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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, 1996
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)
90 State House Square, - Hartford, Connecticut 06103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (860) 509-1000
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 $72,359,499 as of December 2, 1996.
On December 2, 1996 the Registrant has outstanding 8,411,496 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
1996 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 30, 1997.
Total of sequentialy numbered pages 59
Exhibit index sequetial page number page 28
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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,
residential mortgage, consumer lending, asset management, trust 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 byof the Company during the past five years
follow.
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.
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 serves as an advisor to small and
medium-sized community banks.
During fiscal 1995, the Company sold the investment advisory business
related to its proprietary mutual funds in three separate transactions. In the
first quarter, a pre-tax gain of $.8 million was realized from the sale of the
business related to the Scottish Widows International Fund to an unrelated
third party. During the third quarter, the businesses related to the six
taxable and three non-taxable funds, respectively, in the Advantage Family of
Funds ("Funds") were sold to two other unrelated third parties for total
consideration of $11.2 million. Net of expenses, the Company realized a pre-tax
gain of $9.3 million from the two transactions. The total gain from all sales
was $10.1 million and is reported separately on the Consolidated Statement of
Earnings. Additional consideration of $.6 million was received in fiscal 1996
under the terms of one of the sales agreements.
(2) Advest is engaged in a broad range of activities in the securities
brokerage, investment banking and asset management businesses. Specific
services include retail brokerage, institutional sales, origination of and
participation in underwritings and distribution of corporate and municipal
securities, market making and trading activities in corporate securities,
government and municipal bonds, research, custody and money management.
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
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Northeast and Midwest regions and also services institutional accounts
throughout the country. During fiscal 1996, Advest opened 2 new sales offices.
At September 30, 1996, Advest had sales locations, including satellite offices,
and account executives in 16 states and the District of Columbia as follows:
Number of
Number of Account
State Locations Executives
--------------------------------------------------------------
Connecticut 8 77
District of Columbia 1 10
Florida 7 59
Illinois 2 9
Kentucky 3 15
Maine 6 23
Maryland 1 5
Massachusetts 7 53
Missouri 2 11
New Hampshire 3 7
New Jersey 4 23
New York 16 124
Ohio 13 59
Pennsylvania 12 54
Rhode Island 1 9
Vermont 1 2
Virginia 4 10
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91 550
== ===
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 ("CFTC") as a commodity trading
advisor and a futures commission merchant and clears all option transactions
through an independent third party broker.
The Bank is a Connecticut-chartered capital stock savings bank which
opened for business in 1984. The Bank's headquarters and sole retail branch are
located at 90 and 10 State House Square, respectively, Hartford, Connecticut
06103. The Bank also has representative offices in Springfield, Massachusetts
and Columbus, Ohio for trust and mortgage origination, respectively. Both
representative offices share office space with Advest retail offices. The
Bank's principal business activities consist of soliciting and servicing
fiduciary and retirement plan trust business and conducting a broad range of
mortgage banking services, primarily to clients of Advest. The Bank is also
engaged in the businesses of attracting deposits and investing such deposits,
together with funds from capital and other borrowings, in various types of
loans, primarily residential, and investments. In recent years the latter
activities have decreased in volume, and, correspondingly, the total assets of
the Bank have declined. The Bank's loan portfolio includes single and multi-
family residential mortgages, consumer, commercial mortgages and commercial and
construction loans. The Bank has expanded its residential mortgage lending
production in recent years, and places excess volume not retained in portfolio
with investors, principally federal agencies and major private mortgage
conduits. Investments include government and agency obligations, mortgage-
backed securities and money market instruments. The Bank does not currently
have a material source of deposits other than those obtained through Advest.
Deposits in the Bank are
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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
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, 1996,
83.7% of the Bank's portfolio consisted of such assets.
(3) The Company's principal executive offices are located at 90 State House
Square, Hartford, Connecticut, 06103 (telephone number (860) 509-1000). At
September 30, 1996, the Company employed 1,612 persons.
Financial Information about Industry Segments
The information required by this item is disclosed on pages 40 and 41 of the
1996 Annual Report to Shareholders in Note 16 of Notes to Consolidated
Financial Statements. Such information is hereby incorporated by reference.
Narrative Description of Business
(1) Revenues
The principal sources of revenue for the last five years are disclosed on page
17 of the 1996 Annual Report to Shareholders 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. Prior to the fiscal 1995 sale of the
investment advisory business related to its proprietary mutual funds, Advest
served as sole distributor for The Advantage Family of Mutual Funds and the
Advantage Municipal Bond Fund and acted as a distributor of the Scottish Widows
International Fund.
Nasdaq In executing customers' orders in the Nasdaq 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.
Options Advest also effects for its customers the purchase and sale of
put and call options traded on all major stock exchanges.
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.
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Principal Transactions
Revenue from principal transactions includes realized and unrealized gains and
losses on trading positions of Advest and related sales credits as well as
realized gains on available for sale securities of the Bank. The Company does
not actively participate in the high yield securities market. Advest also
hedges its corporate and municipal bond inventories by entering into derivative
transactions when certain inventory levels are reached. Derivative positions
are generally not material and are marked-to-market daily.
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,
1996, Advest made dealer markets in the common stock or other equity securities
of approximately 158 corporations. Advest also actively engages in trading
municipal bonds and unit trust instruments.
Investment Banking
Advest manages and participates as an underwriter of corporate, municipal 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.
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
partnerships in real estate and other industries. As a general rule, the
Company does not engage in bridge financing activities.
Asset Management and Administration
BSC provides advisory services to a diverse clientele and, until the sale of
the investment advisory business related to the Advantage Family of Mutual
Funds and the Scottish Widows International Fund in fiscal 1995, acted as their
investment advisor. As of September 30, 1996, BSC had approximately $470
million of private account assets under management.
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. At September 30, 1996, IM had approximately $1.9
billion of assets under management.
Advest Transfer Services, Inc., a subsidiary of AGI, provided transfer
agency services to the former proprietary mutual funds of the Company through
November 1996. As of December
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1996, an independent third party transfer agent assumed transfer agency
services for the funds. Advest provides dividend reinvestment for more than
1,400 equities and 1,300 mutual and closed-end 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 loans collateralized
by 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 five money
market mutual funds. Other services offered to all clients include retirement
plan servicing, securities custody and asset safekeeping.
The Bank, through its Trust Division, provides fiduciary, trustee and
custody services to individuals, corporate retirement plans, financial
institutions and other entities. The Bank primarily acquires trust and custody
accounts through Advest's retail sales force.
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
adjustable rate 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 on page 10 of this filing and in Note
15 of Notes to Consolidated Financial Statements on pages 39 and 40 in the 1996
Annual Report to Shareholders. Such information is hereby incorporated by
reference).
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
balance and the dollar amount of commissions charged on account transactions
during the month.
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Customer credit balances, retained earnings, cash received from stock loan
activities, and short-term borrowings, 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,
regional banking, insurance and technology. 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, 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.
The mortgage banking environment that the Bank operates within is highly
competitive. The Bank competes with mortgage companies, banks, savings banks,
savings and loans, credit unions, finance companies and other financial
intermediaries for conventional and home equity residential loans. The market
for qualifying conventional loans is defined and dominated by federal agencies
such as Federal National Mortgage Association (FNMA) and the Federal Home Loan
Mortgage Corporation (FHLMC), who effectively act as the market makers and are
the dominant investors. This market is also highly sensitive to the level and
volatility of interest rates, which effects the volume of business being
conducted.
The Bank in soliciting trust business encounters significant competition
from trust companies, savings banks, savings and loans, insurance companies,
broker-dealers, investment firms, mutual funds, and law firms in attracting
trust accounts, particularly fiduciary relationships.
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 primarily in 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
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the terms of federal banking regulations concerning brokered deposits, the Bank
at September 30, 1996 was deemed to be a "well capitalized" bank, and as such
was not subject to restrictions regarding brokered deposits. Prior to September
30, 1996, the Bank was deemed to be an "adequately capitalized bank", and as
such was limited as to the maximum interest rates it could offer on its
brokered deposit products to rates which did 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 had $62.7
million of brokered deposits as of September 30, 1996.
(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, the CFTC 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
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 subsidiary, BSC, is 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 and certain reporting
requirements by the Office of Thrift Supervision.
The Bank posted pre-tax income of $1.1 million for fiscal 1996 after
posting losses in each
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of the previous six fiscal years. 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. During 1996, the Bank achieved compliance with all requirements of the MOU
and, in July 1996, the MOU was lifted.
Refer to pages 18 through 25 of the 1996 Annual Report to Shareholders
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and on page 34 in Note 5 and on page 37 in Note 12
of the Notes to Consolidated Financial Statements for a further description of
capital and regulatory considerations concerning the Bank. Such information is
hereby incorporated by reference.
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 dividend restriction applicable
to the Bank refer to page 37 of the 1996 Annual Report to Shareholders in Note
12 of Notes to Consolidated Financial Statements. Such information is hereby
incorporated by reference.) 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.
Federal banking regulations define 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 1 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, meets the criteria to be classified "well capitalized"
bank as of September 30, 1996.
(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 #No. 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, 1996. Average balances are calculated predominately on a
daily basis.
<TABLE>
<CAPTION>
1996 1995 1994
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Interest Average Interest Average Interest Average
Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/
In thousands, except percentages Balance Expense Rates Balance Expense Rates Balance Expense Rates
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<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 $ 8,132 $ 436 5.36% $ 6,294 $ 366 5.82% $ 23,861 $ 785 3.29%
Investment securities: <F1>(1)
U.S. government and agency
obligations 541 32 5.91% 2,107 151 7.17% 2,163 160 7.40%
Other 606 40 6.60% 703 47 6.69% 827 41 4.96%
Mortgage-backed securities 21,815 1,378 6.32% 35,321 2,044 5.79% 66,312 2,574 3.88%
FHLB stock 2,233 145 6.49% 2,129 157 7.37% 2,127 162 7.62%
Loans(net of unearned income)<F2>(2) 206,832 16,040 7.76% 258,011 19,975 7.74% 247,075 18,987 7.68%
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Total interest-earning assets 240,159 18,071 7.52% 304,565 22,740 7.47% 342,365 22,709 6.63%
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Noninterest-earning assets
Cash and cash equivalents 874 960 1,472
Property and equipment 683 692 663
Interest receivable 1,593 2,339 1,818
OREO and other assets 5,441 16,421 26,209
Due from affiliates 135 255 115
Prepaid commissions 128 163 178
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Total noninterest-earning assets 8,854 20,830 30,455
---------- ---------- ----------
$249,013 $325,395 $372,820
========== ========== ----------
Liabilities and shareholder's equity
Interest-bearing liabilities
Total deposits <F3>(3) $215,117 $ 8,974 4.17% $275,962 $11,370 4.12% $325,993 $11,045 3.39%
FHLB advances 14,364 1,005 7.00% 23,965 1,605 6.70% 15,991 1,033 6.46%
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Total interest-bearing liabilities 229,481 9,979 4.35% 299,927 12,975 4.33% 341,984 12,078 3.53%
--------------------------- --------------------------- ---------------------------
Noninterest-bearing liabilities
Accrued interest payable 1,023 1,251 1,201
Other liabilities 3,961 5,067 5,506
Accrued expenses 474 232 969
Due to affiliates 43 71 58
---------- ---------- ----------
Total noninterest-bearing
liabilities 5,501 6,621 7,734
---------- ---------- ----------
Shareholder's equity 14,031 18,847 23,102
$249,013 $325,395 $372,820
========== ========== ==========
Net interest income (tax equivalent basis) $ 8,092 $ 9,765 $10,631
========== ========== ==========
Net interest spread (tax equivalent basis) 3.18% 3.14% 3.10%
======= ======= =======
Net interest income as a percentage of
interest-earning assets (tax equivalent basis) 3.37% 3.21% 3.11%
======= ======= =======
<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.
</TABLE>
-10-
<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 1996 and 1995.
<TABLE>
<CAPTION>
1996 vs. 1995 1995 vs. 1994
Increase (decrease) due to change in Increase (decrease) due to change in
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 $ 112 $(42) $ 70 $ (918) $ 499 $(419)
Investment securities: <F1>
US government and agency obligations (120) 1 (119) (4) (5) (9)
Other (6) (1) (7) (19) 25 6
Mortgage-backed securities (883) 216 (667) (2,270) 1,740 (530)
FHLB stock 50 (62) (12) (5) (5)
Loans (net of unearned income) <F2> (3,978) 43 (3,935) 695 293 988
--------------------------------- -------------------------
Total interest income (4,825) 155 (4,670) (2,516) 2,547 31
--------------------------------- -------------------------
Interest expense
Total deposits <F3> (2,634) 238 (2,396) (2,004) 2,329 325
FHLB advances (420) (180) (600) 519 53 572
--------------------------------- -------------------------
Total interest expense (3,054) 58 (2,996) (1,485) 2,382 897
--------------------------------- -------------------------
Change in net interest income $(1,771) $ 97 $(1,674) $(1,031) $ 165 $(866)
================================= =========================
<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.
</TABLE>
Investment Activities
The following table summarizes the composition
of the securities portfolio (book values) for
the three years ended September 30, 1996:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------------------------
In thousands, except percentages Amount % Amount % Amount %
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
US government and agency obligations $ 599 2% $ 490 2% $ 4,888 9%
Mortgage-backed securities 10,635 42% 21,965 83% 48,003 79%
Other 500 2% 596 2% 818 1%
FHLB stock 2,233 10% 2,233 9% 2,045 3%
Securities available for sale (4) 11,157 44% 1,127 4% 4,902 8%
-------------------------------------------------------
Total $25,124 100% $26,411 100% $60,656 100%
=======================================================
</TABLE>
The following table sets forth the maturities of
investment securities at September 30, 1996 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 years years years Total
------------------------------------------------------------------------------------------
In thousands, except percentages Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
US government and
agency obligations - - $599 5.43% - - - - $ 599 5.43%
Mortgage-backed securities - - - - - - $10,635 6.39% 10,635 6.39%
Other - - 250 7.75% $250 7.75% - - 500 7.75%
FHLB stock $2,233 6.40% - - - - - - 2,233 6.40%
Securities available
for sale <F4>(4) 97 - - - - - 11,060 6.33% 11,157 6.27%
------------------------------------------------------------------------------------------
Total $2,330 6.13% $849 6.11% $250 7.75% $21,695 6.36% $25,124 6.34%
==========================================================================================
<FN>
<F4>(4) Securities available for sale are detailed
in Note 4 of Notes to Consolidated Financial
Statements in the 1996 Annual Report to
Shareholders.
</TABLE>
As of September 30, 1996, the Bank held
investments of the following securities issuer
which exceeded 10% of shareholder's equity:
<TABLE>
<CAPTION> Maturity
Issuer Name Book value Market value Coupon date
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The Money Store Home Equity Trust $1,963,413 $1,956,275 4.875% 03/15/2008
</TABLE>
-11-
<PAGE>
Lending Activities
The following table summarizes the composition
of loan portfolio for the three years ended
September 30, 1996:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------- ---------------- --------------------
In thousands, except percentages Amount % Amount % Amount %
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and financial $ 2,757 1% $ 3,856 2% $ 7,021 3%
Real estate construction 4,946 3% 5,597 2% 2,819 1%
Real estate mortgage 176,479 94% 220,613 95% 262,797 95%
Installment 1,097 1% 922 - 913 -
Lease financing 1,587 1% 1,811 1% 2,199 1%
-------------------- ---------------- --------------------
Gross total loans 186,866 100% 232,799 100% 275,749 100%
========== ====== ==========
Less: Allowance for loan loss 2,278 2,213 4,645
---------- ---------- ----------
Net total loans $184,588 $230,586 $271,104
========== ========== ==========
</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 primarily located in Connecticut. Real estate mortgage
and construction balances as of September 30, 1996 are comprised of
residential, commercial and multifamily mortgages of approximately
$144.0 million, $26.1 million and $11.3 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 theAfter one
United States with concentrations in Connecticut, New York,
Massachusetts, Ohio and Florida. 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 1996. The following
table shows the interest rate sensitivities of loans outstanding as
of September 30, 1996 which are due or repriced 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 $ 2,009 $ 663 $ 85 $ 2,757
Real estate construction 3,743 1,203 - 4,946
Real estate mortgage 88,116 32,621 55,741 176,478
Installment 338 441 318 1,097
Lease financing 31 411 1,146 1,588
-----------------------------------------------------------
Total $94,237 $35,339 $57,290 $186,866
-----------------------------------------------------------
Fixed interest rate $14,260 $57,290
Variable interest rate 21,079 -
---------- ---------
Total $35,339 $57,290
========== =========
</TABLE>
Nonperforming Assets
A summary of nonperforming assets by type follows for the three
years ended September 30, 1996: In thousands, except percentages
<TABLE>
<CAPTION>
1996 1995 1994
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Non-accrual loans $1,422 $ 290 $ 7,690
Restructured loans - - 638
Other real estate owned, net 984 2,849 13,414
---------- --------- ----------
Total nonperforming assets $2,406 $3,139 $21,742
---------- --------- ----------
Nonperforming assets as a percentage of loans
and other real estate owned 1.3% 1.3% 7.5%
========== ========= ==========
</TABLE>
Generally loans are placed on non-accrual 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 1996, 1995, and 1994 amounted to $297,000, $508,000
and $754,000, respectively. During 1996 and 1995, approximately
$187,000 and $184,000, respectively, 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.
-12-
<PAGE>
Summary of Loan Loss Experience
The following table summarizes the Bank's loan loss experience for
each of the three years ended September 30, 1996:
<TABLE>
<CAPTION>
In thousands, except percentages 1996 1995 1994
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $2,213 $4,645 $5,433
--------------------------------------------
Chargeoffs:
Real estate mortgage 1,196 7,831 2,640
Installment - - 27
Commercial 81 483 52
Lease financing - 14 97
--------------------------------------------
1,277 8,328 2,816
--------------------------------------------
Recoveries:
Real estate mortgage 210 239 136
Commercial 15 1 16
Lease financing 63 19 22
--------------------------------------------
288 259 174
--------------------------------------------
Net charge-offs 989 8,069 2,642
Additions charged to operations 1,054 5,637 1,854
--------------------------------------------
Balance at end of period $2,278 $2,213 $4,645
============================================
Ratio of net charge-offs to average loans
outstanding during the period 0.48% 3.13% 1.07%
============================================
</TABLE>
The Bank maintains general reserves for potential losses from its
loan portfolio in an Allowance for Possible Loan and Lease Losses.
(the "ALLL"). The ALLL is maintained at a level considered by
management to be adequate. The adequacy of the ALLL is reviewed
quarterly by the Bank's management and its Board of Directors, and
is determined primarily by management's informed judgment
concerning the amount of risk inherent in the portfolio at a point
in time. Management's judgment 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 commercial 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 nonperforming 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. At September 30,
1996, the bank classified $5.3 million of loans as impaired
pursuant to the requirements of SFAS 114, "Accounting by Creditors
for Impairment of a Loan". 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. Impaired loans include $3.8 million of loans
restructured and currently classified performing, and $.8 million
of loans in which potential credit problems may lead to future
non-accrual status or possible charge-off. All remaining amounts
classified impaired are included in non-accrual loans. Impairment
reserves as calculated under SFAS 114 resulted in no additional
allowance for loan losses. 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 for all periods were primarily associated with
the real estate mortgage portfolios and resulted from the decline
in the value of the properties serving as collateral for the loans.
The charge-offs recorded during 1995 were also associated with the
discounts necessary to attract buyers of those distressed
commercial OREO assets included in the Bank's accelerated asset
disposition plan and other bulk asset sales. The following table
presents the allocation of the reserve for possible loan and lease
losses by loan categories for the three years ended September 30,
1996:
<TABLE>
<CAPTION>
1996 1995 1996
-------------------- ------------------ ------------------
Loans in Loans in Loans in
Amount category Amount category Amount category
of as a % of of as a % of of as a % of
In thousands, except percentages reserve total loans reserve total loans reserve total loans
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and financial $ 24 1% $ 26 2% $ 83 3%
Real estate construction 44 3% 33 2% 37 1%
Real estate mortgage 1,555 94% 1,541 95% 4,050 95%
Installment 22 1% 18 - 18 -
Lease financing 32 1% 66 1% 105 1%
Commitments 340 - 219 - 151 -
Unallocated 261 - 310 - 201 -
-------------------- ------------------ ------------------
Total $2,278 100% $2,213 100% $4,645 100%
==================== ================== ==================
</TABLE>
-13-
<PAGE>
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,
1996, deposits obtained through Advest constituted 84% of all
deposits at the Bank. Additional deposit information is disclosed
in Note 5 of Notes to Consolidated Financial Statements in the 1996
Annual Report to Shareholders.
The following table presents the average balances of and average
rates paid on deposits for the three years ended September 30,
1996: Average balances are calculated predominately on a daily
basis.
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ---------------------- ------------------------
Average Average Average Average Average Average
In thousands, except percentages balance rate balance rate balance rate
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Savings noninterest-bearing $ 98 $ 66 $ 58
Savings 19 2.36% 33 1.99% 243 2.00%
Money market 149,347 2.90% 209,407 3.22% 274,715 2.76%
Time certificates 65,653 6.24% 66,456 6.41% 50,977 6.17%
--------------------------------------------------------------------------------------
Total deposits $215,117 4.17% $275,962 4.12% $325,993 3.39%
======================================================================================
</TABLE>
The following table sets forth the maturity distribution of time
deposits of $100,000 or more as of September 30, 1996:
<TABLE>
<CAPTION>
In thousands Amount
- - -----------------------------------------------------------------------------------
<S> <C>
Three months or less $ 2,563
Over three months to six months 4,764
Over six months to twelve months 3,938
Over twelve months 6,329
--------------
$17,594
==============
</TABLE>
Return on Equity and Assets
<TABLE>
<CAPTION>
Years ended September 30,
--------------------------------------------------------
1996 1995 1994
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Return on assets (net income/average total assets) 0.41% * *
Return on equity (net income/average equity) 7.21% * *
Net interest margin 3.25% 3.00% 2.85%
Equity to assets (average equity/average assets) 5.63% 5.79% 6.20%
* As a result of net losses in 1995 and 1994, this information is
not meaningful.
</TABLE>
Short-Term Borrowings
<TABLE>
<CAPTION>
Years ended September 30,
--------------------------------------------------------
In thousands, except percentages 1996 1995 1994
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Other short-term borrowings
Balance at year end $ 4,750 $ 9,500 $ 9,500
Weighted-average interest rate at year end 6.76% 6.76% 5.58%
Average amount outstanding during the year $ 7,827 $ 6,692 $ 5,654
Maximum amount outstanding at any month end $10,500 $17,000 $17,300
Weighted-average interest rate during the year 7.01% 6.41% 5.89%
</TABLE>
In the ordinary course of business, short-term borrowings of the
Bank consisted primarily of the current portion of fixed-term,
fixed-rate advances from the Federal Home Loan Bank.
-14-
<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 a number of legal proceedings
arising principally from its securities and investment banking business. Some
of these actions involve claims by plaintiffs for substantial amounts. While
results of litigation cannot be predicted with certainty, 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
results of operations 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 on page 35 of the 1996
Annual Report to Shareholders in Note 9 of the Notes to Consolidated Financial
Statements and on page 43 under the captions "Quarterly Financial Information"
and "Shareholder Information". Such information is hereby incorporated by
reference.
Item 6. Selected Financial Data
The information required by this item is disclosed on page 17 of the 1996
Annual Report to Shareholders under the caption "Five Year Financial Summary".
Such information is hereby incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this item is disclosed on pages 18 through 25 of
the 1996 Annual Report to Shareholders under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations". Such
information is hereby incorporated by reference.
Item 8. Financial Statements and Supplementary Data
The information required by this item is disclosed in the Consolidated
Financial Statements and Notes on pages 26 through 41 and under the caption
"Quarterly Financial Information" on page 43 of the 1996 Annual Report to
Shareholders. Such information is hereby incorporated by reference.
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.
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" 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 30, 1997.
-15-
<PAGE>
Such information is hereby incorporated by reference.
The following table sets forth the executive officers of the Company at
December 1, 1996. Executive officers of the Company are appointed annually by
the Board of Directors to hold office until their successors are appointed and
qualify.
Executive
Officer
Name Age Office Since
- - ---------------------------------------------------------------------------
Allen Weintraub 61 Chairman and
Chief Executive Officer 1977
Grant W. Kurtz 54 President 1985
Murray M. Beach 42 Senior Vice President - Corporate
Finance, Advest, Inc. 1996
Allen G. Botwinick 53 Executive Vice President, Administration
and Operations 1980
George A. Boujoukos 62 Executive Vice President - Capital
Markets, Advest, Inc. 1977
Harry H. Branning 45 Executive Vice President - National Sales
Manager, Advest, Inc. 1994
Lee G. Kuckro 55 Senior Vice President, Secretary
and General Counsel 1978
Martin M. Lilienthal 54 Senior Vice President, Treasurer and
Chief Financial Officer 1977
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
30, 1997. 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 30, 1997. 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 30, 1997. Such information is hereby incorporated by reference.
-16-
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- - --------------------------------------------------------------------------
Page Reference
--------------------------
Annual Report 10-K
--------------------------
(a) 1. Financial Statements
The Consolidated Financial Statements and The Report of
Independent Accountants contained in the 1996 Annual
Report to Shareholders are incorporated herein by reference:
Consolidated Balance Sheets 27
Consolidated Statements of Earnings 26
Consolidated Statements of Cash Flows 28
Consolidated Statement of Changes in
Shareholders' Equity 29
Notes to Consolidated Financial Statements 30-41
Report of Independent Accountants 42
2. Financial Statement Schedules
Report of Independent Accountants on all schedules 23
Schedule I - Condensed Financial Information of Registrant 24-26
Schedule II - Valuation and Qualifying Accounts 27
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 Reference
Exhibit Description is made, if applicable
- - -----------------------------------------------------------------------------
3(a) Restated Certificate of Exhibit 3(a) of Incorporation
Incorporation of Registration Registrant's Report on Form 10-Q for
the quarter ended March 31, 1989
3(b) By-laws of Registrant, as restated Exhibit 3(b) to Registrant's Report
and amended on Form 10-Q for the quarter ended
March 31, 1989 and Exhibit
3(a) to Registrant's Report on Form
10-Q for the quarter ended June 30,
1990
4(a) Shareholder Rights Agreement Exhibit to Registrant's Report on
dated as of October 31, 1988 Form 8-k dated November 1, 1988
between Registrant and The
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 Form S-1,
Subordinated Debentures File No. 2-81977
-17-
<PAGE>
Prior Filing(s) to which Reference
Exhibit Description is made, if applicable
- - -----------------------------------------------------------------------------
10(a) Registrant's 1994 Non-Employee Exhibit A to Registrant's Proxy
Director Stock Option Plan Statementdated December 20, 1994
10(b) Registrant's 1986 Stock Exhibit 10 to Registrant's Report on
Option Plan, as amended 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 1993 Stock Option Exhibit A to Registrant's Proxy
Plan Statement Plan dated December 21,
1993
10(d) Registrant's 1981 and 1983 Exhibit A to Registrant's Proxy
Incentive Stock Option Plans Statements Incentive Stock Option
Plans, dated December 15, 1981 and
December 21, as amended 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 Report
Compensation Savings and on Form 10-K for the fiscal year
Investment Plan, Amended and ended September 30, 1989, Exhibit
Restated as of November 17, 10(j) to Registrant's Report on
1989, as amended Form 10-K for its fiscal year ended
September 30, 1990 and Exhibit 10(b)
of Registrant's Report onForm 10-Q
for the quarter ended December 31,
1992
10(f) Non-Employee Director Equity Exhibit 10(b) to Registrant's Report
Plan on Form 10-Q for the quarter ended
June 30, 1996
10(g) Key Professionals Equity Plan Exhibit 10(g) to Registrant's Report
on Form 10-Q for the quarter ended
June 30, 1996
10(h) Forms of Executive Officer Exhibit 10 to Registrant's Report on
Restricted Stock and Stock Form 10-Q for the quarter ended
Option Agreement for 1995, December 31, 1994 and Exhibit 10(c)
1996 (as supplemented) to Registrant's Report on Form
and 1997 10-Q for the quarter ended June 30,
1996 and Exhibit 4.4 to Registrant's
Registration Statement on Form S-8,
File No. 333-17711; and Exhibit
4.5 to Registrant's Registration
Statement on Form S-8, File No. 333-
17711
10(i) The Advest Thrift Plan of Exhibit 10(a) to Registrant's Report
Registrant, effective as of on Form 10-Q for the quarter ended
December 31, 1992 December 31, 1992, as amended and
Exhibit 10(a) to Registrant's Report
on Form 10-Q for the quarter ended
June 30, 1996
-18-
<PAGE>
Prior Filing(s) to which Reference
Exhibit Description is made, if applicable
- - -----------------------------------------------------------------------------
10(j) Registrant's 1990 Top AE Exhibit 10(i) to Registrant's Report
Stock Option Plan, effective on Form 10-K for its fiscal year
as of October 26, 1990 ended September 30, 1990
10(k) Registrant's 1991 Top AE Exhibit 10(k) to Registrant's Report
Stock Option Plan, effective on Form 10-K for its fiscal year
as of November 22, 1991 ended September 30, 1991
10(l) Registrant's 1992 Top AE Exhibit 10(c) to Registrant's Report
Stock Option Plan on Form 10-Q for the quarter ended
December 31, 1992
10(m) Registrant's Account Executive Exhibit 10(m) to Registrant's Report
Nonqualified Defined Benefit on Form 10-K for its fiscal year
Plan, as amended ended September 30, 1993, Exhibit
10(p) to Registrant's Report on
Form 10-K for its fiscal year ended
September 30, 1995 and Exhibit 10(f)
to Registrant's Report on Form 10-Q
for the quarter ended June 30, 1996
10(n) Registrant's Nonqualified Exhibit 10(n) to Registrant's Report
Executive Post-employment on Form 10-K for its fiscal year
Income Plan, as amended ended September 30, 1994and Exhibit
10(e) to Registrant's Report on Form
10-Q for the quarter ended June 30,
1996
10(o) Registrant's 1995, 1996 and 1997 Exhibit 4.1 to Registrant's
Equity Plans Registration Statement on Form S-8,
File No. 33-56275; Exhibit 4 to
Registrant's Registration Statement
on Form S-8,File No. 333-00797; and
Exhibit 4.3 to Registrant's
Registration Statement on Form S-8,
File No. 333-17711
10(p) Amended and Restated Exhibit 10(h) to Registrant's
Employment Agreement with Report on Form 10-Q for the quarter
Chief Executive Officer ended June 30, 1996
11 Statement Regarding Filed Herewith
Computation of Net Income
per Common Share
13 Annual Report to Shareholders Filed Herewith *
for fiscal year ended
September 30, 1996
-19-
<PAGE>
Prior Filing(s) to which Reference
Exhibit Description is made, if applicable
- - -----------------------------------------------------------------------------
21 Subsidiaries Filed Herewith
23 Consent of Independent Filed Herewith
Accountants
27 Financial Data Schedule Selected financial data - for EDGAR
electronic filing only to SEC
* Pursuant to Item 601(b) (13) of Regulation S-K, except for those portions of
the Annual Report expressly incorporated by reference and included in Exhibit
13, the Annual Report is not to be deemed filed as part of this filing on Form
10-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the year
ended September 30, 1996.
-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 /s/Martin M. Lilienthal November 21, 1996
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.
Chief Executive Officer,
Chairman of the Board
and Director (Principal
/s/Allen Weintraub Executive Officer) November 21, 1996
Allen Weintraub
Senior Vice President and
Treasurer (Chief Financial
and Principal Accounting
/s/Martin M. Lilienthal Officer) November 21, 1996
Martin M. Lilienthal
/s/George A. Boujoukos Director November 21, 1996
George A. Boujoukos
/s/Sanford Cloud, Jr. Director November 21, 1996
Sanford Cloud, Jr.
/s/Richard G. Dooley Director November 21, 1996
Richard G. Dooley
/s/William B. Ellis Director November 21, 1996
William B. Ellis
-21-
<PAGE>
SIGNATURES
/s/Robert W. Fiondella Director November 21, 1996
Robert W. Fiondella
/s/Grant W. Kurtz President and Director November 21, 1996
Grant W. Kurtz
Vice Chairman of the
/s/Anthony A. LaCroix Board and Director November 21, 1996
Anthony A. LaCroix
/s/Barbara L. Pearce Director November 21, 1996
Barbara L. Pearce
/s/John A. Powers Director November 21, 1996
John A. Powers
-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
42 of the 1996 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 17 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.
/s/Coopers & Lybrand L.L.P.
Hartford, Connecticut
October 23, 1996
-23-
<PAGE>
Schedule I
Condensed Financial Information of Registrant
The Advest Group, Inc.
(Parent Company)
Condensed Balance Sheets
September 30,
- - ---------------------------------------------------------------
In thousands 1996 1995
- - ---------------------------------------------------------------
Assets
Cash $ 1,213 $ 670
Investment in subsidiaries,
Equity method(a) 94,144 88,766
Receivables from subsidiaries(a) 5,857 3,038
Loans 9,787 10,922
Held to maturity securities 11,226 6,363
Other assets 9,855 10,997
---------- ----------
Total assets $132,082 $120,756
======== ========
Liabilities
Accounts payable and accrued expenses $ 12,241 $ 9,657
Payable to subsidiaries(a) 4,553 6,375
Borrowings 5,494 5,240
Subordinated liabilities 20,552 20,552
---------- ----------
Total liabilities 42,840 41,824
Shareholders' equity(b) 89,242 78,932
---------- ----------
Total liabilities and
shareholders' equity $132,082 $120,756
======== ========
(a)Eliminated in consolidation.
(b)For an analysis of shareholders' equity and its components, see Registrant's
Consolidated Balance Sheets and Statements of Changes in Shareholders'
Equity on pages 27 and 29 of the 1996 Annual Report to Shareholders.
-24-
<PAGE>
Schedule I
(Continued)
The Advest Group, Inc.
(Parent Company)
Condensed Statements of Earnings
For the years ended September 30,
--------------------------------
In thousands 1996 1995 1994
- - --------------------------------------------------------------------
Revenues
Gain on sale of investment
advisory business, net $ 627 $10,092 $ --
Interest and other income 547 428 284
---------- ---------- ------
Total revenues 1,174 10,520 284
--------- -------- --------
Expenses
Interest 2,447 2,452 2,426
Other 1,259 807 2,723
-------- ---------- -------
Total expenses 3,706 3,259 5,149
--------- --------- -------
Income (loss) before income tax benefit
and equity in earnings
of subsidiaries (2,532) 7,261 (4,865)
Income tax benefit 459 542 2,787
---------- --------- -------
Income (loss) before equity in
earnings of subsidiaries (2,073) 7,803 (2,078)
Equity in income (loss)
of subsidiaries 13,871 (1,452) 5,131
-------- -------- -------
Net income $11,798 $ 6,351 $3,053
======= ======== ======
-25-
<PAGE>
The Advest Group, Inc.
Schedule I
(Parent Company) (Continued)
Condensed Statements of Cash Flows
For the years ended September 30,
- - -------------------------------------------------------------------------
In thousands 1996 1995 1994
- - -------------------------------------------------------------------------
Operating Activities:
Net income $11,798 $ 6,351 $ 3,053
Equity in (loss) income
of subsidiaries (13,871) 1,452 (5,131)
Adjustments to reconcile net income to net cash
provide by operating activities 429 1,580 3,391
Gain on sale of investment
advisory business, net (627) (10,092) --
Net (increase) decrease in
operating assets (1,335) (20) 24
Net increase (decrease) in
operating liabilities 2,652 (2,103) (1,365)
-----------------------------
Net cash used for
operating activities (954) (2,832) (28)
------------------------------
Financing Activities:
Proceeds from long term borrowing 1,250 1,000 --
Repayment of short term borrowings (996) (798) (650)
Employee stock transactions 1,076 62 27
Repurchase of subordinated debentures -- (410) (365)
Net (decrease) increase in payables
to subsidiaries 3,863 3,018 (748)
Repurchase of common stock (3,799) (2,309) (3,090)
Other 1,101 846 --
-----------------------------
Net cash provided by (used for)
financing activities 2,495 1,409 (4,826)
-----------------------------
Investing Activities:
Proceeds from maturities of
held to maturity securities 18,400 12,500 39,000
Proceeds from investment
advisory business, net 788 10,141 --
Purchase of held to maturity
securities (23,388) (15,309) --
Purchase of available for sale
securities (23) -- --
Sales of OREO, net 2,090 -- --
Principal collections on loans 1,135 746 10
Purchases of investment securities -- -- (44,114)
Proceeds from sales of investment
securities -- -- 8,975
Acquisition of subsidiaries assets -- (4,585) --
Increase in investments in subsidiaries -- (152) (548)
Loans originated -- (1,761) (56)
Recovery on write-offs -- 161 --
---------------------------------
Net cash (used for) provided
by investing activities (998) 1,741 3,267
-----------------------------
Increase (decrease) in cash 543 318 (1,587)
Cash at beginning of period 670 352 1,939
------------------------------
Cash at period end $ 1,213 $ 670 $ 352
============================
Supplemental Information:
Interest paid $ 2,447 $ 2,452 $ 2,426
Income taxes paid $10,067 $ 2,273 $ 1,058
Non-cash transfers (reduction of payable to
subsidiaries effected in
the form of dividends) $ 8,500 $ 3,007 $ --
-26-
<PAGE>
Schedule II
The Advest Group, Inc. and Subsidiaries
Valuation and Qualifying Accounts
Additions Charge-
Balance at charged to offs Balance
beginning cost and and at end
In thousands of period expenses recoveries period
- - --------------------------------------------------------------------
For the years ended September 30,
1996
Credit losses:
Brokerage customers $ 743 $ 160 $ (112) $ 791
Loans 2,334 1,022 (958) 2,398
Asset devaluation:
Other real estate owned 718 20 (738) --
Other investments/assets 1,250 56 144 1,450
Valuation reserve on
deferred taxes 1,510 161 -- 1,671
---------------------------------------
$ 6,555 $ 1,419 $ (1,664) $ 6,310
======================================
1995
Credit losses:
Brokerage customers $ 869 $ 473 $ (599) $ 743
Loans 4,900 5,637 (8,203) 2,334
Asset devaluation:
Other real estate owned 1,201 4,491 (4,974) 718
Other investments/assets 2,218 (263) (705) 1,250
Valuation reserve on
deferred taxes 1,360 150 -- 1,510
---- --------------------------------
$10,548 $10,488 $(14,481) $ 6,555
=====================================
1994
Credit losses:
Brokerage customers $ 1,305 $ 265 $ (701) $ 869
Loans 5,782 2,499 (3,381) 4,900
Other -- 6 (6) --
Asset devaluation:
Other real estate owned 2,201 772 (1,772) 1,201
Other investments/assets 1,383 1,869 (1,034) 2,218
Valuation reserve on
deferred taxes 575 785 -- 1,360
-------------------------------------
$11,246 $ 6,196$ (6,894) $10,548
=====================================
-27-
<PAGE>
Form 10-K
Exhibit Index
Exhibit Description
11 Statement Regarding Computation of Net Income per Common Share
13 Selected Excerpts from the Annual Report to Shareholders for fiscal
year ended September 30, 1996
21 Subsidiaries
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule (Selected financial data - for EDGAR
electronic filing only to SEC
-28-
<PAGE>
Exhibit 11
The Advest Group, Inc. and Subsidiaries
Computation of Net Income Per Common Share
For the years ended September 30,
- - -------------------------------------------------------------------
Assuming
(Primary) Full dilution*
- - -------------------------------------------------------------------
(In thousands,
except per share amounts) 1996 1995 1994 1996 1995
- - -------------------------------------------------------------------
Net income $11,798 $6,351 $3,053 $11,798 $6,351
Interest expense
on debentures, net -- -- -- 814 1,001
-------------------------------------------
Net income applicable to
common stock $11,798 $6,351 $3,053 $12,612 $7,352
==========================================
Average number of common shares
outstanding during
the period 8,426 8,501 8,776 8,426 8,501
Additional shares assuming:
Exercise of stock options 322 234 221 329 270
Conversion of debentures -- -- -- 1,515 1,527
-----------------------------------------
Average number of common
shares outstanding 8,748 8,735 8,997 10,270 10,298
========================================
Net income per share $ 1.35 $ 0.73 $ 0.34 $ 1.23$ 0.71
==========================================
* For the year ended September 30, 1994, net income per share assuming full
dilution is the same as primary net income per share.
-29-
<PAGE>
[page 17 of Annual Report]
<TABLE>
<CAPTION>
Five Year Financial Summary
For the years ended September 30,
- - ------------------------------------------------------------------------------------------------------------
In thousands, except per share amounts and percentages
1996 1995 1994 1993 1992
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues
Commissions:
Listed $ 43,390 $ 39,773 $ 36,284 $ 39,199 $ 40,208
Mutual funds 34,210 22,693 22,337 21,448 18,472
Over-the-counter 19,714 12,554 10,374 9,527 9,699
Insurance 7,969 4,487 5,164 3,634 3,260
Options 3,552 3,071 2,570 2,407 3,237
Other 1,280 1,686 2,761 1,620 1,626
------------------------------------------------------------------------
110,115 84,264 79,490 77,835 76,502
------------------------------------------------------------------------
Interest:
Loans 16,041 20,005 19,016 19,615 23,094
Margin accounts 25,246 23,761 17,868 14,158 17,990
Investments 3,836 6,132 6,793 6,227 8,738
Securities inventory 1,849 1,470 1,016 1,015 970
Other 8,253 4,714 1,391 1,428 1,985
------------------------------------------------------------------------
55,225 56,082 46,084 42,443 52,777
Principal transactions 38,591 41,424 32,297 33,662 40,364
Investment banking 28,166 17,470 25,743 31,102 30,675
Asset management
and administration 20,050 16,810 16,399 14,111 15,669
Gain on sale of investment
advisory business, net 627 10,092 -- -- --
Other 8,607 6,491 5,216 2,878 3,894
------------------------------------------------------------------------
Total revenues 261,381 232,633 205,229 202,031 219,881
------------------------------------------------------------------------
Expenses
Compensation and benefits 147,091 121,611 114,800 111,615 110,474
------------------------------------------------------------------------
Interest:
Deposits 8,449 11,002 9,613 11,290 18,018
Brokerage customers 8,769 9,928 6,342 5,383 6,690
Borrowings 4,651 4,704 5,064 5,120 5,110
Other 7,556 4,932 1,565 1,229 1,618
------------------------------------------------------------------------
29,425 30,566 22,584 23,022 31,436
Communications 20,030 18,418 18,662 16,627 14,771
Occupancy and equipment 17,567 17,369 15,614 15,637 17,714
Business development 5,613 4,204 4,532 4,033 3,908
Professional 5,543 5,468 6,231 5,248 5,160
Brokerage, clearing and exchange 4,221 3,922 3,693 3,579 3,654
Provision for credit losses
and asset devaluation 1,258 10,338 5,411 4,292 26,444
Provision for restructuring -- -- -- -- 1,020
Other 9,565 8,976 8,347 9,907 9,722
------------------------------------------------------------------------
Total expenses 240,313 220,872 199,874 193,960 224,303
------------------------------------------------------------------------
Income (loss) before taxes
and extraordinary credit 21,068 11,761 5,355 8,071 (4,422)
Provision for income taxes 9,270 5,410 2,302 2,903 175
------------------------------------------------------------------------
Income (loss) before
extraordinary credit 11,798 6,351 3,053 5,168 (4,597)
Extraordinary credit - utilization
of operating loss
carryforwards -- -- -- 2,103 --
------------------------------------------------------------------------
Net income (loss) $ 11,798 $ 6,351 $ 3,053 $ 7,271 ($ 4,597)
========================================================================
- - ------------------------------------------------------------------------------------------------------------
Per share data
Primary net
income (loss) $ 1.35 $ 0.73 $ 0.34 $ 0.79 $ (0.48)
Net income (loss)
assuming full
dilution $ 1.23 $ 0.71 $ 0.34 $ 0.75 $ (0.48)
Book value $ 10.62 $ 9.42 $ 8.62 $ 8.16 $ 7.22
Other data
Total assets $ 965,177 $ 830,815 $ 884,855 $ 885,182 $ 796,102
Shareholders' equity $ 89,242 $ 78,932 $ 73,980 $ 73,989 $ 67,656
Subordinated borrowings $ 20,552 $ 20,552 $ 20,997 $ 21,375 $ 21,671
Long-term borrowings $ 19,744 $ 17,240 $ 30,388 $ 15,038 $ 11,688
Return on average
equity 14.0% 8.4% 4.1% 10.2% *
Average common and common
equivalent shares
outstanding 8,748 8,735 8,997 9,248 9,598
- - ------------------------------------------------------------------------------------------------------------
<FN>
* As a result a of net loss in 1992 this item is not meaningful.
</TABLE>
-30-
<PAGE>
[page 18 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, consumer lending, trust and asset management.
Advest, Inc. ("Advest"), a regional broker/dealer and the Company's principal
subsidiary, provides brokerage, investment banking and asset management
services to retail and institutional investors through 80 sales offices in 16
states and Washington, DC. Advest Bank (the "Bank"), an FDIC-insured,
Connecticut chartered savings bank, offers residential mortgage lending and
trust services primarily through Advest's branch network. Other subsidiaries
include Boston Security Counsellors ("BSC"), an investment management company
serving private clients and Billings & Co., Inc. ("Billings"), a company
specializing in private placement offerings primarily in real estate.
All aspects of the Company's business are highly competitive and impacted
by regulatory and other factors outside of its control, including general
economic and financial conditions, the volume and price levels of securities
markets, the demand for investment banking services and interest rate
volatility. The Company closely monitors its operating environment to enable it
to respond promptly to market cycles. In addition, the Company seeks to lessen
earnings volatility by controlling expenses, increasing fee-based business and
developing new revenue sources. Nonetheless, operating results of any
individual period should not be considered representative of future
performance.
For the year ended September 30, 1996, the Company reported net income of
$11.8 million ($1.35 per share) compared with net income of $6.4 million ($.73
per share) in 1995 and $3.1 million ($.34 per share) in 1994. Record revenue
levels were achieved for the second consecutive year and earnings per share was
the highest in the Company's history.
Advest, Inc.
Despite some fourth quarter volatility, the securities markets remained strong
throughout fiscal 1996. Bolstered by healthy corporate earnings, a growing
economy, low inflation and low interest rates, the Dow Jones Industrial Average
topped 5000 in our first quarter, set a new record at 5895 and closed the
fiscal year at 5882, a 23% gain from 1995. Technology stocks led the way much
of the year and contributed to a string of record highs for the Nasdaq
Composite which closed the year at 1227, up 18% from the prior year but short
of its record 1249. The S&P 500 closed the year at 687, up 18% year to year and
a record high. Equity underwriting levels were high through most of the year
benefiting from the robust markets.
Advest reported pre-tax income of $22.4 million, an increase of 73% from
$12.9 million in fiscal 1995. Total revenues increased 22% to $239.5 million, a
record high. Year to year revenue gains were posted for investment banking, up
61%, asset management activities, up 36%, commissions, up 31%, net interest
income, up 10%, and other revenues, up 27%. Current year revenue from principal
transactions declined 7%, primarily as a result of Nasdaq trading losses. Total
expenses increased 19% to $217.1 million, primarily due to increased
compensation costs related to market-driven sales compensation and personnel
additions in research, investment banking, sales and trading.
Advest Bank
Advest Bank's 1996 pre-tax earnings were $1.1 million compared with a pre-tax
loss of $9.3 million last year. The Bank recorded total loss provisions of
$10.1 million for fiscal 1995, including those required by the implementation
of the accelerated asset disposition plan as well as the bulk sales consummated
in the first half of the year. See discussion below under the caption "Asset
Quality - Advest Bank." Current year results represent the Bank's first fiscal
year profit since 1989. During 1996, the Bank continued its strategic
transition from a portfolio residential and commercial lender to a mortgage
banker, originating loans primarily for sale into secondary markets, and a
provider of personal trust services. The Bank provides first mortgage and home
equity lending in 23 states, primarily through referrals from Advest's retail
sales force. During 1996, $90.2 million of residential mortgage and home equity
loans were originated. Secondary market mortgage transactions totaled $67.8
million. During 1996, trust assets increased 60% to approximately $300 million.
In July 1996, the Banking Commissioner of the State of Connecticut and the
Federal Deposit Insurance Corporation (the "FDIC"), the Bank's principal
regulators, lifted a Memorandum of Understanding ("MOU") the Bank had operated
under since 1991. During the June 1996 quarter, the Bank had previously
satisfied all outstanding requirements of the MOU, including reducing troubled
assets, raising its capital ratio and maintaining adequate reserves. At
September 30, 1996, the Bank's leverage capital, risk-based and Tier 1 capital
ratios were 6.56%, 10.44% and 9.19%, respectively, which satisfied all
regulatory requirements.
Other
During fiscal 1995, the Company sold the investment advisory business related
to its proprietary mutual funds in three separate transactions. The total gain
from all sales was $10.1 million and is reported as a separate line item on the
Consolidated Statements of Earnings. Current year revenues include $.6 million
in trailer payments received under the terms of one of the sales agreements. In
addition, as a result of the sales, Advest's 1996 mutual fund sales credits
were favorably impacted because it no longer pays up front commissions to
brokers on sales of the former proprietary funds. Conversely, BSC's 1996
operating results were negatively impacted by the sale of the advisory business
as discussed below.
-31-
<PAGE>
[page 19 of Annual Report]
BSC reported a current year pre-tax loss of $46,500 compared with pre-tax
income of $1.1 million in 1995. BSC was the investment advisor for the
Company's proprietary mutual funds, prior to their sale in fiscal 1995. The
funds accounted for approximately 70% of BSC's revenue. In August 1996,
Prescott Crocker, a former portfolio manager for the Company's proprietary
funds, was named president of BSC. BSC's current business focus is advising
private clients and at September 30, 1996, assets under management were $470
million, reflecting a 31% one year gain.
Results of Operations
Net income for the years ended September 30, 1996, 1995 and 1994 was $11.8
million, $6.4 million and $3.1 million, respectively. The following table
summarizes percentage changes for revenues, expenses and pre-tax income for the
three years in the period ended September 30, 1996.
- - ------------------------------------------------------------------
% %
In thousands, Increase Increase
except percentages 1996 (Decrease) 1995 (Decrease) 1994
- - ------------------------------------------------------------------
Revenues
Commissions $110,115 31% $ 84,264 6% $ 79,490
Interest 55,225 (2) 56,082 22 46,084
Principal
transactions 38,591 (7) 41,424 28 32,297
Investment banking 28,166 61 17,470 (32) 25,743
Asset management and
administration 20,050 19 16,810 3 16,399
Gain on sale of
investment advisory
business, net 627 (94) 10,092 -- --
Other 8,607 33 6,491 24 5,216
----------------------------------------
261,381 12 232,633 13 205,229
Interest expense 29,425 (4) 30,566 35 22,584
------------------------------------------
Net revenues 231,956 15 202,067 11 182,645
------------------------------------------
Non-interest expenses 210,888 11 190,306 7 177,290
------------------------------------------
Pre-tax income $ 21,068 79% $ 11,761 120% $ 5,355
==========================================
Net revenues were $232.0 million in the current year, a 15% increase from
$202.1 million last year. Excluding the impact from the 1995 sale of the
Company's mutual fund advisory business, net revenues increased 20% year to
year. Non-interest expenses increased 11% to $210.9 as a $26.7 million (23%)
increase in compensation costs at Advest was partly offset by a $9.1 million
(88%) decline in current year loss provisions. Fiscal 1995 loss provisions
included substantial charges related to the accelerated asset disposition plan
of the Bank.
For fiscal 1995, net revenues were $202.1 million compared with $182.6
million in 1994, an increase of 11%. Increases were posted in all revenue
categories, except investment banking, with significant gains in revenue from
principal transactions and net interest. Revenues also included $10.1 million
in gains from the sale of the investment advisory business related to the
Company's proprietary mutual funds. Non-interest expenses increased 7%
primarily due to higher sales-driven compensation, incentives and employee
insurance, increased equipment costs associated with technology upgrades and
loss provisions at the Bank related to the accelerated asset disposition plan.
Commissions
Current year agency commission revenues surpassed the $100 million level for
the first time, reflective of the upward momentum of the equity markets through
out the year. Commissions increased $25.9 million (31%) to $110.1 million. Year
to year revenue gains were posted in each quarter and record levels were
attained from mutual funds, including distribution and deferred sales charges,
up $11.5 million (51%), over-the-counter issues, up $7.2 million (57%) and
insurance products, primarily variable annuities, up $3.5 million (78%).
Commissions on listed securities increased $3.6 million (9%).
Commissions revenue rose $4.8 million (6%) to $84.3 million in 1995.
Significant revenue gains in the second half of the fiscal year, including a
45% increase in the fourth quarter, offset a 17% decline through the first six
months. Commissions on over-the-counter issues increased $2.2 million (21%) and
listed securities increased $4.0 million (10%). Mutual fund sales, increased
$.4 million (2%) in 1995 as a result of a $2.0 million (42%) fourth quarter
gain. Sales of commodities and insurance products declined $.9 million (54%)
and $.7 million (13%), respectively.
-32-
<PAGE>
[page 20 of annual report]
Principal Transactions
Revenue from principal transactions includes realized and unrealized gains and
losses on Advest's trading accounts and related sales credits. Advest enters
into derivative transactions to hedge certain trading positions, primarily
municipal and corporate bonds. Derivatives are marked to market daily with
unrealized gains and losses reflected in revenue from principal transactions.
(Further discussion of derivatives is included under the caption "Derivative
Financial Instruments" and in Notes 1 and 15 to the Consolidated Financial
Statements.) Advest holds only nominal inventory positions of high yield
securities. Gains and losses on the Bank's trading and available for sale
securities are reflected in revenue from principal transactions.
Current year revenue from principal transactions declined $2.8 million
(7%) to $38.6 million from the record level set in the prior year. Equity
commissions increased $3.9 million (31%) reflecting strong investor demand for
small cap stocks during the year. This increase was substantially offset by a
$3.3 million swing in over-the-counter trading results from a $1.4 million
profit in 1995 to a current year loss of $1.9 million. Commissions on debt
securities declined $2.7 million (12%) primarily reflecting interest rate
uncertainty and strong equity markets. A $3.0 million decrease was posted from
commissions on government and municipal issues which were also impacted by tax
reform concerns. During the second quarter of 1996, Advest established a
corporate bond trading desk specializing in investment grade corporate bonds.
Related commissions increased $.4 million from 1995.
Fiscal 1995 revenues were $41.4 million, a $9.1 million (28%) increase
over 1994. Revenue gains were posted across the board. Commissions on equities
gained $2.9 million (29%) and related trading profits rose $.9 million (155%),
reflecting the market rally in the second half of the year. Sales credits on
debt securities increased $2.0 million (9%), led by commissions on municipal
bonds which increased $3.0 million, due to strong sales in the first half of
the year. In the second half, municipal sales slowed significantly due to
investor concerns about tax changes, specifically the possibility of a flat
tax. Sales credits increased $1.1 million for government zero coupon
securities. Commissions on mortgage-backed obligations declined $2.0 million.
Trading profits on municipal, government and corporate bonds increased $2.0
million, $.5 million and $.4 million, respectively.
Investment Banking
To generate investment banking revenue, Advest manages and participates in
underwritings of corporate and municipal securities and closed-end funds.
Advest also provides merger and acquisition services and other consulting and
valuation activities. In general, the Company does not participate in bridge
financing activities, however, during 1995, Advest provided such financing in
one underwriting deal as discussed below. Advest's Corporate Finance
Department, including the Financial Institutions Group, concentrates its
efforts on raising capital for mid-size companies, primarily in the banking,
insurance, high tech and health care industries. Public Finance services health
care and educational institutions as well as state and local issuers.
Investment banking revenues increased $10.7 million (61%) in the current
year. On the equity side, Corporate Finance raised more than $365 million for
clients from underwriting and private placement activities. Underwriting fees,
including private placements, increased $3.2 million (555%) and related
commissions and trading profits increased $2.6 million (48%) and $.4 million
(355%), respectively. Syndicate trading profits increased $.7 million (81%).
Merger and acquisition services were provided in transactions valued at more
than $330 million and related fees rose $2.5 million (66%). Consulting and
valuation fees declined $.9 million (49%). On the debt side, Advest continued
to gain market share in a contracting new issue environment during 1996 and,
during the past two years, has expanded its institutional sales efforts with
the recruitment of several experienced professionals. Public finance
underwriting fees more than doubled to $1.1 million and municipal syndicate
trading profits were $.4 million compared with a negligible profit in the prior
year. Sales credits on municipal issues gained $.5 million (46%). During 1996,
Advest recognized gains of $1.1 million on the exercise of warrants, a 239%
increase from the prior year.
Fiscal 1995 investment banking revenues declined $8.3 million (32%) to
$17.5 million from 1994. Revenue from merger and acquisition services increased
$3.1 million (437%) but was more than offset by declines in most other
categories. Underwriting commissions declined $4.2 million (39%), reflecting a
substantial decline in the number of new equity and mutual and closed-end fund
offerings. Syndicate trading profits declined $1.2 million each for funds and
equities. Corporate finance underwriting fees declined $1.5 million (73%) and
public finance and syndicate underwriting fees declined $.5 million (54%) and
$.4 million (85%), respectively, reflecting both the lower volume of new issues
and lower fees. Revenue from consulting and valuation services declined $1.1
million (36%) in 1995. Revenue from the exercise of stock warrants was $1.0
million higher in fiscal 1994. On August 3, 1995, Advest provided bridge
financing in the amount of $.5 million to a company for which Advest was
underwriting a secondary stock offering. The loan was repaid on August 31,
1995.
Asset Management and Administration
Advest's Investment Management Department provides various services for its
managed account base including client profiling, asset allocation, manager
selection and
-33-
<PAGE>
[page 21 of annual report]
performance measurement. The Bank provides personal trust services primarily
through Advest's retail sales force. BSC provides advisory services to a
diverse clientele and was investment advisor to the Company's proprietary
mutual funds, until their sale in fiscal 1995. The Company acts as transfer
agent and provides dividend disbursing and reinvestment for its formerly
proprietary mutual funds as well as dividend reinvestment for more than 1,400
equities and 1,300 mutual and closed-end funds. Other services include
retirement plan administration, securities custody and safekeeping.
Current year revenues increased $3.2 million (19%), reflecting a record
level for the second consecutive year. Advest's revenue increased $4.8 million
(36%). Investment Management opened more than 1,000 new accounts with total
assets of $568 million, representing a 23% year to year increase in new
business generation. At September 30, 1996, assets serviced by Investment
Management were $1.9 billion, an increase of 21% from the prior year. BSC's
revenue declined $1.9 million (61%). The 1995 sale of the Company's proprietary
mutual fund advisory business accounted for a $2.1 million decline in revenue
as BSC had served as sole investment advisor for the funds. Revenue from BSC's
private client business increased $.2 million (15%) in 1996. The Bank's
revenues increased $.2 million (41%) primarily due to growth in trust business.
Fiscal 1995 asset management revenues were $16.8 million, a $.4 million
(3%) increase over 1994. Advest's revenues increased $1.3 million (11%) to
$13.3 million. Advest's managed account base increased 49% to $1.6 billion
during fiscal 1995 accounting for a $1.1 million increase in money management
fees. Increased money market service fees accounted for the balance of the 1995
gain. BSC's revenue was $3.2 million, a $1.0 million (24%) decrease from 1994.
Fourth quarter revenue declined $.8 million (73%), reflecting the third quarter
sales of the Company's proprietary mutual funds. At September 30, 1995, private
accounts under BSC's management were $358 million, a 222% increase from the
prior year.
Other Income
Other income increased $2.1 million (33%) during the current year. Advest's
revenue increased $1.7 million primarily due to higher fee income and a $.9
million first quarter gain on the sale of an equity investment. Prior year
revenue included a $.5 million gain from the sale of an exchange seat. The
Bank's income increased $.3 million primarily due to a $.4 million increase in
gains on secondary markets mortgage transactions.
Other income increased $1.3 million (24%) to $6.5 million in fiscal 1995.
Advest revenues increased $1.2 million (25%), primarily due to a $.5 million
gain on the sale of an exchange seat and higher execution and service fee
income.
Net Interest Income
Net interest income is the excess of interest income and loan fee income over
interest expense and is derived primarily by the Bank and Advest. The Bank
derives most of its interest income from residential mortgage and home equity
loans and from investments. The Bank's loans and investments are primarily
funded by interest-bearing deposits, advances from the Federal Home Loan Bank
of Boston ("FHLBB") and by the Bank's equity capital. The Bank also enters into
derivative transactions, including interest rate swap and interest rate cap
contracts, as part of its interest rate risk management. The net payments or
receipts under these contracts are accounted for as an adjustment to interest
expense. (Further discussion of derivatives appears under the caption
"Derivative Financial Instruments" and in Note 15.) 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 reinvestment, on its stock lending activities and short and
long-term borrowings.
Net interest income increased $.3 million (1%) to $25.8 million. Advest's
net interest increased $1.7 million (10%) primarily due to significantly higher
average margin balances in the current year. Interest spreads declined slightly
primarily due to lower average interest rates in 1996, a sizable decline in
average free credit balances in brokerage accounts and increased borrowing
costs related to higher levels of trading inventories, specifically corporate
bonds. Increased stock lending/borrowing activities favorably impacted net
interest income in the current year. The Bank's net interest income declined
$1.7 million (17%) during 1996. The decline is attributable to a $48.3 million
(18%) decline in the Bank's asset base, particularly an ongoing decline in the
Bank's commercial loan portfolio. The Bank's ratio of earning assets to total
bank assets was 96.7% in the current year compared with 97.2% in 1995.
Fiscal 1995 net interest income was $25.5 million, a $2.0 million (9%)
increase from the prior year. Advest's net interest was $18.0 million, a 20%
increase, primarily due to higher income from margin accounts. Higher average
interest rates during 1995 resulted in increased spreads between interest
charged on margin accounts and the cost of funds. Gains from higher rates were
partly offset by a decline in average margin debit balances during fiscal 1995.
Net revenue also increased from short-term investments and stock lending
activities, as well as trading accounts, principally municipal bonds. The
Bank's net interest income declined $.9 million (8%) during 1995. The decline
was attributable to an $84.2 million (24%) decline in assets under management,
partly offset by improved interest margin on average assets. The Bank's earning
asset base improved
-34-
<PAGE>
[page 22 of annual report]
to 97.2% in 1995 from 93.1% in 1994, largely as a consequence of the
accelerated asset disposition plan which reduced NPAs substantially. (See
discussion under the caption "Asset Quality - Advest Bank".)
Non-Interest Expenses
Current year compensation costs increased $25.5 million (21%). Advest's
compensation increased $26.7 million (23%) primarily as a result of increased
sales compensation and related incentives and higher firm payroll associated
with the recruitment of several experienced professionals in research,
investment banking, institutional sales and trading. BSC's payroll declined $.6
million (49%) as a result of personnel reductions related to the sale of the
Company's proprietary mutual fund advisory business in fiscal 1995.
Communication costs increased $1.6 million (9%) primarily due to higher volume-
driven costs for Advest's third party back office data processing provider and
increased software and supplies costs related to ongoing technology upgrades.
Business development costs increased $1.4 million (34%) primarily due to
significant increases in the number of investment executives qualifying, as a
result of sales production and contests, to attend Advest's National Sales and
Education Conference and other Company-sponsored events. Provisions for credit
losses and asset devaluation declined $9.1 million in the current year due to
substantial charges recorded in fiscal 1995 primarily related to the
accelerated asset disposition plan implemented by the Bank. Other expenses
increased $.6 million (7%) primarily due to higher settlement costs at Advest
which were partly offset by a decline in FDIC deposit insurance premiums at the
Bank.
Fiscal 1995's compensation costs increased $6.8 million (6%) with all of
the increase coming in the fourth quarter. Advest's compensation increased $7.3
million (7%) primarily due to increased sales-driven salesmen's compensation
and related incentives. BSC's compensation costs declined $.4 million (22%) due
to staff reductions related to the third quarter sale of the Company's mutual
fund advisory business. The Bank's compensation costs increased $.3 million
primarily due to personnel additions in its mortgage lending and trust
departments. Occupancy and equipment costs increased $1.8 million (11%). During
the latter part of fiscal 1994 and throughout 1995, Advest upgraded the data
processing network throughout its branch office network and most operations
departments. New workstations and software enhancements were installed and
connected to a firm-wide local area network. Increased depreciation and
maintenance costs associated with the upgrade account for most of the increase
in occupancy and equipment costs with the balance primarily due to higher
office rent expense. The provision for credit losses and asset devaluation
increased $4.9 million (91%) to $10.3 million. The Bank's loss provisions were
$10.1 million, a $7.5 million (286%) increase, and primarily related to
writedowns associated with the accelerated asset disposition plan and bulk
sales. Provisions at AGI and Billings declined $2.0 million and $.7 million,
respectively, primarily related to reserves recorded during fiscal 1994 to
settle a limited partnership class action suit. Other expenses increased $.6
million (8%) to $9.0 million primarily due to increased settlement, syndicate,
computer software and transfer fee expenses at Advest. Professional fees
declined $.8 million (12%) primarily due to lower legal and/or consulting
expenses at most subsidiaries and AGI.
Income Taxes
The effective income tax rates were 44%, 46% and 43%, respectively, for 1996,
1995 and 1994. The effective tax rate declined to 44% in the current year due
to reduced state tax obligations, particularly in Connecticut and Pennsylvania.
The 1995 rate primarily reflects the impact of higher levels of income
apportioned to states with higher average tax rates.
At September 30, 1996, the Company had net deferred tax assets, net of a
$1.7 million valuation allowance, of $2.1 million. The Company expects to
realize all deferred tax assets, 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 13 to
the Consolidated Financial Statements.
Derivative Financial Instruments
Advest Bank
The Bank enters into transactions involving derivative securities, including
interest rate swap and interest rate cap contracts as part of the Bank's
management of interest rate risk. (See Note 15.) Swap and cap contracts are
used to hedge the cost of funds so that a more stable net interest income will
be earned by the Bank. The net payments or receipts under these contracts are
accounted for as an adjustment to interest expense. The amounts exchanged are
determined by reference to the notional amounts and other terms of the
contracts. The Bank is exposed to credit-related losses in the event of non-
performance by counterparties but does not expect any parties to fail to meet
their obligations. The Bank currently has outstanding contracts only with the
FHLBB, which is the counterparty in $20.0 million and $5.0 million of the
Bank's swap and cap contracts, respectively. The notional amounts of contracts
entered into by the Bank and their potential credit exposure are disclosed in
Note 15.
The notional amounts of derivatives do not represent amounts exchanged by
the parties and thus are not a measure of the Bank's exposure through the use
of swap and cap contracts. Therefore, they are not recognized as assets or
liabilities on the balance sheet. 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.
-35-
<PAGE>
[page 23 of annual report]
Advest, Inc.
Advest periodically hedges a portion of its trading inventory, primarily
municipal and corporate bonds, when the market risk based on inventory levels,
exceeds an acceptable limit, as defined in its hedging policy. Hedge
instruments used to date are short-duration exchange-traded futures and
options. Hedging is limited to the underlying trading portfolio's interest rate
risk, based on pre-determined inventory levels, and is not speculative in and
of itself. Hedge positions and the underlying inventory are marked-to-market
daily. Positions are reviewed daily and, monthly, the hedging strategy is re-
evaluated based on anticipated inventory levels and composition, and necessary
transactions are executed to achieve the target hedged position.
The fair value of a derivative contract is the amount Advest would have to
pay a third party to assume its obligation under the contract or the amount
Advest would receive for its benefits under the contract in the reverse
situation. At both September 30, 1996 and 1995, Advest had no open hedge
positions. See Note 15.
Asset Quality
Advest Bank
The Bank is primarily a secured lender, with real estate being the predominant
form of collateral. Current lending activities focus on originating loans
secured by owner occupied one to four family residential property. During 1996,
$43.1 million of fixed rate and adjustable loans were originated and secondary
market sales and loan securitizations totaled $67.8 million. In addition, $47.1
million of home equity lines of credit were originated and retained in
portfolio and advances on home equity lines of credit increased by a net $16.1
million for the year.
Residential (including home equity line of credit loan advances) and
commercial loan portfolios decreased $26.4 million and $20.1 million,
respectively, in 1996, and increased $11.2 million and decreased $53.8 million,
respectively, in 1995. At September 30, 1996, the Bank's loan portfolio was
comprised of $144.0 million of single family residential mortgages and $42.9
million of commercial and other loans, representing 77% and 23% of total loans,
respectively.
During fiscal 1995, the Bank evaluated alternatives to expedite the
disposition of its nonperforming assets ("NPAs"). During the first half of
fiscal 1995, the Bank sold $14.5 million of NPAs and commercial real estate
loans in bulk sale transactions at discounts to carrying value and recorded
charges of $2.8 million. During the third quarter, the Bank implemented an
accelerated asset disposition plan with the objectives of allowing Bank
management to focus on its residential mortgage banking and trust businesses
and expediting conditions under which a Memorandum of Understanding ("MOU") the
Bank was subject to would be lifted or modified. In accordance with the plan,
the Bank recorded loss provisions of $6.0 million in the third quarter of 1995
to write down assets targeted for accelerated disposition. Supplementary
provisions of $.5 million were booked in the fourth quarter. Substantial
discounts to carrying value were required in order to attract buyers of
distressed assets. During the current year, the Bank achieved compliance with
all regulatory requirements including those of the MOU and, in July 1996, the
Bank's regulators lifted the MOU. At September 30, 1996 and 1995, the Bank's
NPAs were $2.4 million and $3.1 million, respectively, both reflecting 1% of
total bank assets.
At September 30, 1996 and 1995, respectively, earning assets were 96.7%
and 97.2% of total bank assets. Loan delinquency was 1.84%, .87% and 3.84% of
total loans at September 30, 1996, 1995 and 1994, respectively. Had interest
been accrued at contractual rates on non-accrual and re-negotiated loans,
interest income would have increased by approximately $.3 million, $.5 million
and $.8 million in 1996, 1995 and 1994, respectively.
AGI adopted SFAS 114 "Accounting by Creditors For Impairment of a Loan,"
effective October 1, 1995. The statement requires that impaired loans, defined
to be loans where it is probable that the collection of payments will not be in
accordance with contractual terms, be measured at the present value of the
expected cash flows discounted at the loan's effective interest rate, or at the
observable or estimated fair value of the collateral, if the loan is collateral
dependent, when assessing the need for a loss reserve. Bank loans classified
impaired as of September 30, 1996 totaled $5.3 million. Included in Bank
impaired loans are $3.8 million of restructured loans that have been returned
to accruing status under the terms of their restructuring, and $.8 million of
loans in which potential credit problems may lead to future non-accrual status
or possible charge-off. All remaining amounts classified impaired are included
in non-accrual loans (See Note 2). The adoption of the statement did not result
in any additional allowance for loan losses.
Advest Group, Inc.
At September 30, 1995, the Bank transferred $4.6 million of NPAs to AGI in
accordance with the accelerated asset disposition plan previously discussed.
The assets were transferred at their expected sales prices which reflected
discounts from fair value. During 1996, $3.2 million of these assets were
liquidated. It is expected that most of the remaining $1.4 million will be sold
or repaid during fiscal 1997.
AGI also holds a $9.0 million first mortgage on a property owned by a real
estate limited partnership for which Billings Management Company, a subsidiary
of Billings, serves as general partner. The loan was restructured during 1995
as part of a class action settlement on behalf of the limited partners. The
first payment under the mortgage is not due until January 2000 therefore, the
loan is technically performing. The property has been at full occupancy with a
waiting list for nearly
-36-
<PAGE>
[page 24 of annual report]
three years, however, given its significant future financial commitments,
management has decided to treat the mortgage as a nonperforming loan and,
accordingly, no interest income is being accrued.
Liquidity and Capital Resources
The Company's total assets were $965.2 million at September 30, 1996,
reflecting a 16% increase from the prior year. The Bank's assets declined $48.3
million (18%) to $221.5 million reflecting the Bank's strategic transition to a
mortgage banker whereby substantial levels of new loan originations are sold
into secondary markets instead of being retained in portfolio. Conversely,
Advest's assets increased $181.4 million (34%) to $713.0 million. The increase
is primarily due to higher receivables related to stock loan/borrow activities,
increased trading account balances, primarily corporate bonds, and higher
margin debits.
With the primary exception of loans held in portfolio by the Bank which
comprise 20% of total assets, the Company's assets are highly liquid in nature.
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, available for sale and trading securities comprised 72% of total
assets at September 30, 1996 compared with 61% for the prior year.
Shareholders' equity increased $10.3 million (13%) to $89.2 million
primarily as a result of a $11.8 million increase in retained earnings from
current year operating results. Treasury stock increased $2.6 million (22%),
due to repurchases of the Company's common stock partly offset by sales of
treasury shares to various employee equity plans and the exercise of stock
options. At September 30, 1996, 2,513,077 shares of the Company's common stock
had been purchased since the inception of the stock buyback program in August
1990, at an average price of $5.89 per share. SFAS 115, which was adopted in
fiscal 1995 (See Note 4), resulted in a $.2 million reduction to shareholders'
equity primarily related to the Bank's available for sale securities.
AGI's principal source of funding is the earnings distributions from its
subsidiaries which, except as discussed below, is unrestricted.
Advest, Inc.
In addition to funds generated from operations, sources used by Advest to
finance assets include credit balances in brokerage accounts which decreased
$17.4 million (6%), short-term borrowings which increased $33.8 million (Advest
had no short-term debt at September 30, 1995), deposits for securities loaned
which increased $100.4 million (88%), securities sold short which increased
$42.6 million (879%) and long-term borrowings which were unchanged from 1995.
Prior to the current year, Advest's short-term borrowings primarily
resulted from timing differences related to trade settlements and were usually
repaid within a day or two. A significant increase in Advest's corporate bond
trading inventories (related to trading activities initiated by Advest in the
second fiscal quarter) together with the securities industry conversion to same
day funds settlement in February 1996 have resulted in substantial and
recurring short-term borrowings by Advest. Advest has arrangements with certain
financial institutions whereby 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. In July 1996, Advest's lead lending bank doubled Advest's
secured, uncommitted line of credit to $90 million. Advest had requested the
increase primarily to finance its increased inventory levels. Management
believes that operating cash flow together with available credit lines will
provide sufficient resources to meet all present and reasonably foreseeable
capital needs.
The Securities and Exchange Commission ("SEC") requires Advest to maintain
liquid net capital to meet its obligations to customers. At September 30, 1996,
Advest had excess net capital of approximately $35.5 million. See also Note 12.
Advest Bank
At September 30, 1996, the Bank's liquid assets included cash, federal funds
and available for sale securities of $16.4 million. In addition, the Bank is a
member of the FHLBB and, accordingly, has access to advances from the FHLBB to
the extent the Bank possesses eligible collateral. At September 30, 1996, the
Bank had uncommitted, eligible collateral of $90.0 million. 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.
The Federal Deposit Insurance Corporation ("FDIC") requires banks to
maintain a minimum leverage capital ratio of between 4% and 5%. At September
30, 1996, the Bank's leverage capital ratio was 6.56%. 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, 1996, the Bank's total risk-based and Tier 1 capital ratios
were 10.44% (with capital of $16.6 million) and 9.19% (with capital of $14.6
million), respectively, which met all regulatory requirements.
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 a "well capitalized" bank which means it may
accept brokered deposits with no restrictions. At September 30, 1996, the Bank
had $62.7 million of brokered deposits.
-37-
<PAGE>
[page 25 of annual report]
Cash Flows
Cash and cash equivalents increased $4.2 million in the current year compared
with a negligible increase in 1995 and a decline of $12.0 million in 1994. The
current year increase was attributed to increases in cash of $2.7 million, $.9
million and $.5 million at Advest, the Bank and AGI, respectively. Advest
generated $25.2 million from financing activities, primarily short-term
borrowings, but used $7.7 million for investing, primarily deferred
compensation payments and capital expenditures. Advest used $14.9 million in
operating cash primarily to finance increased margin debits and trading
inventories. The Bank generated $47.5 million from investing activities,
primarily loan collections and sales of available for sale securities, and used
$47.0 million for financing activities, primarily a decrease in deposits. The
break even results for 1995 resulted from $1.0 million and $.3 million
increases at the Bank and AGI, respectively, which were offset by a $1.3
million decline at Advest. The Bank's increase was primarily attributed to net
funds generated by the accelerated asset disposition plan and improved cash
flow from operations. Advest generated strong cash flow primarily from
operations and a $6.25 million long-term borrowing in 1995. However, the
broker/dealer made significant 1995 capital investments in computer hardware
and software to support its sales force. In addition, Advest incurred high
costs associated with the recruitment of investment professionals. The 1994
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.
During the current year, the Company used $20.4 million of operating cash
primarily to finance a $43.8 million increase in margin debits, a $17.4 million
decline in brokerage customer credits and a $9.8 million increase in trading
inventories net of short sales. Operating cash was provided primarily by net
income plus noncash items of $19.1 million and a $31.0 million decline in
segregated cash required by Rule 15c3-3. Financing activities used $14.2
million of cash primarily related to a $44.5 million decline in deposits of the
Bank which was partly offset by a net increase of $23.3 million in short-term
borrowings. Investing activities generated $38.8 million of cash, including
$25.2 million decrease in available for sale securities, $49.3 million in
proceeds from loan sales which were offset by the use of $30.7 million for net
loan originations.
During fiscal 1995, the Company generated $28.9 million of operating cash
primarily from $6.4 million of net income adjusted for non-cash revenue and
expense items. Margin debits declined $13.1 million and 15c3-3 requirements for
segregated customer funds declined $18.0 million generating cash. Brokerage
customer credits declined $10.5 million and Advest increased its trading
positions $11.1 million decreasing operating cash. Financing activities used
$93.6 million primarily due to a $56.2 million decline in customer deposits at
the Bank. Advest's short-term borrowings declined $22.5 million and its long-
term debt increased $6.25 million. The Bank paid down its short and long-term
borrowings by $9.5 million and $10.0 million, respectively. Investing
activities produced positive cash flow of $64.7 million primarily as a result
of $49.5 million in proceeds from the sales of performing and NPAs of the Bank
and $29.6 million from securities sales by the Bank. The Company generated
$10.1 million of cash from the sales of its proprietary mutual fund investment
advisory business. Uses of investing cash included $4.2 million for Advest's
capital expenditures and for the Bank a net $4.4 million increase in loans
originated compared with principal collections on loans.
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 15c3-3. 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.
Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has issued SFAS 121,
"Accounting for the Impairment Of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" and SFAS 125 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities". The Company will adopt
these pronouncements in its 1997 fiscal year as required, and does not expect
their implementation to have a material impact on the Company's financial
condition or results of operations.
The FASB issued SFAS 123 "Accounting For Stock-based Compensation." SFAS
123 permits companies to measure stock compensation costs using either the
intrinsic value-based method or the fair value-based method. When adopted in
1997, Advest intends to continue using the intrinsic value-based method and
will provide the expanded disclosures required by SFAS 123.
-38-
<PAGE>
[page 26 of Annual Report]
<TABLE>
<CAPTION>
The Advest Group, Inc.
Consolidated Statements of Earnings
Fiscal years ended September 30,
--------------- --------------- ---------------
In thousands, except per share amounts 1996 1995 1994
- - -------------------------------------------------------------------- --------------- ---------------
<S> <C> <C> <C>
Revenues
Commissions $ 110,115 $ 84,264 $ 79,490
Interest 55,225 56,082 46,084
Principal transactions 38,591 41,424 32,297
Investment banking 28,166 17,470 25,743
Asset management and administration 20,050 16,810 16,399
Gain on sale of investment
advisory business, net 627 10,092 -
Other 8,607 6,491 5,216
--------------- --------------- ---------------
Total revenues 261,381 232,633 205,229
--------------- --------------- ---------------
Expenses
Compensation 147,091 121,611 114,800
Interest 29,425 30,566 22,584
Communications 20,030 18,418 18,662
Occupancy and equipment 17,567 17,369 15,614
Business development 5,613 4,204 4,532
Professional 5,543 5,468 6,231
Brokerage, clearing and exchange 4,221 3,922 3,693
Provision for credit losses and asset devaluation 1,258 10,338 5,411
Other 9,565 8,976 8,347
--------------- --------------- ---------------
Total expenses 240,313 220,872 199,874
--------------- --------------- ---------------
Income before taxes 21,068 11,761 5,355
Provision for income taxes 9,270 5,410 2,302
--------------- --------------- ---------------
Net income $ 11,798 $ 6,351 $ 3,053
=============== =============== ===============
Net income per common and common equivalent shares:
Primary $ 1.35 $ 0.73 $ 0.34
Assuming full dilution $ 1.23 $ 0.71 $ 0.34
Average common and common equivalent shares outstanding:
Primary 8,748 8,735 8,997
Assuming full dilution 10,270 10,298 8,997
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
-39-
<PAGE>
[page 27 of Annual Report]
<TABLE>
<CAPTION>
The Advest Group, Inc.
Consolidated Balance Sheets
September 30,
------------------------------
In thousands, except share and per share amounts 1996 1995
- - - - - - - - - - - - - - - - - - - - - - - ------------------------------
<S> <C> <C>
Assets
Cash and short-term investments
Cash and cash equivalents $ 11,461 $ 7,294
Cash and securities segregated under federal
and other regulations 265 31,259
------------------------------
11,726 38,553
------------------------------
Receivables
Brokerage customers, net 352,434 308,714
Securities borrowed 219,919 110,681
Loans, net 195,288 242,575
Brokers and dealers 5,394 2,391
Other 11,212 11,179
------------------------------
784,247 675,540
------------------------------
Securities
Trading, at market value 93,937 41,500
Held to maturity
(market values of $22,876 and $31,473) 22,959 31,469
Available for sale, at market value 15,127 3,360
------------------------------
132,023 76,329
------------------------------
Other assets
Equipment and leasehold improvements, net 14,187 12,115
Other 22,994 28,278
------------------------------
37,181 40,393
------------------------------
$ 965,177 $ 830,815
==============================
Liabilities & shareholders' equity
Liabilities
Brokerage customers $ 282,618 $ 300,011
Securities loaned 213,996 113,632
Deposits 191,186 235,656
Securities sold, not yet purchased, at market value 47,438 4,847
Short-term borrowings 39,301 10,251
Compensation and benefits 21,517 16,529
Checks payable 16,976 6,751
Brokers and dealers 7,634 9,744
Other 14,973 16,670
------------------------------
835,639 714,091
Long-term borrowings 19,744 17,240
Subordinated borrowings 20,552 20,552
------------------------------
875,935 751,883
------------------------------
Commitements and contingent liabilities (see Notes 1, 12 and 14)
Shareholders' equity
Common stock, par value $.01, authorized 25,000,000 shares,
issued 10,710,289 and 10,584,488 shares 107 106
Paid-in capital 68,842 67,467
Retained earnings 34,754 22,956
Unamortized restricted stock compensation (56) 0
Net unrealized gain (loss) on securities
available for sale, net of taxes (223) 2
Treasury stock, at cost,
2,306,948 and 2,202,519 shares (14,182) (11,599)
------------------------------
89,242 78,932
------------------------------
$ 965,177 $ 830,815
==============================
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
-40-
<PAGE>
[page 28 of Annual Report]
<TABLE>
<CAPTION>
Fiscal years ended September 30,
------------------------------------------
In thousands 1996 1995 1994
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $11,798 $ 6,351 $ 3,053
Adjustments to reconcile net income to net cash
activities provided by operating activities:
Depreciation and amortization 8,221 8,905 7,067
Provision for credit losses
and asset devaluation 1,258 10,338 5,411
Gain on investment advisory business, net (627) (10,092) 0
Other (1,508) 1,512 2,156
(Increase) decrease in operating assets:
Receivables from brokerage customers (43,823) 13,079 (52,432)
Securities borrowed (109,238) (44,930) (36,623)
Trading securities (52,437) (6,633) (9,094)
Cash and securities segregated under
federal and other regulations 30,994 18,046 56,868
Other (2,086) 1,252 2,594
Increase (decrease) in operating liabilities:
Brokerage customers (17,393) (10,526) (17,613)
Securities loaned 100,364 34,173 40,458
Securities sold, not yet purchased,
at market value 42,591 2,660 (443)
Brokers and dealers (2,110) 3,721 (3,573)
Checks payable 10,225 (49) (8,207)
Other 3,362 1,063 (5,646)
------------------------------------------
Net cash (used for) provided by
operating activities (20,409) 28,870 (16,024)
------------------------------------------
FINANCING ACTIVITIES
Net decrease in deposits (44,470) (56,229) (54,827)
Proceeds from short-term borrowings 0 0 10,000
Repayment of short-term borrowings (10,496) (10,298) (6,650)
Short-term brokerage borrowings, net 33,800 (22,501) 22,500
Proceeds from long-term borrowings 8,250 7,250 20,500
Repayment of long-term borrowings 0 (10,000) 0
Other (1,318) (1,811) (3,428)
------------------------------------------
Net cash used for financing activities (14,234) (93,589) (11,905)
------------------------------------------
INVESTING ACTIVITIES
Proceeds from (payments for):
Sales of available for sale securities 26,290 23,075 0
Maturities of available for sale securities 1,969 2,544 0
Maturities of held to maturity securities 22,252 18,466 0
Purchase of available for sale securities (3,033) (1,215) 0
Purchase of held to maturity securities (23,986) (16,439) 0
Purchase of investment securities
and short-term investments 0 0 (95,847)
Maturities of investments 0 0 131,734
Sales of investments 0 0 23,028
Sale of investment advisory business, net 788 10,141 0
Loans sold 49,257 36,129 0
Sales of OREO, net 3,959 6,021 11,379
Principal collections on loans 21,777 60,432 53,704
Loans originated (52,439) (67,674) (93,774)
Other (8,024) (6,745) (14,249)
------------------------------------------
Net cash provided by investing activities 38,810 64,735 15,975
------------------------------------------
Increase (decrease) in cash and cash equivalents 4,167 16 (11,954)
Cash and cash equivalents at beginning of period 7,294 7,278 19,232
------------------------------------------
Cash and cash equivalents at period end $11,461 $ 7,294 $ 7,278
==========================================
- - ---------------------------------------------------------------------------------------------------------------
Interest paid $29,580 $30,560 $22,853
Income taxes paid $10,067 $ 2,273 $ 1,058
Non-cash activities:
Securities available for sale (from)
to investment securities $ 0 ($20,891) $27,910
Securities available for sale
from held to maturity $ 9,962 $ 0 $ 0
Securitization of mortgages $27,307 $26,315 $ 0
- - ---------------------------------------------------------------------------------------------------------------
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
-41-
<PAGE>
[page 29 of Annual Report]
<TABLE>
<CAPTION>
The Advest Group, Inc.
Consolidated Statements of Changes in Shareholders' Equity
Net
unreal-
lized
gain
(loss)
on
In thousands, Unamortized securities
except restricted available,
share and $.01 par value Common stock Paid stock Treasury stock for Share-
per share ----------------------------- in Retained compen- ---------------------------- sale holders'
amounts Shares Amount capital earnings sation Shares Amount net equity
of taxes
- - --------------------------------------------------------------------------------------------------------- -----------------------
<S> <C> <C> <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 3,053 3,053
Exercise of
stock opt 6,800 1 27 28
Repuchase of
common
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
Adjustment
to beginning
balance for
adoption
SFAS 115 (57) (57)
Net income 6,351 6,351
Exercise of
stock opt 14,266 62 62
Repurchase of
common stock (344,554) (2,309) (2,309)
Sale of
treasury
stock to
equity plan 129,392 846 846
Change in
unrealized
gain(loss)
net of taxes 59 59
- - --------------------------------------------------------------------------------------------------------- -----------------------
Balance as of
September
30, 1995 10,584,488 106 67,467 22,956 0 (2,202,519) (11,599) 2 78,932
Net income 11,798 11,798
Exercise of
stock opt 125,801 1 571 138,270 504 1,076
Repurchase of
common stock (398,900) (3,799) (3,799)
Sale of
treasury
stock to
equity plan 782 150,499 677 1,459
Change in
unrealized
gain(loss)
net of taxes (225) (225)
Stock issued under
restricted stock
plans, less
amortization
of $1 22 (56) 5,702 35 1
- - --------------------------------------------------------------------------------------------------------- -----------------------
Balance as of
September
30, 1996 10,710,289 $107 $68,842 $34,754 ($56) (2,306,948) ($14,182) ($223) $89,242
========================================================================================================= =======================
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
-42-
<PAGE>
[page 30 of annual report]
Notes to Consolidated Financial Statements
Note 1: Summary of Significant Accounting Policies
Basis of presentation
The consolidated financial statements include the accounts of The Advest Group,
Inc. and all subsidiaries (collectively the "Company"). The Company provides
diversified financial services including securities brokerage, trading,
investment banking, consumer lending, trust and asset management. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. All material intercompany
accounts and transactions are eliminated. Certain 1995 and 1994 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
$3,200,000 and $3,660,000 at September 30, 1996 and 1995, respectively.
Cash and securities segregated under federal and other regulations
Investments held in special reserve accounts for the exclusive benefit of
customers, in accordance with Rule 15c3-3, are primarily securities purchased
under agreements to resell which are financing transactions collateralized by
US Government and Agency obligations and are carried at the amounts at which
the securities will be subsequently resold. The collateral, which is held by a
third party custodian bank, is valued daily and additional collateral is
obtained when appropriate. At September 30, 1995, securities purchased under
agreements to resell were $31,000,000. There were no positions at September 30,
1996. In addition, certain interest-bearing cash deposits are held in special
reserve accounts for the exclusive benefit of customers.
Loans
Loans are carried at their unpaid principal balances, and related interest is
recognized as income when earned but only to the extent considered collectible.
Generally loans are placed on 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 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.
Effective October 1, 1995, the Company prospectively adopted Statement of
Financial Accounting Standards ("SFAS") 122, "Accounting for Mortgage Servicing
Rights." The adoption of SFAS 122 has not had a material impact on the
Company's financial position or results of operations.
Loans, usually mortgages, held for sale are carried at the lower of cost
or market, as determined by outstanding commitments from investors or current
investor yield requirements calculated on the aggregate loan basis, stratified
based on their predominate risk characteristics, including loan type,
amortization type (fixed or adjustable), and note rate. Gains and losses
resulting from changes in carrying values are included in other income.
Allowance for loan losses
Management's determination of the adequacy of the allowance, established
through charges against income, 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. 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.
As required, in October 1995, the Company adopted SFAS 114 "Accounting by
Creditors for Impairment of a Loan", as amended by SFAS 118 "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures." The
adoption of SFAS 114, as amended by SFAS 118, did not result in any additions
to the provision for loan and credit losses solely because of adoption, and
there was no change in the methods of recognizing interest income on impaired
loans.
-43-
<PAGE>
[page 31 of annual report]
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. In virtually all instances,
receivables are collateralized by securities with market values in excess of
the amounts due. The collateral is not reflected in the accompanying financial
statements. A reserve for doubtful accounts is established based upon reviews
of individual credit risks, as well as prevailing and anticipated economic
conditions. At September 30, 1996 and 1995, the reserve was $791,000 and
$743,000, respectively. Included in payables to brokerage customers are free
credit balances of $259,910,000 and $278,450,000 at September 30, 1996 and
1995, 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 securities as
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. The values
of such securities at September 30, 1996 and 1995 approximate amounts owed.
Trading positions
Advest's trading securities and securities sold, not yet purchased are valued
at market with unrealized gains and losses reflected in current period revenues
from principal transactions and investment banking. Trading securities are
generally held for resale within a relatively short time period. 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.
Investment securities
Securities available for sale are carried at fair value with unrealized holding
gains or losses credited or charged directly to shareholders' equity. Realized
gains and losses are recorded on trade date by the specific identification
method and are included in revenue from principal transactions. Securities,
which the Company has the positive intent and ability to hold until maturity,
are carried at amortized cost and classified as held to maturity investments.
Available for sale and held to maturity securities are reduced to fair value,
through charges to income, for declines in value that are considered to be
other than temporary.
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, 1996 and 1995,
accumulated depreciation and amortization were $33,314,000 and $31,942,000,
respectively.
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, 1996 and 1995, the amount of goodwill
reported in other assets is $6,124,000 and $6,374,000, respectively.
Revenues from securities transactions and investment banking
Advest records securities transactions 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.
Securities transactions of the Bank are recorded 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 loans, other real estate owned ("OREO") and certain other
investments and receivables.
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.
Net income per common and common equivalent share
Primary income per share is calculated by dividing net income by the average
shares of common stock and common stock equivalents outstanding during the
period. Common stock equivalents are dilutive stock options which are assumed
exercised for calculation
-44-
<PAGE>
[page 32 of annual report]
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.
Derivative financial instruments
Advest enters into derivative transactions to hedge certain trading positions,
primarily municipal and corporate bonds. Derivatives to hedge trading inventory
positions are marked to market daily with unrealized gains and losses reflected
in revenue from principal transactions. Market values for exchange-traded
derivatives, principally futures, are based on quoted market prices.
Payments or receipts under derivative financial instruments used to manage
interest rate risks arising from the Bank's financial assets and financial
liabilities are recognized as an adjustment to interest income or expense.
Other accounting pronouncements
The Financial Accounting Standards Board ("FASB") has issued SFAS 121,
"Accounting for the Impairment Of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" and SFAS 125 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities". The Company will adopt
these pronouncements in its 1997 fiscal year, as required, and does not expect
their implementation to have a material impact on the Company's financial
condition or results of operations.
The FASB issued SFAS 123, "Accounting For Stock-based Compensation." SFAS
123 permits companies to measure stock compensation costs using either the
intrinsic value-based method or the fair value-based method. When adopted in
1997, Advest intends to continue using the intrinsic value-based method and
will provide the expanded disclosures required by SFAS 123.
Note 2: Loans
At September 30, 1996 and 1995, loans consisted of:
------------------------------------------------
In thousands 1996 1995
------------------------------------------------
Advest Bank:
Mortgages
Commercial $ 26,128 $ 43,908
Multi-family residential 11,285 12,256
1 - 4 family residential
conventional 85,321 127,789
Home equity credit 58,691 42,257
Commercial 2,757 3,856
Consumer 1,097 922
Installment note and lease
loan financing 1,587 1,811
Advest Group, Inc.:
Mortgages
Commercial 9,000 9,031
1 - 4 family residential 555 1,460
Other 232 431
Other 1,033 1,188
-------------------
$197,686 $244,909
===================
The Company maintains an allowance for possible future loan losses. For
the three years in the period ended September 30, 1996, activity in the
allowance for loan losses was as follows:
--------------------------------------------------
In thousands 1996 1995 1994
--------------------------------------------------
Balance at the beginning
of the year $2,334 $4,900 $5,782
Provisions 1,022 5,637 2,499
Charge-offs (1,249) (8,462) (3,555)
Recoveries 291 259 174
-----------------------------
Balance at the end
of the year $2,398 $2,334 $4,900
===========================
Nonperforming assets include nonaccruing loans, loans ninety days past due
and accruing interest, loans renegotiated on other than prevailing market terms
and OREO. OREO is included in other assets in the consolidated balance sheets.
All other nonperforming assets are classified as loans. 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 of the Bank were
$297,000, $509,000 and $754,000 for the years ended September 30, 1996, 1995
and 1994, respectively. As of September 30, 1996, no additional funds were
committed to clients whose loans have been restructured or were nonperforming.
At September 30, 1996 and 1995, nonperforming assets were comprised of:
------------------------------------------------
In thousands 1996 1995
------------------------------------------------
Advest Group, Inc.:
Non-accrual loans $ 9,555 $10,666
OREO 800 2,950
Advest Bank:
Non-accrual loans 1,422 290
OREO, net 984 2,849
Other 750 750
--------------------
$13,511 $17,505
=====================
Nonperforming assets as a percentage
of loans and OREO 6.8% 7.0%
=====================
Nonperforming assets as a percentage
of total assets 1.4% 2.1%
=====================
At September 30, 1996, the Bank classified $5.3 million of loans as impaired
pursuant to the requirements of SFAS 114, "Accounting by Creditors for
Impairment of a Loan". 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. Impaired loans include $3.8
million of loans restructured and currently classified as performing, $.7
million of loans currently classified as non-accrual and $.8 million of loans
in which potential credit problems may lead to future non-accrual status or
possible charge-off. The non-accrual impaired loans are a component of
nonperforming assets. Impairment reserves as calculated under SFAS 114 resulted
in no additional allowance for loan losses.
-45-
<PAGE>
[page 33 of annual report]
Note 3: Trading Positions
At September 30, 1996 and 1995, Advest's trading positions consisted of:
-------------------------------------------------------------
Securities sold,
Trading securities not yet purchased
--------------------------------------
In thousands 1996 1995 1996 1995
-------------------------------------------------------------
Corporate obligations $53,114 $ 3,474 $44,825 $ 586
State and municipal
obligations 25,796 26,052 183 210
US government and
agency obligations 10,612 6,252 697 535
Stocks and warrants 4,415 5,722 1,733 3,516
-------------------------------------
$93,937 $41,500 $47,438 $4,847
=====================================
Note 4: Investment Securities
The Company realigned its available for sale and held to maturity portfolios in
December 1995, in accordance with the provisions of a special report, "A Guide
to Implementation of Statement 115 on Accounting for Certain Investments in
Debt and Equity Securities," issued by the FASB staff. The realignment resulted
in the transfer of $9,962,000 of held to maturity securities to available for
sale portfolio in December 1995. Effective October 1, 1994, the Company
prospectively adopted SFAS 115, "Accounting for Certain Investments in Debt and
Equity Securities" and revised its securities accounting policy. Consequently,
available for sale securities increased by $20,891,000.
As of September 30, 1996, the amortized cost and fair values of debt
securities, by contractual maturity, were:
Available for Sale Held to Maturity
--------------------------------------
Amortized Fair Amortized Fair
In thousands cost value cost value
-------------------------------------------------------------
Due in one year
or less $ -- $ -- $11,225 $11,220
Due after one year
through five years -- -- 849 845
Due after five years
through ten years -- -- 250 250
Due after ten years 11,060 10,710 10,635 10,561
-------------------------------------
$11,060 $10,710 $22,959 $22,876
=====================================
For the three years ended September 30, 1996, 1995 and 1994, respectively,
proceeds from the sale of securities available for sale were $26,290,000,
$23,075,000 and $14,003,000 and gross gains reported were $115,000, $152,000
and $60,000, respectively. Gross losses were $255,000 and $59,000 for 1995 and
1994, respectively, and there were no gross losses reported for 1996. The
amortized cost and fair values of the Company's available for sale securities
at September 30, 1996 and 1995 were:
-------------------------------------------------------------
Amortized Gross unrealized Fair
----------------
In thousands cost gains losses value
-------------------------------------------------------------
1996
FHLB stock $ 2,233 $ -- $ -- $ 2,233
Mortgage-backed securities
of federal agencies 8,998 7 (350) 8,655
Other mortgage-backed
securities 99 -- -- 99
Other 4,132 15 (7) 4,140
-------------------------------------
$15,462 $ 22 $(357) $15,127
=====================================
1995
FHLB stock $2,233 $ -- $ -- $2,233
Mortgage-backed securities
of federal agencies 861 2 -- 863
Other mortgage-backed
securities 264 -- -- 264
-------------------------------------
$3,358 $ 2 $ -- $3,360
=====================================
There were no sales of held to maturity securities during the three years
in the period ended September 30, 1996. The amortized cost and fair values of
the Company's held to maturity securities at September 30, 1996 and 1995 were:
-------------------------------------------------------------
Gross unrealized
Amortized -------------------- Fair
In thousands cost gains losses value
-------------------------------------------------------------
1996
Mortgage-backed
securities $10,635 $11 $(85) $10,561
US government and agency
obligations 11,824 -- (9) 11,815
Other 500 -- -- 500
-------------------------------------
$22,959 $11 $(94) $22,876
=====================================
1995
Mortgage-backed
securities $21,965 $107 $(105) $21,967
US government and agency
obligations 6,854 2 -- 6,856
Other 2,650 -- -- 2,650
-------------------------------------
$31,469 $109 $(105) $31,473
=====================================
-46-
<PAGE>
[page 34 of annual report]
Note 5: 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 a "well capitalized" bank. At September 30, 1996 and 1995, client
deposits at the Bank consisted of:
------------------------------------------------
In thousands 1996 1995
------------------------------------------------
Money market $127,840 $167,778
Certificates of deposit 63,271 67,790
Savings 75 88
--------------------
$191,186 $235,656
====================
Note 6: Short-term Borrowings
In the ordinary course of business, primarily to facilitate securities
settlements and finance trading inventories, 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, 1996, Advest had $33,801,000 in firm loans
outstanding. There were no outstanding loans at September 30, 1995. The
weighted average interest rate on bank loans outstanding at September 30, 1996
was 5.71% and the weighted average interest rates during fiscal 1996 and 1995
were 5.86% and 6.14%, respectively.
Short-term borrowings of the Bank consisted primarily of the current
portion of advances from the Federal Home Loan Bank ("FHLB"). At September 30,
1996, borrowings totaled $4,750,000 at rates from 6.30% to 8.60%. At September
30, 1995, borrowings totaled $9,500,000 at rates from 5.24% to 9.11%. The Bank
has unused short term credit lines of approximately $7,900,000 with the FHLB at
September 30, 1996. 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 $146 million, the Bank had total borrowing capacity with the FHLB
of approximately $111 million at September 30, 1996.
The advances are subject to prepayment penalties, which are intended to
make the FHLB indifferent to the prepayment and are approximately equivalent to
settlement of the obligations at their current fair value.
AGI's short-term borrowings at both September 30, 1996 and 1995 were
$750,000. The borrowings represent the current portion of a promissory note due
a third party lender. Refer to Note 7 for additional information.
Note 7: Long-term Borrowings
Long-term borrowings of the Bank were $8,750,000 and $6,500,000 as of September
30, 1996 and 1995, respectively, and represent the non-current portion of FHLB
advances. The borrowings are collateralized in the same manner as short-term
borrowings. As of September 30, 1996, the interest rates and maturities of
outstanding borrowings were:
-------------------------------------------------------
In thousands Interest rates Amount
-------------------------------------------------------
Year ending
September 30, 1998 6.40% - 7.17% $5,750
Year ending
September 30, 2000 6.68% 1,500
Year ending
September 30, 2001 6.73% 1,500
---------
$ 8,750
=========
During fiscal 1995, Advest borrowed $6,250,000 under a non-recourse note,
collateralized exclusively by furniture and computer equipment. Under the terms
of the note, the principal is due October 1, 1998, unless extended at Advest's
option, with interest payments due monthly beginning April 1, 1995. The note
bears interest at the variable rate of the LIBOR rate plus 2.5% per annum. The
interest rate on the long-term note outstanding at September 30, 1996 and 1995
was 7.96% and 8.37%, respectively. The purpose of the loan was to increase
Advest's regulatory net capital. As required by the non-recourse note, AGI
signed a letter of credit with a third party bank guaranteeing 20% of Advest's
debt. The letter of credit is fully collateralized by government securities.
At September 30, 1996 and 1995, long-term borrowings of AGI were
$4,744,000 and $4,490,000, respectively and represent a loan from a third party
lender on a first mortgage held by AGI. 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. AGI borrowed an additional
$1,000,000 under the same terms during fiscal 1995. The debt is collateralized
by the first mortgage on real estate managed by a subsidiary. The mortgage
-47-
<PAGE>
[page 35 of annual report]
is currently classified as nonperforming and is due December 31, 2005.
Note 8: Subordinated Borrowings
At September 30, 1996 and 1995, the Company had $20,552,000 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 101.2% of the principal amount plus accrued interest and at
declining prices hereafter. The debentures are subordinated to the claims of
general creditors and are due on March 15, 2008.
Annual sinking fund requirements of 5% of the aggregate principal amount
of the debentures or at least 70% of the debentures prior to maturity are
currently due. At its option, the Company may make sinking fund payments in
cash or in debentures or by a credit for debentures previously converted or
redeemed. To date, all sinking fund requirements have been satisfied by the
Company's election to use previously redeemed securities. The Company has
purchased and retired $6,948,000 of the initial offering amount and,
consequently, has currently satisfied the entire sinking fund requirement
through fiscal 1998.
During the year ended September 30, 1995, the Company purchased and
retired debentures with a total par value of $445,000. There were no debentures
purchased by the Company during fiscal 1996.
Note 9: Common Stock
In 1996, the Board of Directors increased the number of shares authorized to
repurchase the Company's common stock to 3,000,000 shares. During the years
ended September 30, 1996 and 1995, 398,900 and 344,554 shares, respectively,
were acquired for a total of 2,513,077 shares repurchased since the start of
the repurchase program in August 1990.
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 SEC and the New York Stock Exchange ("NYSE"), 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.
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.
Note 10: Stock Option Plans
1993 Stock Option Plan
The Company's 1993 Stock Option Plan (the "1993 Plan"), established during
fiscal 1994, provides for grants of incentive stock options or nonqualified
stock options for up to 500,000 shares of the Company's common stock. At
September 30, 1996, options for 348,817 shares had been granted under the 1993
Plan, of which 342,217 options were outstanding. Option grants under the 1993
Plan are made at the discretion of the Stock Option and Compensation Committee
of the Board of Directors and become exercisable at such times (but not within
six months of grant) and expire at such time (but not later than 10 years after
grant), as that committee determines.
1994 Non-Employee Director Stock Option Plan
The Company's 1994 Non-Employee Director Stock Option Plan (the "1994 Plan"),
established during fiscal 1995, provides for annual grants of 2,500 incentive
stock options (increased from 1,500 per director effective October 1, 1996) to
each director not employed by the Company up to an aggregate of 60,000 options
for all directors. At September 30, 1996, options for 19,500 shares had been
granted and were outstanding under the 1994 Plan. Options granted under the
1994 Plan become exercisable in equal thirds 30, 42 and 54 months after grant
and expire 60 months after the grant.
Prior Stock Option Plans
At September 30, 1996, the Company had outstanding an aggregate of 293,465
-48-
<PAGE>
[page 36 of annual report]
options issued to employees under stock option plans maintained by the Company
in prior years under which no further grants are authorized. These include
5,139, 125,149 and 36,677 nonqualified stock options granted to top account
executives under performance-based plans offered in calendar 1990, 1991 and
1992, respectively. These account executive options become exercisable five
years after grant and expire one year thereafter. These also include 126,500
five-year options granted to executive officers and key employees other than
account executives on three occasions between October 1991 and February 1993.
Advest Equity Plans
During calendar 1996 and 1995 the Company offered the Advest Equity Plan (the
"Equity Plan") to certain eligible employees. The Equity Plan is a salary
deferral investment program and is described in more detail in Note 11. For
deferrals during 1995, 169,690 nonqualified stock options were granted. These
options become exercisable on January 1, 2001 and expire December 31, 2002. For
deferrals during 1996 through June 30, 1996, 78,304 options were granted and
additional options will be granted based on deferrals from June 30, 1996
through December 31, 1996. These are nonqualified stock options which will
become exercisable on January 1, 2002 and expire December 31, 2003.
Exercise Price of Options
All options granted by the Company to date, or which may be granted under the
1993 Plan, the 1994 Plan and the Equity Plan for calendar 1995, have or will
have exercise prices not less than 100% of the fair market value of the
Company's common stock on the date of grant.
Transaction Summary
Transactions under the Company's stock option plans are summarized below:
---------------------------------------------------------
Number of Option price
shares per share
---------------------------------------------------------
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
---------
Options outstanding at
September 30,
1994 (179,301 exercisable) 705,767 2.00- 7.00
Granted 156,500 5.63- 6.00
Forfeited (50,358) 2.00- 7.00
Exercised (13,266) 4.00- 6.25
---------
Options outstanding at
September 30,
1995 (190,501 exercisable) 798,643 2.00- 6.25
Granted 431,818 8.50- 10.25
Forfeited (1,244) 5.13- 5.88
Exercised (327,148) 2.00- 8.50
---------
Options outstanding at
September 30,
1996 (116,537 exercisable) 902,069 $ 2.00- $10.25
=========
Note 11: Employee Compensation and Benefit Plans
Advest Thrift Plan
The Company maintains the Advest Thrift Plan (the "Thrift Plan") which is a
qualified employee stock ownership plan ("ESOP") and 401(k) plan covering all
employees who have completed one year of service. The Thrift Plan is the
successor to the December 31, 1992, merger of the Employee Stock Ownership
Plan, Incentive Savings Plan and Employees' Retirement Plan. The Company
matches 100% of participants' contributions to their Thrift Plan accounts up to
2% of compensation. In addition, the Company has made or will make
discretionary contributions to participants' Thrift Plan accounts equal to
2.5%, 2.0% and 1.5% of their compensation for calendar 1996, 1995 and 1994,
respectively. Contribution expense for fiscal 1996, 1995 and 1994 was
$3,610,731, $2,624,281 and $2,552,180, respectively. No ESOP contributions have
been made by the Company since 1993.
Defined Benefit Plans
The Company's Account Executive Nonqualified Defined Benefit Plan (the "AE
Defined Benefit Plan"), effective October 1, 1992, offers certain high-
performing account executives retirement benefits based upon a formula
reflecting their years of service, the gross commissions they generate and
Company contributions to their Thrift Plan 401(k) accounts.
The Company's Executive Nonqualified Post-Employment Income Plan (the
"Executive Defined Benefit Plan"), effective October 1, 1993, provides certain
senior executives with income for 10 years after retirement equal to a
percentage of their final average earnings based upon a formula reflecting
years of service, assumed social security benefits and Company contributions to
certain other benefit plans on the executive's behalf.
Although the AE Defined Benefit Plan and the Executive Defined Benefit
Plan are considered to be "unfunded," assets have been set aside in revocable
trusts for each to fund future payments. These trusts are available to general
creditors of the Company in the event of liquidation. The fair value of these
trusts, which are included in trading securities, at September 30, 1996 was
$6,054,000, which was more than the projected benefit obligation by $662,000.
The following table sets forth the status of the AE Defined Benefit Plan
and Executive Defined Benefit Plan as well as amounts recognized in the
Company's consolidated financial statements at September 30, 1996 and 1995:
-49-
<PAGE>
[page 37 of annual report]
------------------------------------------------
In thousands 1996 1995
------------------------------------------------
Actuarial present value of benefit obligations:
Vested $ -- $ --
Non-vested 3,952 2,673
------------------
Accumulated benefit obligation 3,952 2,673
Effect of projected future
compensation levels 1,440 1,179
------------------
Projected benefit obligation 5,392 3,852
Unrecognized net loss (111) (369)
Unrecognized prior service cost(529) (341)
------------------
Accrued pension liability $4,752 $3,142
===================
Pension expense for the plans for the three years ended September 30, 1996
included in the following components:
---------------------------------------------------
In thousands 1996 1995 1994
---------------------------------------------------
Service cost $1,257 $ 878 $1,042
Interest cost 288 175 92
Net amortization
and deferral 65 6 34
---------------------------
Net benefit costs $1,610 $1,059 $1,168
===========================
The following table provides the assumptions used in determining the
projected benefit obligation for the plans for the three years ended September
30, 1996:
- - -----------------------------------------------------------------
1996 1995 1994
- - -----------------------------------------------------------------
Weighted average discount rate 7.5% 7.0% 8.5%
Rate of increase in future
compensation levels 5.0 5.0 5.0
Expected long-term rate of return
on plan assets 7.0 6.5 7.5
- - -----------------------------------------------------------------
Equity Plans
For calendar 1996 and 1995 the Company offered the Advest Equity Plan (the
"Advest Equity Plan") to certain top performing account executives and
designated key employees. The Advest Equity Plan allows those employees to
defer a portion of their compensation and invest it on a pretax basis in units
consisting of one share of the Company's common stock and one option to
purchase an additional share of common stock. The share portion of the unit is
issued monthly from treasury stock and will be restricted for three years after
the year of deferral. The option portion is described under Note 10. Both the
restricted stock and options will be subject to forfeiture under certain
circumstances. For calendar 1996 and 1995, the Company offered a substantially
similar plan to executive officers, although under this executive officer plan
restricted stock is purchased on the open market and options are granted under
the 1993 Stock Option Plan. In addition, beginning with fiscal 1996, the
Company offered certain key professionals the opportunity to defer a portion of
their compensation over certain levels and invest it in restricted stock at a
discounted price of 75% of market. Also, beginning with calendar 1996, 50% of
the annual retainer of each director of the Company (or a greater portion, at
their election) will be invested in restricted stock at 100% of market.
Management Incentive Plan
The Company has a Management Incentive Plan (the "MIP") which provides for
incentive compensation to salaried employees. Compensation presently is based
on the Company's pre-tax income. During fiscal 1996, 1995 and 1994, MIP
compensation was $2,482,000, $1,330,000 and $0, respectively. For fiscal 1996,
any MIP award to an executive officer in excess of 150% of the amount of the
MIP award for that executive for the prior fiscal year was invested in
restricted shares of the Company's Common Stock.
Note 12: Capital and Regulatory Requirements
Advest is subject to the net capital rule adopted and administered by the NYSE
and the SEC. 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,
1996, Advest's regulatory net capital of $43,112,000 was 11% of aggregate debit
balances and exceeds required net capital by $35,508,000.
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, 1996 is
prohibited from declaring dividends. At September 30, 1996, the Bank's leverage
capital, risk-based and Tier 1 capital ratios were 6.56%, 10.44% and 9.19%,
respectively, which met all regulatory requirements. At September 30, 1995, the
Bank's leverage capital, risk-based and Tier 1 capital ratios were 5.03%, 8.61%
and 7.40%, respectively. These ratios met regulatory requirements, however, the
September 30, 1995 leverage capital ratio did not meet the requirements of the
Memorandum of Understanding ("MOU") while it was in effect. The MOU was lifted
in July 1996. Refer to discussion in Management's Discussion and Analysis under
the caption "Liquidity and Capital Resources - Advest Bank."
Note 13: Income Taxes
The provision for income taxes for the three years ended September 30, 1996
consisted of the following:
-50-
<PAGE>
[page 38 of annual report]
--------------------------------------------------
In thousands 1996 1995 1994
--------------------------------------------------
Current:
Federal $5,893 $1,695 $ --
State and local 3,270 1,985 1,015
----------------------------
9,163 3,680 1,015
----------------------------
Deferred:
Federal 181 1,747 1,280
State and local (74) (17) 7
----------------------------
107 1,730 1,287
----------------------------
Provision for income
taxes $9,270 $5,410 $2,302
============================
At September 30, 1996 and 1995, deferred tax assets and liabilities were
comprised of:
------------------------------------------------
In thousands 1996 1995
------------------------------------------------
Deferred tax assets:
Provision for credit losses and
asset devaluation $2,753 $3,853
Employee benefits 4,446 3,810
Lease commitments 434 --
FAS115 losses 112 --
Other 86 4
------------------
Total deferred tax assets $7,831 $7,667
------------------
Deferred tax liabilities:
Tax loan loss reserve in
excess of base year $ 614 $ 433
Depreciation 1,367 620
Investment income 449 1,002
Partnership basis difference 2,305 3,082
Other 961 400
------------------
Total deferred tax liabilities$5,696 $5,537
------------------
Net deferred tax asset $2,135 $2,130
==================
The Company will only recognize a deferred tax asset when, based on
available evidence, realization is more likely than not. Accordingly, at
September 30, 1996 and 1995, the Company has recorded no valuation allowance
against federal deferred tax assets based on reversals of existing taxable
amounts and anticipated future earnings. A valuation reserve has been
established to cover state net operating loss carryforwards which were not
expected to be realized due to short carryforward time periods. At September
30, 1996 and 1995, the valuation reserve was $1,671,000 and $1,510,000,
respectively, reflecting existing state net operating loss carryforwards. At
September 30, 1996, state net operating loss carryforwards were approximately
$14.9 million which expire in various years between 1998 and 2000.
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, 1996 follows:
-------------------------------------------------------
Percent of pre-tax income 1996 1995 1994
-------------------------------------------------------
Statutory income tax rate 35.0% 34.0% 34.0%
State and local income taxes,
net of federal tax effect 9.8 11.1 12.6
Tax-exempt interest income (1.6) (1.9) (4.6)
Intangible assets 0.4 0.7 1.6
Dividend income -- -- (0.3)
Other 0.4 2.1 (0.3)
---------------------------
Effective income tax rate 44.0% 46.0% 43.0%
==========================
On August 21, 1996, The Small Business Job Protection Act was signed into
law which repeals the tax bad debt deduction method currently available to the
Bank. The Bank will be required to change its tax bad debt method to the
specific charge-off method effective for fiscal year ending September 30, 1997.
It is anticipated that the change in method will result in taxable income of
approximately $1,428,000 representing the excess of the Bank's tax bad debt
reserve at September 30, 1996 over the reserve that arose in tax years
beginning before December 31, 1987 (base year amount). Generally, the income
will be recognized for tax purposes ratably over a six year period. A deferred
tax liability has been established for the effect of this new legislation. As
of September 30, 1996, the Bank's bad debt reserve for federal tax purposes was
approximately $3,583,000 of which $2,155,000 represents the base year amount. A
deferred tax liability has not been recognized for the base year amount. A tax
liability could be incurred if certain excess distributions were made with
respect to the Bank's stock. It is not anticipated that such excess
distributions would occur.
Note 14: 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):
----------------------------------------------------
Data processing
Fiscal year ended Office & communications
September 30, facilities equipment Total
-----------------------------------------------------
1997 $ 6,436 $1,138 $ 7,574
1998 5,873 761 6,634
1999 4,886 222 5,108
2000 4,355 -- 4,355
2001 4,060 -- 4,060
2002 and thereafter 10,617 -- 10,617
---------------------------------
$36,227 $2,121 $38,348
=================================
Rental expense under these leases was $8,928,000, $9,458,000 and
$9,938,000 for the years ended September 30, 1996, 1995 and 1994, respectively.
-51-
<PAGE>
[page 39 of annual report]
Loan guarantees and letters of credit
Billings Management Company ("BIM"), a subsidiary of Billings, acts as general
partner in various real estate limited partnerships. At September 30, 1996 and
1995, AGI was a guarantor of borrowings by one of the partnerships in the
amount $503,000 and $750,000, respectively. The borrowings are
uncollateralized.
At September 30, 1996, AGI was contingently liable under a bank letter of
credit in the amount of $1,250,000. The letter of credit was required under the
terms of a non-recourse note entered into between Advest and a third party
lender and covers 20% of the note amount. It is fully collateralized by
government securities. Refer to Note 7.
At both September 30, 1996 and 1995, Advest was contingently liable under
bank letter of credit agreements in the amount of $1,255,000, which are
collateralized by securities held in customer accounts.
At September 30, 1996 and 1995, the Bank was contingently liable under
standby letters of credit and commitments to extend credit to its customers in
the amount of $68,405,000 and $45,177,000, respectively. The value of
collateral required to be held for letter of credit commitments as of September
30, 1996 ranges from 186% to 466% of individual commitments with a weighted
average of 274%.
Litigation
The Company has been named as defendant in a number of legal proceedings
arising principally from its securities and investment banking business. Some
of these actions involve claims by plaintiffs for substantial amounts. While
results of litigation cannot be predicted with certainty, 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 of the
Company.
Note 15: 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 three business days after trade date. Through May 31, 1995 the
settlement cycle was five business days. 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. Advest's clients are
predominantly retail investors located throughout the United States but
primarily in the Northeast and Florida.
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. 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, 1996
and 1995 market values of the related securities. Advest will incur a loss if
the market value of the securities increases subsequent to September 30, 1996.
Advest seeks to control interest rate risk associated with its trading
positions, primarily its municipal and corporate bond inventories, by entering
into derivative transactions, principally short-term futures contracts. The
average fair value of futures contracts during the years ended September 30,
1996 and 1995, were $598,303 and $675,380, respectively. A net trading gain of
$20,000 and a negligible gain were realized in 1996 and 1994, respectively, and
a net trading loss of $.1 million was realized in fiscal 1995. At September 30,
1996 and 1995 there were no open hedge positions.
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. 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
-52-
<PAGE>
[page 40 of annual report]
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 enters into interest rate swap and cap contracts as part of its
interest rate risk management strategy. Such instruments are held for purposes
other than trading. 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").
Entering into interest rate swap and cap agreements involves the risk of
dealing with counterparties and their ability to meet the terms of the
contracts. The Bank enters into swap and cap contracts with counterparties that
are either highly rated by recognized rating agencies or are federal agencies.
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.
The following table illustrates the Bank's outstanding swap and cap
contracts at September 30, 1996:
- - --------------------------------------------------------------------
Maturities
---------------- Balance Balance
In thousands 1997 1998 1999 9/30/96 9/30/95
- - --------------------------------------------------------------------
Fixed pay interest rate swaps:
Notional value $10,000 $5,000 $5,000 $20,000 $27,500
Weighted average
receive rate 5.551% 5.582% 5.539% 5.556% 6.009%
Weighted average
pay rate 6.350% 8.790% 7.090% 7.145% 7.747%
Interest rate caps:
Notional value $ 5,000 $-- $-- $ 5,000 $5,000
Strike rate 5.500% -- -- -- --
Unamortized premium $ 51 $-- $-- $ 51 $ 110
Total notional value $15,000 $5,000 $5,000 $25,000 $32,500
- - -------------------------------------------------------------------
In the absence of these interest rate swaps, net interest income would
have been higher by approximately $441,000 in 1996, $472,000 in 1995 and
$1,361,000 in 1994. In the absence of these cap contracts, net interest income
would have been higher by approximately $57,000 in 1996 and $64,000 in 1994,
and lower by approximately $128,000 in 1995.
Note 16: 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 residential mortgage lending, trust
services and investment of funds generated from borrowings and customer
deposits. Financial information by industry segments for the three years ended
September 30, 1996 are summarized as follows:
-53-
<PAGE>
[page 41 of annual report]
---------------------------------------------------------------
Financial
In thousands services Banking Other Consolidated
---------------------------------------------------------------
1996
Total revenues $240,509 $ 19,324 $ 1,548 $261,381
Operating income (loss) 22,604 1,074 (2,610) 21,068
Identifiable assets 712,176 219,245 33,756 965,177
Capital expenditures 5,573 344 14 5,931
Depreciation and
amortization 7,694 332 195 8,221
1995
Total revenues $207,573 $ 23,464 $ 1,596 $232,633
Operating income (loss) 23,175 (9,301) (2,113) 11,761
Identifiable assets 530,997 269,500 30,318 830,815
Capital expenditures 4,182 193 2 4,377
Depreciation and
amortization 8,391 313 201 8,905
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 and
amortization 6,582 290 195 7,067
-------------------------------------------------------------
Note 17: Related Parties
As of September 30, 1996 and 1995, loans to related parties made by the Bank
totaled approximately $5,776,000 and $5,578,000, respectively. There were
approximately $2,320,000 of new loans and $1,078,000 of repayments during 1996.
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. As of September 30, 1996,
all loans to related parties were performing.
Note 18: Fair Value of 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. Where current exchange prices are not
available, other valuation techniques are used, such as discounting the
expected future cash flows. Fair value estimates are subjective and depend on a
number of significant assumptions based on management's judgment regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments and other factors. In
addition, a wide range of valuation techniques are permitted, making
comparisons difficult, even between similar entities. The fair value of other
financial assets and liabilities (consisting primarily of receivable from and
payable to brokers and dealers, customers, securities borrowed and loaned) are
considered to approximate the carrying value due to the short-term nature of
the financial instruments.
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. For multi-family mortgages, commercial
real estate 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. 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. The fair value of advances from the FHLB, 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 value of interest rate swap and cap agreements are obtained from quoted
market prices and 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.
The fair values of the Company's financial instruments at September 30,
1996 and 1995 are:
- - ---------------------------------------------------------------
1996 1995
-------------------------------------
Carrying Fair Carrying Fair
In thousands amount value amount value
- - ---------------------------------------------------------------
Financial assets:
Loans, net $195,288 $196,135 $242,575 $243,319
Investment securities 38,086 38,003 34,829 34,833
Financial liabilities:
Deposits 191,186 191,554 235,656 236,461
Short-term borrowings 39,301 39,326 10,251 10,313
Long-term borrowings 19,744 19,873 17,240 17,387
Subordinated
debentures 20,552 21,374 20,552 20,655
Notional Fair Notional Fair
In thousands amount value amount value
-------------------------------------------------------------
Unrecognized financial instruments:
Fixed pay interest
rate swaps $ 20,000 $(317) $ 27,500 $(759)
Interest rate caps 5,000 16 5,000 61
Commitments to
extend credit (67,935) 31 (42,763) 32
Standby letters
of credit (2,975) (11) (4,919) (9)
- - -----------------------------------------------------------------
-54-
<PAGE>
[page 42 of annual report]
REPORT OF INDEPENDENT ACCOUNTANTS
We have audited the accompanying consolidated balance sheets of The Advest
Group, Inc. and Subsidiaries as of September 30, 1996 and 1995, and the related
consolidated statements of earnings, changes in shareholders' equity and cash
flows for each of the three years in the period ended September 30, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express and 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, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1996, in conformity with
generally accepted accounting principles.
As discussed in Note 4 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", as of
October 1, 1994.
Coopers & Lybrand L.L.P.
Hartford, Connecticut
October 23, 1996
-55-
<PAGE>
[page 43 of Annual Report]
<TABLE>
<CAPTION>
Quarterly Financial Information (unaudited)
- - ------------------------------------------------------------------------------- ------------------------------------
In millions, except 1996 by fiscal quarters 1995 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 $9-3/4 $10-1/8 $11 $10-5/8 $5-1/2 $6-3/8 $8 $9-3/8
Low $8-1/2 $8-5/8 $9-5/8 $9-1/4 $5 $5 $5-1/2 $7-3/8
Close $8-1/2 $9-5/8 $10-1/4 $9-3/4 $5-1/8 $5-3/4 $7-7/8 $9-1/8
Revenues $65.0 $65.9 $68.6 $61.8 $51.0 $53.6 $66.9 $61.2
Income before taxes $5.8 $6.3 $5.6 $3.4 $1.5 $0.3 $6.2 $3.7
Net income $3.1 $3.5 $3.1 $2.1 $0.9 $0.2 $3.3 $2.0
Net income per common share $.36 $.40 $.35 $.24 $.10 $.02 $.38 $.23
</TABLE>
Shareholder Information
Annual Meeting
The annual meeting of stockholders will be held at the Old State House,
Hartford, CT on January 30, 1997 at 10:30 AM. Proxy statements and
proxies are mailed to stockholders of record as of December 11, 1996. As of
September 30, 1996 there were 872 common stockholders of record.
Additional 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 Corporate Marketing, 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 National Bank
Corporate Trust Operations
Mail Stop: CT/OP/T06B
PO Box 5080
Hartford, CT 06102-5080
-56-
<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%
Vercoe Insurance Agency, Inc. Ohio 100%
Advest Bank Connecticut 100%
Admass Corp. Massachusetts 100%
Admyst Corp. Connecticut 100%
Advest Mortgage Corp (formerly
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 Capital, Inc. 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%
Central Row Corp. Connecticut 100%
SRNY, Ltd. (formerly Shore & Reich, Ltd.) Connecticut 100%
Coordinated Planning, Ltd. New York 100%
-57-
<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. and Subsidiaries 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, Form S-8 (File No. 333-00797) concerning its Executive
Officier 1996 Restricted Stock and Stock Option Agreement and Form S-8 (File
No. 333-17711) concerning its Key Professionals Equity Plan, 1996 Executive
Equity Plan, 1997 Executive Equity Plan and 1997 Equity Plan,of our reports
dated October 23, 1996, on our audits of the consolidated financial statements
and financial statement schedules of The Advest Group, Inc. and Subsidiaries as
of September 30, 1996 and 1995 and for the years ended September 30, 1996, 1995
and 1994, which reports are incorporated by reference and included,
respectively, in this Annual Report on Form 10-K.
/s/COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
December 20, 1996
-58-
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 11,705
<RECEIVABLES> 564,328
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<COMMON> 107
0
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<TRADING-REVENUE> 9022
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