenues, a 39% increase from 1992. BSC's assets under management increased
48% to $666 million with the Advantage funds gaining 55%. In July 1993, Advest
introduced the Advantage Municipal Bond Fund, a series fund consisting of three
portfolios; National, New York and Pennsylvania; at year end the fund had $38
million in assets. Advest's fee-based revenues increased $1.5 million (17%) to
$10.1 million as its managed account base increased more than 51% to $821
million. The sale of S&R in November 1992 resulted in a $3.6 million decline
in asset management revenues in 1993.
Other Income
Other income increased $2.3 million (81%) to $5.2 million in the current
year as a result of higher fee income, particularly compensation paid to Advest
to help defray various costs associated with marketing non-proprietary
products. In 1993, other income declined $1.0 million (26%) primarily as a
result of lower fee income at Advest as well as high investment gains in fiscal
1992.
Net Interest Income
Net interest income is the excess of interest income and loan fee income
over interest expense and is derived primarily from the Bank and Advest. The
Bank derives most of its interest income from residential and commercial loans
and from investments primarily in mortgage-backed securities. The Bank's loans
and investments are primarily funded by interest-bearing deposits, advances
from the Federal Home Loan Bank of Boston
[page 10 of Annual Report]
and by the Bank's equity capital. Advest derives interest income from
financing brokerage customers margin transactions, entering into reverse
repurchase agreements and stock borrowing transactions as well as from its
securities inventory. Advest pays interest primarily on brokerage customer
credits held for re-investment, on its stock lending activities and short-term
borrowings.
Net interest income was $23.5 million in 1994, a 21% increase over 1993 and
the highest level achieved since fiscal 1990. Advest's net interest increased
$3.1 million (27%) primarily due to higher average margin account balances
throughout the year. In addition, higher interest rates resulted in greater
spreads on all interest-earning assets.
The Bank's net interest income increased $.8 million (8%) to $10.6 million
in 1994 primarily due to growth of the loan portfolio and increased interest
spreads as interest rates on earning assets increased more than the cost of
funds. A significant portion of the Bank's maturing certificates of deposit
49
<PAGE>
were replaced at the then current lower rates. The ratio of earning assets to
total assets improved to 93.1% at September 30, 1994 compared with 92.9% at the
previous fiscal year end. Given the shrinkage in total bank assets between
fiscal 1993 and 1994, the improvement in the ratio is more notable than the
percentages would indicate. The Bank utilizes interest rate swap and cap
agreements to facilitate the matching of asset and liability maturities. To
further lessen its sensitivity to future changes in the level of market
interest rates, the Bank entered into additional interest rate swap and cap
contracts in notional amounts totalling $10 million. Refer to Note 16 of Notes
to Consolidated Financial Statements for further discussion.
In 1993, net interest income declined $1.9 million (9%). Advest's net
interest fell $1.3 million (10%) primarily due to a significant decline in
average margin debits during the year as well as lower interest rates and
related spreads. The Bank's net interest declined $.4 million (4%) from 1992
primarily due to lower margins on reinvested funds during fiscal 1993. Asset
yields declined with the general decline in the level of interest rates.
Short-term assets repriced at lower rates and a significant portion of the
Bank's high interest rate, longer term assets prepaid and were reinvested or
refinanced at the lower rates then available. The decline in asset yield was
partially offset by declines in the cost of funds as well as a 3.5% improvement
in the level of earning assets to 92.9%.
Expenses
Compensation and benefits expenses were $114.8 million, an increase of 3%
over 1993. The increase was primarily due to general salary increases, the
first full year of the Company's matching contribution to employee 401(k)
accounts and higher salesmen's compensation. In addition, compensation at the
Bank increased 9% primarily as a result of efforts to expand its mortgage
lending and trust businesses. Communication costs increased $2.0 million (12%)
to $18.7 million. Most of the increase is attributable to the ADP conversion
being effective for all of fiscal 1994 (versus 9 months in 1993) as well as
certain non-recurring credits available in the prior year. In 1994,
professional fees increased $1.0 million (19%) to $6.2 million. Advest's
professional fees increased $.4 million (11%) due equally to higher legal fees
and personnel agency costs. The Bank's professional fees were up $.4 million
(31%) in great part due to legal fees associated with the introduction of a new
home equity product. The provision for credit losses and asset devaluation was
$5.4 million, a 26% increase reflecting additional reserves booked by AGI
related to the potential settlement of limited partnership activity discussed
previously in the "Business Environment" section under the caption "Other".
Other expenses declined $1.6 million (16%) to $8.5 million due primarily to
lower OREO and related expenses of the Bank and a decline in settlement costs
at Advest.
In 1993, compensation and benefits increased $1.1 million (1%) primarily
due to enhancements to the Company's retirement program and general firm
payroll increases. The sale of S&R reduced 1993 compensation costs by more
than $2 million. Occupancy and equipment costs declined $2.2 million (12%)
primarily due to lower rent expense resulting from the sale of S&R, the closing
of a metropolitan sales office and reduced computer equipment costs primarily
related to the ADP conversion. Communications costs increased $1.9 million
(13%) primarily due to the ADP conversion and the outsourcing of brokerage
customer statements.
50
<PAGE>
Income Taxes
The effective income tax rates were 43.0%, 9.9% and 3.9% for 1994, 1993 and
1992, respectively. The 1994 rate was higher than the statutory rate due to
the impact of minimum state taxes imposed, most notably in Connecticut, where
no benefit could be realized from current year net operating losses. The 1993
rate benefitted from significant federal net operating loss carryforwards which
were partially offset by state tax minimums. State taxes exclusively comprise
the effective rate in 1992.
During the current year, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting For Income Taxes" ("SFAS 109"). At
September 30, 1994, deferred tax assets, net of a
[page 11 of Annual Report]
$1.4 million valuation allowance, were $9.9 million. The Company expects to
realize all deferred tax assets through future earnings, except for certain
state net operating loss carryforwards for which it has established the above
valuation allowance. For further information on the Company's income taxes
refer to Notes 1 and 15 to the Consolidated Financial Statements.
Advest Bank Asset Quality
The Bank is primarily a secured lender, with real estate being the most
predominant form of collateral. Historically, the Bank has been a lender in
New England and other Atlantic coast states. The Bank has a strong presence in
states where Advest has a significant market share and accordingly has a high
concentration of loans in Connecticut, New York, Massachusetts, Pennsylvania,
Florida and Ohio. Lending activity during 1993 and 1994 largely concentrated
on enlarging the Bank's single family residential mortgage portfolio and
shrinking its commercial real estate portfolio, thereby shifting the Bank's
loan portfolio risk characteristics. The residential and commercial portfolios
increased $46.9 million and decreased $13.1 million, respectively, in 1994 and
increased $17.1 million and decreased $16.6 million, respectively, in 1993. At
September 30, 1994, the Bank's loan portfolio was comprised of $158.8 million
of single family residential mortgages and $116.9 million of commercial and
other loans, representing 57.6% and 42.4% of total loans, respectively. The
allowance for loan losses was $4.6 million and $5.4 million as of September 30,
1994 and 1993, respectively.
Nonperforming assets declined 22% during fiscal 1994, from $27.8 million to
$21.7 million at September 30, 1993 and 1994, respectively. OREO declined to
$13.4 million in 1994 from $22.7 million in 1993. The Bank's level of
delinquent loans was 3.84% at September 30, 1994 compared with 5.32% at the
close of fiscal 1993, however, nonperforming loans increased $3.2 million, to
$8.3 million. Loan and OREO chargeoffs were $4.7 million and $4.1 million
during 1994 and 1993, respectively. Notwithstanding the continued improvement
in asset quality reported during the past two years, deterioration of economic
conditions and real estate markets and/or continued interest rate increases
could again lead to increased levels of nonperforming assets and the related
provisions for credit losses and asset devaluation.
The Bank has identified approximately $16.0 million of performing
commercial real estate loans that are rated as "watch" due to certain perceived
weaknesses in debt service capacity, collateral values or documentation. Watch
assets are closely monitored for any deterioration which could result in future
losses and have declined from $32.4 million at September 30, 1993.
51
<PAGE>
Liquidity and Capital Resources
The Company's total assets were $884.9 million at September 30, 1994,
reflecting a 4% decline from 1993 and an 11% increase from 1992. The Bank's
assets declined $52.2 million (13%) during the past two years to $354.6
million, as a $34.2 million (14%) increase in loans and mortgages was more than
offset by declines in cash and cash equivalents and investments. Customer
deposits decreased $75.0 million (20%) during the past two years necessitating
$23.5 million (nearly 200% increase) in additional borrowings to finance the
increased lending. Advest's assets increased $113.6 million (29%) to $508.7
million during the same period, primarily due to a $42.4 million (15%) increase
in margin debits and a $46.5 million (242%) increase in securities loaned.
Cash and liquid assets which include cash and cash equivalents, receivables
from brokerage customers, interest-earning deposits, securities purchased under
agreements to resell, securities borrowed, receivables from brokers and
dealers, securities available for sale and securities inventory comprised 55%
of total assets at September 30, 1994 compared with 59% for the prior year.
Total capitalization, defined as shareholders' equity, long-term and
subordinated borrowings increased 14% to $125.4 million, with virtually all of
the increase from additional long-term borrowings to finance bank lending.
Shareholders' equity was essentially unchanged at $74 million as the Company's
$3.1 million of net income was offset by repurchases of the Company's common
stock.
Sources used by the Company to finance assets include customer deposits
which decreased $54.8 million (16%) during 1994, credit balances in brokerage
accounts which increased $17.6 million (5%), short-term borrowings which
increased $31 million (1877%), long-term borrowings which increased $15.4
million (102%) and retained earnings. Advest has arrangements with certain
financial institutions where it can borrow amounts on a collateralized basis,
principally to support securities settlements and underwriting activities.
Advest has substantial levels of customer and firm securities which can be used
for such purposes. Management believes that operating cash flow together with
available credit lines will provide sufficient resources to meet all present
and reasonably foreseeable capital needs. AGI's principal source of funding is
the earnings distributions from its subsidiaries which, except as discussed
below, is unrestricted.
[page 12 of Annual Report]
The Securities and Exchange Commission requires Advest to maintain liquid
net capital to meet its obligations to customers. At September 30, 1994,
Advest had excess net capital of approximately $24.0 million, virtually
unchanged from the previous year end. See also Note 14 of Notes to
Consolidated Financial Statements.
The FDIC has adopted leverage capital regulations that generally require
banks to maintain a minimum leverage capital ratio of between 4% and 5%. Under
a Memorandum of Understanding (the "MOU") entered into with bank regulators,
the Bank has maintained a leverage capital ratio of at least 6%. The Bank is
also subject to the FDIC's risk-based capital regulations, which require the
Bank to maintain a total risk-based capital ratio of 8%, including at least 4%
Tier 1 capital.
At September 30, 1994, the Bank's leverage capital ratio was 6.32% (capital
of $22.4 million) and its total risk-based and Tier 1 risk-based capital ratios
were 10.44% (with capital of $25.5 million) and 9.18% (with capital of $22.4
52
<PAGE>
million), respectively. Without giving effect to any operating results from
subsequent periods, management believes that the Bank has sufficient capital to
comply with the regulatory requirements. Under state bank regulatory
restrictions, the Bank is currently prohibited from declaring dividends.
Pursuant to the FDIC Improvement Act ("FDICIA"), the Bank is subject to
rules limiting brokered deposits and interest rates. Under FDICIA, the Bank
meets the conditions to be deemed an "adequately capitalized" bank which means
it may accept brokered deposits with a waiver from the FDIC. Under the terms
of a brokered deposit prohibition waiver received by the Bank in September
1994, the Bank may accept brokered deposits without limitation other than
observing restrictions on the rate of interest paid on such deposits and
limiting the total outstanding balances of brokered deposits of the Bank to
$85.0 million, until September 30, 1995. At September 30, 1994, the Bank had
$64.5 million of brokered deposits. Prior to September 30, 1995, the Bank
must, under the provisions of the new rules, apply for a new waiver if it
wishes to continue to accept brokered deposits after that date.
Cash Flows
Cash and cash equivalents decreased $12.0 million and $11.9 million in 1994
and 1993, respectively, and increased $.5 million in 1992. The current year
decline was primarily due to a net $40.1 million increase in loan originations
(new loans less principal collections), a $52.4 million increase in margin
debits, a $54.8 million decline in bank deposits and a $17.6 million decline in
payables to brokerage customers. These uses of cash were partly offset by
increased short and long-term borrowings and proceeds from sales and maturities
of investments not reinvested. The 1993 decline was primarily due to a $20.2
million decline in bank deposits partly offset by a $9.4 million decrease in
margin debits.
In 1994, the Company used $16.0 million of operating cash primarily due to
the increased margin debits and decreased brokerage customer payables noted
above which were partly offset by a $56.9 million decrease in segregated cash
and securities required under SEC Rule 15c(3)3. Financing activities used net
cash of $11.9 million as the previously noted significant decline in bank
deposits was partly offset by a net $25.9 million increase in short-term
borrowings and a $20.5 million increase in long-term borrowings. Investing
activities generated $16.0 million in net cash due to net proceeds from the
sale and maturity of investments exceeding net new loans originated.
The Company generated $26.2 million in operating cash during the year ended
September 30, 1993, including $18.2 million from net income and addbacks for
noncash operating expenses. Net cash used for financing activities declined
$25.5 million primarily due to a $20.2 million decline in bank deposits and net
$3.2 million in repayments of borrowings. A net $12.6 million was used for
investing activities primarily due to net increases in investment securities.
The Company reported a net loss of $4.6 million for the 1992 fiscal year,
however, cash generated from operating activities was $31.1 million after
adding back noncash charges, including $26.4 million of loss provisions and
asset writedowns and $7.9 million of depreciation and amortization. Cash used
for financing activities was $88.4 million primarily as a result of $77.7
million in withdrawals of bank deposits, primarily maturing certificates of
deposit not reinvested. Cash provided by investing activities was $56.8
million and included $47.1 million of net proceeds from sales of investments
and securities available for sale which were not reinvested.
53
<PAGE> [page 13 of Annual Report]
<TABLE>
Five Year Financial Summary
<CAPTION>
For the years ended September 30,
In thousands, except ----------------------------------------------------------------------------
per share amounts 1994 1993 1992 1991 1990
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues
Commissions:
Listed $ 36,284 $ 39,199 $ 40,208 $ 37,306 $ 36,427
Mutual funds 22,337 21,448 18,472 12,439 12,332
Over-the-counter 10,374 9,527 9,699 6,961 6,149
Insurance 5,164 3,634 3,260 2,629 3,294
Options 2,570 2,407 3,237 3,904 4,571
Other 2,761 1,620 1,626 2,683 5,038
--------- --------- --------- --------- ---------
79,490 77,835 76,502 65,922 67,811
--------- --------- --------- --------- ----------
Interest:
Loans 19,016 19,615 23,094 29,704 36,761
Margin accounts 17,868 14,158 17,990 18,227 20,638
Investments 6,793 6,227 8,738 18,330 19,358
Securities inventory 1,016 1,015 970 1,053 1,461
Other 1,391 1,428 1,985 2,689 2,593
--------- --------- --------- --------- ---------
46,084 42,443 52,777 70,003 80,811
Principal transactions 32,297 33,662 40,364 38,102 27,054
Investment banking 25,743 31,102 30,675 22,787 17,329
Asset management and administration 16,399 14,111 15,669 12,818 12,965
Other 5,216 2,878 3,894 2,614 5,366
--------- --------- --------- --------- ---------
Total revenues 205,229 202,031 219,881 212,246 211,336
--------- --------- --------- --------- ---------
Expenses
Compensation and benefits 114,800 111,615 110,474 98,534 97,072
--------- --------- --------- --------- ---------
Interest:
Deposits 9,613 11,290 18,018 30,538 37,628
Brokerage customers 6,342 5,383 6,690 9,511 11,337
Borrowings 5,064 5,120 5,110 4,942 5,458
Other 1,565 1,229 1,618 2,170 2,485
--------- --------- --------- --------- ---------
22,584 23,022 31,436 47,161 56,908
Occupancy and equipment 15,508 15,516 17,663 19,035 18,944
Communications 18,662 16,627 14,771 14,202 15,898
Professional 6,231 5,248 5,160 6,350 4,760
Provision for credit losses and asset d 5,411 4,292 26,444 16,857 16,302
Business development 4,532 4,033 3,908 2,866 3,737
Brokerage, clearing and exchange 3,693 3,579 3,654 4,082 5,014
Provision for restructuring - - 1,020 - -
Other 8,453 10,028 9,773 11,783 11,076
--------- --------- --------- --------- ---------
Total expenses 199,874 193,960 224,303 220,870 229,711
--------- --------- --------- --------- ---------
Income (loss) before taxes and
extraordinary credit 5,355 8,071 (4,422) (8,624) (18,375)
Provision (benefit) for income taxes 2,302 2,903 175 (1,740) (9,375)
--------- --------- --------- --------- ---------
Income (loss) before extraordinary credit 3,053 5,168 (4,597) (6,884) (9,000)
Extraordinary credit - utilization
of operating loss carryforwards - 2,103 - - -
--------- --------- --------- --------- ---------
Net income (loss) $ 3,053 $ 7,271 $ (4,597) $ (6,884) $ (9,000)
========= ========= ========= ========= =========
-------------------------------------------------------------------------------------------------------------------------
Per share data
Primary net income (loss) $ 0.34 $ 0.79 $ (0.48) $ (0.70) $ (0.87)
Fully diluted net income (loss) $ 0.34 $ 0.75 $ (0.48) $ (0.70) $ (0.87)
Cash dividend $ - $ - $ - $ 0.04 $ 0.16
Book value $ 8.62 $ 8.16 $ 7.22 $ 7.52 $ 7.99
Other data
Total assets $ 884,855 $ 885,182 $ 796,102 $ 904,899 $ 917,369
Shareholders' equity $ 73,980 $ 73,989 $ 67,656 $ 73,178 $ 80,000
Long-term borrowings $ 30,388 $ 15,038 $ 11,688 $ 17,300 $ 12,405
Subordinated borrowings $ 20,997 $ 21,375 $ 21,671 $ 21,835 $ 21,835
Return on average equity 4.1% 10.2% * * *
Average common and common equivalent
shares outstanding 8,997 9,248 9,598 9,832 10,296
-------------------------------------------------------------------------------------------------------------------------
<FN>
* As a result of net losses in 1992, 1991 and 1990, this item is not
meaningful.
</TABLE>
54
<PAGE>
[page 14 of Annual Report]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
The Advest Group, Inc.:
We have audited the accompanying consolidated balance sheets of The Advest
Group, Inc. and Subsidiaries as of September 30, 1994 and 1993, and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for each of the three years in the period ended September 30, 1994.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Advest Group, Inc. and Subsidiaries as of September 30, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1994, in conformity with
generally accepted accounting principles.
As discussed in Notes 1 and 15 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes", as of October 1, 1993.
Coopers & Lybrand L.L.P.
Hartford, Connecticut
October 27, 1994
55
<PAGE>
[page 15 of Annual Report]
<TABLE>
THE ADVEST GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Fiscal Year Ended September 30,
(In thousands, except per share amounts) 1994 1993 1992
<S> <C> <C> <C>
Revenues
Commissions $ 79,490 $ 77,835 $ 76,502
Interest 46,084 42,443 52,777
Principal transactions 32,297 33,662 40,364
Investment banking 25,743 31,102 30,675
Asset management and administration 16,399 14,111 15,669
Other 5,216 2,878 3,894
--------- -------- ---------
Total revenues 205,229 202,031 219,881
--------- -------- ---------
Expenses
Compensation and benefits 114,800 111,615 110,474
Interest 22,584 23,022 31,436
Communications 18,662 16,627 14,771
Occupancy and equipment 15,508 15,516 17,663
Professional 6,231 5,248 5,160
Provision for credit losses and
asset devaluation 5,411 4,292 26,444
Business development 4,532 4,033 3,908
Brokerage, clearing and exchange 3,693 3,579 3,654
Provision for restructuring - - 1,020
Other 8,453 10,028 9,773
-------- ------- ---------
Total expenses 199,874 193,960 224,303
-------- ------- ---------
Income (loss) before taxes and
extraordinary credit 5,355 8,071 (4,422)
Provision for income taxes 2,302 2,903 175
-------- -------- --------
Income (loss) before extraordinary credit 3,053 5,168 (4,597)
Extraordinary credit - utilization
of operating loss carryforwards - 2,103 -
--------- -------- ---------
NET INCOME (LOSS) $ 3,053 $ 7,271 $ (4,597)
========= ======== =========
Net income (loss) per common and common equivalent shares:
Primary:
Income (loss) before extraordinary credit $ .34 $ .56 $ (.48)
Extraordinary credit $ - $ .23 $ -
Net income (loss) $ .34 $ .79 $ (.48)
Assuming full dilution:
Income (loss) before extraordinary credit $ .34 $ .56 $ (.48)
Extraordinary credit $ - $ .19 $ -
Net income (loss) $ .34 $ .75 $ (.48)
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
56
<PAGE> [page 16 of Annual Report]
<TABLE>
THE ADVEST GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, September 30,
(In thousands, except share and per share amounts) 1994 1993
<S> <C> <C>
Assets
Cash and short-term investments
Cash and cash equivalents $ 7,278 $ 19,232
Cash and securities segregated under
federal and other regulations 49,305 106,173
Interest-earning deposits and investments 3,000 35,000
--------- ----------
59,583 160,405
--------- ----------
Receivables
Brokerage customers, net 321,776 269,639
Loans and mortgages, net 279,730 244,932
Securities borrowed 65,751 29,128
Brokers and dealers 3,539 3,133
Other 11,560 15,034
--------- ----------
682,356 561,866
--------- ----------
Securities
Investment securities (market values
of $53,102 and $48,065) 53,850 48,104
Securities inventory, at market value 34,810 25,716
Securities available for sale (market values
of $ 4,902 and $38,763) 4,902 38,662
--------- ----------
93,562 112,482
--------- ----------
Other assets
Other real estate owned, net 13,414 22,683
Equipment and leasehold improvements, net 11,537 6,980
Other 24,403 20,766
--------- ----------
49,354 50,429
--------- ----------
Total Assets $ 884,855 $ 885,182
========== ==========
Liabilities & Shareholders' Equity
Liabilities
Brokerage customers $ 310,537 $ 328,150
Deposits 291,885 346,712
Securities loaned 79,459 39,001
Short-term borrowings 32,652 1,652
Compensation and benefits 14,053 16,118
Checks payable 6,800 15,007
Brokers and dealers 6,023 9,596
Securities sold, not yet purchased, at market value 2,187 2,630
Other 15,894 15,914
--------- ----------
759,490 774,780
Long-term borrowings 30,388 15,038
Subordinated borrowings 20,997 21,375
--------- ----------
810,875 811,193
--------- ----------
Commitments and Contingent Liabilities (see Note 1, 14 and 16)
Shareholders' Equity
Common stock, par value $.01,
authorized 25,000,000 shares, issued
10,570,222 shares and 10,563,422 shares 106 105
Paid-in capital 67,405 67,378
Retained earnings 16,605 13,552
Less: Treasury stock, at cost,
1,987,357 shares and 1,498,805 shares (10,136) (7,046)
--------- ----------
73,980 73,989
--------- ----------
Total Liabilities and Shareholders' Equity $ 884,855 $ 885,182
========== ==========
<FN>
The accompanying notes are an intergral part of these consolidated financial
statements.
</TABLE>
57
<PAGE>
[page 17 of Annual Report]
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Twelve Months Ended September 30,
In thousands 1994 1993 1992
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 3,053 $ 7,271 $ (4,597)
Adjustments to reconcile net income to net cash provided by operating activites:
Amortization 4,848 4,719 5,760
Depreciation 2,219 1,894 2,096
Provision for credit losses and asset devaluation 5,411 4,292 26,444
Other 2,156 50 (344)
Deferred ESOP contribution - 1,000 1,000
(Increase) decrease in operating assets:
Receivables from brokerage customers (52,432) 9,389 (44,132)
Securities borrowed (36,623) (9,878) 30,164
Receivables from brokers and dealers (406) 9,385 2,245
Securities inventory (9,094) (963) (7,436)
Cash and securities segregated under federal and other r 56,868 (104,911) 34,058
Other 3,000 (803) 3,933
Increase (decrease) in operating liabilities:
Brokerage customers (17,613) 86,726 7,951
Securities loaned 40,458 14,535 (27,715)
Brokers and dealers (3,573) 417 (4,900)
Checks payable (8,207) 3,337 9,034
Other (6,089) (236) (2,468)
-------- --------- ---------
Net cash (used for) provided by operating activities (16,024) 26,224 31,093
-------- --------- ---------
FINANCING ACTIVITIES
Net decrease in deposits (54,827) (20,178) (77,661)
Proceeds from short-term borrowings 10,000 - -
Repayment of short-term borrowings (6,650) (6,650) (7,662)
Short-term brokerage borrowings, net 22,500 (1,500) (2,097)
Proceeds from long-term borrowings 20,500 5,000 6,500
Repayment of long-term borrowings - - (5,300)
Other (3,428) (2,219) (2,194)
-------- --------- ---------
Net cash used for financing activities (11,905) (25,547) (88,414)
-------- --------- ---------
INVESTING ACTIVITIES
Proceeds from sales of investments 23,028 20,653 43,354
Proceeds from maturities of investments 131,734 242,256 270,771
Purchase of investment securities and short-term investment(95,847) (274,243) (267,014)
Principal collections on loans 53,704 48,264 62,084
Proceeds from other real estate owned, net 11,379 11,278 7,822
Loans originated (93,774) (52,822) (55,660)
Other (14,249) (7,949) (4,515)
-------- --------- ---------
Net cash provided by (used for) investing activities 15,975 (12,563) 56,842
-------- --------- ---------
(Decrease) increase in cash and cash equivalents (11,954) (11,886) (479)
Cash and cash equivalents at beginning of period 19,232 31,118 31,597
-------- --------- ---------
Cash and cash equivalents at period end $ 7,278 $ 19,232 $ 31,118
======== ========= =========
Interest paid $ 22,853 $ 23,183 $ 32,385
Income taxes paid $ 1,058 $ 2,406 $ 4,188
Non-cash transfers from:
Loans to OREO $ 3,028 $ 2,210 $ 19,511
Securities held for sale to investment securities $ 27,910 $ - $ -
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
58
<TABLE>
Consolidated Statements of Changes in Shareholders' Equity
<CAPTION>
$.01 Par Value Deferred Total
In thousands, except share Common Stock Paid-In Retained ESOP Treasury Stock Shareholders'
and per share amounts Shares Amount Capital Earnings Contributions Shares Amount Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of September 30, 1991 10,540,657 $105 $67,142 $10,878 ($2,000) (813,101) ($2,947) $73,178
Net loss (4,597) (4,597)
Exercise of stock options 3,665 15 15
Deferred ESOP contributions, net 1,000 1,000
Purchase of treasury stock (359,600) (2,095) (2,095)
Other 155 155
------------------------------------------------------------------------------------
Balance as of September 30, 1992 10,544,322 105 67,312 6,281 (1,000) (1,172,701) (5,042) 67,656
Net income 7,271 7,271
Exercise of stock options 19,100 66 4,267 18 84
Deferred ESOP contributions, net 1,000 1,000
Purchase of treasury stock (330,371) (2,022) (2,022)
------------------------------------------------------------------------------------
Balance as of September 30, 1993 10,563,422 105 67,378 13,552 - (1,498,805) (7,046) 73,989
Net income 3,053 3,053
Exercise of stock options 6,800 1 27 28
Purchase of treasury stock (488,552) (3,090) (3,090)
------------------------------------------------------------------------------------
Balance as of September 30, 1994 10,570,222 $106 $67,405 $16,605 $ - (1,987,357) ($10,136) $73,980
====================================================================================
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
59
<PAGE>
[page 19 of Annual Report]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts of The Advest
Group, Inc. ("AGI") and all subsidiaries collectively (the "Company"),
including Advest, Inc. ("Advest"), a broker-dealer; Advest Bank (the
"Bank"), a state-chartered savings bank; Boston Security Counsellors, Inc.,
an investment management company; and Billings & Company, Inc.
("Billings"), a real estate services company. Lyons, Zomback & Ostrowski,
Inc., a financial consulting subsidiary, was merged into the corporate
finance division of Advest in January 1994. All material intercompany
accounts and transactions are eliminated. Certain 1993 and 1992 amounts
have been reclassified in the accompanying consolidated financial
statements to provide comparability with the current year presentation.
Cash equivalents are defined as short-term, highly liquid investments with
an original maturity of three months or less including amounts due from
banks, federal funds sold and overnight time deposits. Federal funds sold
were $1,980,000 and $11,500,000 at September 30, 1994 and 1993,
respectively.
Cash and securities segregated under federal and other regulations
Pursuant to Rule 15c3-3 of the Securities and Exchange Commission ("SEC"),
Advest is required to segregate funds and qualified securities for the
exclusive benefit of customers.
Investments held in special reserve accounts for the exclusive benefit of
customers are primarily securities purchased under agreements to resell
which are financing transactions collateralized by U.S. Government and
Agency obligations. It is the policy of Advest to obtain collateral with a
market value in excess of the principal amount loaned plus accrued
interest. The collateral, which is held by a third party custodian bank,
is valued daily and additional collateral is obtained when appropriate.
Securities purchased under agreements to resell are carried at the amounts
at which the securities will be subsequently resold. As of September 30,
1994 and 1993, securities purchased under agreements to resell were
$49,050,000 and $105,925,000, respectively.
In addition, certain interest-bearing cash deposits are held in special
reserve accounts for the exclusive benefit of customers.
Loans
Loans of the Bank are carried at their unpaid principal balances, and
related interest is recognized as income when earned but only to the extent
considered collectible. Other loans of the Company consist primarily of
notes receivable. Generally loans are placed in a nonaccrual status when
interest or principal is unpaid for ninety days or earlier if circumstances
indicate collection is doubtful. The Company resumes the accrual of
interest on a delinquent loan if, in the opinion of management, the
borrower has demonstrated adequate financial resources and intent to meet
60
<PAGE>
the terms and conditions of the loan, and all payments are current. If a
loan has been restructured during a period in which it was delinquent, or
had sufficiently met the definition of a restructured troubled loan in any
other regard, a loan would not be restored to accruing status until 1)
adequate collateral coverage had been provided and 2) an appropriate period
(minimum six months) has elapsed during which the restructured loan has
performed according to the terms and conditions of the restructuring.
Loan origination fees and direct costs related to origination are deferred
and amortized into interest income over the contractual life of the loan,
using the level yield method. When a loan is prepaid or sold, any
remaining unamortized fees and costs are credited or charged to income at
that time.
In May 1993, the Financial Accounting Standards Board ("FASB") issued a
Statement of Financial Accounting Standards No. 114 "Accounting by
Creditors for Impairment of a Loan" ("SFAS 114"). SFAS 114 addresses those
circumstances where a creditor should measure impairment of a loan based on
the discounted present value of expected future cash flows. SFAS 114 is
required to be adopted for fiscal years beginning after December 15, 1994,
although earlier implementation is encouraged. The Company will adopt SFAS
114 in its 1996 fiscal year as required and has not assessed the impact its
implementation will have on the Company's financial condition or results of
operations.
Allowance for loan losses
In management's opinion, the allowance, established through charges against
income, is adequate to absorb potential losses on loans, commitments and
other extensions of credit. Management's determination of the adequacy of
the allowance is based upon continuing evaluation of the risk
characteristics of the loan portfolio, current economic and real estate
market conditions, reviews of specific loans, estimates of current value of
underlying collateral, changes in loan portfolio composition, the results
of the most recent regulatory examination and other relevant factors.
Loans are charged against the allowance when management believes that
collection is unlikely. Any subsequent recoveries are credited to the
allowance when received.
[page 20 of Annual Report]
The Company's reserves are general reserves and are available to absorb
losses to the total loan portfolio as well as off-balance sheet
commitments, such as commitments to extend credit, guarantee and standby
letters of credit. At September 30, 1994 and 1993, the allowances for loan
losses were $4,780,000 and $5,782,000, respectively.
Receivables from and payables to brokerage customers
Receivables from and payables to brokerage customers arise from cash and
margin transactions executed by Advest on their behalf. Advest's clients
are predominantly retail investors located throughout the United States but
primarily in the Northeast.
In virtually all instances, receivables are collateralized by securities
with market values in excess of the amounts due. It is the policy of
Advest to monitor the market value of the collateral and request additional
collateral when required. The collateral is not reflected in the
accompanying financial statements.
61
<PAGE>
A reserve for doubtful accounts is maintained at a level that in
management's judgement is adequate to absorb potential credit losses. The
reserve is based upon reviews of individual credit risks, as well as
prevailing and anticipated economic conditions and is increased by
provisions charged to income as well as recoveries and is reduced by
chargeoffs. At September 30, 1994 and 1993, the reserve for doubtful
accounts were $869,000 and $1,305,000, respectively.
Included in payables to brokerage customers are free credit balances of
$297,416,000 and $310,048,000 at September 30, 1994 and 1993, respectively.
Advest pays interest on credit balances when the customer has indicated
that the funds are for reinvestment purposes.
Securities loaned and securities borrowed
Advest loans, to other brokers and dealers, securities owned by its
customers and others for which it receives cash deposits or other forms of
collateral. Advest also acts in an agency capacity whereby it borrows
securities from one broker-dealer and lends to another. Securities
borrowed and securities loaned are recorded at the amount of cash
collateral advanced or received, respectively. The initial collateral
advanced or received has a market value equal to the market value of the
underlying securities. Advest monitors the market value of securities
borrowed and loaned on a daily basis and requests additional collateral or
returns excess collateral, when appropriate. The value of such securities
at September 30, 1994 approximates amounts owed.
Trading Positions
Advest trading accounts consist of securities inventory and securities
sold, not yet purchased and are valued at market with unrealized gains and
losses reflected in current period revenues from principal transactions and
investment banking. Securities inventory consists of trading account
securities which are generally held for resale within a relatively short
time frame. Securities sold, not yet purchased represent an obligation of
Advest to deliver specific equity and debt securities at predetermined
prices. Advest is obligated to acquire the securities at prevailing market
prices in the future to satisfy this obligation. The Bank's trading
securities, which consist entirely of government securities, are carried at
market value with unrealized gains and losses reflected in current period
revenues from principal transactions.
Investment Securities
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. 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.
62
<PAGE>
Investment securities of the Bank, with the exception of securities
available for sale and marketable equity securities, are stated at cost,
adjusted for discount accretion and premium amortization. Marketable
equity securities are stated at the lower of aggregate cost or market
value. Any aggregate net unrealized loss on marketable equity securities
is accounted for by the establishment of a valuation reserve, which is
deducted from the carrying value of the securities and shareholders'
equity. The Company has held only nominal investments in marketable equity
securities in the past few years. Securities available for sale consist
primarily of fixed rate debt securities and are stated at the lower of
aggregate cost or market value. Other investment securities of the
Company, primarily include U.S. government obligations which are carried at
market value and interests in limited partnerships which are carried at the
lower of cost or market.
[page 21 of Annual Report]
When, in the opinion of management, the value of an investment security has
experienced an other than temporary impairment in value, the carrying value
of the security is written down to its estimated market value by a charge
to investment gains and losses. Gains and losses on the sale of investment
securities are recorded on the trade date by the specific identification
method and are included in other revenues, with the exception of gain and
losses on securities available for sale which are included in revenue from
principal transactions.
In May 1993, the FASB issued Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
("SFAS 115"). SFAS 115 addresses the accounting and reporting for
investments in equity securities that have readily determined fair values
and for all investments in debt securities. SFAS 115 requires
classification of qualifying investments into three categories: "trading",
"available for sale" or "held to maturity." Investments classified as
trading and available for sale are carried at fair value. Held to maturity
debt investments would continue to be reported at amortized cost.
Unrealized gains and losses on trading securities would be reflected in
current period income. Unrealized gains and losses on available for sale
investments are to be reported as a separate component of shareholders'
equity, net of applicable taxes. As required, the Company will adopt SFAS
115 on October 1, 1994 and it will not have a material impact on operating
results or financial condition.
Equipment and leasehold improvements
Depreciation of equipment for financial accounting purposes, is calculated
primarily using the straight-line method and is based upon the estimated
useful lives of the assets ranging from three to ten years. Leasehold
improvements are amortized over the shorter of the terms of the respective
leases or the estimated useful lives of the improvements. At September 30,
1994 and 1993, accumulated depreciation and amortization were $28,367,000
and $25,724,000, respectively.
Other real estate owned
Other real estate owned ("OREO") of the Bank is comprised of real estate
and other assets acquired through foreclosure, acceptance of a deed in lieu
of foreclosure or loans which are in-substance foreclosed. These assets
are carried at the lower of cost or fair value, inclusive of selling
expenses. Any excess of cost over the estimated fair value at the time of
acquisition is charged to the allowance for credit losses.
63
<PAGE>
Writedowns subsequent to acquisition are charged against the reserve for
OREO losses, which is established through charges against income and
maintained at a level management considers adequate to absorb potential
losses on OREO. OREO is reported net of related reserves on the
consolidated balance sheets.
Intangible assets
The excess cost over the fair value of net assets of acquired companies is
recorded as goodwill and is amortized on a straight-line basis over periods
between 15 and 40 years. At September 30, 1994 and 1993, the amount of
goodwill reported in other assets is $6,600,000 and $6,900,000,
respectively.
Fair value of financial instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" ("SFAS 107"), requires that the
Company disclose the estimated fair values of its financial instruments.
Fair values generally represent estimates of amounts at which a financial
instrument could be exchanged between willing parties in a current
transaction other than in forced liquidation. However, in many instances
current exchange prices are not available for certain of the Company's
financial instruments, since no active market generally exists for such
financial instruments. Accordingly, the Company uses other valuation
techniques allowable under SFAS 107.
Fair value estimates are subjective and are dependent on a number of
significant assumptions based on management's judgement regarding future
expected loss experience, current economic conditions, risk characteristics
of various financial instruments, and other factors. In addition, SFAS 107
allows a wide range of valuation techniques, therefore, comparisons between
entities, however similar, may be difficult.
The methods and assumptions used to estimate fair value follow. Financial
instruments not specifically addressed are reported in the financial
statements at fair value or amounts that approximate fair value.
Securities available for sale and investment securities. Fair value is
based upon quoted market prices, where available. If a quoted market price
is not available, fair value is estimated using quoted market prices for
similar securities and adjusted for differences between the quoted
instrument and the instrument being valued.
Loans. For commercial real estate loans, multi-family mortgage loans,
lease loan financings and commercial and consumer loans, fair value is
estimated by discounting the expected future cash flows using the current
rates at which similar loans would be originated to borrowers with similar
credit ratings for comparable remaining maturities. For residential one to
four family real estate mortgages, fair value is estimated using quoted
market prices for similar loans, adjusted for differences in loan
characteristics.
[page 22 of Annual Report]
The fair value of nonperforming loans is based on recent appraisals or
estimated cash flows discounted at a rate commensurate with the risk
associated with such cash flows. Assumptions regarding credit risk, cash
flows and discount rates are judgementally determined using available
market and borrower information.
64
<PAGE>
Deposits. Fair values for regular savings and money market accounts are
equal to the amount payable on demand at the reporting date. Fair values
for fixed-rate certificates of deposit are estimated by discounting future
cash flows using interest rates currently offered on time deposits with
similar remaining maturities.
Borrowings. The fair value of advances from the Federal Home Loan Bank,
including the current portion, are estimated using rates which approximate
those currently being offered by the FHLB for advances with similar
remaining maturities. The fair values of subordinated debentures and other
long-term borrowings are based on quoted market prices or rates available
to the Company for similar debt.
Interest rate swap and cap agreements. The fair value of interest rate
swap and cap agreements (used for hedging purposes) are obtained from
dealer quotes. These values represent the estimated amount that the
Company would receive or pay to terminate the agreements at the reporting
date, taking into account current interest rates and the current credit-
worthiness of the counterparties.
Commitments to extend credit, standby letters of credit and financial
guarantees written. The fair value of commitments is estimated using the
fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the present credit
worthiness of the counterparties. For fixed-rate loan commitments, fair
value also considers the difference between current levels of interest
rates and the committed rates. The fair values of guarantees and letters
of credit generally are based on fees currently charged for similar
agreements or on the estimated cost to terminate or otherwise settle the
obligations with the counterparties at the reporting date. The fair value
of certain loan guarantees made by the Company is not practicable to
estimate as there is no market for the loans.
Revenues from securities transactions and investment banking
Securities transactions are recorded on a settlement date basis, which does
not materially differ from a trade date basis. Revenues and related
expenses for transactions executed but not settled are accrued on a trade
date basis.
Investment banking revenues are recorded, net of expenses, on the
settlement date for management fees and sales concessions, and on the dates
the underwriting syndications are closed for underwriting fees.
Provision for credit losses and asset devaluation
The provision for credit losses and asset devaluation reflects reserve
accruals and writedowns for loan, note and lease receivables, OREO and
other investments.
Provision for restructuring
In January 1993, Advest outsourced certain of its brokerage back office
data processing operations to Automatic Data Processing ("ADP") . A
provision for restructuring of $1.0 million was established during fiscal
1992 primarily to cover equipment lease obligations and buyout provisions,
and severance liabilities to employees; the reserve was fully utilized as
of September 30, 1993.
65
<PAGE>
Income taxes
Effective October 1, 1993, the Company adopted, on a prospective basis,
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"), which requires the use of the asset/liability method
of accounting for income taxes. Deferred income taxes are recognized for
the future tax consequences of differences between the tax bases of assets
and liabilities and their financial reporting amounts at each year end
based on enacted tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to an amount
which is more likely than not realizable. Income tax expense is the sum of
the taxes currently payable and the change during the period in deferred
tax assets and liabilities.
Prior to the adoption of SFAS 109, the Company accounted for income taxes
using the deferred method under Accounting Principles Board Opinion No. 11.
Deferred income taxes were provided on items of income and expense which
were recognized in different periods for financial reporting and tax
purposes.
Net income (loss) per common and common equivalent share
Primary income (loss) per share is calculated by dividing net income (loss)
by the average shares of common stock and common stock equivalents
outstanding during the period. Common stock equivalents are dilutive
[page 23 of Annual Report]
stock options which are assumed exercised for calculation purposes. Fully
diluted calculations assume full conversion of the Company's outstanding
subordinated debentures into common stock and elimination of the related
interest expense, net of taxes.
For the year ended September 30, 1994, primary and fully diluted net income
are the same due to the anti-dilutive impact of the Company's convertible
subordinated debentures.
For the year in the period ended September 30, 1992, the Company reported a
net loss. Consequently common stock equivalents and full conversion of the
Company's subordinated debentures are excluded from the calculations
resulting in the fully diluted loss per share equalling the primary loss
per share.
The average common and common equivalent shares outstanding for the three
years ended September 30, 1994 were:
In thousands 1994 1993 1992
Primary 8,997 9,248 9,598
Assuming fully dilution 8,997 11,097 9,598
2. Loans
Advest Bank is active in the residential and consumer loan markets in New
England and the Eastern Central United States. Residential and consumer
loans are primarily marketed to clients of the Bank's affiliates. The Bank
also maintains a commercial mortgage portfolio but is no longer actively
engaged in this market as a lender.
66
<PAGE>
Although the Bank has a diversified and substantially collateralized
commercial loan portfolio, the ability of its debtors to meet their
commitments is largely dependent on the real estate sector of the economy.
As of September 30, 1994, the Bank's gross loan portfolio was comprised of
residential and commercial real estate, construction and other loans with
percentages of 57%, 38%, 1%, 4% of the total loan portfolio, respectively.
At September 30, 1994 and 1993, loans consisted of:
In thousands 1994 1993
Advest Bank:
Mortgages
Commercial $ 75,276 $ 87,242
Multi-Family Residential 31,538 33,115
1 - 4 Family Residential 158,801 111,876
Commercial 7,021 6,483
Consumer 913 375
Installment note and lease
loan financing 2,200 2,835
Other 8,761 8,788
-------- --------
$284,510 $250,714
======== ========
The fair values of the Company's loans were $272,390,000 and $249,118,000
at September 30, 1994 and 1993, respectively.
Uncertainty exists as to the ultimate realization in full of certain of the
Bank's loans and nonperforming assets as a result of continued economic
difficulties facing the New England region. Based upon management's
assessment and the year-end real estate market conditions, the allowance
for loan losses at September 30, 1994 is adequate to absorb potential
losses in the loan portfolio. However, further economic deterioration in
future periods could result in the Bank experiencing increased levels of
nonperforming assets and charge-offs, provisions for loan and OREO losses
and a reduction in net interest income.
For the three years ended September 30, 1994, activity in the allowance for
loan losses was as follows:
In thousands 1994 1993 1992
Balance at September 30, $ 5,782 $ 5,986 $6,004
Provisions 2,499 1,690 11,134
Chargeoffs (3,675) (1,963) (11,316)
Recoveries 174 69 164
------- ------- ------
Balance at September 30, $ 4,780 $ 5,782 $5,986
======= ======= ======
3. Nonperforming Assets
Nonperforming assets include nonaccruing loans, notes and leases, loans
ninety days past due and accruing interest, loans renegotiated on other
than prevailing market terms and OREO. OREO is reported separately on the
accompanying consolidated balance sheet.
67
<PAGE>
All other nonperforming assets are classified as loans with the exception
of certain notes and leases which are included in other receivables.
For the three years ended September 30, 1994, nonperforming assets were
comprised of:
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
<S> <C> <C> <C>
Advest Bank - Loans $ 8,328 $ 5,158 $ 5,746
- OREO, net 13,414 22,683 34,151
Other loans and assets 8,750 8,930 9,463
------- ------- -------
$30,492 $36,771 $49,360
======= ======= =======
Nonperforming assets as a percentage of loans and OREO 10.2% 13.3% 17.1%
======= ======= =======
Nonperforming assets as a percentage of total assets 3.4% 4.2% 6.2%
======= ======= =======
</TABLE>
[page 24 of Annual Report]
The following table details the composition of nonperforming assets at
September 30, 1994 and 1993:
<TABLE>
<CAPTION>
Non- Accruing loans Total non-
accrual past due 90 Renegotiated performing
In thousands loans or more days loans OREO assets
1994
<S> <C> <C> <C> <C> <C>
Real estate:
Residential $ 1,202 $ 229 $ 264 $ 356 $ 2,051
Commercial 4,638 731 374 8,043 13,786
Land and land development -- -- -- 6,216 6,216
Other 9,640 -- -- -- 9,640
Valuation reserve -- -- -- (1,201) (1,201)
-------- -------- -------- -------- ---------
$ 15,480 $ 960 $ 638 $ 13,414 $ 30,492
======== ======== ======== ======== =========
1993
Real estate:
Residential $ 1,486 $ 19 $ 264 $ 2,073 $ 3,842
Commercial 1,358 -- 401 14,314 16,073
Land and land development 244 -- -- 8,497 8,741
Other 10,316 -- -- -- 10,316
Valuation reserve -- -- -- (2,201) (2,201)
-------- -------- -------- -------- ---------
$ 13,404 $ 19 $ 665 $ 22,683 $ 36,771
======== ======== ======== ======== =========
</TABLE>
Residential real estate is comprised of one to four family properties.
Multi-family properties are included in commercial real estate.
Renegotiated loans are troubled debt restructurings. The OREO valuation
reserve is a general valuation reserve. At September 30, 1994 and 1993,
respectively, the gross balance of OREO includes approximately $10,836,000
and $11,991,000 of real estate to which the Bank or its subsidiaries have
title and approximately $3,779,000 and $12,893,000 representing in-
substance foreclosures.
68
<PAGE>
The following table summarizes changes in nonperforming assets for the two
years ended September 30, 1994:
<TABLE>
<CAPTION>
Non- Accruing loans Total non-
accrual past due 90 Renegotiated performing
In thousands loans or more days loans OREO assets
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1992 $ 14,440 $ 388 $ 381 $34,151 $ 49,360
Increases, net 875 3,164 582 -- 4,621
Transfers, net 171 (2,381) -- 2,210 --
Net loan chargeoffs and
provisions to OREO reserve (1,121) -- -- (2,190) (3,311)
Amounts capitalized on OREO -- -- -- 4,964 4,964
Collections and proceeds
from sales (961) (1,152) (298) (16,485) (18,896)
Recoveries from sales of
OREO, net -- -- -- 33 33
-------- ---------- --------- ------- --------
Balance at September 30, 1993 13,404 19 665 22,683 36,771
Increases, net 8,587 1,636 28 -- 10,251
Transfers, net (2,340) (688) -- 3,028 --
Net loan chargeoffs and
provisions to OREO reserve (2,683) -- -- (772) (3,455)
Amounts capitalized on OREO -- -- -- 6,234 6,234
Collections and proceeds
from sales (1,488) (7) (55) (17,951) (19,501)
Recoveries from sales of
OREO, net -- -- -- 192 192
-------- ---------- --------- ------- --------
Balance at September 30, 1994 $ 15,480 $ 960 $ 638 $13,414 $ 30,492
======== ========== ========= ======= ========
</TABLE>
[page 25 of Annual Report]
During 1994, approximately $291,000 of income was recognized on non-accrual
loans. This income was recognized while the loans were performing and was
realized by cash payments. It is management's policy to reverse all
uncollected interest at the time a loan is placed on non-accrual. Interest
forgone on nonaccrual and restructured loans were $754,000, $700,000, and
$1,036,000 for the years ended September 30, 1994, 1993 and 1992,
respectively. As of September 30, 1994, no additional funds were committed
to clients whose loans have been restructured or were non-performing.
The Bank's disposition program for certain of the land development projects
included in OREO (substantially all of which are single family residential
subdivisions) is to complete the construction and sellout of the projects.
As of September 30, 1994 and 1993, OREO balances included approximately
$2,448,000 and $1,700,000, respectively, of construction costs associated
with these projects.
The Bank evaluates the real property collateral supporting defaulted income
property and other loans for potential environmental risks prior to
completing foreclosure. If the Bank elects to complete a foreclosure on a
property that is contaminated, the costs to remediate identified
environmental conditions are absorbed through the Bank's OREO reserve or
recognized as an adjustment to the carrying value of the asset.
For the three years in the period ended September 30, 1994, activity in the
reserve for OREO losses was as follows:
69
<PAGE>
In thousands 1994 1993 1992
Balance at September 30, $ 2,201 $ 2,830 $ 2,200
Provisions 772 2,190 5,762
Chargeoffs (1,922) (3,028) (5,197)
Recoveries 150 209 65
------- ------- -------
Balance at September 30, $ 1,201 $ 2,201 $ 2,830
======= ======= =======
4. Securities Inventory
At September 30, 1994 and 1993, the Company's securities inventory
consisted of:
In thousands 1994 1993
State and municipal obligations $19,749 $14,732
U.S. government and agency obligations 10,301 5,246
Stocks and warrants 3,564 5,205
Corporate obligations 1,196 533
------- -------
$34,810 $25,716
======= =======
The 1994 balances include $4,395,000 of the Bank's government securities;
all other inventory represents holdings of Advest. Securities inventory is
carried at market value which approximates fair value.
5. Securities Available for Sale
The amortized cost and fair values of the Bank's securities available for
sale for the two years ended September 30, 1994 were:
Amortized Gross unrealized Fair
In thousands cost gains losses value
1994
Mortgage-backed securities
of federal agencies $ 691 $ -- $ (3) $ 688
Other mortgage-backed
securities 4,236 1 (23) 4,214
------ --- --- ------
$ 4,927 $ 1 $(26) $ 4,902
====== === === ======
1993
Mortgage-backed securities
of federal agencies $32,340 $ 114 $ (13) $32,441
Other mortgage-backed
securities 6,322 4 (4) 6,322
------ --- --- ------
$38,662 $ 118 $ (17) $38,763
====== === === ======
As of September 30, 1994, the amortized cost and fair values of debt
securities, by contractual maturity, were:
70
<PAGE>
Amortized Fair
In thousands cost value
Due in one year or less $ -- $ --
Due after one year through five years 1,140 1,141
Due after five years through ten years 1,782 1,777
Due after ten years 2,005 1,984
------- -------
$ 4,927 $ 4,902
======= =======
For the two years ended September 30, 1994 and 1993, respectively, proceeds
from the sale of securities available for sale were $14,003,000 and
$20,429,000. Gross gains reported were $60,000 and $76,000 and gross
losses were $59,000 and $29,000 for 1994 and 1993, respectively. There was
no sales activity in fiscal 1992 as the securities available for sale
designation was introduced in the fourth quarter.
[page 26 of Annual Report]
6. Investment Securities
Advest Bank:
The amortized cost and fair values of the Bank's investment securities for
the two years ended September 30, 1994 were:
Amortized Gross unrealized Fair
In thousands cost gains losses value
1994
Mortgage-backed securities $48,003 $ 34 $(784) $47,253
Federal Home Loan Bank stock 2,045 -- -- 2,045
U.S. government and agency
obligations 493 2 -- 495
Other 818 -- -- 818
------- --- ---- -------
$51,359 $ 36 $(784) $50,611
======= === ==== =======
1993
Mortgage-backed securities $39,374 $ 11 $ (57) $39,328
Federal Home Loan Bank stock 2,590 -- -- 2,590
U.S. government and agency
obligations 494 7 -- 501
Other 817 -- -- 817
------- --- ---- -------
$43,275 $ 18 $ (57) $43,236
======= ==== ===== =======
As collateral for certain municipal deposits totalling approximately
$5,497,000, the Bank has pledged a Federal agency security with a carrying
value of approximately $3,921,000.
As of September 30, 1994, the amortized cost and fair values of debt
securities, by contractual maturity, were:
71
<PAGE>
Amortized Fair
In thousands cost value
Due in one year or less $ 942 $ 943
Due after one year through five years -- --
Due after five years through ten years 250 250
Due after ten years 48,003 47,254
------- -------
$ 49,195 $ 48,447
======= =======
There were no sales of debt securities held for investment purposes during
the years ended September 30, 1994 and 1993. For the year ended September
30, 1992, proceeds from the sale of investments in debt securities was
$42,054,000 and gross gains of $947,000 and gross losses of $91,000 were
realized. In addition, $205,000 of gross losses on marketable equity
securities were realized.
Other:
As of September 30, 1994 and 1993, other investment securities of the
Company consisted of:
Amortized
In thousands As reported Fair value cost
1994 1993 1994 1993 1994 1993
U.S. Government
obligations $ -- $2,016 $ -- $2,016 $ -- $2,009
Limited partnerships 1,760 1,778 1,760 1,778 3,560 3,578
Other 731 1,035 731 1,035 2,232 2,132
----- ----- ----- ----- ----- -----
$2,491 $4,829 $2,491 $4,829 $5,792 $7,719
===== ===== ===== ===== ===== =====
7. Deposits
Pursuant to the FDIC Improvement Act ("FDICIA"), the Bank is subject to
rules limiting brokered deposits and related interest rates. Under these
rules, banks that are deemed "well capitalized" may accept brokered
deposits without restriction, and banks deemed "adequately capitalized" may
do so with a waiver from the FDIC. An "undercapitalized" bank is not
eligible for a waiver and may not accept brokered deposits. The Bank meets
the conditions of such rules to be deemed an "adequately capitalized" bank.
Under the terms of a brokered deposit prohibition waiver granted to the
Bank by the FDIC in September 1994, the Bank may accept brokered deposits
without limitation other than observing restrictions on the rate of
interest paid on such deposits and limiting the total outstanding balances
of brokered deposits of the Bank to $85,000,000, until September 30, 1995.
The Bank as of September 30, 1994 had $64,458,000 of brokered deposits.
The Bank also had $224,215,000 of money market accounts which previous to
January 1, 1993 had been classified
[page 27 of Annual Report]
as brokered but which are not considered to be brokered under the terms of
the current waiver. Prior to September 30, 1995, the Bank, under FDICIA
rules, must apply for a new waiver if it wishes to continue to accept
brokered deposits.
72
<PAGE>
At September 30, 1994 and 1993, customer deposits at the Bank consisted of:
In thousands 1994 1993
Money market $230,931 $300,791
Certificates of deposit 60,862 45,460
Savings 92 461
-------- --------
$291,885 $346,712
======== ========
The fair values of deposits were $292,417,000 and $349,739,000 at September
30, 1994 and 1993, respectively.
8. Short-term Borrowings
In the ordinary course of business, Advest obtains bank loans which are
collateralized by its own securities inventory and customers' margin
securities. The loans are payable on demand and bear interest based on the
federal funds rate. At September 30, 1994, Advest had $14,901,000 in firm
loans and $7,601,000 in customer loans outstanding. There were no
outstanding loans at September 30, 1993. The weighted average interest
rate on bank loans outstanding at September 30, 1994 was 5.27% and the
weighted average interest rate during fiscal 1994 was 4.29%.
Short-term borrowings of the Bank consisted primarily of the current
portion of advances from the Federal Home Loan Bank ("FHLB"). At September
30, 1994, borrowings totalled $9,500,000 at rates from 4.80% to 8.74%. At
September 30, 1993, borrowings totalled $1,000,000 at rates from 7.65% to
8.40%. The Bank has unused short term credit lines of approximately $8
million with the FHLB at September 30, 1994 and 1993. The Bank's
borrowings with the FHLB are collateralized by its holdings of FHLB stock
as well as otherwise unencumbered mortgage loans and investment securities.
Based on available qualified collateral balances of approximately $228
million at September 30, 1994, the Bank had additional borrowing capacity
with the FHLB of approximately $139 million at September 30, 1994.
AGI's short-term borrowings at both September 30, 1994 and 1993 were
$650,000. The borrowings represent the current portion of a promissory
note due a third party lender for a mortgage acquired in July 1992. Refer
to Note 10 for additional information.
The fair values of the Company's short-term borrowings were $32,666,000 and
$1,661,000 at September 30, 1994 and 1993, respectively.
9. Long-term Borrowings
Long-term borrowings of the Bank were $26,000,000 and $10,000,000 as of
September 30, 1994 and 1993, respectively and represent the non-current
portion of FHLB advances. These borrowings are collateralized by stock of
the lender, the Federal Home Loan Bank ("FHLB"). In addition, mortgage
loans and otherwise unencumbered investment securities qualified as
collateral available to the FHLB were pledged to secure that debt. As of
September 30, 1994, the interest rates and maturities of outstanding
borrowings were (in thousands):
73
<PAGE>
In thousands Interest rates Amount
Year Ending September 30, 1996 5.04%-9.11% $19,500
Year Ending September 30, 1997 6.30%-8.60% 4,750
Year Ending September 30, 1998 7.17% 1,750
-------
$26,000
=======
Included in the 1996 total is an advance maturing February 1996 in the
amount of $2,500,000 which is putable to the FHLB at par on specified dates
with 36 days prior written notice. The remaining advances are subject to
prepayment penalties.
At September 30, 1994 and 1993, long-term borrowings of AGI were $4,388,000
and $5,038,000. The debt bears interest at 1.25% over prime with interest
and principal payments due monthly, and is due July 1, 1997 unless extended
at AGI's discretion to July 1, 1999. The debt is collateralized by the
first mortgage on real estate managed by a subsidiary. The mortgage is
currently classified as a nonperforming asset and is due March 31, 1995.
The fair values of the Company's long-term borrowings were $29,967,000 and
$15,574,000 at September 30, 1994 and 1993, respectively.
10. Subordinated Borrowings
At September 30, 1994 and 1993, the Company had $20,997,000 and
$21,375,000, respectively, of 9% convertible subordinated debentures
outstanding with interest payable semiannually. The debentures are
convertible at any time prior to maturity into common stock of The Advest
Group, Inc. at $13.57 per share. The debentures are redeemable currently
at 102.4% of the principal amount plus accrued interest and at declining
prices hereafter. The fair value of the debentures was $19,527,210 at
September 30, 1994. The debentures are subordinated to the claims of
general creditors.
The debentures are due on March 15, 2008, and commencing on March 15, 1994
have annual sinking fund requirements of 5% of the aggregate principal
amount of the debentures or at least 70% of the debentures prior to
maturity. At its option, the Company may
[page 28 of Annual Report]
make sinking fund payments in cash or in debentures or by a credit for
debentures previously converted or redeemed. The Company has purchased and
retired $6,503,000 of the initial offering amount and, consequently, has
currently satisfied the entire sinking fund requirement through fiscal 1997
and more than half of 1998's obligation.
During the two years ended September 30, 1994 and 1993, respectively, the
Company purchased and retired debentures with a total par value of $378,000
and $296,000.
11. Common Stock
In August 1990, the Company announced its intention to repurchase up to
2,000,000 shares, approximately 20%, of its common stock. In August 1994,
the Board of Directors voted to increase the number of shares authorized
for repurchase to 2,500,000 shares.
74
<PAGE>
During the years ended September 30, 1994 and 1993, 488,552 and 330,371
shares, respectively, were acquired under the repurchase program for a
total of 1,769,623 shares repurchased since the start of the program.
The payment of dividends on the Company's common stock is subject to (1)
the availability of funds from Advest, which may be restricted under the
net capital rule of the Securities and Exchange Commission and the New York
Stock Exchange, and from the Bank, which is subject to minimum bank
regulatory requirements, and (2) the restriction of the Company's Indenture
with respect to its 9% Convertible Subordinated Debentures due 2008 and (3)
the restriction of the Company's Loan and Security Agreement dated as of
July 2, 1992 with Fleet Bank N.A. Such restrictions have never curtailed
the Company's dividend payments, however, the Company has not declared a
dividend since December 1990 primarily as a result of weak economic
conditions in New England and their impact on the Bank.
In 1988, the Board of Directors of the Company adopted a shareholder rights
plan. The plan provides for the distribution of one common stock purchase
right for each outstanding share of common stock of the Company. Each
right entitles the holder, following the occurrence of certain events, to
purchase one share of common stock at a purchase price of $30 per share
subject to adjustment. The rights will not be exercisable or transferable
apart from the common stock except under certain circumstances in which
either a person or group of affiliated persons acquires, or commences a
tender offer to acquire, 20% or more of the Company's common stock or a
person or group of affiliated persons acquires 15% of the Company's common
stock and is determined by the Board of Directors to be an "Adverse
Person." Rights held by such an acquiring person or persons may thereafter
become void. Under certain circumstances, a right may become a right to
purchase common stock or assets of the Company or common stock of an
acquiring company at a substantial discount. Under certain circumstances,
the Company may redeem the rights at $.01 per right. The rights will
expire in October 1998 unless earlier redeemed or exchanged by the Company.
The Company has 2,000,000 shares, $.01 par value, preferred stock which was
authorized by shareholders in 1988. The board of directors has full
discretion with respect to designating and establishing the terms of each
class or series of preferred stock prior to its issuance. No preferred
stock has been issued to date.
12. Stock Option Plans
During fiscal 1994, the Company established a 1993 stock option plan
covering certain employees to be selected by a board-appointed stock option
and compensation committee. Pursuant to the 1993 plan, up to 500,000
shares may be issued using either the company's authorized and unissued
shares or treasury shares. Under the 1993 plan, participants may be
granted qualified incentive stock option, non-qualified stock options or a
combination thereof. Options are not exercisable prior to six months from
the date of grant, at which time they may be exercised in one-third
increments every six months. The options expire five years from the date
of grant. During the current year, 30,000 options were granted under the
1993 plan and were outstanding at September 30, 1994.
The Company currently has stock options outstanding under three pre-1987
plans whereby options were granted to directors or executive officers of
the Company. Under two of the plans, only qualified incentive stock
options were granted.
75
<PAGE>
Under the third plan, the Company could grant either qualified incentive or
non-qualified stock options. Authority to grant options under all three
plans has expired. With the exception of grants of 123,000 options on
February 2, 1993, options granted under these three plans may not be
exercised prior to six months after the date of grant, thereafter, at the
option of the Committee upon the date of each grant. On February 2, 1993,
the Company granted 123,000 options to senior officers under an option
grant providing for vesting in equal thirds on August 1, 1995, 1996 and
1997. Options expire five years from the date of grant. Under the three
plans, there were 302,301 options outstanding at September 30, 1994.
During fiscal years 1992 and 1991, respectively, the Company established
1991 and 1990 stock option plans covering top account executives of Advest
as an alternative form of benefit for persons eligible to participate in
the Deferred Compensation Plan which covers a select group of highly
compensated account executives. The two plans permit participants to elect
to receive stock
[page 29 of Annual Report]
options in lieu of a match of their deferred compensation. During fiscal
year 1993, the Company established the 1992 stock option plan which
provided a supplemental grant of options to certain account executives
receiving grants of options under the 1991 stock option plan. The plans
are non-qualified and require all exercises be effected using the Company's
treasury stock. In addition, options are not vested for 5 years and must
be exercised within one year subsequent to vesting. There were 39,481,
182,624 and 251,742 options granted on January 1, 1993, January 1, 1992 and
January 1, 1991, respectively, under the 1992, 1991 and 1990 plans; no
other options will be issued as these plans feature a single-grant clause.
At September 30, 1994, there were 37,210, 129,649 and 206,607 options
outstanding under the 1992, 1991 and 1990 plans, respectively.
Options under all of the Company's plans are issued at the market value of
the Company's stock on the date of grant.
Number of Option Price
Shares Per Share
Options outstanding at September
30, 1991 (407,150 exercisable) 658,493 $2.00-$12.27
Granted 354,624 4.00- 5.13
Forfeited (132,177) 2.00- 12.27
Exercised (3,665) 4.00
------- ------------
Options outstanding at September
30, 1992 (384,805 exercisable) 877,275 2.00- 9.09
Granted 191,481 5.75- 6.63
Forfeited (282,993) 2.00- 9.09
Exercised (23,367) 2.00- 4.00
------- ------------
Options outstanding at September
30, 1993 (223,768 exercisable) 762,396 2.00- 8.13
Granted 30,000 5.13
Forfeited 79,829 2.00- 8.13
Exercised 6,800 4.00
------- ------------
76
<PAGE>
Options outstanding at September
30, 1994 (179,301 exercisable) 705,767 $2.00- $7.00
======= ============
13. Employee Compensation and Benefits Plan
Advest thrift plan
During fiscal 1993, the Board of Directors approved a merger of the
Employee Retirement Plan ("ERP"), the Employees Stock Ownership Plan
("ESOP") and the Incentive Savings Plan ("ISP") into a single combined
plan, to be termed the Advest Thrift Plan ("ATP") which became effective
December 31, 1992. Each participant in the ATP now has an ESOP account
including all shares allocated to the participant in the ESOP through
September 30, 1992, and a 401(K) account including all assets in the
participant's account in the ISP at the time of the merger. Participant's
account balances in the Profit Sharing Plan were divided between the ESOP
and 401(K) accounts in the ATP. The ATP is open to employees who have
completed one year of service with the company or its subsidiaries. The
Company may select periodically from alternative formulas pursuant to which
it makes additional contributions to employees' accounts. Commencing
January 1, 1993 and through the remainder of the Company's 1994 fiscal
year, the Board of Directors approved a contribution to each employee's
401(K) account of 1.5% of his or her compensation up to the regulatory
compensation limits and an additional contribution of up to 2% of his or
her eligible compensation as a match of an equal value of employee
contributions. Contributions were $2,552,180 and $2,041,082 during the
fiscal years ended September 30, 1994 and 1993, respectively.
In conjunction with the merger, the Company purchased from the ESOP 54,371
unallocated shares of its common stock at a total price of $319,432. The
acquired shares are held as treasury stock.
Employee stock ownership plan
Through December 31, 1992, the Company administered an Employee Stock
Ownership Plan ("ESOP"), which covered employees age 21 or older who had at
least one year of service with the Company. Shares of the Company's common
stock were purchased by the ESOP, the ESOP was indebted to the Company
after it assumed a debt from a third party lender. The Company had agreed
to make contributions to the ESOP sufficient to repay principal and
interest due the Company. Contributions to the ESOP in the amount of
$293,245 and $1,082,000 were made for the years ended September 30, 1993
and 1992, respectively. The Advest Group, Inc. common stock purchased with
the loan proceeds was allocated annually among employees as the loan was
repaid. On December 31, 1992, the ESOP was merged into the ATP. All
577,118 shares held by the ESOP have been allocated to employees.
Employee retirement and incentive savings plan
Through December 31, 1992, Advest administered an Employee Retirement Plan
(the "ERP"), an IRS-qualified defined contribution plan. The ERP is non-
contributory and covers substantially all full-time employees of the
Company. The Company also administered an Incentive Savings Plan (the
"ISP"), whereby eligible employees may contribute a portion of their
earnings before income taxes.
77
<PAGE>
The ERP held 298,660 shares of The Advest Group, Inc. common stock as of
September
[page 30 of Annual Report]
30, 1992. On December 31, 1992, these plans were merged into the ATP. All
common stock held by the ERP and ISP contributions were allocated to
employees ATP accounts.
Deferred compensation plans
The Company administers a deferred compensation plan which covered
designated account executives of the Company. Under the provisions of the
plan, participants were able to defer a portion of their annual income for
a time period they elect. Both the amount and time period of the deferral
were limited by the provisions of the plan. Through 1992, the Company
matched contributions up to specified limits and paid interest quarterly on
all funds in the plan. Expenses under this plan were $171,000 in 1992.
With the establishment of a new deferred compensation plan in the current
year, the Company will make no further contributions to this plan.
During fiscal 1993, Advest established a non-qualified defined benefit
plan, the "Account Executive Nonqualified Defined Benefit Plan" ("AE
Plan"), which covers certain account executives of the Company. The
benefits are based upon years of service and level of gross commissions
generated, reduced by the amount of Company contributions to the employees'
401(K) account in the ATP. Pursuant to Statement of Financial Accounting
Standards No. 87, "Employers' Accounting for Pensions", the plan is
unfunded, however, assets have been set aside in a revocable trust to fund
future payments relating to the plan.
During fiscal 1994, the Company established the Executive Post-Employment
Income Plan ("Exec Plan"), a non-qualified defined benefit plan which
covers certain senior executives of the Company designated by the board of
directors or its committee. The plan is designated to provide those senior
executives with income for 10 years after retirement equal to a target
percentage of the final average earnings. The target percentage is 1% for
each year of service with the Company before October 1, 1993 and 1.5% for
each year of service thereafter. The plan will provide supplemental
benefits to reach the target percentage, after taking account of one-half
of an assumed level of social security benefits and the annuity value of
the senior executive's retirement plan accounts attributable to Company
contributions and projected earnings. Pursuant to Statement of Financial
Accounting Standard No. 87, "Employers' Accounting for Pensions", the plan
is unfunded, however, assets have been set aside in a revocable trust to
fund future payments relating to the plan.
The following table sets forth the status of the AE Plan and Exec Plan as
well as amounts recognized in the Company's consolidated financial
statements at September 30, 1994 and 1993:
78
<PAGE>
In thousands 1994 1993
Actuarial present value of benefit obligations:
Vested $ -- $ --
Non-vested 911 348
----- -----
Accumulated benefit obligation 911 348
Effect of projected future compensation levels 1,308 665
----- -----
Projected benefit obligation 2,219 1,013
Unrecognized net gain (loss) 239 (98)
Unrecognized prior service cost (375) --
----- -----
Accrued pension liability $2,083 $ 915
===== =====
Pension expense for the plans for the two years ended September 30, 1994
included in the following components:
In thousands 1994 1993
Service cost $1,042 $ 915
Interest cost 92 --
Net amortization and deferral 34 --
------ ------
Net benefit costs $1,168 $ 915
====== ======
The projected benefit obligation for 1994 and 1993 was determined using an
assumed discount rate of 8.5% and 7%, respectively, and an assumed rate of
compensation increase of 5%. The accrued pension liability at September
30, 1994 and 1993 is included in other liabilities. During the two years
ended September 30, 1994, the Company made payments to revocable trusts to
be used for the exclusive purpose of funding the benefit liability. The
payments made to the trusts are currently invested in debt securities and
earn a return which is also used to offset the expense. The expected long
term rate of return on trust assets was 7.5% in 1994 and 6% in 1993. The
fair value of the trusts assets, which are included in securities
inventory, at September 30, 1994 was $2,189,000, which was less than the
projected benefit obligation by $30,000. The trusts assets are available
to management under certain circumstances as well as general creditors of
the Company in the event of liquidation.
Management incentive plan
The Company has a Management Incentive Plan ("MIP") which provides for
incentive compensation to salaried employees. Compensation presently is
based on the Company's pre-tax income, as defined. For the year ended
September 30, 1993, MIP compensation was $778,000. There was no
compensation under this plan during the years ended September 30, 1994 and
1992.
[page 31 of Annual Report]
14. Capital and Regulatory Requirements
The Company's broker-dealer subsidiary is subject to the net capital rule
adopted and administered by the New York Stock Exchange, Inc. ("NYSE") and
the SEC.
79
<PAGE>
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. As of September 30,
1994, Advest's regulatory net capital of $30,595,000 was 9% of aggregate
debit balances and exceeds required net capital by $24,046,000.
Under state bank regulatory restrictions, the Bank is required to maintain
a minimum level of capital and to limit annual dividends to the total of
the current and prior two years retained net income. As a result of these
restrictions, the Bank with an accumulated deficit at September 30, 1994 is
prohibited from declaring dividends.
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 September 30, 1994, the Bank's leverage capital ratio was 6.32%, which
slightly exceeded the regulatory requirements. In addition, the Bank must
maintain risk-based capital of 8.0%, including at least 4.0% Tier 1
capital. At September 30, 1994, the Bank's total risk-based capital ratio
was 10.44% and the Tier 1 ratio was 9.18%, which exceeded the regulatory
requirements.
15. Income Taxes
As discussed in Note 1, the Company adopted SFAS 109 as of October 1, 1993.
The cumulative effect of adopting SFAS 109 did not have a material impact
on the Company's financial condition or results of operations.
The provision for income taxes for the three years ended September 30, 1994
consists of the following:
Liability
In thousands Method Deferred Method
1994 1993 1992
Current:
Federal $ -- $ -- $ 603
State and local 1,015 800 175
------- ------- ------
1,015 800 778
------- ------- ------
80
<PAGE>
Deferred:
Federal 1,280 -- (603)
State and local 7 -- --
------- ------- ------
1,287 -- (603)
------- ------- ------
Provision for income taxes,
net of extraordinary credit $ 2,302 $ 800 $ 175
======= ======= ======
At September 30, 1994, deferred tax assets and liabilities were comprised
of:
In thousands Deferred tax assets:
Provision for losses $4,338
Employee benefits 3,759
Net operating loss carryforwards 830
General business tax credits 633
Other 303
------
Total deferred tax assets $9,863
======
Deferred tax liabilities:
Tax loan loss reserve in
excess of base year $ 764
Depreciation 162
Investment income 1,899
Partnership basis difference 2,919
Other 259
------
Total deferred tax liabilities $6,003
------
Net deferred tax asset $3,860
======
The Company will only recognize a deferred tax asset when, based on
available evidence, realization is more likely than not. Accordingly, at
September 30, 1994, the Company has recorded no valuation allowance against
federal deferred tax assets based on sufficient anticipated future
earnings. On the date SFAS 109 was adopted, a valuation reserve of
$575,000 was established to cover state net operating loss carryforwards
which were not expected to be realized due to short carryforward time
periods. At September 30, 1994, the valuation reserve was $1,360,000
reflecting additional state operating loss carryforwards. At September 30,
1994, federal and state net operating losses were approximately $2.5
million (expiring in 2008) and $11.8 million, respectively. The state net
operating loss carryforwards expire in various years between 1995 and 1999.
General business credit carryforwards expire in 2004.
[page 32 of Annual Report]
For the two years ended September 30, 1993, the principal components of
deferred tax expense (benefit) were:
81
<PAGE>
(In thousands) 1993 1992
Provision for losses $ 1,674 $(2,477)
Employee benefits 1,185 376
Investment income 632 370
Impact of operating losses (3,350) 1,422
Depreciation (136) (211)
Other (5) (83)
------- ------
$ -- $ (603)
======= ======
A reconciliation of the difference between the statutory federal income tax
rate and the effective income tax rate follows for the three years ended
September 30, 1994:
Percent of pre-tax income (loss) 1994 1993 1992
Statutory income tax rate 34.0% 34.0 % (34.0)%
State and local income taxes,
net of federal tax effect 12.6 6.5 3.9
Rate differential due to carryforward
of net operating losses -- (26.1) --
Tax-exempt interest income (4.6) (2.7) (5.0)
Intangible assets 1.6 (2.2) 8.0
Dividend income (.3) (0.1) (1.5)
Effect of limitation on operating
loss carrybacks -- -- 29.6
Other (.3) 0.5 2.9
----- ----- -----
Effective income tax rate 43.0% 9.9% 3.9%
===== ===== =====
As of September 30, 1994, the Bank's allowance for possible loan losses for
federal income tax purposes was approximately $5,324,000 of which
$3,369,000 represents reserves that arose in tax years beginning before
December 31, 1987 (base year amount). A deferred tax liability has not
been recognized for possible loan losses to the extent of the base year
amount. If the reserve were to be used for any purpose other than to
absorb loan losses or if the Bank's qualifying assets as defined by the
Internal Revenue Code are less than 60% of total assets, a federal income
tax liability could be incurred. It is not anticipated that the reserve
will be made available for other purposes or that qualifying assets will be
less than 60%.
16. Commitments and Contingent Liabilities
Leases
The Company conducts all of its operations from leased premises, and leases
data processing and communications equipment under noncancelable operating
leases primarily varying from one to ten years, with certain renewal
options for similar terms. Minimum rentals based upon the original terms
(excluding taxes, insurance and maintenance expenses which also are
obligations) are (in thousands):
82
<PAGE>
Data processing
Fiscal year ended Office & communications
September 30, facilities equipment Total
1995 $ 8,244 $ 3,244 $11,488
1996 4,927 3,216 8,143
1997 3,467 3,216 6,683
1998 2,925 3,200 6,125
1999 2,273 1,050 3,323
2000 and thereafter 7,218 -- 7,218
------- ------- -------
$29,054 $13,926 $42,980
======= ======= =======
Rental expense under these leases was $9,938,000, $10,079,000 and
$11,635,000 for the years ended September 30, 1994, 1993 and 1992,
respectively.
Loan guarantees and letters of credit
The Company has guaranteed loans to certain of its employees from two third
party lenders. At September 30, 1994 and 1993, the total principal
outstanding on these loans was $75,000 and $306,000, respectively. It was
not practicable to estimate the fair value of these guarantees as no market
exists for the loans.
Billings Management Company ("BIM"), a subsidiary of Billings, acts as
general partner in various real estate limited partnerships. Two of these
partnerships were co-managed with affiliates of Colonial Realty Company
("Colonial"), a New England-based real estate investment and management
company. On September 14, 1990, BIM assumed managing general partner
responsibilities shortly before certain Colonial entities came under the
protection of the Bankruptcy Court. Under the terms of one of the
partnership agreements, the Company has guaranteed half of an institutional
loan to the partnership for which the partnership has pledged individual
investor notes as collateral. At September 30, 1994 and 1993,
respectively, AGI's guarantee covered borrowings in the amount of $915,000
and $1,881,000. It was not practicable to estimate the fair value of these
guarantees as no market exists for the loan or the investor notes.
At both September 30, 1994 and 1993, Advest was contingently liable under
bank letter of credit agreements in the amount of $1,232,000, which are
collateralized by securities held in customer accounts. The fair values of
these agreements approximates $8,000 for both September 30, 1994 and 1993.
At September 30, 1994 and 1993, the Bank was contingently liable under
standby letters of credit and commitments to extend credit to its customers
in the amount of $30,006,000 and $22,836,000, respectively. The value of
collateral held for letter of credit commitments as of September 30, 1994
varies from 0% to 466% of individual commitments with an average of 29%.
The fair values of lending commitments and standby letters of credit were
approximately ($122,000) and ($100,000) at September 30, 1994 and 1993,
respectively.
[page 33 of Annual Report]
83
<PAGE>
Derivatives
Advest Bank enters into derivative financial instruments as part of its
interest rate risk management strategy. The derivatives used by the Bank
as part of this program are interest rate swap and cap contracts. These
swaps and caps are intended to maintain a targeted level of net interest
margin between the return on the Bank's interest earning assets and the
cost of funds. Interest rate swaps involve the exchange of fixed and
floating rate interest payments based on an underlying notional amount.
The notional values do not represent direct credit exposures. The Bank's
credit exposure is limited to the net difference between the calculated pay
and receive amounts on each transaction which is generally netted and paid
quarterly. Interest rate cap contracts provide that in exchange for the
payment of an initial premium, the Bank will receive payments from the
counterparty in the event that interest rates rise above a predetermined
level (the "strike rate"). The Bank enters into swap and cap contracts
with counterparties that are either highly rated or are federal agencies.
In addition, the Bank pledged outstanding letters of credit of $400,000
from the Federal Home Loan Bank of Boston as security for $5,000,000 of
interest rate swaps. No amounts have been drawn against these letters of
credit. The following table illustrates the Bank's outstanding swap and
cap contracts at September 30, 1994:
<TABLE>
<CAPTION>
Maturities of Derivative Products Balance Balance
In thousands 1995 1996 1997 1998 1999 9/30/94 9/30/93
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps:
Notional Value $25,000 $7,500 $10,000 $5,000 $5,000 $52,500 $47,500
Weighted Average
Received Rate 4.922% 4.870% 5.058% 5.000% 4.750% 4.932% 3.211%
Weighted Average
Pay Rate 5.498% 9.353% 6.350% 8.790% 7.090% 6.676% 6.632%
Fair Value $ 14 $ (292) $ 151 $ (192) $ 48 $ (271) (3,305)
Interest Rate Caps:
Notional Value $15,000 -- $ 5,000 -- -- $20,000 $15,000
Strike Rate 4.0% -- 5.5% -- -- -- --
Unamortized Premium $ 64 -- $ 170 -- -- $ 234 $ 149
Fair Value $ 142 -- $ 237 -- -- $ 379 $ 77
------- ------ ------- ------ ------ ------- -------
Total Notional Value $40,000 $7,500 $15,000 $5,000 $5,000 $72,500 $62,500
======= ====== ======= ====== ====== ======= =======
</TABLE>
In the absence of these interest rate swaps, net interest income would have
been higher by approximately $1,361,000 in 1994, $1,619,000 in 1993 and
$1,379,000 in 1992. In the absence of these cap contracts, net interest
income would have been higher by approximately $64,000 in 1994 and $22,000
in 1993.
Litigation
The Company has been named as defendant in various legal actions some of
which claim substantial damages. The actions have arisen principally from
the securities and investment banking business.
84
<PAGE>
In the opinion of management, based on discussions with counsel, the
outcome of these matters will not result in a material adverse effect on
the results of operations and financial condition of the Company.
17. Financial Instruments With Off-Balance-Sheet and
Concentrations of Credit Risk
In the normal course of business, Advest's securities activities involve
execution, settlement and financing of various securities transactions for
customers. These activities may expose Advest to risk in the event
customers, other brokers and dealers, banks, depositories or clearing
organizations are unable to fulfill contractual obligations.
In accordance with industry practice, Advest records securities
transactions executed on behalf of its customers on settlement date which
is generally five business days after trade date. The risk of loss on
these transactions is identical to settled transactions and relates to the
customer or brokers and dealers inability to meet the terms of their
contracts. Advest generally conducts business with brokers and dealers
located in the New York metropolitan area that are members of the major
securities exchanges. The general profile of Advest's customers is
discussed in Note 1.
For transactions in which Advest extends credit to customers, it seeks to
control the risk associated with these activities by requiring customers to
maintain margin collateral in compliance with various regulatory and
internal guidelines. Advest monitors required margin levels daily and,
pursuant to such guidelines, requests customers to deposit additional
collateral, or liquidate securities positions when necessary.
Advest's collateralized financing activities require it to pledge customer
securities as collateral for various secured financing sources such as bank
loans and securities loaned. In the event the counterparty is unable to
meet its contractual obligations, Advest may be exposed to off-balance-
sheet risk of acquiring securities at prevailing market prices. The
Company monitors the credit standing of counterparties with whom it
conducts business.
[page 34 of Annual Report]
Risk is further controlled by monitoring the market value of securities
pledged on a daily basis and by requiring adjustment of collateral levels
as needed.
Advest has sold securities that it does not currently own and will
therefore be obligated to purchase such securities at a future date. These
obligations are recorded in the financial statements at the September 30,
1994 and 1993 market values of the related securities. Advest will incur a
loss if the market value of the securities increases subsequent to
September 30, 1994.
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments involve, to varying degrees, elements of credit
and interest rate risk. The Bank's exposure to credit loss in the event of
non-performance by the other party to the financial instrument is
represented by the contractual amount of these instruments.
85
<PAGE>
The Bank uses the same credit policies in making commitments as it does for
existing loans and management believes that the Bank controls the risk of
these financial instruments through credit approvals, limits and monitoring
procedures. Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition established in
the contract.
Since many of the commitments could expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The amount of collateral obtained, if deemed necessary by
the Bank, upon extension of credit is based on credit evaluation of its
customer. Collateral held varies but may include income-producing
commercial properties, accounts receivable, inventory and property, plant
and equipment.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of customers to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in standing loan facilities to customers. The Bank holds real
estate and marketable securities as collateral supporting those commitments
for which collateral is deemed necessary.
The Bank has also entered into interest rate swap agreements to facilitate
the matching of assets and liability maturities. Entering into interest
rate swap agreements involves not only the risk of dealing with
counterparties and their ability to meet the terms of the contracts but
also the interest rate risk associated with unmatched positions. The Bank
minimizes the credit risk by performing credit reviews on the swap
counterparties and minimizes the interest rate risk by its asset and
liability management policies. Notional principal amounts have been used
to express the volume of these transactions, but the amounts potentially
subject to credit risk are smaller.
18. Segment Reporting
The Company operates principally in the financial services and banking
industries. Operations in the financial services industry include agency
transactions, principal transactions, investment banking, asset management
and consulting. The banking operations include mortgage, leasing and other
lending and investment of funds generated from borrowings and customer
deposits. Financial information by industry segments for the three years
ended September 30, 1994 are summarized as follows:
Financial
In thousands services Banking Other Consolidated
1994
Total revenues $181,389 $ 23,185 $ 655 $205,229
Operating income (loss) 12,874 (1,480) (6,039) 5,355
Identifiable assets 508,001 353,150 23,704 884,855
Capital expenditures 7,001 313 -- 7,314
Depreciation 2,075 141 3 2,219
Amortization 4,507 149 192 4,848
86
<PAGE>
1993
Total revenues $177,232 $ 24,379 $ 420 $202,031
Operating income (loss) 15,045 (2,102) (4,872) 8,071
Identifiable assets 464,922 388,983 31,264 885,169
Capital expenditures 2,750 110 -- 2,860
Depreciation 1,778 114 2 1,894
Amortization 3,483 1,043 193 4,719
1992
Total revenues $186,854 $ 32,806 $ 221 $219,881
Operating income (loss) 18,628 (8,133) (14,917) (4,422)
Identifiable assets 361,275 406,421 28,609 796,305
Capital expenditures 1,257 249 1 1,507
Depreciation 1,947 144 5 2,096
Amortization 5,515 51 194 5,760
19. Related Parties
As of September 30, 1994 and 1993, loans to related parties made by the
Bank totaled approximately $4,271,000 and $4,215,000, respectively. There
were approximately $1,297,000 of new loans and $1,241,000 of repayments
during 1994. Related parties include directors and executive officers of
the Company, and their respective affiliates in which they have a 10% or
more interest. Such loans were made in the ordinary course of business and
at terms substantially comparable to loan transactions with others. As of
September 30, 1994, all loans to related parties were performing.
87
<PAGE>
[page 35 of Annual Report]
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
Quarterly Financial Information (unaudited)
------------------------------------ ------------------------------------
In millions, except 1994 by fiscal quarters 1993 by fiscal quarters
------------------------------------ ------------------------------------
per share data 1st 2nd 3rd 4th 1st 2nd 3rd 4th
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash dividends per common share $- $- $- $- $- $- $- $-
Stock price range: High $8-1/8 $6-7/8 $6-1/4 $5-1/2 $6-1/2 $7-3/4 $7-3/8 $7-3/8
Low $6-3/8 $6 $5 $5 $5-1/2 $5-1/2 $5-3/4 $5-3/4
Revenues $56.3 $52.0 $47.8 $49.1 $50.2 $49.2 $48.5 $54.1
Income (loss) before income taxes
and extraordinary credit $3.8 $0.5 $0.4 $0.7 $2.1 $1.6 $2.0 $2.4
Income (loss) before extraordinary c$2.2 $0.3 $0.2 $0.4 $1.5 $1.0 $1.2 $1.5
Extraordinary credit - utilization
of operating loss carryforwards$- $- $- $- $0.4 $0.5 $0.6 $0.6
Net income (loss) $2.2 $0.3 $0.2 $0.4 $1.9 $1.5 $1.8 $2.1
Net income (loss) per common share:
Before extraordinary credit $.24 $.03 $.02 $.05 $.16 $.10 $.12 $.16
Extraordinary credit $- $- $- $- $.04 $.05 $.07 $.06
Net income (loss) $.24 $.03 $.02 $.05 $.20 $.15 $.19 $.22
---------------------------------------------------------------------------------------------------------------------
</TABLE>
Shareholder Information
Annual Meeting
The annual meeting of stockholders will be held at the
Sheraton Hotel, Hartford, CT on January 26, 1995 at
10:30 A.M. Proxy statements and proxies are being mailed
to stockholders of record as of December 12, 1994. As of
September 30, 1994 there were 1,064 common stocholders
of record.
Additonal Information-Form 10K
One copy of the Company's annual report on Form 10K to
the Securities and Exchange Commission will be provided at
no charge upon written request to the Corporate Communi-
cations Dept., The Advest Group, Inc.
The Advest Group, Inc. is listed on the New York Stock
Exchange under the symbol ADV.
Registrar and Transfer Agent
Fleet Bank N.A.
Stock Transfer Department
P.O. Box 366
Providence, RI 02901
88
<PAGE>
Exhibit 21
The Advest Group, Inc.
List of Subsidiaries
Jurisdiction Present
Name Where Incorporated Ownership
Advest, Inc. Delaware 100%
Advest Insurance Agency, Inc. Massachusetts 100%
Balanced Capital Services, Inc. Connecticut 100%
Advest Bank Connecticut 100%
Admass Corp. Massachusetts 100%
Admyst Corp. Connecticut 100%
Advantage Service Corp. Connecticut 100%
Advest Credit Corporation Connecticut 100%
A.B. Realty Corp. Connecticut 100%
Laurel Woods Development Corp. Connecticut 100%
Salem Corp. of CT Connecticut 100%
Advest Transfer Services, Inc. Delaware 100%
Bank Street Management Company Connecticut 100%
Billings & Company, Inc. Connecticut 100%
Billings Management Co. Connecticut 100%
Boston Security Counsellors, Inc. Massachusetts 100%
SRNY, Ltd. (formerly Shore &
Reich, Ltd.) Connecticut 100%
Coordinated Planning, Ltd. New York 100%
Vercoe Insurance Agency, Inc. Ohio 100%
89
<PAGE>
Exhibit 23
Consent of Independent Accountants
The Board of Directors and Shareholders
of The Advest Group, Inc.
We consent to the incorporation by reference in the registration statements
of The Advest Group, Inc. on Form S-8 (File No. 2-92868) concerning its 1983
Incentive Stock Option Plan, Form S-8 (File No. 33-17674) concerning its 1986
Incentive Stock Option Plan, Form S-8 (File No. 33-72042) concerning its
Advest Thrift Plan and Form S-8 (File No. 33-56275) concerning its 1995
Equity Plan, of our reports dated October 27, 1994, on our audits of the
consolidated financial statements and financial statement schedules of The
Advest Group, Inc. as of September 30, 1994 and 1993 and for the years ended
September 30, 1994, 1993 and 1992, which reports are incorporated by
reference and included, respectively, in this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Hartford, Connecticut
December 16, 1994
90
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<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<CASH> 7533
<RECEIVABLES> 616605
<SECURITIES-RESALE> 49050
<SECURITIES-BORROWED> 65751
<INSTRUMENTS-OWNED> 96562
<PP&E> 11537
<TOTAL-ASSETS> 884855
<SHORT-TERM> 32652
<PAYABLES> 645192
<REPOS-SOLD> 0
<SECURITIES-LOANED> 79459
<INSTRUMENTS-SOLD> 2187
<LONG-TERM> 51385
<COMMON> 106
0
0
<OTHER-SE> 73874
<TOTAL-LIABILITY-AND-EQUITY> 884855
<TRADING-REVENUE> 32297
<INTEREST-DIVIDENDS> 46084
<COMMISSIONS> 79490
<INVESTMENT-BANKING-REVENUES> 25743
<FEE-REVENUE> 16399
<INTEREST-EXPENSE> 22584
<COMPENSATION> 114800
<INCOME-PRETAX> 5355
<INCOME-PRE-EXTRAORDINARY> 3053
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3053
<EPS-PRIMARY> .34
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