<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1996
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 (IRS Employer
incorporation or organization) Identification Number)
90 State House Square
Hartford, Connecticut 06103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(860) 509-1000
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 8,443,354 Shares
Class Outtstanding at April 30, 1996
Total of sequentialy numbered pages 19
Exhibit index sequential page number 17
<PAGE>
THE ADVEST GROUP, INC.
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1996 and September 30, 1995 3
Consolidated Statements of Earnings
Three and Six Months Ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows
Six Months Ended March 31, 1996 and 1995 5
Consolidated Statement of Changes in Shareholders' Equity
Six Months Ended March 31, 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II. Other Information
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders
14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 16
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<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The Advest Group, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share amounts) March 31,1996 September 30, 1995
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - ------------------------------------------
<S> <C> <C>
Assets (Unaudited)
Cash and short-term investments
Cash and cash equivalents $ 8,484 $ 7,294
Cash and securities segregated under
federal and other regulations 48,446 31,259
---------------------------------------
56,930 38,553
- - - - - - - - - - - - - -
Receivables
Brokerage customers, net 318,993 308,714
Loans, net 222,209 242,575
Securities borrowed 127,089 110,681
Brokers and dealers 3,510 2,391
Other 10,161 11,179
--------------------------------------
681,962 675,540
- - - - - - - - - - - - -
Securities
Trading, at market value 60,400 41,500
Held to maturity (market values of $22,935 and $31,473) 22,908 31,469
Available for sale, at market value 11,272 3,360
--------------------------------------
94,580 76,329
- - - - - - - - - - - - -
Other assets
Other real estate owned, net 2,610 5,799
Equipment and leasehold improvements, net 14,639 12,115
Other 22,123 22,479
--------------------------------------
39,372 40,393
- - - - - - - - - - - -----
$872,844 $830,815
======================================
Liabilities & Shareholders' Equity
Liabilities
Brokerage customers $312,847 $300,011
Deposits 213,542 235,656
Securities loaned 118,781 113,632
Compensation and benefits 15,500 16,529
Checks payable 14,792 6,751
Short-term borrowings 37,451 10,251
Brokers and dealers 4,728 9,744
Securities sold, not yet purchased, at market value 19,154 4,847
Other 14,008 16,670
--------------------------------------
750,803 714,091
Long-term borrowings 17,025 17,240
Subordinated borrowings 20,552 20,552
--------------------------------------
788,380 751,883
- - - - - - - - - - - - -
Shareholders' Equity
Common stock, par value $.01, authorized 25,000,000 shares,
issued 10,645,155 and 10,584,488 shares 106 106
Paid-in capital 67,702 67,467
Retained earnings 29,605 22,956
Net unrealized gain on securities available for sale, net of taxes 12 2
Treasury stock, at cost, 2,232,686 and 2,202,519 shares (12,961) (11,599)
--------------------------------------
84,464 78,932
- - - - - - - - - - - - - -
$872,844 $830,815
======================================
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
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<TABLE>
The Advest Group, Inc.
Consolidated Statements of Earnings
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
In thousands, except share and 1996 1995 1996 1995
per share amounts
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Commissions $ 29,067 $ 19,138 $ 54,006 $ 37,151
Interest 13,044 14,025 27,217 27,756
Principal transactions 9,567 10,750 20,166 20,495
Investment banking 7,128 3,176 15,064 6,940
Asset management and administration 4,806 4,191 9,481 8,439
Gain on sale of investment advisory
business, net - 843 - 843
Other 2,288 1,440 5,015 2,932
--------------- --------------- --------------- ---------------
Total revenues 65,900 53,563 130,949 104,556
--------------- --------------- --------------- ---------------
Expenses
Compensation and benefits 36,710 28,058 72,068 56,119
Interest 6,858 7,810 14,471 15,112
Communications 5,072 4,504 9,824 8,781
Occupancy and equipment 4,712 4,315 9,495 8,411
Professional 1,361 1,235 2,590 2,229
Business development 1,371 1,020 2,517 2,202
Brokerage, clearing and exchange 1,061 1,008 2,044 1,879
Provision for credit losses and
asset devaluation 353 3,097 516 3,573
Other 2,113 2,230 5,335 4,459
--------------- --------------- --------------- ---------------
Total Expenses 59,611 53,277 118,860 102,765
--------------- --------------- --------------- ---------------
Income before taxes 6,289 286 12,089 948
Provision for income taxes 2,772 123 5,440 770
--------------- --------------- --------------- ---------------
Net Income $ 3,517 $ 163 $ 6,649 $ 178
=============== =============== =============== ===============
Net income per common and common equivalent shares:
Primary $ 0.40 $ 0.02 $ 0.76 $ 0.12
Assuming full dilution $ 0.36 $ 0.02 $ 0.69 $ 0.12
Average common and common equivalent shares outstanding:
Primary 8,745 8,721 8,757 8,718
Assuming full dilution 10,269 8,721 10,284 8,718
<FN>
See Notes to Consolidated Financial Statements
4
</TABLE>
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<TABLE>
The Advest Group, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended March 31,
In thousands 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,649 $ 1,021
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 3,913 4,245
Provision for credit losses and asset devaluation 516 3,573
Gain on sale of investment advisory business (843)
Other (549) 1,242
(Increase) decrease in operating assets:
Receivables from brokerage customers (10,332) 27,395
Securities borrowed (16,408) (24,252)
Receivables from brokers and dealers (1,119) 1,860
Trading securities (18,900) 407
Cash and securities segregated under federal and other regulations (17,187) 6,016
Other 796 (1,020)
Increase (decrease) in operating liabilities:
Brokerage customers 12,836 (13,799)
Securities loaned 5,149 25,800
Brokers and dealers (5,016) (4,981)
Checks payable 8,041 334
Other 8,793 (3,889)
----------------- -------------
Net cash (used for) provided by operating activities (22,818) 23,109
----------------- -------------
FINANCING ACTIVITIES
Net decrease in deposits (22,114) (15,870)
Repayment of short-term borrowings (2,965) (9,841)
Short-term brokerage borrowings, net 28,700 (22,501)
Proceeds from long-term borrowings 1,250 7,250
Repayment of long-term borrowings 0 (10,000)
Other (1,127) (482)
-------------------------------
Net cash provided by (used for) financing activities 3,744 (51,444)
----------------- -----------
INVESTING ACTIVITIES
Proceeds from (payments for):
Sales of available for sale securities 17,572
Maturities of available for sale securities 634
Maturities of held to maturity securities 10,861
Purchase of available for sale securities (3,017)
Purchase of held to maturity securities (12,238)
Purchase of investment securities and shortterm investments (8,198)
Maturities of investments 13,403
Sales of investments 24,002
Loans sold 18,827 8,808
Sales of OREO, net 3,137 2,582
Principal collections on loans 12,024 21,308
Loans originated (23,861) (32,498)
Other (3,675) (4,662)
----------------- ------------
Net cash provided by investing activities 20,264 24,745
----------------- ------------
Increase (decrease) in cash and cash equivalents 1,190 (3,590)
Cash and cash equivalents at beginning of period 7,294 7,278
----------------- -------------
Cash and cash equivalents at period end $ 8,484 $ 3,688
==============================
Interest paid $ 14,529 $ 14,899
Income taxes paid $ 6,192 $ 934
Non-cash activities:
Securities available for sale from investment securities $ - $ 20,891
Securities available for sale from held to maturity $ 9,962
Securitization of mortgages $ 12,982 $ 1,028
<FN>
See Notes to Consolidated Financial Statements.
5
</TABLE>
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<TABLE>
The Advest Group, Inc.
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
Net unrealized
gain (loss) on
securities
available
for
sale Total
$.01 par value net Share-
In thousands, except Common stock Paid-in Retained Treasury stock of holders'
share and per share amounts Shares Amount capital earnings Shares Amount taxes Equity
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of
September 30, 1995 10,584,488 $106 $67,467 $22,956 (2,202,519) $(11,599) $2 $78,932
Net Income 6,649 6,649
Exercise of stock
options 60,667 (89) 124,158 574 809
Repurchase of common stock (239,938) (2,226) (2,226)
Sale of treasury stock
to equity plans 324 85,613 290 290
Change in unrealized gains,
(losses), net of taxes 10 10
-------------------------------------------------------------------------------------------------
Balance as of
March 31, 1996 10,645,155 $106 $67,702 $29,605 (2,232,686) $(12,961) $12 $84,464
=================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
6
</TABLE>
<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. ("AGI"), a financial services holding company,
and all subsidiaries (collectively the "Company"). Principal
operating subsidiaries are Advest, Inc. ("Advest"), a broker-
dealer; Advest Bank (the "Bank"), a state-chartered savings bank,
Boston Security Counsellors ("BSC"), an investment advisor and
Billings & Co., Inc. ("Billings"), a company specializing in
private placement offerings primarily in real estate. 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 1995 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 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, 1995, as filed with the Securities and Exchange
Commission on Form 10-K.
2. Summary of Significant Accounting Policies:
The Company adopted Statement of Financial Accounting Standards
("SFAS") 114, "Accounting by Creditors for Impairment of a Loan,"
effective October 1, 1995. Under SFAS 114, a loan is considered
impaired if it is probable that the Company will be unable to
collect scheduled payments according to the terms of the loan
agreement. The measurement of impaired loans is generally based
on the present value of expected cash flows discounted at the
loan's historical effective interest rate, except that collateral
dependent loans are measured for impairment based on the
observable market value or fair value of the collateral less
estimated selling costs. The Company considers residential
mortgage loans and consumer loans to be small balance, homogenous
loan portfolios, which under SFAS 114 are excluded from
individual impairment measurement, and are evaluated collectively
for impairment. Such loans are collectively evaluated for
impairment using historical chargeoff data, industry data and
other trend analyses. An insignificant delay (less than ninety
days) in amounts due, or a shortfall (10% or less) in the
amount of scheduled payments due would not be events that, when
considered in isolation, would automatically cause a loan to be
considered impaired. Loans remain classified as impaired until
they are current as to scheduled payments and the timely
collection of future required payments is considered probable.
Income on impaired loans generally is recognized under the cash
method. Under the cash method, the amount of interest recognized
in any one period is limited to the lesser of the cash amount
received or an amount that is not more than that which would have
been earned at the contractual effective interest rate. Loans
that are deemed collateral dependent will recognize income after
the principal amount of the loan is recovered. All loans more
than ninety days delinquent
7
<PAGE>
will generally be placed into non-accrual status. Loans less
than ninety days delinquent may be placed on non-accrual status
if management's analysis indicates probable non-payment of the
total amounts due under the terms of the loan.
Nonperforming loans were $13.9 million and $11.7 million at
March 31, 1996 and September 30, 1995, respectively. Included in
the nonperforming loans at March 31, 1996 were $3.3 million of
impaired loans, of which $3.2 million were measured based upon
the fair value of the underlying collateral and $.1 million were
measured based upon the present value of expected future cash
flows. No allowance was necessary for the impaired loans and no
interest income was recorded on these loans for the six months
ended March 31, 1996. The adoption of SFAS 114 resulted in no
additional provisions for loan losses. Accordingly, there was no
impact to the Company's financial condition or results of
operations.
As of October 1, 1995, the Company prospectively adopted
SFAS 122 "Accounting for Mortgage Servicing Rights." The
statement requires that a separate asset be recognized that
represents Originated Mortgage Servicing Rights ("OMSRs"), the
right to service mortgage loans for others. Under SFAS 122, the
Bank allocates the total cost of mortgage loans sold in the
secondary market to the OMSRs and the loans, based upon their
relative fair values. OMSRs generally are evaluated for
impairment in the aggregate based on quoted prices in active
markets. When such quotations are not available, OMSRs are
evaluated on the estimated discounted present value of the
expected cash flows using industry consensus assumptions. At each
reporting period OMSRs carrying values are adjusted to the lower
of their book value or the current valuation. Any impairment is
recognized through a charge to earnings and the establishment of
an impairment allowance. Amortization schedules are also
adjusted periodically, if necessary, to reflect current consensus
prepayment assumptions. Retroactive capitalization of OMSRs for
loans sold prior to adoption of SFAS 122 is prohibited.
In November 1995, the FASB issued a special report which
allowed a one time election to transfer securities from the held
to maturity classification, provided such transfers were effected
on or before December 31, 1995. Pursuant to the FASB's action,
on December 22, 1995 the Company transferred $9.9 million of
securities to the available for sale category from held to
maturity. The assets were transferred at fair value with a net
unrealized loss of $61,000.
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, 1996, Advest's
regulatory net capital of $40.2 million was 12% of aggregate
debit balances and exceeded required net capital by $33.4
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 overdue and
non-accrual loans to not more than 5% of total loans, to reduce
the level of adversely
8
<PAGE>
classified assets to not more than 40% of total capital and
reserves, to develop a written policy addressing concentrations
of credit and to provide periodic progress reports to regulatory
agencies.
At March 31, 1996, the Bank's leverage capital ratio was
5.81% which met the regulatory requirements but was below the 6%
required by the MOU. The Bank's regulators have approved a
capital and risk management plan which provides an estimated time
frame for attaining 6% leverage capital. The Bank is also
required to maintain risk-based capital of 8.0%, including at
least 4.0% Tier 1 capital. At March 31, 1996, the Bank's total
risk-based capital ratio was 9.44% and the Tier 1 ratio was
8.19%, which met both the regulatory and MOU requirements.
4. Employee Benefit Plans:
Equity Plans
In January 1996, the Company implemented equity investment
plans which cover executive officers (the "Executive Plan") and
eligible top performing account executives and designated key
employees of the Company (the "1996 Equity Plan"). The plans are
similar to plans offered by the Company during calendar 1995.
Under the 1996 Equity Plan, participants may elect to invest part
of their 1996 compensation, within established minimum and
maximum amounts, on a pre-tax basis in units consisting of one
share of AGI common stock and one option to purchase a single
share of AGI common stock. The stock will be purchased from AGI
treasury stock on a monthly basis and will be restricted until
the January 1, 2000 vesting date. Options will be granted on
June 30, 1996 and January 1, 1997 and will become exercisable for
two years beginning on the January 1, 2002 vesting date. Vesting
may be accelerated under certain circumstances if the
participant's employment terminates. Employees may forfeit both
unvested stock and options under circumstances outlined in the
Equity Plan's prospectus. The terms of the Executive Plan are
similar in most respects to the Equity Plan. The principal
differences are that shares of AGI stock will be purchased on the
open market on a quarterly basis and the options will be granted
under the 1993 Stock Option Plan.
5. Loans
Loans at March 31, 1996 and September 30, 1995 consist of
the following:
- ----------------------------------------------------------------
March 31, September 30,
In thousands 1996 1995
- ----------------------------------------------------------------
Mortgages:
Commercial $ 47,659 $ 52,945
Multi-family 12,062 12,257
1-4 family residential 156,668 170,414
Commercial 3,139 3,956
Consumer 1,043 972
Installment note and lease loan
financing 1,674 1,811
Other 1,293 1,444
----------- -----------
Total loans 223,538 243,799
Net deferred loan costs 1,494 1,110
------------ -----------
Total loans, net of unearned
income 225,032 244,909
Allowance for credit losses (2,823) (2,334)
----------- -----------
Net loans $222,209 $242,575
=========== ===========
9
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- ----------------------------------------------------------------
An analysis of the allowance for credit losses for the six
months ended March 31, 1996 and 1995 is as follows:
- -----------------------------------------------------------------
March 31, March 31,
In thousands 1996 1995
- -----------------------------------------------------------------
Balance at beginning of
period $2,334 $4,900
Provision charged to operating
expense 335 100
Recoveries on loans 222 62
Loans charged off (68) (1,437)
--------- -------
Balance at end of period $2,823 $3,625
========= =======
At March 31, 1996, and March 31, 1995 the Bank had
nonaccrual loans of $3,461,000 and, $4,160,000, respectively.
Had these loans performed in accordance with their original
terms, interest income of $119,000 and $369,000 would have been
recorded for the six months ended March 31, 1996 and March 31,
1995, respectively.
6. Capitalized Mortgage Servicing Rights
An analysis of the Bank's Capitalized Mortgage Servicing
Rights at March 31, 1996 follows:
----------------------------------------
March 31,
In thousands 1996
-----------------------------------------
Balance at beginning of period $ --
Additions 175
Less: Amortization (1)
-----
Balance at end of period $174
=====
The Bank had no valuation allowance at any time during the
six months ended March 31, 1996.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition
and Results of Operations
Overview
The Company is engaged in securities brokerage, trading,
investment banking, consumer lending, asset management, trust and
related financial services. All aspects of the Company's
business are highly competitive and regulated and impacted by a
variety of factors outside of its control including the economy,
interest rates, the political climate and investor sentiment.
Consequently, revenues and operating results can vary
significantly from one reporting period to the next.
The Company reported its fifteenth consecutive quarterly
profit for its second quarter ending March 31, 1996. Net income
was $3.5 million ($.40 per share) compared with $.2 million ($.02
per share) in the prior year. Current quarter results were
favorably impacted by continued strong equity markets and a
robust underwriting environment. Results for the 1995 quarter
included a $2.8 million pre-tax loss on the sale of certain
performing and nonperforming assets of the Bank and a $.8 million
pre-tax gain on the sale of the Company's advisory business
related to the Scottish Widows International Fund.
In January 1996, the Company relocated its corporate
offices, including Advest and its Hartford-based retail sales
office and the Bank and its one branch office. The new address
is 90 State House Square, Hartford, CT 06103. Advest's new
telephone number is (860) 509-1000. The Bank's new telephone
number is (860) 509-3000.
Advest, Inc.
Despite some turbulence in the closing weeks of the quarter,
the DOW closed at 5587 on March 31, 1996, up 9% for the quarter
and 34% from the prior year. The S&P 500 and NASDAQ Composite
each gained 5% for the quarter, and 29% and 35%, respectively,
from the year earlier period. Merger and acquisition activity
continued at high levels and underwriting activity increased 62%
from the prior year, achieving a two year high, as mutual fund
sales soared fueling the demand for new issues.
Advest posted pre-tax income of $6.8 million, a 160%
increase from $2.6 million last year and its 21st consecutive
quarterly profit. Total revenues were $60.5 million, up 33% from
1995 and an all time high. Notable revenue gains were posted
from investment banking (up 126%), commissions (up 52%) and asset
management activities (up 40%). Total expenses increased 25% to
$53.6 million.
Advest Bank
The Bank posted pre-tax income of $300,000 for the current
quarter compared with a pre-tax loss of $3.2 million a year ago.
Current quarter net interest income declined $.4 million (16%)
from a year ago, primarily due to a decline in the Bank's asset
base. The provision for credit losses and asset devaluation was
$.2 million, reflecting a 49% year-to-year decline, and other
expenses, largely carrying costs of foreclosed properties,
declined 48% to $.4 million. The declines were primarily a
result of the accelerated asset disposition program implemented
by the Bank during fiscal 1995 which resulted in the sale or
transfer of substantial levels of the Bank's nonperforming assets
("NPAs"). During the 1995 quarter, the Bank realized a $2.8
million pre-tax loss on the sale of a pool of assets with an
aggregate book value of $7.4 million. At March 31, 1996, the
Bank's NPAs
11
<PAGE>
were $4.6 million (1.9% of total Bank assets) compared with
$16.0 million (5.1% of total Bank assets) a year ago, a 71%
decline.
At March 31, 1996, the Bank's leverage capital ratio was
5.81% which met the regulatory requirements but was below the 6%
required by the MOU. The Bank's regulators have approved a
capital and risk management plan which provides an estimated time
frame for attaining 6% leverage capital. The Bank is also
required to maintain risk-based capital of 8.0%, including at
least 4.0% Tier 1 capital. At March 31, 1996, the Bank's total
risk-based capital ratio was 9.44% and the Tier 1 ratio was
8.19%, which met both the regulatory and MOU requirements.
Results of Operations
Three Months Ended March 31, 1996 Versus
Three Months Ended March 31, 1995
Net revenues, total revenues less interest expense, were
$59.0 million, an increase of $13.3 million (29%), reflecting
across the board revenue gains. Expenses, excluding interest,
increased $7.3 million (16%) to $52.8 million, primarily related
to higher sales-related compensation at Advest.
Commissions increased $9.9 million (52%) to $29.1 million,
with mutual funds increasing $4.7 million (92%), over-the-counter
issues gaining $2.3 million (92%) and insurance products
advancing $1.0 million (93%). year-to-year. Commissions from
listed securities increased $2.3 million (22%).
Investment banking revenues more than doubled to $7.1
million, reflecting high levels of underwriting and merger and
acquisition activities. Corporate Finance underwriting fees and
trading profits increased $.5 million, collectively, and related
commissions increased $.4 million. Merger and acquisition
revenues increased $1.5 million and syndicate trading profits
rose $.4 million. During the current quarter, Advest realized a
$1.1 million gain on warrants from two previous underwritings.
Revenue from principal transactions declined $1.2 million
(11%) to $9.6 million. Trading profits were off on all
inventories, with the largest declines posted in municipal bonds,
down $.8 million, over-the-counter issues, down $.4 million and
corporate bonds, down $.3 million. Equity commissions increased
$1.2 million (39%) and commissions on debt securities declined
$.7 million (12%), both reflective of investor sentiment during
the current quarter.
Asset management revenues increased $.6 million (15%) to
$4.8 million. Advest's income increased $1.2 million (40%)
primarily as a result of a 40% year-to-year increase in fee-based
assets (to $1.7 billion at March 31, 1996) and higher service
fees. BSC's revenue declined $.7 million (70%) due to the sale
of the advisory business related to the Company's proprietary
mutual funds during fiscal 1995.
Other income increased $.8 million (59%) to $2.3 million
primarily due to higher fee income at Advest and gains on the
sale of residential mortgages by the Bank. In the 1995 quarter,
the Company realized a $.8 million gain from the sale of the
advisory business related to the Scottish Widows International
Fund.
Net interest income was $6.2 million, substantially
unchanged from 1994. Advest's net interest rose $.5 million
(11%) primarily due to increased income from stock lending
activities and larger trading inventories. The Bank's net
interest income declined $.4 million (16%) primarily due to a
reduction in its asset base.
Compensation costs increased $8.7 million (31%) primarily
due to higher sales-related compensation and incentives and
higher general payroll and insurance costs. Compensation at BSC
declined $.5 million (64%) due to the fiscal 1995 sale of the
Company's advisory business related to
12
<PAGE>
its proprietary mutual funds. The provision for credit losses
and asset devaluation decreased $2.7 million (89%) primarily due
to the $2.8 million loss on the sale of certain Bank assets in
the 1995 quarter. Occupancy and equipment costs increased $.4
million primarily related to costs associated with subleasing or
terminating office space currently occupied by Advest's Financial
Institutions Group. Communications expenses increased $.6 million
(13%) due primarily to higher variable costs associated with
securities transaction volume and upgraded quote and other
services.
Six Months Ended March 31, 1996 Versus
Six Months Ended March 31, 1995
Net revenues increased $27.0 million (30%) to $116.5
million. Year-to-date commission, investment banking, asset
management and net interest revenues are consistent with the
March quarter discussion.
Through six months, revenue from principal transactions
declined $.5 million (2%) as a $.9 million year-to-year increase
in the first quarter was more than offset by the current quarter
decline. Trading profits on debt securities declined across the
board, negatively impacted by the favorable economic outlook and
ongoing inflation fears. Municipal bond trading profits reversed
from a $.5 million first quarter gain to a $.8 million second
quarter loss. Commissions on debt issues declined $1.9 million
(15%) while equity commissions increased $2.7 million (51%), both
results consistent with the securities market.
Other income increased $2.1 million (71%) to $5.0 million
due to higher fee income at Advest, gains on sales of residential
mortgages by the Bank and a $.9 million first quarter gain on the
sale of an equity investment held by Advest.
Net expenses increased $16.7 million (19%) to $104.4 million
with most expense categories consistent with the March quarter
discussion. Other expenses increased $.9 million (20%) due
primarily to first quarter legal settlement and computer software
costs at Advest.
Liquidity and Capital Resources
Six Months Ended March 31, 1996
Short-term borrowings increased $27.2 million (265%),
securities borrowed increased $16.4 million (15%), trading
securities increased $18.9 million (46%) and securities sold
short increased $14.3 million (295%) primarily as a result of
corporate bond trading activities initiated by Advest during the
March quarter. The increase in borrowings was also attributed to
the securities markets conversion to same day funds settlement in
February 1996. There have been no other material changes to the
Company's liquidity or capital resources since September 30,
1995.
13
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
The Company has been named as defendant in various legal
actions. These actions have arisen principally from the
securities and investment banking business. In the opinion of
management, based on discussion with counsel, the outcome of
these matters will not result in a material adverse effect on the
financial condition or future operating results of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
The Company commenced solicitation of proxies on December
19, 1995 in connection with its Annual Meeting held on January
25, 1996. 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 6,976,324 shares were
represented at the meeting out of the total of 8,388,434 issued
and outstanding as of the December 11, 1995 record date for the
meeting.
At the Annual Meeting, the reelection as directors of Messrs
Dooley, Fiondella and Powers to serve for three year terms
expiring in 1999 was considered. Also considered was the
election of Mr. William B. Ellis to serve for a two year term
expiring in 1998. All such nominees were reelected or elected to
the Board of Directors. The nominees received the following
votes:
In Favor
-----------------------------------------
Nominee In Person By Proxy Total Withheld
Richard G. Dooley 0 6,902,607 6,902,607 73,717
Robert W. Fiondella 0 6,899,636 6,899,636 76,688
John A. Powers 0 6,890,358 6,890,358 85,966
William B. Ellis 0 6,917,369 6,917,369 58,955
The terms of office of the following continuing directors
expire in 1997: Sanford Cloud, Jr., Grant W. Kurtz, Allen
Weintraub. The terms of office of the following continuing
directors expire in 1998: George A. Boujoukos, Anthony A.
LaCroix, Corine T. Norgaard.
No other matters were voted upon at the annual meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 -- Computation of Net Income Per Share
Exhibit 27 -- Financial Data Schedule (Selected financial
data - for EDGAR electronic
filing only to SEC)
The interim financial information contained herein has been
subjected to a review by
Coopers & Lybrand L.L.P., the registrant's Independent
Accountants, whose
report is included on page 15 of this filing.
(b) Reports on Form 8-K
None
14
<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, 1996, and
the related consolidated statements of earnings for the three-
month and six-month periods ended March 31, 1996 and 1995, and
cash flows for the six-month periods ended March 31, 1996 and
1995, and changes in shareholders' equity for the six-month
period ended March 31, 1996. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with Statements on
Standards of Accounting and Review Services issued 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 inquires 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 conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of
September 30, 1995, and the related consolidated statements of
earnings, changes in shareholders' equity and cash flows for the
year then ended (not presented herein), and in our report dated
October 26, 1995, 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, 1995, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from
which it has been derived.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
April 18, 1996
15
<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 May 3, 1996 /s/Allen Weintraub
Allen Weintraub,
Chairman of the Board and
Chief Executive Officer
Date May 3, 1996 /s/Martin M. Lilienthal
Martin M. Lilienthal,
Senior Vice President and
Chief Financial Officer
16
<PAGE>
Exhibit Index
Exhibit Description
11 Computation of Net Income Per Share
27 Financial Data Schedule (Selected financial data -
for EDGAR
electronic transmission only for SEC.)
17
<PAGE>
<TABLE>
EXHIBIT 11
The Advest Group, Inc. and Subsidiaries
Computation of Net Income Per Common Share
For the quarters ended For the six months ended
March 31, March 31,
- --------------------------------------------------------------------------
Assuming Assuming
Full Full
In thousands, Primary Dilution Primary Dilution
except per ------- -------- ------- ---------
share amounts 1996 1995 1996 1996 1995 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $3,517 $163 $3,517 $6,649 $1,021 $6,649
Interest on convertible
debentures outstanding
during the period,net
of tax and other related
expenses -- -- 166 -- -- --
------ ---- --- ------ ------ ------
Net income applicable to
common stock and other
dilutive securities $3,517 $ 163 $3.683 $6,649 $1,021 $7,065
===== ===== ===== ===== ===== ======
Average number of common shares
outstanding during the
period 8,425 8,537 8,425 8,409 8,542 8,409
Additional shares assuming:
Exercise of stock options 320 184 329 348 176 360
Conversion of
debentures -- -- 1,515 -- -- 1,515
---- ----- ----- ------ ----- -----
Average number of common and
common equivalent shares used
to calculate net income per
common share 8,745 8,721 10,269 8,757 8,718 10,284
===== ===== ===== ===== ===== ======
Net ncome per common and common
equivalent share $ .40$ .02 $ 36 $ .76 $ .12$ .69
======== ===== ===== ======= =============
<FN>
* For the quarter and six months ended March 31, 1995, primary and fully
diluted net income per common share are equal.
</TABLE>
18
<TABLE> <S> <C>
<ARTICLE> BD
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 8730
<RECEIVABLES> 554873
<SECURITIES-RESALE> 48200
<SECURITIES-BORROWED> 127089
<INSTRUMENTS-OWNED> 94580
<PP&E> 14639
<TOTAL-ASSETS> 872844
<SHORT-TERM> 37451
<PAYABLES> 247070
<REPOS-SOLD> 0
<SECURITIES-LOANED> 118781
<INSTRUMENTS-SOLD> 19154
<LONG-TERM> 37577
<COMMON> 106
0
0
<OTHER-SE> 84358
<TOTAL-LIABILITY-AND-EQUITY> 872844
<TRADING-REVENUE> 9567
<INTEREST-DIVIDENDS> 13044
<COMMISSIONS> 29067
<INVESTMENT-BANKING-REVENUES> 7128
<FEE-REVENUE> 4806
<INTEREST-EXPENSE> 6858
<COMPENSATION> 36710
<INCOME-PRETAX> 6289
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3517
<EPS-PRIMARY> .40
<EPS-DILUTED> .36
</TABLE>
