<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
X SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1994
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-8408
THE ADVEST GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-0950444
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Commercial Plaza - 280 Trumbull Street
Hartford, Connecticut 06103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 525-1421
NONE
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value 8,701,117 shares
Class Outstanding at April 30, 1994
Total of sequentially numbered pages 18.
Exhibit index sequential page number page 17.
<PAGE>
THE ADVEST GROUP, INC.
INDEX
Page No.
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1994 and September 30, 1993 1
Consolidated Statements of Operations
Three and Six Months Ended March 31, 1994 and 1993 3
Consolidated Statements of Cash Flows
Six Months Ended March 31, 1994 and 1993 4
Consolidated Statement of Changes in Shareholders' Equity
Six Months Ended March 31, 1994 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. Other Information
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 16
<PAGE>
<TABLE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE ADVEST GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, September 30,
(In thousands, except share and per share amounts) 1994 1993
- --------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Assets
Cash and short-term investments
Cash and cash equivalents $ 9,808 $ 19,232
Cash and securities segregated under
federal and other regulations 100,635 106,173
Interest-earning deposits and
investments 19,000 35,000
----------------------------
129,443 160,405
----------------------------
Receivables
Brokerage customers, less reserve for
doubtful accounts of $1,455 and $1,305 303,162 269,639
Loans, less allowance for loan
losses of $5,584 and $5,782 258,804 244,932
Brokers and dealers 49,652 32,261
Interest and dividends 3,383 2,729
Other 10,483 12,292
----------------------------
625,484 561,853
----------------------------
Securities
Investment securities (market values
of $62,452 and $48,065) 62,742 48,104
Securities inventory, at market value 32,005 25,716
Securities available for sale (market values
of $7,847 and $38,763) 7,841 38,662
----------------------------
102,588 112,482
----------------------------
Other assets
Other real estate owned, net 20,381 22,683
Equipment and leasehold improvements,
less accumulated depreciation and
amortization of $26,944 and $25,724 8,188 6,980
Exchange memberships, at cost (latest
sales prices of $2,838 and $2,827) 998 998
Other 22,270 19,768
----------------------------
51,837 50,429
----------------------------
Total Assets $ 909,352 $ 885,169
============================
- 1 -
<PAGE>
THE ADVEST GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, September 30,
(In thousands, except share and per share amounts) 1994 1993
- --------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Liabilities & Shareholders' Equity
Liabilities
Brokerage customers $ 353,405 $ 328,150
Deposits 325,625 346,712
Brokers and dealers 64,766 48,597
Checks payable 16,019 15,007
Compensation and benefits 13,383 16,118
Short-term borrowings 13,352 1,652
Interest and dividends 2,468 2,022
Securities sold, not yet purchased, at market value 1,994 2,630
Other 12,562 13,879
----------------------------
803,574 774,767
Long-term borrowings 10,213 15,038
Subordinated borrowings 21,375 21,375
----------------------------
835,162 811,180
----------------------------
Shareholders' Equity
Preferred stock, par value $.01,
authorized 2,000,000 shares, none issued - -
Common stock, par value $.01,
authorized 25,000,000 shares, issued
10,567,222 shares and 10,563,422 shares 106 105
Paid-in capital 67,393 67,378
Retained earnings 15,997 13,552
Less: Treasury stock, at cost,
1,833,605 shares and 1,498,805 shares (9,306) (7,046)
----------------------------
74,190 73,989
----------------------------
Total Liabilities and Shareholders' Equity $ 909,352 $ 885,169
============================
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
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<PAGE><TABLE>
THE ADVEST GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
(In thousands, except per share amount) 1994 1993 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Commissions $ 23,112 $ 20,156 $ 44,936 $ 38,035
Interest 10,822 10,233 21,768 21,424
Principal transactions 7,797 8,317 16,879 16,480
Investment banking 5,265 6,701 14,622 14,979
Asset management and administration 4,114 3,279 8,083 7,195
Other 878 568 2,048 1,331
----------------------------------------------
Total revenues 51,988 49,254 108,336 99,444
----------------------------------------------
Expenses
Compensation and benefits 30,384 27,350 61,687 54,293
Interest 5,312 5,976 10,704 12,057
Communications 4,365 3,794 8,513 7,040
Occupancy and equipment 4,018 3,920 7,997 8,261
Provision for credit losses
and asset devaluation 1,768 559 3,076 1,809
Professional 1,331 1,353 2,842 2,481
Business development 1,106 931 2,338 2,166
Brokerage, clearing and exchange 992 874 1,955 1,863
Other 2,257 2,883 4,935 5,766
----------------------------------------------
Total expenses 51,533 47,640 104,047 95,736
----------------------------------------------
Income before taxes and extraordinary credit 455 1,614 4,289 3,708
Provision for income taxes 196 649 1,844 1,167
----------------------------------------------
Income before extraordinary credit 259 965 2,445 2,541
Extraordinary credit - utilization
of operating loss carryforward - 499 - 867
----------------------------------------------
NET INCOME $ 259 $ 1,464 $ 2,445 $ 3,408
==============================================
Net income per common and common equivalent share:
Primary:
Income before extraordinary credit $ 0.03 $ 0.10 $ 0.27 $ 0.27
Extraordinary credit - 0.05 - 0.09
----------------------------------------------
Net income $ 0.03 $ 0.15 $ 0.27 $ 0.36
==============================================
Assuming full dilution:
Income before extraordinary credit $ 0.03 $ 0.10 $ 0.27 $ 0.27
Extraordinary credit - 0.05 - 0.09
----------------------------------------------
Net income $ 0.03 $ 0.15 $ 0.27 0.36
==============================================
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE> - 3 -
<PAGE>
<TABLE>
THE ADVEST GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended
March 31,
(In thousands) 1994 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,445 $ 3,408
Adjustments to reconcile net income to net cash
provided by operating activites:
Amortization 2,420 2,106
Depreciation 1,023 922
Provision for credit losses and asset devaluation 3,076 1,809
Other 1,120 1,571
Deferred ESOP contribution - 1,000
(Increase) decrease in operating assets:
Receivables from brokerage customers (33,634) 46,433
Receivables from brokers and dealers (17,391) 5,191
Securities inventory (6,289) (124)
Cash and securities segregated under federal and other regulations 5,538 (74,091)
Other 243 (4,234)
Increase (decrease) in operating liabilities:
Brokerage customers 25,255 31,119
Brokers and dealers 16,169 4,681
Checks payable 1,012 5,196
Other (6,245) (4,307)
--------------------
Net cash (used for) provided by operating activities (5,258) 20,680
--------------------
FINANCING ACTIVITIES
Net decrease in deposits (21,087) (14,267)
Repayment of short-term borrowings (1,325) (3,325)
Short-term brokerage borrowings, net 8,200 (1,500)
Proceeds from long-term borrowing - 5,000
Other (2,244) (686)
--------------------
Net cash used for financing activities (16,456) (14,778)
--------------------
INVESTING ACTIVITIES
Proceeds from sales of investments 10,914 23,328
Proceeds from maturities of investments 90,199 92,576
Purchase of investment securities and short-term investments (69,211) (118,515)
Principal collections on loans 21,325 20,259
Proceeds from other real estate owned, net 2,936 5,319
Loans originated (37,111) (22,128)
Other (6,762) (824)
--------------------
Net cash provided by investing activities 12,290 15
--------------------
(Decrease) increase in cash and cash equivalents (9,424) 5,917
Cash and cash equivalents at beginning of period 19,232 31,118
--------------------
Cash and cash equivalents at period end $ 9,808 $ 37,035
====================
Interest paid $ 10,749 $ 11,906
Income taxes paid $ 578 $ 950
Non-cash transfers:
Loans to OREO $ 865 $ 1,693
Securities available for sale to Investment securities $ 27,910 $ -
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
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<PAGE>
<TABLE>
THE ADVEST GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
<CAPTION>
(In thousands, $.01 Par Value Total
except share and Common Stock Paid-in Retained Treasury Stock Shareholders'
per share amounts) Shares Amount Capital Earnings Shares Amount Equity
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, as of
September 30, 1993 10,563,422 $105 $67,378 $13,552 (1,498,805) ($7,046) $73,989
Net Income 2,445 2,445
Exercise of Stock
Options 3,800 1 15 16
Purchase of
Treasury Stock (334,800) (2,260) (2,260)
-------------------------------------------------------------------------
Balance, as of
March 31, 1994 10,567,222 $106 $67,393 $15,997 (1,833,605) ($9,306) $74,190
=========================================================================
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
- 5 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Financial Statements:
The consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q and do not include all
of the information and notes required by generally accepted accounting
principles for complete financial statements. The consolidated
financial statements include the accounts of The Advest Group, Inc.
and all subsidiaries (the "Company"), including Advest, Inc.
("Advest"), a broker dealer; Advest Bank (the "Bank"), a state-
chartered savings bank; Boston Security Counsellors, an investment
management company; and Billings & Company, Inc., a real estate
services company. All significant intercompany transactions and
accounts have been eliminated in consolidation. All normal recurring
adjustments which, in the opinion of management, are necessary for a
fair presentation of the consolidated financial condition and results
of operations for the interim periods presented have been made.
Certain fiscal 1993 amounts have been reclassified in the accompanying
consolidated financial statements to provide comparability with the
current year presentation. The results of operations for the interim
periods are not necessarily indicative of the results for a full year.
The statements should be read in conjunction with the Notes to the
Consolidated Financial Statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations included in
the Company's Annual Report for the year ended September 30, 1993, as
filed with the Securities and Exchange Commission on Form 10-K.
2. Summary of Significant Accounting Policies:
On October 1, 1993, the Company prospectively adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). SFAS 109 requires an asset and liability approach for
financial accounting and reporting for income taxes. Deferred tax
assets and liabilities are recognized for the future tax consequences
of events that have been reported in the Company's financial
statements or tax returns, including net operating losses. If it is
more likely than not that some or all of a deferred tax asset will not
be realized, a valuation reserve must be provided. The adoption of
SFAS 109 did not have a material effect on the Company's financial
condition or results of operations.
During the quarter ending December 31, 1993, the Bank transferred
approximately $28.0 million of FNMA and FHLMC adjustable rate mortgage
backed securities from the available for sale portfolio to the held
for investment portfolio. The transfer reflected a reevaluation of
management's intent with respect to these securities, which have
relatively short weighted-average remaining lives (4 to 5 years) and
will not be needed to meet liquidity needs. Consistent with Company
accounting policies, investments held to maturity are carried at
amortized cost. Investments available for sale are carried at the
lower of aggregate cost or market.
In general, the Company classifies its securities portfolios as
follows. Securities designated as investment securities are purchased
with the intent they will be held to maturity in portfolio for
- 6 -
<PAGE>
purposes of earning interest and dividends. Securities available for
sale have been identified as assets which are held for indefinite time
periods and are likely to be sold prior to maturity. Securities
inventory consists of trading account securities which are generally
held for resale within a relatively short time frame.
3. Capital and Regulatory Requirements:
Advest is subject to the net capital rule adopted and administered
by the New York Stock Exchange, Inc. ("NYSE") and the Securities and
Exchange Commission. Advest has elected to compute its net capital
under the alternative method of the rule which requires the
maintenance of minimum net capital equal to 2% of aggregate debit
balances arising from customer transactions, as defined. The NYSE
also may require a member firm to reduce its business if net capital
is less than 4% of aggregate debit balances and may prohibit a member
firm from expanding its business and declaring cash dividends if net
capital is less than 5% of aggregate debit balances.
At March 31, 1994, Advest's regulatory net capital of $29.6
million was 10% of aggregate debit balances and exceeded required net
capital by $23.4 million.
The Federal Deposit Insurance Corporation ("FDIC") requires most
banks to establish and maintain leverage capital of 4% to 5%.
Pursuant to a Memorandum of Understanding (the "MOU") with the
Regional Director of the FDIC and the Banking Commissioner of the
State of Connecticut, the Bank is required to exercise all reasonable
good faith efforts to achieve (generally within unspecified time
periods) certain goals, including among others: to achieve and
maintain a leverage capital ratio of at least 6% and comply with
existing risk-based capital requirements, to ensure that there are
adequate loan loss reserves and quarterly evaluations of such
reserves, to reduce the level of adversely classified assets to not
more than 40% of total capital and reserves and to provide periodic
progress reports to regulatory agencies.
At March 31, 1994, the Bank's leverage capital ratio was 6.24%
which met the regulatory requirements. In addition, the Bank must
maintain risk-based capital of 8.0%, including at least 4.0% Tier 1
capital. At March 31, 1994, the Bank's total risk-based capital ratio
was 10.62% and the Tier 1 ratio was 9.36%, which exceeded the
regulatory requirements.
4. Income per share calculations:
Primary income per common share is computed by dividing net
income, respectively, by the weighted average number of common stock
and common stock equivalents outstanding during the period. Fully
diluted income per common share assumes conversion of outstanding
convertible debentures as well.
- 7 -
<PAGE>
The weighted average number of common stock and common stock
equivalents included in the primary and fully diluted per share
calculations are as follows (in thousands):
For the quarters For the six months
ended March 31, ended March 31,
1994 1993 1994 1993
---------------- ------------------
Primary 9,054 9,523 9,163 9,548
===== ===== ===== =====
Assuming full dilution 9,054 9,523 9,163 9,548
===== ===== ===== =====
5. Income Taxes:
The implementation of SFAS 109 on October 1, 1993 had no material
effect on the Company's results of operations and financial condition.
At October 1, 1993, deferred tax assets and liabilities were comprised
of (in thousands):
Deferred Tax Assets:
Loss reserves $ 3,623
Employee benefits 3,655
Loss carryforwards and
tax credits 2,035
Other 298
------
9,611
------
Deferred Tax Liabilities:
Partnerships 2,069
Employee benefits 1,733
Loss reserves 620
Depreciation 403
Other 92
------
4,917
------
Net deferred income taxes $ 4,694
======
The above amounts are net of valuation reserves of $1.6 million
primarily related to state net operating loss carryforwards and loan loss
allowances which are not expected to be realized. As of October 1, 1993,
the Company had federal and state net operating losses of $4.1 million and
$5.0 million, respectively. The federal carryforwards expire in 2008 and
the state carryforwards expire on various dates through 1998.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Business Environment
General
The Advest Group, Inc. is a financial services holding company engaged
with its operating subsidiaries (the "Company") in securities brokerage,
trading, investment banking, commercial and consumer lending, asset
- 8 -
<PAGE>
management and related financial services. All aspects of the business of
the Company are highly competitive and impacted by a variety of factors
outside of its control including economic conditions, the political climate
and investor sentiment. Consequently, revenues and operating results can
vary significantly from one reporting period to the next. Principal
operating subsidiaries are Advest, Inc. ("Advest"), a broker-dealer; Advest
Bank (the "Bank"), a state-chartered savings bank and Boston Security
Counsellors ("BSC"), an investment advisor.
The Company reported net income of $.3 million ($.03 per share) for
its second fiscal quarter compared with income before extraordinary credit
of $1.0 million ($.10 per share) in the year earlier period. Higher
commissions and asset management fees in the current quarter were partially
offset by trading losses and lower investment banking revenues at Advest.
Increased compensation and benefit costs, primarily related to brokerage
sales volume, and a $1.2 million charge related to a commercial loan
default of the Bank also impacted quarterly results. In addition, the 1993
quarter had benefitted from a lower effective tax rate and a $.5 million
($.05 per share) extraordinary credit from the utilization of operating
loss carryforwards. This resulted in net income for the 1993 period of $1.5
million ($.15 per share).
Advest, Inc.
The three year underwriting surge on Wall Street has gone on hold as
results for the quarter ended March 31, 1994 reflected the first decline in
new stock and bond offerings since 1990. The DOW, after reaching a high of
3978 on January 31, closed the quarter down 3% at 3636, its first quarterly
loss since September 1990. Security prices were impacted by the start of a
long anticipated market correction and higher interest rates. The Nasdaq
Composite and the S&P 500 also lost ground during the quarter, each
declining more than 4%.
Advest posted pre-tax income of $2.5 million in the current quarter
compared with $3.0 million in the prior year, an 18% decline. The results
include the activities of Lyons, Zomback & Ostrowski ("LZO"), the Company's
financial consulting subsidiary, which was made an operating division of
Advest on January 1. Advest began its second quarter at an exceptional
pace but the momentum halted definitively as the quarter progressed,
reflecting the trend on Wall Street. Total revenues increased 8% to $45.1
million led by a 15% increase in commissions, however, expenses were up 11%
to $42.6 million, primarily due to sales-related increases in compensation
costs. On an annualized basis, gross production per account executive is
averaging approximately $284,000.
Advest Bank
Advest Bank reported a pre-tax loss of $1.1 million in the current
quarter compared with a $.7 million loss in the prior year, the first time
in seven quarters that results had not improved on a year to year basis.
The loss was primarily attributable to $1.2 million in charges related to
carrying values and interest reversals on a previously performing loan. On
an operating level, the ratio of interest-earning assets to interest-
bearing liabilities rose to 101.6% from 98.7% in the prior year due to an
$8.9 million decline in average non-performing assets. In addition, the
rate spread between interest-bearing assets and liabilities widened. These
rate improvements were somewhat offset by a declining asset base as average
total assets of the Bank declined approximately $21.0 million.
- 9 -
<PAGE>
At March 31, 1994, the Bank's non-performing assets were $31.2 million
(8.6% of total assets) compared with $35.0 million (8.8% of total assets) a
year ago. Loan loss reserves were $5.1 million or 2.0% of total loans and
47.2% of non-performing loans. In 1993, reserves were $5.7 million or 2.4%
and 100.3% of total and non-performing loans, respectively. Management's
assessment of reserve adequacy includes a loan by loan analysis of large
performing and all non-performing loans, and was judged adequate at each
quarter end. Tier one leverage capital and risk-based capital ratios were
6.24 % and 10.62%, respectively, at March 31, 1994 compared with 6.01% and
10.37%, respectively, in the 1993 quarter.
Other
Operating results of certain other subsidiaries reflected continued
improvement in the 1994 quarter as well. BSC's pre-tax profit advanced 43%
to $.4 million as assets under management, including the Company's
proprietary mutual funds, increased 35% to $.7 billion. Results for
Billings & Co., a real estate services subsidiary, improved $.2 million
(40%).
RESULTS OF OPERATIONS
Three Months Ending March 31, 1994 Versus
Three Months Ending March 31, 1993
Net revenues, total revenue less interest expense, increased 8% to
$46.7 in the current quarter. Expenses, excluding interest, were $46.2
million, up 11%. Pre-tax income declined 72% to $.5 million while net
income declined 82% to $.3 million. The decline in net income was higher
due to both a lower effective tax rate and an extraordinary credit in the
1993 quarter, as previously noted.
Commission revenue advanced $3.0 million (15%) to $23.1 million. Sales
credits and distribution fees related to proprietary and other mutual funds
rose $.8 million (15%) to $6.4 million. Sales credits from over-the-
counter stocks were up $.8 million (35%) to $3.0 million. Income on
commodity sales increased more than six-fold to $.7 million and sales of
insurance products more than doubled to $1.5 million.
Revenue from principal transactions was $7.8 million in the current
quarter, a decline of $.5 million (6%). Trading losses were posted for
fixed income and NASDAQ departments reflecting the rise in interest rates
and the corresponding equity market correction. These trading losses were
partly offset by an increase in sales credits during the quarter.
Investment banking revenues declined $1.4 million (21%) to $5.3
million from 1993. Advest's revenues, excluding its Financial Institutions
Group ("FIG") declined $1 million (17%), primarily due to significant
declines in closed end fund offerings. The FIG contributed $.4 million of
revenue in its first quarter as a division of Advest, a decline of $.5
million from its prior year results as LZO.
The Company's continued focus on generating fee-based income has
resulted in significant increases in assets under management in the
Company's proprietary mutual funds as well as private accounts. Asset
management and administration revenue increased $.8 million (26%) as BSC
- 10 -
<PAGE>
and Advest posted increases of 28% and 21%, respectively, in managed
account income. Other income increased $.3 million (55%) in the current
quarter primarily due to higher service-related revenue.
Net interest income was $5.5 million in the current quarter, a $1.3
million (29%) improvement from the prior year. Advest's net interest
gained $.8 million (29%) primarily due to higher average margin debits and
related spreads. The Bank's net interest rose $.4 million (19%) from the
year earlier quarter. Approximately, $.3 million of this difference
relates to loan interest reversals in the 1993 quarter relating to non-
performing loans. The balance relates to additional premium amortization
taken in 1993 on the Bank's investment portfolio to reflect accelerated
prepayments of mortgage-backed securities. For the current quarter, the
effect of an increased ratio of earning assets was substantially offset by
the aforementioned interest reversals on a previously performing commercial
loan as well as the planned shrinkage of total bank assets.
Compensation and benefits expenses increased $3.0 million (11%) in
1994 quarter. The increase relates to higher commissions and other volume-
related incentives and to general firm payroll, insurance and payroll tax
increases. Communications costs rose $.6 million (15%) due to volume-
driven cost increases, higher service costs and prior year one-time credits
related to the back office outsourcing. The provision for credit losses
and asset devaluation increased $1.2 million (216%) in the current quarter
primariliy due to a non-performing loan of the Bank, as previously
discussed. Other expenses declined $.6 million (22%) primarily due to
decreases in OREO-related costs of the Bank and lower settlement,
syndicate, and other fee expenses of Advest.
Six Months Ended March 31, 1994 Versus
Six Months Ended March 31, 1993
The Company's net revenues and expenses were $97.6 million and $93.3
million, respectively, both reflecting 12% increases. Year-to-date, pre-
tax income rose 16% to $4.3 million, however, net income declined 28% to
$2.4 million ($.27 per share) from $3.4 million ($.36 per share) in the
1993 period. The prior year's net results were higher as a result of a 31%
effective tax rate (compared with 43% in the current year) and a $.9
million ($.09 per share) extraordinary credit from the utilization of
operating loss carryforwards.
On the year, commission revenue advanced $6.9 million (18%) to $44.9
million led by sales and distribution fees related to proprietary and other
mutual funds which increased $2.3 million (58%). Commissions related to
sales of over-the-counter stocks, insurance products, and commodities
increased $1.7 million (38%), $1.5 million (92%) and $.9 million (453%),
respectively. Listed issues gained $.4 million (2%).
Revenue from principal transactions increased $.4 million (2%) to
$16.9 million, as the current quarter's decline offset nearly half of the
first quarter's gain. Stock commissions were up $1.3 million (33%) but
were partially offset by a $.2 million (58%) decline in related trading
profits. Volatility in the bond markets negatively impacted commissions
and trading profits on all debt instruments and further offset year-to-date
equity gains.
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<PAGE>
Investment banking revenues declined $.4 million (2%) as declines in
the second quarter more than offset strong first quarter results. Advest's
results, excluding its FIG division, were substantially unchanged between
periods as a $1.1 million increase in corporate finance underwriting fees
in the current quarter was negated by a $1.0 million advisory fee received
in fiscal 1993. The FIG division's results accounted for the balance of
the year to year decline.
Asset management and administration revenue from continuing operations
increased $1.4 million (22%). Advest and BSC posted revenue increases of
$.8 million (17%) and $.5 million (31%), respectively, due to increased
assets under management. The 1993 period included $.6 million in revenue
related to Shore & Reich, Ltd., a pension plan administrator which was sold
in November 1992. Other income increased $.7 million (54%) due to
increases in various fee-based services.
Net interest income increased $1.7 million (18%) with most of the
increase related to current quarter activities. Advest's net interest
increased $1.3 million (23%) primarily due to higher average margin debits
and related spreads and higher yields on short-term investments. The
Bank's net interest rose $.3 million (7%) as current quarter results
negated a small first quarter decline. The increase is largely related to
the investment of sales proceeds from non-performing assets (primarily
OREO) into interest-earning assets.
Compensation and benefits expenses increased $7.3 million (14%) to
$61.7 million due higher general payroll, brokerage commissions and sales
and volume-related incentive compensation. Communications expenses
increased $1.5 million (21%) primarily due to the ADP conversion and
communication upgrades to the branch office network. Occupancy and
equipment costs declined $.3 million (3%) primarily due to lower equipment
costs resulting from the ADP conversion. Professional fees increased $.4
million (15%) primarily due to increased legal expenses of Advest and the
Bank.
The provision for credit losses and asset devaluation increased $1.3
million (70%) primarily due to the current quarter chargeoffs associated
with a non-performing loan of the Bank, as previously noted. Other
expenses decreased $.8 million (14%) primarily due to smaller settlement
costs, reduced syndicate expenses and lower OREO-related charges and
expenses.
LIQUIDITY AND CAPITAL RESOURCES
Six Months Ended March 31, 1994
The Company continues to acquire shares of its common stock in the
open market under a repurchase program that was announced in August 1990.
Since September 30, 1993, 334,800 additional shares have been acquired at a
cost of $2.3 million.
There have been no other material changes to the Company's liquidity
or capital resources since September 30, 1993.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company has been named as defendant in various legal actions.
These actions have arisen principally from the securities and investment
banking business. In the opinion of management, based on discussion with
counsel, the outcome of these matters will not result in a material adverse
effect on the financial condition or future operating results of the
Company.
Item 4. Submission of Matters to a Vote of Security Holders
The Company commenced solicitation of proxies on December 21, 1993 in
connection with its Annual Meeting held on January 27, 1994. The
solicitation was performed in accordance with Section 14 of the Securities
and Exchange Act of 1934 and the rules thereunder. There was no
solicitation in opposition to management's solicitation. A total of
7,440,406 shares were represented at the meeting out of the total of
8,947,317 issued and outstanding as of the December 13, 1993 record date
for the meeting.
(a) Election of Directors. At the Annual Meeting, the reelection as
directors of Messrs. Anthony E. Cascino, Grant W. Kurtz and Allen Weintraub
to serve for three year terms expiring in 1997 was considered. All such
nominees were reelected to the Board of Directors. The nominees received
the following votes:
In Favor
------------------------------------------------
Nominee In Person By Proxy Total Withheld
Anthony E. Cascino 0 7,067,832 7,067,832 372,574
Grant W. Kurtz 0 7,233,811 7,233,811 206,595
Allen Weintraub 0 7,222,110 7,222,110 218,296
The terms of office of the following continuing directors expire in
1995: George A. Boujoukos, Anthony A. LaCroix and Corine T. Norgaard. The
terms of office of the following continuing directors expire in 1996:
Richard G. Dooley, Charles T. Larus, John A. Powers and Robert L. Thomas.
(b) 1993 Stock Option Plan. Also presented at the meeting was a
proposal to approve The Advest Group, Inc. 1993 Stock Option Plan (the
"Plan"). The purpose of the Plan is to advance the interests of the
Company by providing certain employees with an additional incentive,
encouraging stock ownership by such individuals, increasing their
proprietary interest in the success of the Company and encouraging them to
remain employees. The Plan authorizes the issuance of an aggregate of up
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<PAGE>
to 500,000 shares, subject to adjustment under certain events. The Plan
was approved by the stockholders, receiving the following vote:
In Favor Against Abstaining Not Voting
4,563,706 465,845 59,918 2,350,937
The Proxy Statement for the Annual Meeting included a stockholder
proposal submitted by Mr. John Jennings Crapo requesting that the Directors
submit to shareholders an appropriate amendment to the Articles of
Incorporation to provide that at future elections Directors whose terms of
office have expired be elected annually and not by classes as is now
provided. Mr. Crapo did not attend the meeting due to travel difficulties
and the proposal was not introduced or voted upon.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10(a) -- Registrant's 1993 Stock Option Plan *
Exhibit 11 -- Computation of Net Earnings Per Share
Coopers & Lybrand report on limited review performed on
financial information contained herein (see page 15)
____________
* Incorporated by reference to Exhibit A to Registrant's Proxy
Statement dated December 21, 1993.
(b) Reports on Form 8-K
None
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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
The Advest Group, Inc.:
We have reviewed the accompanying consolidated balance sheet of The Advest
Group, Inc. and subsidiaries as of March 31, 1994, and the related
consolidated statements of operations and cash flows for the three and six-
month periods ended March 31, 1994 and 1993, and changes in shareholders'
equity for the six-month period ended March 31, 1994. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the aforementioned consolidated financial statements for
them to be in comformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of September 30, 1993, and the
related consolidated statements of operations, changes in shareholders'
equity and cash flows for the year then ended (not presented herein); and
in our report dated October 28, 1993, we expressed an unqualified opinion
on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
September 30, 1993, is fairly stated, in all materials respects, in
relation to the consolidated balance sheet from which it has been derived.
Coopers & Lybrand
Hartford, Connecticut
April 21, 1994
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant duly caused this report to be signed on its behalf by
the thereunto duly authorized.
The Advest Group, Inc.
Registrant
Date April 30, 1994 Allen Weintraub
(Allen Weintraub,)
President and Chief
Executive Officer
Date April 30, 1994 Martin M. Lilienthal
(Martin M. Lilienthal,)
Senior Vice President and
Chief Financial Officer
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<PAGE>
EXHIBIT INDEX
Exhibit Description Page
11 Computation of Net Income Per Share 18
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<PAGE>
Exhibit 11
THE ADVEST GROUP, INC. AND SUBSIDIARIES
Computation of Net Income Per Common Share
For the quarters For the six months
(In thousands, except ended March 31, ended March 31,
per share amounts) Primary* Primary*
1994 1993 1994 1993
Income before
extraordinary credit $ 259 $ 965 $2,445 $2,541
Extraordinary credit -- 499 -- 867
Net income applicable
to common stock and
other dilutive
securities $ 259 $1,464 $2,445 $3,408
Average number of common
shares outstanding
during the period 8,797 9,271 8,899 9,312
Additional shares assuming:
Exercise of stock options 257 252 264 236
Average number of common
and common equivalent
shares used to calculate
net income per common
share 9,054 9,523 9,163 9,548
Income per common and
common equivalent share:
Income before
extraordinary credit $ .03 $ .10 $ .27 $ .27
Extraordinary credit -- .05 -- .09
Net income $ .03 $ .15 $ .27 $ .36
* For the quarter and six months ended March 31, 1994 and 1993, the
primary and fully diluted net income per common share were equal.
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