<PAGE>
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1998
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 (IRS Employer
incorporation or organization) Identification Number)
90 State House Square, - Hartford, Connecticut 06103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (860)509-1000
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.
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. [X]
The aggregate market value of voting stock held by non-affiliates of the
Registrant was $164,231,046 as of December 11, 1998.
On December 11, 1998 the Registrant has outstanding 8,895,709 shares of
common stock of $.01 par value, which is the Registrant's only class of
common stock.
Part III incorporates information by reference from the Registrant's
definitive proxy statement for the annual meeting to be held on January 28,
1999.
Total of sequentialy numbered pages 96.
Exhibit index sequential page number page 72.
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Part I
Item 1. Business
General Development of Business
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 lending, asset management, trust and other 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 and
Trust Company (the "Bank"), a federal savings bank; Boston Advisors ("BA"),
formerly Boston Security Counsellors, Inc., an investment management
company; and Billings & Company, Inc. ("Billings"), a real estate services
company. Material acquisitions and dispositions by the Company during the
past five years follow.
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. Additional consideration of
$.1 and $.6 million was received in fiscal 1997 and 1996, respectively,
under the terms of one of the sales agreements.
In October 1996, the Company formed The Hannah Consulting Group
("HCG"), an investment management subsidiary. HCG is located in Boston, MA
and its employees provide investment management services primarily to
pension plans. Effective October 1, 1997, HCG was merged into Advest's
Investment Management Services Department.
In October 1997, Advest acquired Ironwood Capital Ltd. ("Ironwood"), a
private investment bank that originates and distributes private placements
of taxable fixed income securities. Ironwood and its twelve employees
became the Corporate Fixed Income Group of Advest's Investment Banking
Division. The Company issued 137,060 shares of its common stock in
conjunction with the acquisition was accounted for as a pooling of
interests. Due to the immaterial effect on the Company's consolidated
financial condition, results of operations and cash flows, operating
results of Ironwood are included prospectively in the Company's
consolidated financial statements.
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 equities and fixed
income securities, research, custody and asset 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 Northeast and Midwest regions and also services
institutional accounts throughout the country. During fiscal 1998, Advest
opened a sales office in Tampa, FL and relocated its Fairfield, CT office
to expanded quarters in Greenwich, CT. At September 30, 1998, Advest had
sales locations, including satellite offices, and account executives,
including trainees, in 16 states and the District of Columbia as follows:
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Number of Number of
State Locations Investment Executives
------ --------- ---------------------
Connecticut 10 79
District of Columbia 1 11
Florida 8 60
Illinois 1 4
Kentucky 3 16
Maine 5 21
Maryland 1 5
Massachusetts 8 51
Missouri 1 9
New Hampshire 3 7
New Jersey 4 21
New York 15 108
Ohio 12 61
Pennsylvania 11 47
Rhode Island 1 11
Vermont 1 3
Virginia 4 13
-- ---
89 527
== ===
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, commenced operations in 1984 as a state-chartered savings
bank and converted to a federal savings bank during fiscal 1997. The Bank
is regulated by the Office of Thrift Supervision ("OTS") and its federal
charter enables the Bank to provide lending and trust services in all 50
states. The Bank's headquarters are located at 90 State House Square,
Hartford, Connecticut 06103 and maintains no retail branches. The Bank has
trust and/or mortgage representatives in Springfield, MA, Columbus, Oh, New
Canaan, CT, Pittsburgh, PA and Boca Raton, FL, the last of which was opened
in fiscal 1998. Trust representatives 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 also provides residential first mortgage and home
equity lending funded by customer deposits, together with funds from
capital and other borrowings. In recent years, the total assets of the
Bank have declined as part of a planned reduction in its asset base. The
Bank's loan portfolio includes single and multi-family residential
mortgages, consumer loans and commercial mortgages. 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. It is the Bank's strategy to
sell most of the newly originated fixed rate and adjustable rate
residential mortgage loans to investors in the secondary market by
securitizing with government agencies or selling as whole loans to
secondary market investors. Investments include government and agency
obligations and mortgage-backed securities. The Bank does not currently
have a material source of deposits other than those obtained through
Advest. Deposits in the Bank are insured by the Bank Insurance Fund of the
FDIC, subject to applicable limits.
In fiscal 1991, the OTS approved requests by AGI and the Bank for the
Bank to be deemed a
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"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, 1998, 91.4% of the
Bank's portfolio consisted of such assets.
Financial Information about Industry Segments
The information required by this item is disclosed in item 8 of this filing
in Note 18 of Notes to Consolidated Financial Statements.
Narrative Description of Business
The principal sources of revenue for the last five years are disclosed in
item 8 of this filing under the caption "Five Year Financial Summary." A
discussion of the components of services provided and related compensation
follows.
Agency Commissions
During the three years in the period ended September 30, 1998, agency
commissions represented 40%, 42% and 42%, respectively, of the Company's
total revenues. Agency commissions are substantially derived from sales of
listed and over-the-counter securities and mutual funds primarily to retail
clients.
For sales of listed securities, Advest acts as an agent for its
customers in the purchase and sale of securities on the major securities
exchanges. Advest executes purchases and redemptions of shares for its
clients in many diverse mutual funds. Included in mutual fund revenues are
12b-1 distribution fees which Advest receives from mutual funds companies
as reimbursement for distributing shares of their funds. 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. 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 insurance department provides customized
advice and recommends appropriate products to meet unique individual,
professional or business needs. Advest also effects for its customers the
purchase and sale of put and call options traded on all major stock
exchanges. Other commissions include commissions from commodity trading,
international stocks and bonds, certificates of deposit and income from
correspondent brokers.
Principal Transactions
Revenue from principal transactions includes realized and unrealized gains
and losses on Advest's trading accounts and related sales credits as well
as realized gains and losses on the Bank's trading and available for sale
securities. Advest's corporate bond trading desk specializes in investment
grade corporate bonds. Advest also actively engages in trading municipal
and unit investment trusts. During fiscal 1998, Advest established an
institutional agency and mortgage-backed securities trading unit staffed by
twenty professionals in Boca Raton, Florida. The Company does not actively
participate in the high yield securities market.
Advest seeks to reduce the risk associated with its trading portfolio,
which has grown substantially during the past two years, on an aggregate
basis. Inventory policies reflect the level of aggregate short and long
positions that may be held for trading and are specified by product line.
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In addition, Advest manages the risk associated with its municipal bond
trading securities by entering into derivative transactions, primarily
exchange-traded financial futures contracts, when inventory levels exceed
pre-determined levels as defined in its risk management policy. Derivative
positions are generally not material and are marked-to-market daily.
Hedging is limited to the underlying trading portfolio's interest rate risk
and is not speculative in and of itself.
Advest's Nasdaq desk 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, 1998, Advest made dealer markets in
the common stock or other equity securities of approximately 200
corporations. The Nasdaq desk also supports the activities of Advest's
equity capital markets activities.
Investment Banking
Advest manages and participates in underwritings of corporate and municipal
securities and closed-end funds. Advest's Investment Banking Division also
provides merger and acquisition, consulting and valuation services.
Advest's Investment Banking Division concentrates its efforts on raising
capital for mid-size companies, primarily in the banking, insurance,
technology, consumer and commercial markets and health care industries.
Advest's Fixed Income Group specializes in private placements of fixed
income securities and is part of the Investment Banking Division. Public
Finance services health care and educational institutions as well as state
and local issuers primarily in New England and New York. The Syndicate
Department is responsible for Advest's participation in underwritings
managed by Advest and other firms and acts as co-manager of other
offerings, principally closed-end funds. Generally, the Company does not
engage in bridge financing activities.
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. Furthermore, 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.
Asset Management and Administration
Advest provides money management services to its brokerage customers
through its Investment Management Services Department ("IMS"). IMS
administers a wide range of wrap and fee-based services, from client
directed to fully discretionary. Services include 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 approximately 20 managers not
affiliated with the Company. At September 30, 1998, IMS was servicing
approximately $4 billion of assets in its six fee-based programs, including
assets serviced by HCG which was merged into IMS in October 1997. BA, an
investment advisory firm, services private clients including some clients
in the Managed Account Consulting program administered by IMS. Asset
management and administration revenues also include fees for money market
services, retirement plan administration, Centennial Accounts and
securities custody and safekeeping.
The Advest Centennial Account enables brokerage clients to participate
in an integrated financial services program. Centennial Account clients
have access to their assets through
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unlimited checkwriting and a Mastercard debit card issued by a major third
party bank as well as on request loans collateralized by margined
securities. Automated Clearing House ("ACH")deposits and withdrawals are
available to Centennial Accounts who can select among various automatic
daily investment options for idle cash balances, including an FDIC-insured
money market account with the Bank and eleven money market mutual funds in
a single fund family.
The Bank's Trust Division provides fiduciary, trust 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 and Trust Company 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 Notes 14 and 15 of Notes to Consolidated Financial Statements in item 8
of this filing.)
Interest Income and Customer Financing
Advest's 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.
Customer credit balances, retained earnings, cash received from stock
loan activities, and short-term borrowings are the primary source for
financing customer margin accounts.
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Other Income
Other income includes execution fees, exchange and other marketing credits,
transfer and service fees, gains on sales of mortgages by the Bank in
secondary markets and 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, technology and
consumer products and services. Correspondent research provides information
and recommendations on approximately 3,000 domestic and international
equities in over 90 industries in 30 countries.
Administration and Operations
Administrative and operations personnel are responsible for the execution
of orders, processing of securities transactions, receipt, identification
and delivery of funds and securities, custody of clients' securities,
extension of credit to clients, general accounting and office services
functions, internal financial and management controls and regulatory
compliance.
Since 1993, Advest has used the services of a third party data
processor for all back office brokerage operations technology including
securities and money transactions, trade confirmations and statements. A
new financial and management reporting system has been installed as of
October 1, 1998.
The company believes its internal controls and safeguards are
adequate, although fraud and misconduct by clients and employees are risks
inherent in the securities business. As required by the NYSE and other
regulators, the company carries fidelity bonds covering loss or theft of
securities as well as embezzlement or forgery. The Company believes the
amounts of coverage provided by the bonds is adequate.
Employees
The Company employs approximately 1,750 persons primarily at Advest, its
broker-dealer subsidiary. Advest has some 1,670 employees including 511
non-trainee retail sales professionals. The Company considers its
compensation and employee benefits, which include medical, life and
disability insurance, a 401(k) defined contribution plan and restricted
stock and option programs, to be competitive with those offered by other
securities firms. None of the Company's employees are covered by
collective bargaining agreements. The Company considers its relations with
its employees to be satisfactory. However, there is considerable
competition for experienced financial services professionals, particularly
investment executives, and periodically the Company may experience the loss
of valued professionals.
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. It is
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impossible to predict the effect of the broader distribution locales
offered by competing entities (including internet-based securities
brokerage systems, in which the company does not engage), 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 affects the volume of business being conducted.
In soliciting trust business, the Bank 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 the terms of federal banking regulations
concerning brokered deposits, the Bank at September 30, 1998 was deemed to
be a "well capitalized" bank and as such was not subject to restrictions
regarding brokered deposits. The Bank had $78.8 million of brokered
deposits as of September 30, 1998.
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
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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, BA, 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 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
$49.5 million of coverage per customer for securities held in customers'
accounts.
As a federal 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 OTS and 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, <PAGE>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 OTS.
Refer to item 7 of this filing under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and in item 8 of this filing in Notes 5 and 11 of the Notes to Consolidated
Financial Statements for further information regarding capital and
regulatory considerations of the Bank.
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, various state legislatures and
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. 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 range from the highest
capitalization designation which is "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) to the lowest level which is "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. Holding Company guarantees apply if an
insured institution is classified in one of three "undercapitalized"
designations. The Bank, meets the criteria to be classified a "well
capitalized" bank as of September 30, 1998.
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, 1998. Average balances are calculated predominately on a daily basis.
<TABLE>
<CAPTION> Interest Average InterestAverage Interest Average
Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/
(In thousands) Balance Expense Rates Balance Expense Rates Balance Expense Rates
- ---------------------------------------------------- --------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets
CD's, time deposits, federal funds
and other short-term
investments $6,001 $311 5.18% $5,674 $313 5.52% $8,132 $436 5.36%
Investment securities: (1)
U.S. government and
agency obligations 558 31 5.56% 905 54 5.96% 541 32 5.91%
Other 500 40 8.00% 500 39 7.80% 606 40 6.60%
Mortgage-backed
securities 8,498 457 5.38% 18,265 1,186 6.49% 21,815 1,378 6.32%
Available for sale 6,542 506 7.73% N/A N/A N/A N/A N/A N/A
FHLB stock 2,270 146 6.43% 2,272 145 6.38% 2,233 145 6.49%
Loans (net of
unearned income) (2) 186,638 13,847 7.42% 184,619 13,867 7.51% 206,680 16,040 7.76%
---------- -------- ------ -------- ------- ------ -------- -------- -------
Total interest-earning $211,007 $15,338 7.27% $212,235 $15,604 7.35% $240,007 $18,071 7.53%
========== ======== ====== ======== ======= ====== ======== ======== =======
Noninterest-earning assets
Cash and
and cash equivalents 954 817 874
Property and equipment 771 742 683
Interest receivable 1,211 1,151 1,593
OREO and other assets 2,589 2,654 5,856
------- --------- --------
Total noninterest-
earning assets 5,525 5,364 9,006
------- --------- --------
$216,532 $217,599 $249,013
========= ========= =========
Liabilities and shareholder's equity
Interest-bearing liabilities
Total deposits (3) $164,993 $7,180 4.35% $182,739 $7,619 4.17% $215,117 $8,974 4.17%
FHLB advances 33,198 1,996 6.01% 18,240 1,175 6.44% 14,364 1,005 7.00%
--------- -------- ------ ------- ------- ------ ------- -----------------
Total interest-
bearing liabilities 198,191 9,176 4.63% 200,979 8,794 4.38% 229,481 9,979 4.35%
--------- -------- ------ ------- ------- ------ ------- -----------------
Noninterest-bearing liabilities
Accrued interest
payable 604 739 1,023
Other liabilities 1,669 887 4,004
Accrued expenses 96 257 474
------- --------- --------
Total noninterest-
bearing liabilities 2,369 1,883 5,501
------- --------- --------
Shareholder's equity 15,972 14,737 14,031
------- --------- --------
$216,532 $217,599 $249,013
========= ========= =========
Net interest income
(tax equivalent basis) $6,162 $6,810 $8,092
===== ====== =====
Net interest spread (tax equivalent basis) 2.64% 2.98% 3.18%
===== ===== =====
Net interest income as a percentage of
interest-earning assets
(tax equivalent basis) 2.92% 3.21% 3.37%
===== ===== =====
(1) Securities available for sale are included in investment securities.
(2) Nonaccrual loans at year end are included in the total loan portfolio.
(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 1998 and 1997.
<TABLE>
<CAPTION>
1998 vs. 1997 1997 vs. 1996
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 17 (19) (2) (132) 9 (123)
Investment securities: (1)
US government and
agency obligations 123 (2) 121 21 1 22
Other 0 1 1 (7) 6 (1)
Mortgage-backed securities (597) (90) (687) (225) 33 (192)
FHLB stock 0 1 1 3 (3) 0
Loans (net of unearned income) (2) 151 (171) (20) (1,677) (496) (2,173)
------- ------- -------- ------- ------- --------
Total interest income (306) (280) (586) (2,017) (450) (2,467)
------- ------- -------- ------- ------- --------
Interest expense
Total deposits (3) (742) 303 (439) (1,350) (5) (1,355)
FHLB advances 616 205 821 269 (99) 170
------- ------- -------- ------- ------- --------
Total interest expense (126) 508 382 (1,081) (104) (1,185)
------- ------- -------- ------- ------- --------
Change in net interest income $ (180) $ (788) $ (968) $ (936) $ (346) $ (1,282)
======= ======== ======= ===========================
(1) Securities available for sale and trading securities are included in
investment securities.
(2) Nonaccrual loans at year end are included in the total loan portfolio.
(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, 1998:
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ---------------- ----------------
(In thousands) Amount % Amount % Amount %
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
US government and agency obligations 500 3% 600 3% 599 2%
Mortgage-backed securities 6,720 40% 8,002 38% 10,635 42%
Other 500 3% 500 2% 500 2%
FHLB stock 2,270 13% 2,270 11% 2,233 10%
Securities available for sale (4) 6,990 41% 9,677 46% 11,157 44%
----------- ----------------------------------------------
Total 16,980 100% 21,049 100% 25,124 100%
=========== ==============================================
</TABLE>
The following table sets forth the maturities of investment securities at
September 30, 1998 and the weighted average (tax equivalent) yields on such
securities:
<TABLE>
<CAPTION>
Within After one but After ten
one year within five years years Total
- ------------------------ -------- ---------------- -------- -------- ------------------------
(In thousands) Amount Yield Amount Yield Amount Yield Amount Yield
- ------------------------ -------- ---------------- -------- -------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
US government and agency
obligations - - 500 5.50% 0 - 500 5.50%
Mortgage-backed
securities - - - - 6,720 6.16% 6,720 6.16%
Other - - 500 8.00% 0 - 500 8.00%
FHLB stock 2,270 6.30% - - 0 - 2,270 6.30%
Securities available
for sale (4) 5,000 5.45% - - 1,990 5.64% 6,990 5.50%
-------- ------------------- -------- -------- ------------------------
Total 7,270 5.72% 1,000 6.75% 8,710 6.04% 16,980 5.94%
============================ ================== =========================
</TABLE>
(4) Securities available for sale are detailed in Note 4 of Notes to
Consolidated Financial Statements in the 1998 Annual Report to Shareholders.
As of September 30, 1998, the Bank held the following securities investments
which exceeded 10% of shareholder's equity.
<TABLE>
<CAPTION>
Market
Issuer Name Description Book Value Value Coupon Maturity Date
- ---------- ------------ --------- ------------------------------
<S> <C> <C> <C> <C> <C>
Federal National
Mortgage Corp. ARM Pool #218194 1,667,971 1,690,328 7.05%06/01/2023
Chase Financial
Mortgage Corp. 1998-54 A9 CMO 1,990,275 1,990,275 6.90%08/25/2028
</TABLE> -11-
<PAGE>
Lending Activities
The following table summarizes the composition of loan portfolio for the three
years ended September 30, 1998:
<TABLE>
1998 1997 1996
------------------- ------------------- -------------------
(In thousands) Amount % Amount % Amount %
- ------------------------------------------- ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and
financial $3,143 2% 4,627 2% 2,757 2%
Real estate
construction 3,966 2% 3,637 2% 4,946 2%
Real estate mortgage 163,580 91% 179,188 94% 177,734 95%
Installment 9,650 5% 3,732 2% 1,097 1%
----------- --------- ------------------ -------------------
Gross total loans 180,339 100% 191,184 100% 186,534 100%
========= ========= ==========
Less: Allowance for
loan loss 2,267 2,479 2,278
----------- ---------- ----------
Net total loans $178,072 $188,705 $184,256
=========== ========== ==========
</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, 1998 are
comprised of residential, commercial and multifamily mortgages of approximately
$148.4 million, $12.5 million and $6.6 million, respectively. Commercial real
estate loans are primarily located in the Northeast and include as collateral
multifamily, health care, office and industrial property. The Bank is no
longer an active loan originator in the commercial real estate
market. The Bank's residential loan portfolio is primarily collateralized by
mortgages on 1-4 family residential properties located throughout the eastern
United States with concentrations in 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. Such purchases are primarily
loans collateralized by property located in Connecticut and Massachusetts.
The following table shows the interest rate sensitivities of loans outstanding
as of September 30, 1998 which are due or reprice in the periods indicated.
Loans due within one year include demand loans. After one
<TABLE>
After one
Within but within After five
(In thousands) one year five years years Total
- ----------------------- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and financial $9,814 $60 $905 $10,779
Real estate construction 2,765 232 1,626 4,623
Real estate mortgage 93,091 17,031 51,734 161,856
Installment 2,059 471 551 3,081
--------- --------- --------- ---------
Total $107,729 $17,794 $54,816 $180,339
========= ========= ========= =========
Fixed interest rate $1,858 $4,113 $52,960
Variable interest rate 105,871 13,681 1,856
--------- --------- ---------
Total $107,729 $17,794 $54,816
========= ========= =========
Nonperforming Assets
A summary of nonperforming assets by type follows for the three years ended
September 30, 1998:
(In thousands) 1998 1997 1996
- ----------------------- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Non-accrual loans $2,478 $4,135 $1,423
Accruing loans contractually past due 90 days or more 185 - 42
Other real estate owned, net - 1,046 984
--------- --------- ---------
Total nonperforming assets $2,663 $5,181 $2,449
========= ========= =========
Nonperforming assets as a percentage of loans
and other real estate owned 1.5% 2.7% 1.3%
========= ========= =========
</TABLE>
Generally loans are placed on nonaccrual status when interest or principal is
past due for ninety days or earlier if circumstances indicate collection is
doubtful. The Bank resumes the accrual of interest on such loans if, in the
opinion of management, the borrower has demonstrated adequate financial
resources and intent to meet the terms and conditions of the loan, and all
payments are again current. Interest income forgone on nonperforming loans in
fiscal years 1998, 1997, and 1996 amounted to $736,000, $576,000 and $297,000,
respectively. During 1998, 1997 and 1996, approximately $1,000, $2,000 and
$187,000, respectively, of income was recognized on non-accrual loans and loans
accruing past due 90 days or greater. This income was recognized while the
loans were nonperforming and was realized by cash payments. It is management's
policy to reverse all uncollected interest at the time a loan is placed on
nonaccrual.
-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, 1998:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $2,479 $2,278 $2,213
-------- -------- --------
Charge-offs:
Real estate mortgage 388 725 1,196
Installment 69 - -
Commercial - 0 81
-------- -------- --------
457 725 1,277
-------- -------- --------
Recoveries:
Real estate mortgage 73 297 273
Commercial 2 0 15
-------- -------- --------
75 297 288
-------- -------- --------
Net charge-offs 382 428 989
Additions charged to operations 170 629 1,054
-------- -------- --------
Balance at end of period 2,267 2,479 2,278
======== ======== ========
Ratio of net charge-offs to average loans
outstanding during the period 0.20% 0.23% 0.48%
======== ======== ========
</TABLE>
The Bank maintains reserves for estimated losses from its loan portfolio in an
Allowance for Possible Loan Losses (the "ALL"). The ALL is maintained at a
level considered by management to be adequate. The adequacy of the ALL 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 ALL. 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, 1998 and 1997, respectively, $724,000 and $2,948,000, of
loans were classified as impaired. 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 as of September
30, 1998 and 1997 were all classified as nonaccrual. There were no loans for
which potential credit problems may lead to future non accrual status or
possible charge at September 30, 1998 and 1997.
Impaired assets requiring a specific impairment reserve as of September 30,
1998 and 1997 were $446,000 and $1,368,000, respectively, with related
allowances for credit losses of $46,000 and $65,000, respectively. The average
recorded investments in impaired loans were $1,978,000 and $4,582,000 during
fiscal 1998 and 1997, and 1996, respectively. Income recognized for loans
classified as impaired was $1,000, $288,000, and $292,000 during fiscal 1998,
1997, and 1996, respectively. All impaired loans were classified as loans held
for investment.
Loans are charged off against the ALL 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.
-13-
<PAGE>
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, 1998:
<TABLE>
<CAPTION>
1998 1997 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
reserve total loans reserve total loans reserve total loans
(Dollars in thousands)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and
financial $22 2% $40 2% $24 2%
Real estate
construction 28 2% 31 2% 44 2%
Real estate mortgage 1,212 91% 1,608 94% 1,587 96%
Installment 193 5% 75 2% 22 -
Commitments 494 - 434 - 340 -
Unallocated 318 - 291 - 261 -
------- ------- ------- ------- ------- --------
Total $2,267 100% $2,479 100% $2,278 100%
======= ======= ======= ======= ======= =======
</TABLE>
Deposits
The Bank offers a variety of deposit accounts designed to attract both short
and long term funds. The Bank provides a money market deposit account to
Advest's customers as a component of various cash management products available
to those customers. The Bank primarily markets brokered Certificates of
Deposit (CD's) through Advest. The Bank also markets retail deposit accounts,
such as money market accounts, primarily through Advest. At September 30,
1998, deposits obtained through Advest constituted 68.9% of all deposits at the
Bank. Additional deposit information is disclosed in Note 5 of Notes to
Consolidated Financial Statements in the 1998 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, 1998:
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------- -------------------
Average Average Average Average Average Average
(Dollars in balance rate balance rate balance rate
thousands)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Demand noninterest-
bearing $247 $99 -
Savings noninterest-
bearing 92 95 $98
Savings 200 2.08% 58 2.98% 19 2.36%
Money market 100,104 3.00% 120,963 2.82% 149,347 2.90%
Time certificates 64,350 6.14% 61,524 6.30% 65,653 6.24%
------------------ ------------------ ------------------
Total deposits $164,993 4.22% $182,739 4.17% $215,117 4.17%
================== ================== ==================
</TABLE>
Average balances are calculated predominately on a daily basis.
The following table sets forth the maturity distribution of time deposits of
$100,000 or more as of September 30, 1998:
(Dollars in thousands) Amount
--------------------------------------------------------
Three months or less $2,361
Over three months to six months 4,186
Over six months to twelve months 7,820
Over twelve months 5,904
----------
$20,271
==========
<TABLE>
<CAPTION>
Return on Equity and Assets
Years ended September 30,
-----------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Return on assets
(net income/average total assets) 0.34% 0.31% 0.41%
Return on equity
(net income/average equity) 4.61% 4.53% 7.21%
Net interest margin 2.85% 3.13% 3.25%
Equity to assets
(average equity/average assets) 7.38% 6.77% 5.63%
</TABLE>
Short-Term Borrowings
<TABLE>
<CAPTION>
Years ended September 30,
---------------------------------------
(Dollars in thousands) 1998 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Other short-term borrowings
Balance at year end $10,500 $29,250 $4,750
Weighted-average interest rate
at year end 5.62% 5.90% 6.76%
Average amount outstanding
during the year $23,647 $9,368 $7,827
Maximum amount outstanding
at any month end $34,250 $29,250 $10,500
Weighted-average interest rate
during the year 5.88% 6.04% 7.01%
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.
</TABLE> -14-
<PAGE>
Item 2. Properties
The Company's principal executive offices are located at 90 State House
Square, Hartford, Connecticut, 06103 (telephone number (860) 509-1000). 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 or cash flows of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The information required by this item is disclosed in item 8 of this filing
in Note 9 of the Notes to Consolidated Financial Statements and under the
caption "Quarterly Financial Information".
Shareholder Information
Annual Meeting - The annual meeting of shareholders will be held at the Old
State House, Hartford, CT on January 28, 1999 at 10:30 AM. Proxy statements
and proxies are mailed to shareholders of record as of December 10, 1998.
As of September 30, 1998 there were 746 common stockholders of record.
One copy of the Company's annual report on Form 10-K 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 - American Stock Transfer & Trust
Company, 40 Wall Street, 46th floor, New York, NY 10005, 212-936-5100 or
800-937-5449.
-15-
<PAGE>
<TABLE>
Five Year Financial Summary
For the years ended September 30,
In thousands, except per share --------------------------------------------------------
amounts and percentages 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues
Commissions:
Listed $ 50,556 $ 49,499 $ 43,390 $ 39,773 $ 36,284
Mutual funds 41,192 36,661 34,210 22,693 22,337
Over-the-counter 24,213 23,352 19,714 12,554 10,374
Insurance 8,388 8,227 7,969 4,487 5,164
Options 4,178 4,339 3,552 3,071 2,570
Other 1,298 954 1,280 1,686 2,761
------------------------------------------- -----------
129,825 123,032 110,115 84,264 79,490
------------------------------------------- -----------
Interest:
Margin accounts 33,482 28,670 25,246 23,761 17,868
Loans 17,116 13,867 16,041 20,005 19,016
Stock borrowed 15,704 10,645 6,970 3,773 978
Investments 2,332 2,953 3,836 6,132 6,793
Securities inventory 3,019 2,525 1,849 1,470 1,016
Other 1,086 1,222 1,283 941 413
------------------------------------------- -----------
72,739 59,882 55,225 56,082 46,084
------------------------------------------- -----------
Principal transactions 44,776 43,880 38,591 41,424 32,297
Investment banking 37,606 31,291 26,687 17,571 25,743
Asset management and administr 33,491 25,844 20,050 16,810 16,399
Other 6,791 7,278 9,234 16,583 5,216
------------------------------------------- -----------
Total revenues 325,228 291,207 259,902 232,734 205,229
------------------------------------------- -----------
Interest expense:
Stock loaned 14,137 10,261 6,496 4,050 1,103
Brokerage customers 9,269 8,565 8,769 9,928 6,342
Deposits 7,168 7,596 8,449 11,002 9,613
Borrowings 9,465 5,482 4,698 4,704 5,064
Other 459 666 1,060 882 462
------------------------------------------- -----------
40,498 32,570 29,472 30,566 22,584
------------------------------------------- -----------
Net revenues 284,730 258,637 230,430 202,168 182,645
------------------------------------------- -----------
Non-interest expenses
Compensation and benefits 182,705 163,852 146,573 121,646 114,800
Communications 28,238 23,955 20,917 18,999 19,135
Occupancy and equipment 19,092 17,758 17,567 17,369 15,614
Professional 5,638 6,729 5,543 5,468 6,231
Business development 7,321 6,664 5,613 4,204 4,532
Brokerage, clearing and exchan 4,542 4,676 4,174 3,922 3,693
Other 7,765 9,695 9,936 18,733 13,285
------------------------------------------- -----------
Total non-interest expenses 255,301 233,329 210,323 190,341 177,290
------------------------------------------- -----------
Income before taxes 29,429 25,308 20,107 11,827 5,355
Provision for income taxes 11,477 10,376 8,847 5,440 2,302
------------------------------------------- -----------
Net income $ 17,952 $ 14,932 $ 11,260 $ 6,387 $ 3,053
======================================================
Per share data
Basic earnings $ 2.20 $ 1.86 $ 1.37 $ 0.76 $ 0.35
Diluted earings $ 1.92 $ 1.62 $ 1.18 $ 0.72 $ 0.39
Book value $ 13.82 $ 12.24 $ 10.66 $ 9.52 $ 8.62
Dividends $ 0.16 $ 0.09 -- -- --
Other data
Total assets $1,233,271 $1,078,839 $ 965,845 $ 832,540 $ 884,855
Shareholders' equity $ 123,667 $ 105,653 $ 89,590 $ 79,818 $ 73,980
Subordinated borrowings -- -- $ 20,552 $ 20,552 $ 20,997
Long-term borrowings $ 41,308 $ 41,321 $ 19,744 $ 17,240 $ 30,388
Return on average equity 15.6% 15.4% 13.2% 8.3% 4.1%
Average shares outstanding:
Basic 8,151 8,043 8,203 8,442 8,776
Diluted 9,344 9,344 10,263 10,262 10,566
</TABLE>
-16-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
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 89
sales offices in 16 states and Washington, DC. Advest Bank and Trust
Company (the "Bank"), an FDIC-insured, federal savings bank, offers
residential mortgage lending and trust services primarily through Advest's
branch network.
All aspects of the Company's business are highly competitive and
impacted by regulatory and other factors outside of its control, including
domestic and global 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, 1998, the Company reported record net
income and diluted earnings per share of $18.0 million ($1.92 per share)
compared with net income of $14.9 million ($1.62 per share) in 1997 and
$11.3 million ($1.18 per share) in 1996. Record revenue levels were
achieved for the fourth consecutive year. Results for 1998 include income,
primarily interest, related to the payoff of a mortgage on property managed
by Billings Management Company, a subsidiary of the Company. The mortgage
had been classified as a nonperforming asset on AGI's books; accordingly,
no interest income had been accrued. The impact of the payoff was to
increase fourth quarter and fiscal year net income by $1.4 million or $.15
per diluted share.
Earnings for the three years in the period ending September 30, 1998
reflect a change in Advest's accounting procedures concerning the
recognition of income from warrants. Advest periodically receives warrants
in conjunction with its investment banking activities. Because the
exercise of these warrants frequently is restricted for one year and large
block sales of the underlying stocks may be difficult, the Company
historically recognized income only upon exercise. Retroactive to October
1, 1994, the Company adopted the accounting procedures for warrants
outlined in Emerging Issues Task Force ("EITF") 96-11. The cumulative
effect was to increase retained earnings as of September 30, 1994 by
$850,000. The effect on the subsequent periods, the fiscal years ended
September 30, 1995, 1996 and 1997 and the six months ended March 31, 1998,
was a collective net decrease in earnings of $30,000. The overall impact
of the adoption of EITF 9611 was a net increase to equity of $820,000 and
is not material to consolidated results both as previously reported and as
restated. The Company amended its filing on Form 10-K for the fiscal year
ended September 30, 1997 to reflect the retroactive adoption of EITF 96-11.
The Company attained record revenues and earnings for a second
consecutive year substantially on the strength of an unprecedented eight
year upward run of the equity markets. During the quarter ending September
30, 1998, after a volatile summer trading session, the equity markets
finally faltered with the Dow Jones Industrial Average closing down 12% for
the quarter and 16% from its record high set July 17, 1998. The fourth
quarter decline turned a nine month 11% gain into a twelve month loss of
1%. The S&P 500 and Nasdaq Composite both posted double digit losses for
the quarter while maintaining positive gains of 7% and less than 1%,
respectively, through twelve months. It was the single worst quarter for
benchmark U.S. and European indices since the September quarter of 1990.
The market correction, for a time declining by the requisite
-17-
<PAGE>
20% to be considered a bear market, was largely attributable to investor
concerns over slowing economies worldwide and high stock valuations.
Fourth quarter underwriting activity, following a robust July, slowed to a
virtual halt with only four companies going public in September. On
September 29th, the Federal Reserve cut interest rates 25 basis points, the
first cut in three years. A second 25 basis point cut followed on October
15th amid widespread concern that the initial cut was insufficient to
reverse the slowdown in corporate earnings growth and counter the
difficulties that even the blue chip firms were encountering in raising
capital. On the debt side, the yield on U.S. treasuries dropped below 5%
for the first time since 1967.
The market volatility that characterized much of fiscal 1998
underscores the fact that the markets can be unpredictable and are impacted
by many factors, most of which are outside of the Company's control.
During 1998, those factors included foreign economic troubles, slowed
corporate earnings growth, high stock valuations, speculative investing and
the President's political turmoil. These factors remain as the Company
begins its 1999 fiscal year.
Advest, Inc.
For the second consecutive year, Advest posted record revenues and profits.
For fiscal 1998, Advest's pre-tax profits were $28.1 million compared with
$28.0 million last year. Total revenues increased 12% to $303.0 million
with record levels attained for agency commissions, interest income,
principal transactions, investment banking and asset management revenue.
Fourth quarter results, however, reflected the volatility in the equity
markets, with quarterly pre-tax earnings declining 31% from the prior year.
Total fourth quarter revenues increased 1%, however, 23% and 21% year-to
year increases in asset management and investment banking revenues,
respectively, helped offset a significant decline in agency commissions.
After attaining record highs for both agency commissions and principal
transactions in the fourth quarter of fiscal 1997, revenues were lower for
each of the four quarters of fiscal 1998. On the underwriting side, the
fourth quarter generated the lowest investment banking revenues for the
fiscal year, reflecting the trend on Wall Street, although year-to-year,
fourth quarter revenues increased as previously noted. Total expenses
increased 13% to $275.0 million primarily due to higher sales-volumerelated
compensation and increased staffing levels firm-wide; higher interest
expense related to increased short-term borrowings and higher communication
expenses related primarily to technology upgrades and volumedriven costs of
Advest's third party data processor.
Fiscal 1997 results were favorably impacted by the continued upward
trend of the equity markets, despite some mid-year volatility. Sustained
by healthy corporate earnings, low levels of inflation, unemployment and
interest rates, the Dow Jones Industrial Average closed at 7945 on
September 30, 1997, a 35% one year gain. The S&P 500 and Nasdaq indices
closed up 38% and 35%, respectively. Equity underwriting remained at high
levels, benefiting from low interest rates and a steady infusion of cash
into mutual funds. For fiscal 1997, Advest reported pre-tax income of
$28.0 million, an increase of 31% from the prior year. Total revenues
increased 14% to $271.6 million, a record high with record levels achieved
in all categories with the exception of other income. Total expenses
increased 13% to $243.6 million, primarily due to increased compensation
costs related to market-driven sales compensation and higher firm-wide
payroll.
Advest Bank and Trust Company
During 1998 and 1997, 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 and trust services primarily through referrals from Advest's
retail sales force. In 1997, the Bank converted to a federal savings bank
from a statechartered bank. As a federal
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savings bank, the Bank is regulated by the Office of Thrift Supervision
("OTS"), but its deposits continue to be insured under the Bank Insurance
Fund of the FDIC. This regulatory and charter change enables the Bank to
provide residential lending and trust services in all 50 states.
The Bank's 1998 pre-tax earnings were $.8 million compared with $.7
million last year. This modest increase is largely attributable to lower
provisions for credit losses and asset devaluation. The lower current year
provisions are reflective of a 75% decline in impaired loans from the prior
year and the fourth quarter 1998 disposition of real estate owned which
accounted for most of a 49% year-to-year decrease in nonperforming assets
("NPAs"). Current year revenues were negatively impacted by a continuing
change in the mix of loans to residential mortgages and home equity lines
from higher-yielding commercial loans. During 1998, $135.3 million of
residential mortgage and home equity loans were originated and secondary
market mortgage transactions totaled $80.6 million. Trust assets were
substantially unchanged as market volatility offset asset gains from new
business. Trust revenues increased 26% to $1.0 million.
The Bank's 1997 pre-tax earnings were $.7 million compared with $1.1
million in the prior year. The decline was primarily due to a change in
the mix of average loans outstanding to lower yielding mortgages and home
equity lines from higher yielding commercial loans as well as a $2.7
million increase in NPAs. During 1997, $95.1 million of residential
mortgage and home equity loans were originated and secondary market
mortgage transactions totaled $30.1 million. Trust assets increased 61% to
approximately $475 million.
At September 30, 1998 the Bank's Tier 1 or leverage capital, Tier 1
risk-based and total risk-based capital ratios were 7.61%, 9.58% and
10.83%, respectively, compared with 6.84%, 8.79% and 10.04%, respectively,
at September 30, 1997. The ratios satisfied all regulatory requirements
for both periods. The Bank is deemed a "well capitalized" bank and as such
is able to accept brokered deposits without restriction.
Other
In October 1997, Advest acquired Ironwood Capital Ltd., ("Ironwood") a
private investment bank that originates and distributes private placements
of taxable fixed income securities. Ironwood's employees comprise the
Corporate Fixed Income Group of Advest's Investment Banking Division. The
Company issued 137,060 shares of its common stock in conjunction with the
acquisition which has been accounted for as a pooling of interests. Due to
the immaterial effect on the Company's consolidated financial position and
results of operations, Ironwood's operating results are included
prospectively in the Company's consolidated financial statements.
In December 1997, the Company filed a Form S-3 Shelf Registration
which enables it to issue both debt and equity securities up to an
aggregate $50 million. Potential proceeds from debt or equity offerings
would be used for general corporate purposes which may include debt
refinancing and growth through acquisition. The registration was declared
effective January 5, 1998.
Year 2000
Many computer programs and equipment with embedded chips or processors use
two rather than four digits to represent the year and may be unable to
accurately process dates after December 31, 1999. This, as well as certain
other date-related programming issues, may result in miscalculations or
system failures which can disrupt the businesses which rely on them. The
term "Year 2000 Issue" is used to refer to all difficulties the turn of the
century may bring to computer users.
Since 1996 the Company has been assessing the possible impact of the
Year 2000 issue on its business and developing plans to correct the
problems detected. This effort is led by a project team within the
Company's Information Systems Group, with the assistance of a Year 2000
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Steering Committee consisting of senior representatives from the Company's
principal departments. This project team has developed an action plan to
address the Year 2000 issue in five general stages: awareness, assessment,
remediation, validation and implementation.
The Company has determined that many of its internal computer
programs and some items of its equipment are susceptible to potential Year
2000 system failures or processing errors. This assessment of internal
systems is substantially complete and plans have been formulated to modify
or replace the impacted programs or equipment. Remediation efforts are
underway using both internal and external resources, with priority given to
those "mission critical" systems whose failure might have a material impact
on the Company. To date all required changes have been identified and made
and testing of the changes is approximately 60% complete.
The Company relies heavily on vendors, correspondents and service
providers in various aspects of its operations. An important part of the
Year 2000 program involves working with those third parties to determine
the extent to which the Company may be vulnerable to their failure to
address their own Year 2000 issues. The Company is communicating with those
third parties to ascertain whether their Year 2000 issues which might
impact the Company are being addressed. Where practical and appropriate,
the Company will try to verify the information or assurances they provide
with testing, particularly with regard to mission critical relationships.
At present, the Company has not been advised by any third party of any Year
2000 issue likely to materially interfere with the Company's business.
However, not all third parties have been responsive to the Company's
inquiries and there may be providers of significant services on which the
Company relies, such as utilities, which are unwilling or unable to provide
information concerning their Year 2000 readiness. To the extent that
outside vendors do not provide satisfactory responses, the Company will
consider changing to vendors who have demonstrated Year 2000 readiness.
However, there are no assurances that the Company will be able to do so.
The Company's brokerage subsidiary is highly dependent on a single
third party service provider to maintain client account information,
process transactions, and deliver client and operational reports. This
service provider has advised the Company that it expects to address its
Year 2000 issues in time. However, any failure by this third party to
successfully address its Year 2000 issues would result in a serious
disruption to the Company's operations. More generally, the financial
services industry in which the Company operates is characterized by a high
degree of interdependence among firms. Any unresolved Year 2000 issue in
one firm which interfered with the processing of securities transactions or
disrupted the securities markets could materially impact other firms within
the financial services industry, including the Company. To address these
concerns, the Company and the service provider referred to above
participate actively in an industry-wide testing program among financial
services firms which began in April 1998 and will continue through December
1999.
The Company has begun to develop contingency plans to minimize any
Year 2000 disruptions in the event that an internal or third party mission
critical system does not function properly. Contingency plans may include
manual processing of transactions, use of alternative service providers,
relocation to temporary facilities, programming fixes and other measures.
Once developed, these contingency plans will be continually refined as
additional information becomes available.
The consequences of an uncorrected Year 2000 issue could include
business interruption,
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noncompliance with regulatory requirements, exposure to monetary claims by
clients and others and loss of business goodwill. The Company's
subsidiaries are engaged in highly regulated businesses and failure to
comply with the changing regulatory requirements relating to Year 2000
issues could preclude their engaging in those businesses. The likelihood
of these events and the possible financial impact if they occur cannot be
predicted. Generally, the Company's insurance coverage will provide little
or no recovery to the Company for losses of this nature.
It is estimated that the costs of the Company's Year 2000 efforts will
approximate $2.5 million, of which approximately $.8 million had been spent
through September 30, 1998. These costs are being funded through operating
cash flows and are being expensed as incurred. They do not include costs
of replacing computer hardware or software with Year 2000 compliant systems
on an expedited basis where that replacement was otherwise contemplated as
part of an updating of the Company's systems. Such replacement costs are
estimated to total approximately $3.0 million firm-wide, substantially all
of which will be capitalized or financed under operating leases. These
estimates also do not include costs which would be incurred if the Company
is required to implement contingency plans. Since contingency planning is
not yet complete, the Company is not able to estimate those costs.
The Company's Year 2000 program is an ongoing process and the
estimates both of costs and completion dates are subject to change. If the
Company's efforts are not completed in time, or if the third parties on
which the Company relies are unable to complete their own efforts in a time
and manner compatible with the Company's systems, Year 2000 issues could
have a material impact on the operations of the Company. The Company's
objective is to complete substantially all required modifications or
replacements of internal mission critical systems by August 1999, allowing
for testing and certification of Year 2000 readiness during the remainder
of calendar 1999.
The estimates and conclusions set forth above contain forwardlooking
statements and are based on management's best estimate of future events.
Risks to completing the plan include the availability of resources, our
ability to discover and correct material Year 2000 issues and the ability
of the vendors, correspondents and other third parties on which the Company
relies to bring their systems into Year 2000 compliance.
Results of Operations
Net income for the years ended September 30, 1998, 1997 and 1996 was $18.0
million, $14.9 million and $11.3 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, 1998.
% %
In thousands, except Increase Increase
percentages 1998 (Decrease) 1997 (Decrease) 1996
- ------------------------------------------------------------------------
Revenues
Commissions $129,825 6% $123,032 12% $110,115
Interest 72,739 21 59,882 8 55,225
Principal transactions 44,776 2 43,880 14 38,591
Investment banking 37,606 20 31,291 17 26,687
Asset management and
administration 33,491 30 25,844 29 20,050
Other 6,791 (7) 7,278 (21) 9,234
-------- -- -------- --- --------
325,228 12 291,207 12 259,902
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Interest Expense 40,498 24 32,570 11 29,472
-------- -- -------- --- --------
Net Revenues 284,730 10 258,637 12 230,430
-------- -- -------- --- --------
Non-interest expenses 255,301 9 233,329 11 210,323
-------- -- -------- --- --------
Pre-tax income $ 29,429 16 $ 25,308 26 $ 20,107
======== == ======== === ========
Commissions
Current year agency commissions surpassed the record level set in the prior
year. Fourth quarter revenues, however, were negatively impacted as the
upward trend of the equity markets the past eight years was halted when the
benchmark indices sustained double digit fourth quarter declines.
Commission revenues increased across the board. Mutual fund commissions,
including 12b-1 fees, increased $4.5 million (12%) reflecting record
infusions of cash primarily from 401k plans into mutual funds. Over-the
counter and listed commissions increased $.9 million each, reflecting
increases of 4% and 2%, respectively. While the number of investment
executives has remained fairly constant over the past several years,
recruitment and retention of experienced professionals has contributed to
substantial increases in average annual production per broker. Record
broker productivity was achieved in each of the last three fiscal years
and, together with record stock market volume and prices, contributed to
the record revenue levels achieved during the same period.
Fiscal 1997's record high agency commissions reflected the sustained
momentum of the equity markets. Year-to-year revenue gains were posted in
each quarter. Commissions on listed securities increased $6.1 million
(14%). Record revenue levels were attained for a second consecutive year
from over-the-counter securities, up $3.6 million (19%), mutual funds,
including distribution and deferred sales charges, up $2.5 million (7%) and
insurance products, primarily variable annuities, up $.3 million (3%).
Principal Transactions
Revenue from principal transactions includes realized and unrealized gains
and losses on Advest's trading accounts and related sales credits.
Advest's corporate bond trading desk specializes in investment grade
corporate bonds and its Nasdaq trading desk market-making activities
primarily involve making product available to clients and supporting
Advest's research and equity capital markets activities. During fiscal
1998, Advest established an institutional agency and mortgage-backed
securities trading unit in Boca Raton, Florida.
Advest enters into derivative transactions to manage the interest rate
risk associated with its municipal bond inventories. 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. Realized 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 were a record high
for the second consecutive year. Equity market volatility negatively
impacted revenues as over-the-counter trading losses and declines in equity
commissions contributed to a 9% year-to-year decline in fourth quarter
revenues. Equity commissions declined $1.1 million (6%) and related
trading activities posted a $.5 million loss compared with a $.6 million
profit in 1997; in both areas fourth quarter results negated
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gains through the first nine months of the fiscal year. Commissions on
fixed income securities increased $1.5 million (8%) with fourth quarter
gains offsetting declines through nine months as investors turned away from
the equity markets. Corporate bond trading profits increased $1.9 million
reflecting a 114% increase while the institutional agency and mortgage-
backed trading desk posted a $.4 million loss in its first year.
Fiscal 1997 revenue from principal transactions increased 14% to $43.9
million. Over-the-counter trading profits were $.6 million compared with a
loss of $1.9 million in 1996 and related commissions increased $1.8 million
(11%). Corporate bond trading profits increased $1.1 million (191%) in
that trading department's first full year of operations. Municipal and
government bond trading profits rose $.5 million (25%) and $.3 million
(59%), respectively. Commissions on debt securities declined $.8 million
(4%) reflecting investor interest in the equity markets. Advest realized a
$76,000 loss on derivative transactions in fiscal 1997 compared with a
$20,000 profit in the prior year.
Investment Banking
To generate investment banking revenue, Advest manages and participates in
underwritings of corporate and municipal securities and closed-end funds.
Advest's Investment Banking Division also provides merger and acquisition,
consulting and valuation services. In general, the Company does not
participate in bridge financing activities. Advest's Investment Banking
Division concentrates its efforts on raising capital for mid-size
companies, primarily in the banking, insurance, technology, consumer and
commercial markets and health care industries. During the first quarter,
Advest acquired Ironwood Capital, a firm specializing in private placements
of fixed income securities and merged it into its Investment Banking
Division. Warrants received in conjunction with investment banking
activities are accounted for as prescribed by EITF 96-11 (Refer to Note 1.)
Public Finance services health care and educational institutions as well as
state and local issuers primarily in New England and New York.
Current year investment banking revenues were a record high for the
second consecutive year primarily due to higher private placement revenues
and commissions on equity underwritings and closed-end funds. The
Investment Banking Division completed 33 transactions during the year
valued at over $1.1 billion, including 11 merger and acquisition
transactions with a combined value of $338 million and 22 public and
private placement transactions valued at $850 million. The Syndicate
Department co-managed four closed-end funds raising $3.5 billion compared
with no deals during fiscal 1997. Commissions on equity underwritings
increased $2.8 million (31%) reflecting the robust underwriting environment
on Wall Street through most of the year. Revenue from private placements
increased $2.7 million (461%) in part related to deals completed by the
Corporate Fixed Income Group, formerly Ironwood Capital. Merger and
acquisition revenue increased $.9 million (15%). Consulting and valuation
revenue declined $.8 million (35%). Reported gains on the valuation of
warrants declined $1.5 million (79%).
Fiscal 1997 investment banking revenues rose 17% to $31.3 million.
Consulting and valuation fees increased $1.2 million (122%) while merger
and acquisition fees declined $.8 million (13%). The Investment Banking
Division completed 15 public offerings and private placements raising over
$412 million for clients. Commissions on equity underwritings and unit
investment trust offerings each increased $1.1 million reflecting year-to
year gains of 14% and 42%, respectively. Underwriting fees declined $.2
million (6%) as a result of a substantial fee related to the conversion of
a mutual company to a stock company earned in fiscal 1996. Of the 1997
increase, $2.2 million relates to net unrealized gains of warrants received
in conjunction with equity investment banking activities. In fiscal 1997,
an unrealized gain of $1.9 million was recorded while in fiscal 1996 an
unrealized loss of $.4 million was recorded.
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Asset Management and Administration
Advest's Investment Management Services Department ("IMS"), provides
various services for its managed account base including client profiling,
asset allocation, manager selection and performance measurement. The Bank
provides personal trust services primarily through Advest's retail sales
force. Boston Advisors, formerly Boston Security Counsellors, ("BA"), an
investment advisor, services private clients. Hannah Consulting Group
("HCG"), an investment management firm acquired by the Company during
fiscal 1997, provides consulting services primarily to pension funds.
During fiscal 1998, HCG was merged into Advest's IMS. Other services
include retirement plan administration, securities custody and safekeeping.
Current year asset management revenues increased 30% to a record $33.5
million primarily due to an increase in fee-based assets serviced by
Advest. Advest's IMS currently supports close to $4 billion of assets,
opening 2,000 new accounts during fiscal 1998. Money management fees
increased $5.2 million (34%) for Advest and included $.6 million in revenue
from accounts serviced by HCG, which was merged into Advest during the
first quarter. Service fee income increased $2.2 million (48%) related to
higher money market balances. The Bank's revenues increased $.1 million
(9%) primarily related to higher trust revenue.
Fiscal 1997 revenues increased 29% to $25.8 million. Advest's
revenues increased $4.9 million (27%) due primarily to increased money
management fees. During the year, Advest's Investment Management
Department opened 1,226 new accounts and together with increased business
from existing accounts increased its managed account base more than $1
billion. At September 30, 1997, managed accounts totaled $2.8 billion,
reflecting a 44% year-to-year gain. HCG, acquired by the Company in fiscal
1997, generated $.5 million in management fees. The Bank's revenues
increased $.3 million primarily related to higher trust revenues.
Other Income
Other income includes fees from mutual funds marketing, exchange order
flow, execution income and postage at Advest and loan development and
service fees at the Bank.
Current year other income declined 7% to $6.8 million. A $.4 million
increase in marketing fees was more than offset by a $.5 million decline in
execution fees related to regulatory changes impacting over-the-counter
trading and a $.3 million decline in income from the sale of residential
mortgages.
Other income declined 21% to $7.3 million during fiscal 1997,
primarily due to a $.6 million (38%) decline in execution fee income at
Advest related to regulatory changes which impact overthe-counter trading
revenues. Fiscal 1996 revenues also included a $.9 million gain on the
sale of an equity investment.
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 primarily from financing
brokerage customers margin transactions, its stock borrowing activities and
securities
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<PAGE>
inventory. Advest pays interest primarily on brokerage customer credits
held for reinvestment, its stock lending activities and short- and long-
term borrowings. The components of interest revenue and expense are
detailed in the Five Year Financial Summary on page 16.
Current year net interest income increased $4.9 million (18%)
primarily as a result of the payoff of a mortgage on AGI's books in the
fourth quarter which accounted for substantially all of a $3.2 million
(44%) year-to-year increase in net interest income for that period.
Advest's net interest income increased $2.1 million (9%) primarily as a
result of higher average margin debits during 1998. Average margin debits
during fiscal 1998 were $422.3 million, an increase of 16% from 1997. The
increase in interest income as a result of higher margin debits was partly
offset by lower spreads as average free credit balances during 1998 were
$267.4 million, an increase of only 5%. As a result, Advest's cost of
funding the debits increased due to increased short-term borrowings at
higher interest rates than that paid on free credits. Interest expense
also was higher due to increased average trading inventories. The Bank's
net interest income declined $.6 million (10%) during 1998, primarily
attributable to a year-to-year $2.7 million (1%) decrease in average assets
and a continuing change in the mix of average loans to lower-yielding
residential mortgages and home equity lines from higher-yielding commercial
loans. In addition, early payoffs of residential mortgages and home equity
lines of credit due to refinancings contributed to lower yields in both the
loan portfolio and the mortgage-backed investment securities portfolio.
Offsetting this decline, NPAs decreased $2.5 million in the current year
primarily due to the sale of a commercial parcel and two residential
properties, one of which was acquired within the year, in owned real estate
and the early payoff of four impaired commercial loans which had been in a
nonaccrual status. The Bank's ratio of earning assets to total bank assets
was 95.6% in the current year compared with 93.5% in 1997. AGI's net
interest increased $3.3 million related to the mortgage payoff discussed
previously.
Fiscal 1997 net interest income increased $1.6 million (6%). Advest's
net interest income increased $2.4 million (12%) primarily due to
significantly higher average margin balances. Average free credit balances
in brokerage accounts increased during the year but not enough to support
the increased margin balances. Together with higher securities inventory
levels, this resulted in increased bank borrowings which reduced overall
interest spreads. The Bank's net interest income declined $1.3 million
(16%) during 1997. The decline is attributable to a year-to-year $29.0
million (12%) decrease in average assets and a change in the mix of average
loans to lower yielding residential mortgages and home equity lines from
higher yielding commercial loans. In addition, NPAs increased $2.7 million
in the current year primarily due to three commercial loans which were
placed in a nonaccrual status and which had an average interest rate of
10%. The Bank's ratio of earning assets to total bank assets was 93.5% in
fiscal 1997 compared with 96.7% in the prior year. AGI's net interest
improved $.8 million primarily due to lower borrowing rates associated with
its December 1997 private placement of $35.0 million of notes. The
proceeds were used to retire its convertible debentures and other higher
cost debt and loan $10.0 million to Advest with the balance invested in
short-term securities.
Non-Interest Expenses
Current year compensation and benefit costs increased $18.9 million (12%)
primarily as a result of increased headcount firm-wide particularly in the
equity capital markets departments, higher sales volume driven compensation
and general salary increases. Communications costs increased $4.3 million
(18%). Advest's communications costs increased $4.4 million primarily
related to ongoing upgrades in software, quote services and service
bureaus; technology enhancements, partly related to the Year 2000 Issue;
and sales-volume-driven increases in costs paid to Advest's third party
data processor. The Bank's communication costs declined $.2 million (22%)
primarily reflecting
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savings from converting to a new third party data processor during fiscal
1997. Occupancy and equipment costs increased $1.3 million (8%) primarily
due to increased depreciation related to new computer equipment and
increased rent expense in Advest's retail sales offices as well asa home
office expansion. Professional fees declined $1.1 million (16%) primarily
as a result of lower legal and personnel agency expenses at Advest and a
decline in consulting expenses at HCG which were partly offset by increased
legal expenses at the Bank. Other expenses declined $1.9 million (20%)
primarily due to lower settlement costs at Advest, lower costs associated
with the Bank's foreclosed real estate as a result of the disposal of three
properties during the year and a decrease in expenses at AGI related to a
loss on the call of the Company's outstanding convertible debentures during
fiscal 1997.
Fiscal 1997 compensation costs increased $17.3 million (12%). Advest's
compensation costs increased $16.5 million (12%) primarily due to volume
related increases in salesmen's compensation, higher firm payroll costs
associated with firm-wide personnel additions and general salary increases.
HCG, acquired in the first quarter of 1997, had compensation costs of $.7
million. Communication costs increased $3.0 million (15%) primarily due to
substantial upgrades in software, quote services and service bureaus in the
Company's firm-wide Advantage2000 System. In addition, Advest's costs for
its third party back office data processor increased $.9 million (29%)
primarily related to higher securities transaction volume. Professional
fees increased $1.2 million (21%). Advest's professional fees increased
$.5 million with consulting fees and personnel agency fees increasing $.5
million (57%) and $.3 million (40%), respectively and legal fees declining
$.4 million (15%). Professional fees for AGI increased $.5 million
primarily due to increased consulting costs associated with the Company's
centennial celebration. HCG incurred $.4 million in consulting expenses.
Business development costs increased $1.1 million (19%) primarily due to
increases in the number of investment executives qualifying, as a result of
sales production and contests, to attend various Company-sponsored events.
Brokerage, clearing and exchange costs increased $.6 million (13%) due to
increased securities volume. The provision for credit losses and asset
devaluation declined $.3 million (27%) primarily due to lower loss
provisions required at the Bank.
Income Taxes
The effective income tax rates were 39%, 41% and 44%, respectively, for
1998, 1997 and 1996. The effective tax rate declined to 39% for 1998, and
41% for 1997, respectively, due to reduced state tax obligations. State
tax reductions in these years occurred primarily in Connecticut, where the
Company recognized portions of a previously reserved tax benefit of state
carryforward losses. The higher rate of 1996 was reflective of greater
levels of income apportioned to various states with higher average tax
rates.
During the year ended September 30, 1998 the Company determined that a
previously established $.5 million valuation allowance for certain state
net operating loss carryforwards was no longer required. Accordingly, at
September 30, 1998, the Company had net deferred tax assets of $6.0
million, all of which is expected to be realized. 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 and Trust Company
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 1 for further
disclosure.) 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
Bank is exposed to credit-related losses in the
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event of nonperformance 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 to a $5 million
swap and a $5 million cap. The notional amounts of contracts entered into
by the Bank and their potential credit exposure are disclosed in Note 15.
Advest, Inc.
Advest enters into derivative transactions, primarily short-term exchange
traded futures, to manage the interest rate risk associated with its
trading inventories, primarily municipal bonds, when inventory levels
exceed pre-determined levels, as defined in its risk management policy.
Hedging is limited to the underlying trading portfolio's interest rate risk
and is not speculative in and of itself. Derivatives and the underlying
inventory are marked to market daily. Positions are reviewed daily and,
periodically, the strategy is re-evaluated based on anticipated inventory
levels and composition.
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 September 30, 1998, Advest had no open positions. At
September 30, 1997, Advest had only nominal open positions. (See Note 15.)
Asset Quality
Advest Bank and Trust Company
At September 30, 1998 and 1997, the Bank's NPAs were $2.7 million and $5.2
million, respectively, representing 1% and 2%, respectively, of total bank
assets. The $2.5 million net decrease in NPAs primarily relates to the
disposition of a commercial parcel and a residential property totaling $1.2
million together with a $1.5 million net decrease in nonperforming loans.
The Bank has not been an active commercial mortgage lender since the late
1980's. The Bank's reserve for credit losses was materially unchanged at
September 30, 1998 compared with the prior year and is considered adequate
to absorb losses from the total loan portfolio due to the decreased level
of NPAs.
At September 30, 1998 and 1997, respectively, earning assets were 95.6%
and 93.5% of total bank assets. Loan delinquency was 2.68%, 3.43% and
1.84% of total loans at September 30, 1998, 1997 and 1996, respectively.
Had interest been accrued at contractual rates on nonaccrual and re-
negotiated loans, interest income would have increased by approximately $.7
million, $.6 million, and $.3 million in 1998, 1997 and 1996, respectively.
Bank loans classified impaired as of September 30, 1998 and 1997,
respectively, totaled $1.0 million and $2.9 million. Included in impaired
loans at September 30, 1998 were $.1 million of restructured loans. All
amounts classified impaired for both fiscal 1998 and 1997 were included in
nonaccrual loans. (See Note 2.)
Advest Group, Inc.
During the fourth quarter of fiscal 1998, AGI was paid $9.0 million
representing the principal on first mortgage it held on property owned by a
real estate limited partnership managed by a subsidiary of the Company.
Given the significant financial obligations of the partnership, the Company
had classified the mortgage as a nonperforming loan and, accordingly, no
interest income had been accrued. AGI also received approximately $3
million of interest at the time of the payoff which was recognized during
the fourth quarter.
Liquidity and Capital Resources
The Company's total assets were $1.2 billion at September 30, 1998,
reflecting a $154.4 million (14%) increase from the prior year. The
increase is attributable to asset growth at Advest, primarily
-27-
<PAGE>
a $143.2 million (147%) increase in trading inventories, principally
corporate bonds and mortgage-backed securities, and a $44.7 million (11%)
increase in margin debits, partly offset by a $20.1 million (7%) decline in
securities borrowed. Bank assets declined 6% from fiscal 1997.
With the primary exception of loans held in portfolio by the Bank,
which comprise 14% of total assets, the Company's assets are highly liquid
in nature. Liquid assets which include cash and cash equivalents,
receivables from brokerage customers, securities borrowed, receivables from
brokers and dealers, available for sale and trading securities comprised
79% of total assets at September 30, 1998 compared with 75% for the prior
year.
Shareholders' equity increased $18.0 million (17%) to $123.7 million,
primarily as a result of a $16.5 million increase in retained earnings from
current year operating results and a $1.7 million increase in paid-in
capital primarily related to the sales of treasury stock under the
Company's equity plans and the exercise of stock options. The Company paid
quarterly dividends of $.04 per share for each of the four fiscal quarters.
The total amount paid was $1.4 million. At September 30, 1998, 2,756,777
shares of the Company's common stock (more than 26% of outstanding shares)
had been purchased since the inception of the stock buyback program in
August 1990, at an average price of $6.46 per share. During fiscal 1998,
the Board of Directors increased the number of shares authorized to be re
purchased under the program from three to four million.
AGI's principal source of funding is the earnings distributions from
its subsidiaries which are unrestricted. In December 1996, AGI issued
$35.0 million 7.95% seven year senior notes in an unsecured private
placement transaction with three institutional investors. AGI is in full
compliance with all financial and other covenants required to be maintained
under the terms of the private placement note. Five equal principal
installments are payable annually beginning December 31, 1999.
In December 1997, the Company filed a Form S-3 shelf registration with
the Securities and Exchange Commission. The registration enables the
Company to issue debt and/or equity securities up to an aggregate of $50.0
million.
Management believes that earnings distributions from subsidiaries,
together with AGI's own assets and potential proceeds from a shelf
registration offering will be sufficient to meet AGI's current and
foreseeable liquidity and capital requirements.
Advest, Inc.
In addition to funds generated from operations, sources used by Advest to
finance assets include credit balances in brokerage accounts which
increased $10.9 million (3%), short-term borrowings which increased $92.0
million (287%), deposits for securities loaned which decreased $42.0
million (16%) and securities sold short which increased $97.1 million
(186%). In fiscal 1998, AGI issued a $10 million demand note to Advest at
a rate of federal funds plus 70 basis points; $2.5 million of the loan was
repaid prior to fiscal year end. During fiscal 1997, AGI loaned Advest
$10.0 million at a rate of 8% per annum, utilizing a portion of the
proceeds of its $35.0 million borrowing. The loan is unsecured and
subordinated to certain other corporate obligations. The purpose of the
unsecured loan was to increase Advest's regulatory net capital.
Advest has arrangements with certain financial institutions whereby it
can borrow amounts on a collateralized basis, principally to support
securities settlements, trading inventories, margin debits and underwriting
activities. Increases in average margin balances as well as firm trading
positions, primarily corporate, agency and mortgage-backed securities, have
resulted in consistently higher borrowing levels for Advest during the past
year. Short-term borrowings are frequently in excess of $100 million. To
support its increased borrowing needs, Advest increased its uncommitted
lines of credit with its two lead banks to $225.0 million. During the
third quarter, Advest established a $35.0 million uncommitted line of
credit with a third financial institution.
-28-
<PAGE>
With the exception of a $20.0 million unsecured line of credit, all of
Advest's borrowings are on a collateralized basis for which it has
substantial levels of customer and firm securities which can be pledged.
During fiscal 1999, Advest has planned approximately $6.0 million of
capital expenditures primarily related to a firm-wide desktop computer
upgrade as well as other technology related enhancements. Management
believes that operating cash flow together with available credit lines will
provide sufficient resources for Advest 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, 1998, Advest had excess net capital of approximately $56.0
million and a net capital ratio of 13.9% (See Note 11.)
Advest Bank and Trust Company
At September 30, 1998, the Bank's regulatory liquid assets included cash,
federal funds and qualified securities (which include all trading and
certain available-for-sale and held to maturity securities) of $18.8
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, 1998, the Bank had uncommitted,
eligible collateral of $108.2 million making available $84.7 million of
additional credit. Management believes that operating cash flow together
with available credit lines will provide sufficient resources for the Bank
to meet all present and reasonably foreseeable capital needs.
Pursuant to federal statute, federal savings banks are subject to a
liquidity requirement that specifies that at least 5% of total Bank assets
to be invested in qualified assets. As of September 30, 1998, the Bank's
liquidity ratio was 17.25%. Management believes that the Bank has
sufficient capital to remain in compliance with the regulatory
requirements.
The Federal Deposit Insurance Corporation ("FDIC") requires "well
capitalized" banks to maintain a minimum Tier 1 or leverage capital ratio
of 5%. At September 30, 1998, the Bank's Tier 1 or leverage capital ratio
was 7.61%. The Bank is also subject to the FDIC's risk-based capital
regulations which require the Bank, as "well capitalized," to maintain a
total risk-based capital ratio of 10%, including at least 6% Tier 1 risk
based capital. At September 30, 1998, the Bank's total risk-based and Tier
1 risk-based capital ratios were 10.83% (with capital of $18.1 million) and
9.58% (with capital of $16.0 million), respectively, which met all
regulatory requirements.
Pursuant to the FDIC Improvement Act ("FDICIA"), all banks are 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 without restriction. At September
30, 1998, the Bank had $78.8 million of brokered deposits.
Cash Flows
Cash and cash equivalents increased $1.4 million. Advest's cash and
equivalents were substantially unchanged between periods, however, there
were significant fluctuations among various components. Advest used cash
provided from operating activities of $90.4 million primarily related to a
$44.8 million increase in margin debits, a $45.8 million increase in net
long trading positions (the net change in long inventory positions offset
by the increase in short inventory positions) and a $21.9 million net
increase in securities loaned ( the increase in securities loaned offset by
the increase in securities borrowed.) Advest used $9.1 million of cash
from investing activities primarily to finance capital expenditures and
funding of recruitment bonuses. Advest used cash from financing activities
of $99.5 million primarily short-term borrowings to finance its operating
and investing needs for cash.
-29-
<PAGE>
The Bank's cash and equivalents increased $3.4 million. Net cash
provided by investing activities increased $21.8 million primarily related
to cash received from principal collections on loans as well as proceeds
from the sales of loans and owned real estate in excess of the $72.0
million of loans originated. Net cash used for financing activities was
$17.1 million primarily as a result of a net pay down in short-term
borrowings of $25.5 million partly offset by a net increase in long-term
borrowings of $7.0 million. The Bank used $1.3 million of net cash to
finance operating activities.
AGI's cash and equivalents decreased $2.2 million primarily as a
result of cash dividend payments of $1.4 million and repurchases of its
common stock of $1.2 million. Proceeds of $9.0 million related to the
payoff of a mortgage held by AGI plus $1.0 million representing a portion
of the related interest received were loaned to Advest in the form of a
$10.0 demand note.
Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standard "SFAS" 128,
"Earnings Per Share" in the current fiscal year as required. Its
implementation did not have a material impact on the Company's computation
of earnings per share. Refer to Note 8.
The Financial Accounting Standards Board ("FASB") issued SFAS 130,
"Reporting Comprehensive Income" and SFAS 131, "Disclosures about Segments
of an Enterprise and Related Information" in June 1997. SFAS 130 requires
that an enterprise (a) classify items of other comprehensive income by
their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of
financial position. SFAS 131 establishes standards for the way public
enterprises report information about operating segments in annual financial
statements and related disclosures about products and services, geographic
areas, and major customers. It also requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. The Company will adopt these pronouncements in its
1999 fiscal year, as required. The Company does not expect their
implementation to have a material impact on the presentation of the
Company's financial condition, results of operations or cash flows.
The FASB issued SFAS 132, "Employers' Disclosures About Pensions and
Other Postretirement Benefits" in February 1998. SFAS 132 standardizes the
disclosure requirements for pensions and other postretirement benefits to
the extent practicable and requires additional information on changes in
the benefit obligations and fair values of plan assets that will facilitate
financial analysis. The Company will adopt SFAS 132 in its 1999 fiscal
year, as required, and does not expect its implementation to have a
material impact on the Company's financial condition, results of operations
or cash flows.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999 (October 1, 1999
for the Company). SFAS 133 requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair
value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as
part of a hedge transaction and, if it is, the type of hedge transaction.
The Company will adopt SFAS 133 in its 2000 fiscal year, as required, and
has not determined whether its implementation will have a material impact
on the Company's financial condition, results of operations or cash flows.
-30-
<PAGE>
Forward-looking Statements
Some matters discussed in this report include forward-looking statements
that involve risks and uncertainties, many of which are beyond the
Company's control, including but not limited to economic, competitive,
governmental and technological factors affecting the Company's operations,
markets, services, prices and other factors. The Company does not
undertake any obligation to publicly update or revise any forward-looking
statements.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Risk Management
The following discussion about the Company's risk management activities
includes forward-looking statements that involve risks and uncertainties.
Actual results could materially differ from those projected in the forward
looking statements.
During its normal course of business, Advest engages in the trading of
securities, primarily fixed income, in both a proprietary and market making
capacity, and holds securities for trading, rather than investment,
purposes. Advest makes a market in certain investment-grade corporate
bonds, mortgage-backed securities, municipal bonds and over-the counter
equities in order to facilitate order flow and accommodate its retail and
institutional customers. During fiscal 1998, Advest significantly
increased its corporate bond trading activities and established a
government agency and mortgage-backed securities trading unit. The
activities of these trading areas accounted for most of a $143.2 million
(147%) increase in trading inventories and a $97.1 million (186%) increase
in short security positions.
The Bank is engaged in the business of investing customer deposits,
borrowings and funds from capital, in loans, primarily residential, and
investments. Investments include government and agency obligations,
mortgage-backed securities and money market instruments.
Market Risk
Market risk represents the potential change in the value of financial
instruments due to fluctuations in interest rates, foreign currency
exchange rates, equity and commodity prices. In the course of its trading
and hedging activities, the Company is exposed to interest rate and equity
price risk.
The Company is exposed to market risk arising from changes in interest
rates. Advest's management seeks to reduce the risk of its trading
portfolio on an aggregate basis. Its risk management activities include
inventory and hedging policies. Inventory policies reflect the level of
aggregate short and long positions that may be held for trading and are
specified by product line. Risk management strategies also include the use
of derivatives, principally exchange-traded futures contracts. The Bank
enters into interest rate swap and cap transactions as part of its overall
risk management strategy to hedge against interest rate risk on its non
trading portfolio.
The Company is exposed to equity price risk as a result of making a
market in over-the-counter equity securities. Equity price risk arises
from changes in the price and volatility of equity securities.
Trading Accounts (Value at Risk Analysis)
For purposes of the Securities and Exchange Commission's market risk
disclosure requirements, the Company has performed a value at risk analysis
of its trading financial instruments and derivatives. The value at risk
calculation uses standard statistical techniques to measure the potential
loss in fair value based upon a one-day holding period and a 95% confidence
level. The calculation is based upon a variance-covariance methodology,
which assumes a normal distribution of changes in portfolio value. The
forecasts of variances and covariances used to construct the
-31-
<PAGE>
variance/covariance matrix, for the market factors relevant to the
portfolio, are generated from historical data. Although value at risk
models are sophisticated, they can be limited, as historical data is not
always an accurate predictor of future conditions. Accordingly, Advest
manages its market exposure through other measures, including predetermined
trading authorization levels and the hedging requirement policy described
above.
At September 30, 1998 and 1997, Advest's value at risk for each
component of market risk and in total was as follows:
In thousands 1998 1997
---- ----
Interest rate risk $480 $213
Equity price risk 77 64
Diversification benefit (69) (16)
---- ----
Total $488 $261
==== ====
The potential future loss represented by the total value at risk falls
within predetermined levels of loss that are not material to the Company's
results of operations, financial condition or cash flows. The changes in
the value at risk amounts reported in 1998 from those reported in 1997
reflect changes in the size and composition of Advest's trading portfolio,
in particular the increased concentration in corporate bonds and mortgage-
backed securities discussed above.
The value at risk estimate has limitations that should be considered
in evaluating the Company's potential future losses based on the year-end
portfolio positions. Recent market conditions may result in statistical
relationships that result in a higher value at risk than would be estimated
from the same portfolio under different market conditions. In addition, a
critical risk management strategy is the active management of portfolio
levels to mitigate market risk. The Company's, in particular Advest's,
market risk exposure will continue to change with changes in the portfolio
and market conditions.
Non-trading Accounts (Tabular Presentation)
The following table shows the interest sensitivity of non-trading assets,
liabilities and financial instruments of Advest at September 30, 1998 and
1997, based on their estimated maturity/repricing structure:
-32-
<PAGE>
<TABLE>
September 30, 1998
- ------------------ After
In thousands, Percent of
except percentages Amount Total 1999 2000 2001 2002 2003 2003
- ---------------------------------------------- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-sensitive assets
- --------------------------
Real estate mortgage, loans
receivable, net (a) 164,165 79.31% 96,021 8,029 3,424 2,038 3,645 51,008
Average interest rate 7.84% 8.18% 9.26% 7.85% 6.83% 6.79% 7.10%
Personal and non-mortgage commercial,
loans receivable, net (a) 12,583 6.08% 11,763 214 151 52 124 279
Average interest rate 8.06% 8.04% 8.17% 8.86% 9.84% 8.12% 8.06%
Mortgage-backed securities 7,866 3.80% - - - - - 7,866
Average interest rate 6.83% - - - - - 6.83%
Investment securities (b) 22,176 10.71% 21,676 250 250 - - -
Average interest rate 6.17% 6.05% 8.00% 8.00% - - -
Interest-bearing deposits 206 0.10% 200 - - 6 - -
Average interest rate 5.17% 5.27% - - 2.00% - -
----------- -----------------------------------------------------------------
Total interest-sensitive assets 206,996 100.00% 129,660 8,493 3,825 2,096 3,769 59,153
----------- -----------------------------------------------------------------
Interest-sensitive liabilities
- -------------------------------
Regular savings accounts 98 0.03% - - - 98 - -
Average interest rate 2.00% - - - 2.00% - -
Money market deposit accounts 91,785 26.40% 91,785 - - - - -
Average interest rate 2.75% 2.75% - - - - -
Certificate of deposit accounts 79,190 22.78% 77,405 1,785 - - - -
Average interest rate 5.93% 5.93% 6.13% - - - -
FHLB advances 16,500 4.74% 10,500 3,500 1,500 - - 1,000
Average interest rate 5.86% 5.62% 6.45% 6.73% - - 4.99%
Other borrowings 160,103 46.05% 124,798 7,281 7,024 7,000 7,000 7,000
Average interest rate 6.32% 5.86% 7.88% 7.94% 7.95% 7.95% 7.95%
----------- -----------------------------------------------------------------
Total interest-sensitive liabilitie 347,676 100.00% 304,488 12,566 8,524 7,098 7,000 8,000
----------- -----------------------------------------------------------------
Interest rate derivatives
Interest rate swaps:
Fixed to variable notional amount 5,000
Average pay rate 7.09%
Average receive rate 5.69%
Interest rate caps 5,000
Average interest rate 6.00%
</TABLE>
<TABLE>
September 30, 1997
- ------------------
In thousands, Percent of After
except percentages Amount Total 1998 1999 2000 2001 2002 2002
- ---------------------------------------------- -----------------------------------------------------------------
Interest-sensitive assets
- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage, loans
receivable, net (a) 191,491 82.36% 103,037 7,765 9,200 9,933 2,669 58,887
Average interest rate 8.08% 8.17% 8.60% 8.61% 8.54% 6.78% 7.75%
Personal and non-mortgage commercial,
loans receivable, net (a) 5,911 2.54% 4,272 535 579 97 - 428
Average interest rate 8.35% 8.46% 7.47% 8.25% 9.40% - 8.32%
Mortgage-backed securities 16,961 7.29% 5,516 - - - - 11,445
Average interest rate 6.73% 6.53% - - - - 6.83%
Investment securities (b) 17,928 7.71% 15,430 1,998 250 250 - -
Average interest rate 6.38% 6.22% 6.25% 8.00% 8.00% - -
Interest-bearing deposits 224 0.10% 218 - - 6 - -
Average interest rate 5.13% 5.22% - - 2.00% - -
----------- -----------------------------------------------------------------
Total interest-sensitive assets 232,515 100.00% 128,473 10,298 10,029 10,286 2,669 70,760
----------- -----------------------------------------------------------------
Interest-sensitive liabilities
- -------------------------------
Regular savings accounts 411 0.17% - - - 411 - -
Average interest rate 2.00% - - - 2.00% - -
Money market deposit accounts 107,567 44.64% 107,567 - - - - -
Average interest rate 2.75% 2.75% - - - - -
Certificate of deposit accounts 61,673 25.60% 34,398 17,132 7,465 2,176 182 320
Average interest rate 6.31% 6.22% 6.47% 6.35% 6.54% 6.19% 5.89%
FHLB advances 35,000 14.53% 29,250 750 3,500 1,500 - -
Average interest rate 6.01% 5.91% 6.58% 6.45% 6.73% - -
Other borrowings 36,293 15.06% 704 262 7,279 7,048 7,000 14,000
Average interest rate 7.84% 3.91% 6.25% 7.88% 7.94% 7.95% 7.95%
----------- -----------------------------------------------------------------
Total interest-sensitive liabilitie 240,944 100.00% 171,919 18,144 18,244 11,135 7,182 14,320
----------- -----------------------------------------------------------------
Interest rate derivatives
Interest rate swaps:
Fixed to variable notional amount 5,000 5,000
Average pay rate 8.79% 7.09%
Average receive rate 5.81% 5.72%
Interest rate caps 5,000
Average interest rate 6.00%
(a) Loans are net of nonperforming loans, undisbursed portion of loans due borrowers and unearned discounts and premiums.
(b) Investment securities include investment securities available for sale and FHLB stock.
</TABLE>
-33-
The Advest Group, Inc.
Consolidated Statements of Earnings
Fiscal year ended September 30,
--------------------------------
In thousands, except per share amounts 1998 1997 1996
- ------------------------------------------------------------------------------
[S] [C] [C] [C]
Revenues
Commissions $129,825 $123,032 $110,115
Interest 72,739 59,882 55,225
Principal transactions 44,776 43,880 38,591
Investment banking 37,606 31,291 26,687
Asset management and administration 33,491 25,844 20,050
Other 6,791 7,278 9,234
--------------------------------
Total revenues 325,228 291,207 259,902
--------------------------------
Expenses
Compensation 182,705 163,852 146,573
Interest 40,498 32,570 29,472
Communications 28,238 23,955 20,917
Occupancy and equipment 19,092 17,758 17,567
Business development 7,321 6,664 5,613
Professional 5,638 6,729 5,543
Brokerage, clearing and exchange 4,542 4,676 4,174
Other 7,765 9,695 9,936
--------------------------------
Total expenses 295,799 265,899 239,795
--------------------------------
Income before taxes 29,429 25,308 20,107
Provision for income taxes 11,477 10,376 8,847
--------------------------------
Net income $ 17,952 $ 14,932 $ 11,260
========== ========== ==========
Per share data:
Basic earnings $ 2.20 $ 1.86 $ 1.37
Diluted earnings $ 1.92 $ 1.62 $ 1.18
Cash dividends $ 0.16 $ 0.09 -
- ------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
- ------------------------------------------------------------------------------
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<PAGE>
<TABLE>
The Advest Group, Inc.
Consolidated Balance Sheets
In thousands, except share and
per share amounts September 30, 1998 September 30, 1997
- ---------------- --------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and short-term investments
Cash and cash equivalents $ 13,882 $ 12,459
Cash and securities segregated under federal
and other regulations 248 265
------------- -------------
14,130 12,724
------------- -------------
Receivables
Brokerage customers, net 433,840 389,137
Securities borrowed 270,638 290,745
Loans, net 180,528 199,166
Brokers and dealers 5,310 4,096
Other 18,417 12,006
------------- -------------
908,733 895,150
------------- -------------
Securities
Trading, at market value 241,681 97,619
Held to maturity (market values of
$18,911 and $20,931) 18,776 21,034
Available for sale, at market value 11,787 13,978
------------- -------------
272,244 132,631
------------- -------------
Other assets
Equipment and leasehold improvements, net 13,377 14,500
Other 24,787 23,834
38,164 38,334
------------- -------------
Total assets $1,233,271 $1,078,839
============= =============
Liabilities & shareholders' equity
Liabilities
Brokerage customers $ 329,975 $ 319,101
Securities loaned 216,275 258,295
Deposits 171,074 169,583
Short-term borrowings 134,762 61,496
Securities sold, not yet purchased, at market value 149,189 52,113
Long-term borrowings 41,308 41,321
Compensation and benefits 27,247 26,448
Checks payable 2,973 18,366
Brokers and dealers 13,984 9,389
Other 22,817 17,074
------------- -------------
1,109,604 973,186
------------- -------------
Commitments and contingencies
Shareholders' equity
Common stock, par value $.01, authorized 25,000,000 shares,
issued 10,893,159 and 10,812,404 shares 109 108
Paid-in capital 72,966 71,309
Retained earnings 65,785 49,260
Net unrealized loss on securities available
for sale, net of taxes (12) (63)
Unamortized restricted stock compensation (1,081) (571)
Treasury stock, at cost,
1,943,833 and 2,179,725 shares (14,100) (14,390)
------------- -------------
123,667 105,653
------------- -------------
Total liabilities and shareholders' equity $1,233,271 $1,078,839
============= =============
See Notes to Consolidated Financial Statements
</TABLE>
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<PAGE>
<TABLE>
The Advest Group, Inc.
Consolidated Statements of Cash Flows
Fiscal year ended September 30,
--------------------- ------------ ------------
In thousands 1998 1997 1996
- ------------------------------------------------------------------------------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 17,952 $ 14,932 $ 11,260
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization 9,794 8,526 8,222
Provision for credit losses and asset devaluation 329 915 1,258
Loss on retirement of subordinated borrowings 0 607 0
Deferred income taxes (347) (122) 107
Other 740 (1,627) (1,735)
(Increase) decrease in operating assets:
Receivables from brokerage customers, net (44,791) (36,794) (43,823)
Securities borrowed 20,107 (70,826) (109,238)
Receivables from brokers and dealers (1,214) 1,298 (3,003)
Trading securities (138,472) (904) (51,346)
Cash and securities segregated under federal and other regulations 17 0 30,994
Proceeds from sales of mortgages held for sale 78,163 26,350 7,635
Originations and purchases of mortgages held for sale (89,967) (29,218) (32,454)
Other (7,240) (1,492) 493
Increase (decrease) in operating liabilities:
Brokerage customers 10,874 36,483 (17,393)
Securities loaned (42,020) 44,299 100,364
Securities sold, not yet purchased 97,076 4,675 42,591
Checks payable (15,393) 1,390 10,225
Other 11,646 9,040 615
------------ ------------ ------------
Net cash (used in) provided by operating activities (92,746) 7,532 (45,228)
------------ ------------ ------------
FINANCING ACTIVITIES
Net decrease in deposits 1,491 (21,603) (44,470)
Proceeds from short-term borrowings 39,077 57,436 0
Repayment of short-term borrowings (64,824) (37,044) (10,496)
Short-term brokerage borrowings, net 92,000 (1,800) 33,800
Proceeds from long-term borrowings 7,000 35,000 8,250
Repayment of long-term borrowings 0 (9,820) 0
Retirement of subordinated borrowings 0 (20,545) 0
Other (286) 272 (1,318)
------------ ------------ ------------
Net cash provided by (used in) financing activities 74,458 1,896 (14,234)
------------ ------------ ------------
INVESTING ACTIVITIES
Proceeds from (payments for):
Sales of available for sale securities 42,853 4,871 26,290
Maturities of available for sale securities 2,260 1,759 1,969
Maturities of held to maturity securities 22,712 24,000 22,252
Purchases of available for sale securities (47,024) (1,598) (3,033)
Purchases of held to maturity securities (20,500) (22,000) (23,986)
Loans sold 5,743 0 41,622
Sales of OREO, net 1,368 791 3,959
Principal collections on loans 99,037 43,830 21,777
Loans originated (77,848) (50,352) (19,985)
Other (8,890) (9,731) (7,236)
------------ ------------ ------------
Net cash provided by (used in) investing activities 19,711 (8,430) 63,629
------------ ------------ ------------
Increase in cash and cash equivalents 1,423 998 4,167
Cash and cash equivalents at beginning of period 12,459 11,461 7,294
------------ ------------ ------------
Cash and cash equivalents at end of period $ 13,882 $ 12,459 $ 11,461
============ ============ ============
Interest paid $ 40,517 $ 31,817 $ 29,467
Income taxes paid $ 15,297 $ 7,987 $ 10,067
Non-cash activities:
Restricted stock awards, net of forfeitures $ 811 $ 610 $ 57
Securities available for sale from held to maturity - - $ 9,962
Securization of residential mortgages $ 1,428 $ 3,684 $ 27,307
See notes to consolidated financial statements
</TABLE>
-36-
<PAGE>
<TABLE>
The Advest Group, Inc.
Consolidated Statements of Changes in Shareholders' Equity
Net unrealized
gain
(loss) on
Unamortized securities
$.01 par value restricted available
Common stock Treasury stock stock for Share-
In thousands, except ------------ ------- Paid-in Retained ------------ compen- sale, net holders'
share and per share amounts Shares Amount capital earnings Shares Amount sation of taxes Equity
- --------------------------------------- ---------------- --------- ------------ -------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of
September 30, 1995 10,584,488 $106 $67,467 $23,842 (2,202,519) ($11,599) $0 $2 $79,818
Net income 11,260 11,260
Exercise of stock options 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 loss,
net of taxes (225) (225)
Stock issued under
restricted stock plans,
less amortization of $1 22 5,702 35 (56) 1
Balance as of ------------ ---------------- --------- ------------ ------------------------------ ---------
September 30, 1996 10,710,289 107 68,842 35,102 (2,306,948) (14,182) (56) (223) 89,590
------------ ---------------- --------- ------------ ------------------------------ ---------
Net income 14,932 14,932
Exercise of stock options 83,399 1 839 60,925 26 866
Dividend declared
($.09 per share) (774) (774)
Repurchase of common stock (183,200) (1,835) (1,835)
Sale of treasury stock to
equity plan 1,104 191,296 1,221 2,325
Change in unrealized gain,
net of taxes 160 160
Conversion of subordinated
debentures at
$13.57 per share 18,716 254 254
Stock issued under
restricted stock plans,
less amortization of $95 255 54,436 355 (515) 95
Other 15 3,766 25 40
Balance as of ------------ ---------------- --------- ------------ ------------------------------ ---------
September 30, 1997 10,812,404 108 71,309 49,260 (2,179,725) (14,390) (571) (63) 105,653
------------ ---------------- --------- ------------ ------------------------------ ---------
Net income 17,952 17,952
Exercise of stock options 80,755 1 577 32,444 (224) 354
Dividend declared
($.16 per share) (1,427) (1,427)
Repurchase of common stock (60,500) (1,167) (1,167)
Sale of treasury stock to
equity plan 1,421 90,303 521 1,942
Change in unrealized gain,
net of taxes 51 51
Stock issued under
restricted stock plans,
less amortization of $301 601 30,756 210 (510) 301
Other (942) 142,889 950 8
Balance as of ------------ ---------------- --------- ------------ --------- -------------------- ---------
September 30, 1998 10,893,159 $109 $72,966 $65,785 (1,943,833) ($14,100) ($1,081) ($12)$123,667
============ ================ ========= =========================================== =========
See Notes to Consolidated Financial Statements.
</TABLE>
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<PAGE>
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. ("AGI") and all subsidiaries (collectively the "Company").
Principal operating subsidiaries are Advest, Inc. ("Advest"), a
broker/dealer and Advest Bank and Trust Company (the "Bank"), a federal
savings bank. The Company provides diversified financial services including
securities brokerage, trading, investment banking, residential mortgage and
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 1997 and 1996 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. At September
30, 1998, federal funds sold were $6,050,000. There were no positions at
September 30, 1997.
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.
Loans held for sale, usually mortgages, 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.
Mortgage servicing rights are capitalized and the total cost of loans
originated or acquired is allocated between the mortgage servicing rights
and the mortgage loans (without the servicing rights) based on relative
fair values. The face amount of loans being serviced by the Company was
$34,770,000 and $59,167,000 as of September 30, 1998 and 1997,
respectively.
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<PAGE>
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 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.
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, 1998 and
1997, the reserve was $791,000 and $719,000, respectively. Included in
payables to brokerage customers are free credit balances of $303,030,000
and $288,070,000 at September 30, 1998 and 1997, respectively. Advest pays
interest on credit balances when the customer has indicated that the funds
are for reinvestment purposes.
Securities loaned and borrowed
Securities loaned and borrowed are accounted for as collateralized
financing transactions and are recorded at the amount of cash collateral
received or advanced, respectively. The fee received or paid by Advest is
recorded as interest revenue or expense, respectively. The initial
collateral advanced or received has a market value in excess of the market
value of the underlying securities. The fair values of such securities at
September 30, 1998 and 1997 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.
Periodically, Advest receives stock warrants in connection with its
investment banking activities.
During fiscal 1998, retroactive to October 1, 1994, Advest adopted the
accounting treatment for warrants as prescribed by Emerging Issue Task
Force ("EITF") 96-11. Warrants are received in conjunction with Advest's
investment banking activities and carried at their fair value which is
determined using the BlackScholes model or another standard option
valuation technique. The cumulative effect of adopting EITF 96-11 was an
$850,000 increase to retained earnings as of September 30, 1994. Financial
statements for the years ended September 30, 1997 and 1996 have been
restated to reflect the adoption of EITF 96-11.
The Bank's trading securities consist of mortgage-backed securities,
where certain bank loans held for sale have been securitized with
government agencies on a servicing-retained basis. Servicing rights for
loans sold are included in other assets. Gains or losses resulting from
loan securitizations are included in other income and gains or losses
resulting from the sale of securitized loans are included in principal
transactions.
-39-
<PAGE>
Investment securities
Securities available for sale are carried at fair value with unrealized
holding gains or losses, net of tax, 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.
Depreciation and amortization
Equipment and leasehold improvements are carried at cost. 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, 1998 and 1997,
accumulated depreciation and amortization were $41,848,000 and $37,215,000,
respectively.
The excess cost over the fair value of net assets of acquired
companies is recorded as goodwill and is amortized on a straightline basis
over periods between 15 and 40 years. At September 30, 1998 and 1997, the
amount of goodwill reported in other assets is $5,624,000 and $5,874,000,
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.
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.
Derivative financial instruments
Advest uses derivatives (primarily financial futures contracts) solely to
manage the risk associated with its municipal and corporate bond and
mortgage-backed securities trading inventories. Derivative transactions are
entered into when inventory levels exceed pre-determined thresholds
specified in Advest's hedging policy, which was developed and is reviewed
at least annually by the chief executive officer of the Company.
Derivatives are considered off-balance-sheet instruments because their
notional amounts are not recorded on the balance sheet. However, the fair
values of Advest's futures contracts, which are based on quoted market
prices, are reflected in the consolidated balance sheets within trading
securities and the changes therein are reflected in the operating
activities section of the consolidated statements of cash flows. Futures
contracts are marked to market daily. Unrealized and realized gains and
losses from the termination or sale of the
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<PAGE>
futures contracts are reflected in revenue from principal transactions.
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 income and interest
expense arising from interest rate swap and cap contracts are recorded as
components of accrued interest in the consolidated balance sheet, as
components of cash flows from operating activities in the consolidated
statements of cash flows, and as components of interest expense in the
consolidated statements of earnings. In the unlikely event of perceived
inability of a counterparty to meet the terms of a contract, the Bank would
record interest income on a cash basis. Unamortized premiums paid on cap
contracts are recorded as a component of deposits in the consolidated
balance sheets, with amortization of such premiums reflected as a component
of cash flows from operating activities in the consolidated statements of
cash flows and as a component of interest expense in the consolidated
statements of earnings.
Other accounting pronouncements
The Financial Accounting Standards Board ("FASB") issued SFAS 130,
"Reporting Comprehensive Income" and SFAS 131, "Disclosures about Segments
of an Enterprise and Related Information" in June 1997. SFAS 130 requires
that an enterprise (a) classify items of other comprehensive income by
their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of
financial position. SFAS 131 establishes standards for the way public
enterprises report information about operating segments in annual financial
statements and related disclosures about products and services, geographic
areas, and major customers. It also requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. The Company will adopt these pronouncements in its
1999 fiscal year, as required. The Company does not expect their
implementation to have a material impact on the presentation of the
Company's financial condition, results of operations or cash flows.
The FASB issued SFAS 132, "Employers' Disclosures About Pensions and
Other Postretirement Benefits" in February 1998. SFAS 132 standardizes the
disclosure requirements for pensions and other postretirement benefits to
the extent practicable and requires additional information on changes in
the benefit obligations and fair values of plan assets that will facilitate
financial analysis. The Company will adopt SFAS 132 in its 1999 fiscal
year, as required, and does not expect its implementation to have a
material impact on the Company's financial condition, results of operations
or cash flows.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999 (October 1, 1999
for the Company). SFAS 133 requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair
value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as
part of a hedge transaction and, if it is, the type of hedge transaction.
The Company will adopt SFAS 133 in its 2000 fiscal year, as required, and
has not determined whether its implementation will have a material impact
on the Company's financial condition, results of operations or cash flows.
-41-
<PAGE>
Note 2: Loans
At September 30, 1998 and 1997, loans consisted of:
In thousands 1998 1997
--------------------------------------------------------------
Advest Bank and Trust Company:
Mortgages
Commercial $ 12,533 $ 23,144
Multi-family residential 6,591 7,975
1 - 4 family conventional residential 74,545 73,846
Home equity credit 73,877 77,860
Commercial 3,143 4,627
Consumer 9,650 3,732
Advest Group, Inc.:
Mortgages
Commercial -- 9,000
1 - 4 family conventional
residential 277 232
Home equity credit 1,936 127
Other 243 1,102
-------- --------
$182,795 $201,645
======== ========
Included in 1-4 family conventional residential loans are loans held
for sale of $13,444,000, and $3,760,000 as of September 30, 1998 and 1997,
respectively. All other loans are classified as held for investment. For
the years ended September 30, 1998, 1997 and 1996, securitizations of loans
were $1,116,000, $3,684,000 and $27,307,000 respectively, approximating
1.12%, 11.34%, and 62.07%, respectively, of residential mortgage
originations. All securitizations were with FNMA on a servicing-retained
basis. There were no securitizations of loans resulting in mortgage-backed
securities classified as trading at September 30, 1998 and 1997. The
balance of securitizations involved concurrent cash sales.
The Company maintains an allowance for potential loan losses and asset
devaluation. For the three years in the period ended September 30, 1998,
activity in the allowance for loan losses was as follows:
In thousands 1998 1997 1996
----------------------------------------------------------------------
Balance at the beginning of the year $2,479 $2,398 $2,334
Provisions 170 671 1,022
Charge-offs (457) (838) (1,249)
Recoveries 75 248 291
------ ------ ------
Balance at the end of the year $2,267 $2,479 $2,398
====== ====== ======
Nonperforming assets include nonaccruing loans, loans ninety days past
due and accruing interest, loans renegotiated at other than prevailing
market terms and Other Real Estate Owned ("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 nonaccrual. Interest
forgone on nonaccrual and restructured loans of the Bank was $736,000,
$576,000 and $297,000 for the years ended September 30, 1998, 1997 and
1996, respectively. As of September 30, 1998, no additional funds were
committed to
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<PAGE>
clients whose loans have been restructured or were nonperforming. At
September 30, 1998 and 1997, nonperforming assets were comprised of:
In thousands 1998 1997
----------------------------------------------------------------
Advest Bank and Trust Company:
Nonaccrual loans $2,478 $ 4,135
OREO, net -- 1,046
Loans accruing and past due > 90 days 185 --
Advest Group, Inc.:
Nonaccrual loans 138 9,326
OREO, net -- 159
Other 750 750
------ -------
$3,551 $15,416
====== =======
Nonperforming assets as a percentage
of loans and OREO 1.9% 7.6%
====== =======
Nonperforming assets as a percentage
of total assets 0.3% 1.4%
====== =======
At September 30, 1998 and 1997, respectively, $862,000 and
$3,274,000, of loans were classified as impaired. 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 as of September 30, 1998 and 1997 were all classified as nonaccrual.
There were no loans for which potential credit problems may lead to future
nonaccrual status or possible charge-off at September 30, 1998 and 1997.
Impaired assets requiring a specific impairment reserve as of
September 30, 1998 and 1997 were $446,000 and $1,368,000, respectively,
with related allowances for credit losses of $46,000 and $65,000,
respectively. The average recorded investments in impaired loans were
$1,978,000 and $4,582,000 during fiscal 1998 and 1997, respectively. Income
recognized for loans classified as impaired was $1,000, $288,000, and
$292,000 during fiscal 1998, 1997, and 1996, respectively. All impaired
loans were classified as loans held for investment.
Note 3: Trading Positions
At September 30, 1998 and 1997, trading positions consisted of:
Securities sold,
Trading securities not yet purchased
------------------ ------------------
In thousands 1998 1997 1998 1997
- ------------------------------------------------------------------------
Corporate obligations $196,029 $55,546 $89,641 $32,298
State and municipal obligations 23,323 24,627 526 1,402
U.S. government and agency
obligations 4,041 10,559 57,566 16,244
Mortgage-backed securities 11,562 -- 408 --
Stocks and warrants 6,726 6,887 1,048 2,169
-------- ------- -------- -------
$241,681 $97,619 $149,189 $52,113
======== ======= ======== =======
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<PAGE>
Note 4: Investment Securities
As of September 30, 1998, 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 $ -- $ -- $11,900 $11,900
Due after one year through
five years -- -- 1,000 1,000
Due after ten years 1,990 1,990 5,876 6,011
------ ------ ------- -------
$1,990 $1,990 $18,776 $18,911
====== ====== ======= =======
For the three years ended September 30, 1998, 1997 and 1996, proceeds
from the sale of securities available for sale were $42,853,000, $4,871,000
and $26,290,000, respectively, and gross gains realized were $66,000,
$11,000 and $115,000, respectively. Gross losses realized were $2,000 and
$82,000 for 1998 and 1997, respectively, and there were no gross losses
realized for 1996. The amortized cost and fair values of the Company's
available for sale securities at September 30, 1998 and 1997 were:
Gross unrealized
Amortized ---------------- Fair
In thousands cost gains losses value
- -------------------------------------------------------------------------
1998
FHLB stock $ 2,270 $-- $ -- $ 2,270
Mortgage-backed securities 1,990 -- -- 1,990
Other 7,542 9 (24) 7,527
------- --- ----- -------
$11,802 $ 9 $ (24) $11,787
======= === ===== =======
1997
FHLB stock $ 2,270 $-- $ -- $ 2,270
Mortgage-backed securities 9,066 49 (157) 8,958
Other 2,740 25 (15) 2,750
------- --- ----- -------
$14,076 $74 $(172) $13,978
======= === ===== =======
There were no sales of held to maturity securities during the three years
in the period ended September 30, 1998. The amortized cost and fair values
of the Company's held to maturity securities at September 30, 1998 and 1997
were:
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<PAGE>
Gross unrealized
Amortized ----------------- Fair
In thousands cost gains losses value
- -------------------------------------------------------------------------
1998
Mortgage-backed securities $ 5,876 $135 $ -- $ 6,011
U.S. government and agency
obligations 12,400 -- -- 12,400
Other 500 -- -- 500
------- ---- ----- -------
$18,776 $135 $ -- $18,911
======= ==== ===== =======
1997
Mortgage-backed securities $ 8,002 $ 3 $(123) $ 7,882
U.S. government and agency
obligations 12,532 -- 17 12,549
Other 500 -- -- 500
------- ---- ----- -------
$21,034 $ 3 $(106) $20,931
======= ==== ===== =======
Note 5: Deposits
Pursuant to the FDIC Improvement Act ("FDICIA"), banks are subject to rules
limiting brokered deposits and related interest rates. The Bank meets the
conditions of such rules to be deemed a "well capitalized" bank and as such
may accept brokered deposits without restriction. At September 30, 1998 and
1997, deposits at the Bank consisted of:
In thousands 1998 1997
-------------------------------------------------------
Money market $ 91,785 $107,499
Certificates of deposit 79,190 61,673
Savings 99 411
-------------------------------------------------------
$171,074 $169,583
=======================================================
Note 6: Short-term Borrowings
In the ordinary course of business, primarily to facilitate securities
settlements and finance margin debits and trading inventories, Advest
obtains bank loans which are collateralized by its trading securities and
customers' margin securities. The loans are payable on demand and bear
interest based on the federal funds rate. At September 30, 1998 and 1997,
Advest had $124,001,000 and $32,001,000, respectively, in firm loans
outstanding. The weighted average interest rate on bank loans outstanding
at September 30, 1998 and 1997, was 5.81% and 5.85%, respectively, and the
weighted average interest rates during fiscal 1998 and 1997 were 5.87% and
5.82%, respectively.
Short-term borrowings of the Bank consisted primarily of the current
portion of advances from the FHLB. At September 30, 1998, borrowings
totaled $10,500,000 at rates from 5.53% to 6.58%. At September 30, 1997,
borrowings totaled $29,250,000 at rates from 5.61% to 7.17%. 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.
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 September 30, 1998 and 1997, were
$261,000 and $245,000, respectively, representing the current portion of a
promissory note due in 2000. Refer to Note 7 for additional information.
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<PAGE>
Note 7: Long-term Borrowings
Long-term borrowings of the Bank were $6,000,000 and $5,750,000 as of
September 30, 1998 and 1997, respectively, and represent the noncurrent
portion of FHLB advances. The borrowings are collateralized in the same
manner as short-term borrowings. As of September 30, 1998, the interest
rates and maturities of outstanding borrowings were:
In thousands Interest rates Amount
--------------------------------------------------------------
Year ending September 30, 1999 6.27%-6.68% $3,500
Year ending September 30, 2001 6.73% 1,500
Year ending September 30, 2002 4.99% 1,000
------
$6,000
======
On December 27, 1996, AGI entered into a private placement transaction
with three institutional investors. AGI borrowed $35,000,000 on an
unsecured basis and received an investment grade rating. Under the terms of
the note, the principal is payable in 5 equal installments with payments
due on December 31, 1999 and on the last day of each December thereafter
through and including December 31, 2003. The note bears interest at the
rate of 7.95% per annum payable semiannually on the last day of June and
December.
On November 1, 1995, AGI signed a promissory note with a third party
lender for $1,250,000 due November 1, 2000. Under the terms of the note,
the principal is payable in 60 equal monthly installments at an interest
rate of 6.25%.
At September 30, 1998 and 1997, total long-term borrowings of AGI were
$35,308,000 and $35,571,000, respectively.
Note 8: Common Stock
As of October 1, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") 128, "Earnings Per Share". Its
implementation did not have a material impact on the Company's computation
of earnings per share.
Basic earnings per share is calculated by dividing income available to
common stockholders by the weighted-average number of common shares
outstanding during the period. Diluted earnings per share is calculated by
dividing income available to common stockholders by the weighted-average
shares of common stock and common stock equivalents outstanding during the
period. Common stock equivalents are dilutive stock options that are
assumed exercised for calculation purposes. The diluted calculations for
fiscal 1997 and 1996 assume full conversion of the Company's outstanding
subordinated debentures into common stock and elimination of the related
interest expense, net of taxes, for the periods outstanding. The debentures
were retired in January 1997.
The following table provides the calculation of net income per
commonshare for the years ended September 30, 1998, 1997, and 1996:
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<PAGE>
In thousands, except per share amounts 1998 1997 1996
- ------------------------------------------------------------------
Net income $17,952 $14,932 $11,260
======= ======= =======
Average number of common shares
outstanding during the period 8,877 8,512 8,426
Adjustments:
Contingently issuable shares (726) (469) (223)
------- ------- -------
Average number of common
shares outstanding 8,151 8,043 8,203
======= ======= =======
Basic net income per common share $2.20 $1.86 $1.37
======= ======= =======
In thousands, except per share amounts 1998 1997 1996
- ------------------------------------------------------------------
Net income $17,952 $14,932 $11,260
Interest expense
on debentures, net -- 249 814
------- ------- -------
Net income applicable to
common stock $17,952 $15,181 $12,074
======= ======= =======
Average number of common shares
outstanding during the period 8,877 8,512 8,426
Adjustments:
Exercise of stock options 467 366 322
Conversion of debentures -- 466 1,515
------- ------- -------
Average number of common
shares outstanding 9,344 9,344 10,263
======= ======= =======
Diluted net income per common share $1.92 $1.62 $1.18
======= ======= =======
Under a common stock repurchase program instituted in August 1990, the
Board of Directors authorized the purchase of up to 3,000,000 shares. In
September, 1998, the Board of Directors authorized the repurchase of up to
an additional 1,000,000 shares of its common stock. During the years ended
September 30, 1998 and 1997, 60,500 and 183,200 shares, respectively, were
acquired for a total of 2,756,777 shares repurchased since the start of the
program.
The payment of dividends on the Company's common stock is subject to
(1) the availability of funds from Advest, which may be restricted under
the net capital rule of the SEC and the New York Stock Exchange ("NYSE"),
and from the Bank, which is subject to minimum bank regulatory
requirements, and (2) a Note Purchase Agreement dated as of December 27,
1996 with a consortium of third party institutional investors. Such
restrictions have never curtailed the Company's ability to declare
dividends.
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.
In March 1998, the Board of Directors adopted an amendment to the plan
extending the term of the rights, increasing their exercise price, and
making other changes
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<PAGE>
to the plan. After giving effect to this amendment, each right entitles the
holder, following the occurrence of certain events, to purchase one share
of common stock at a purchase price of $60 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 2008 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 9: 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, 1998, options for 379,482 shares had been granted of which
330,228 options were outstanding. Option grants under the 1993 Plan are
made at the discretion of the Human Resources 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 ten 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, as amended, provides for annual
grants of 2,500 incentive stock options to each director not employed by
the Company up to an aggregate of 100,000 options for all directors. At
September 30, 1998, options for 57,000 shares had been granted, of which
48,500 options were outstanding. 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 Plan
At September 30, 1998, the Company had outstanding an aggregate of 6,432
nonqualified stock options granted to top investment executives under a
performance-based plan offered in calendar 1992, which become exercisable
five years after grant and expire one year thereafter.
Advest Equity Plans
Since 1995, the Company has offered the Advest Equity Plans (the "Equity
Plan") to certain eligible employees. The Equity Plan is a salary deferral
investment program and is described in more detail in Note 10. For
deferrals during calendar 1998 through June 30, 1998, 44,251 options were
granted and additional options will be granted based on deferrals from June
30, 1998 through December 31, 1998. For deferrals during calendar 1997 and
1996, respectively, 111,020 and 155,125 options were granted. Options
granted under the equity plans are nonqualified stock options which will
become
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<PAGE>
exercisable five years after the end of the plan year and expire two years
later.
Exercise Price of Options
All options granted by the Company to date, or which may be granted under
all plans, 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.
The Company applies the intrinsic value method under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," in accounting for stock-based compensation and, accordingly, no
compensation cost has been recognized in the financial statements. Had the
Company determined compensation cost based on the fair value at the grant
date for its stock options under SFAS 123, the Company's net earnings would
have been the proforma amounts indicated below:
In thousands 1998 1997
-----------------------------------------------------
Net earnings
As reported $17,952 $14,932
Pro forma 17,573 14,736
Basic earnings per share
As reported $2.20 $1.86
Pro forma 2.16 1.83
Diluted earnings per share
As reported $1.92 $1.62
Pro forma 1.88 1.60
-----------------------------------------------------
Pro forma compensation expense associated with option grants is
recognized over the vesting period. The initial impact of applying SFAS 123
on pro forma disclosure is not representative of the potential impact on
pro forma net earnings for future years, which will include compensation
expense related to vesting of 1996, 1997, 1998, and subsequent grants.
Transactions under the Company's stock option plans are summarized
below:
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<PAGE>
Number of Weighted-average
shares exercise price
------------------------------------------------------------------
Options outstanding at
September 30, 1995 798,643 $4.52
Granted 431,818 9.03
Forfeited (1,244) 5.21
Exercised (327,148) 2.84
Options outstanding at
September 30, 1996 902,069 7.29
Granted 172,838 15.70
Forfeited (22,249) 8.42
Exercised (186,674) 5.38
Options outstanding at
September 30, 1997 865,984 9.35
Granted 127,533 26.13
Forfeited (14,031) 6.51
Exercised (144,506) 12.45
-------- ------
Options outstanding at
September 30, 1998 834,980 $12.34
======== ======
At September 30, 1998, 1997 and 1996, options were exercisable on
151,348, 145,987 and 116,537 shares, respectively, and the weighted average
exercise price were $6.84, $5.87 and $5.63, respectively.
The weighted-average fair value of options granted in 1998, 1997, and
1996 is $10.16, $6.67 and 3.72 per option, respectively. Fair value is
estimated as of the grant date based on a BlackScholes option pricing model
using the following weighted-average assumptions:
1998 1997 1996
------------------------------------------------------------
Risk-free interest rate 5.59% 6.33% 5.67%
Expected life 5.19 yrs 5.41 yrs 4.90 yrs
Expected volatility 36.00% 36.00% 36.00%
Dividend yield 0.79% 0.46% --%
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The following table summarizes information related to outstanding and
exercisable options at September 30, 1998:
Options outstanding Options exercisable
-------------------------------- ---------------------
Weighted- Weighted- Weighted-
average average average
Number of exercise remaining Number of exercise
Exercise prices shares price life shares price
- --------------------------------------------------------------------------
$5.13-$6.00 156,680 $5.92 1.36 yrs 105,512 $5.90
$8.50-$9.50 316,597 8.79 3.28 yrs 45,836 9.03
$10.25-$11.38 175,456 10.65 5.09 yrs -- --
$22.63-$30.00 186,247 25.37 6.19 yrs -- --
------- ------ -------- ------- -----
Total 834,980 $12.34 3.95 yrs 151,348 $6.84
======= ====== ======== ======= =====
Note 10: 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 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% of their compensation for each of the three calendar years ended
December 31, 1998. Contribution expense for fiscal 1998, 1997 and 1996 was
$4,324,000, $3,900,735 and $3,610,731, 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 investment 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
and other assets, at September 30, 1998 was $9,898,000, which was more than
the projected benefit obligation by $212,000.
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, 1998 and
1997:
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<PAGE>
In thousands 1998 1997
---------------------------------------------------------
Actuarial present value of benefit obligations:
Vested $ 100 $ 38
Non-vested 7,814 5,607
------ ------
Accumulated benefit obligation 7,914 5,645
Effect of projected future
compensation levels 1,772 1,737
------ ------
Projected benefit obligation 9,686 7,382
Unrecognized net loss (1,044) (354)
Unrecognized prior service cost (424) (476)
------ ------
Accrued pension liability $8,218 $6,552
====== ======
Pension expense for the plans for the three years in the period ended
September 30, 1998 is included in the following components:
In thousands 1998 1997 1996
---------------------------------------------------------------
Service cost $1,166 $1,369 $1,257
Interest cost 558 408 288
Net amortization and deferral 60 23 65
------ ------ ------
Net benefit costs $1,784 $1,800 $1,610
====== ====== ======
The following table provides the assumptions used in determining the
projected benefit obligation for the plans for the three years in the
period ended September 30, 1998:
1998 1997 1996
- --------------------------------------------------------------------------
Weighted average discount rate 6.50% 7.25% 7.50%
Rate of increase in future compensation levels 5.0 5.0 5.0
Equity Plans
Since calendar 1995, the Company has offered the Equity Plan to certain top
performing investment executives and designated key employees. The Advest
Equity Plan allows those employees to defer a portion of their compensation
and invest it on a pre-tax 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 9. Both the restricted stock and
options will be subject to forfeiture under certain circumstances. Since
calendar 1995, the Company has offered substantially similar plans to
executive officers.
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 1998, 1997 and 1996,
MIP compensation was $2,812,000, $2,462,000 and $2,338,000, respectively.
For fiscal 1996, any MIP award to an executive officer in excess of 150% of
the amount of the MIP award for the prior fiscal year was invested in
restricted shares of the Company's common stock.
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<PAGE>
Restricted Stock
Restricted stock awards are made, and shares issued, to certain key
employees without cash payment by the employee. The shares are restricted
for a vesting period, generally five years from the award date. Certain key
employees were awarded, net of forfeitures, 28,937 and 54,436 shares of
restricted stock, with a fair value of $770,000 and $610,000, during 1998
and 1997, respectively. As of September 30, 1998, stock awards for 89,075
shares were outstanding, with restrictions expiring at various dates
through 2003. The deferred cost of the restricted stock awards is amortized
on a straight-line basis.
Under employment agreements with certain key employees, a portion of
their compensation is invested in restricted shares of the Company's stock
on a discounted basis. Under these arrangements, during fiscal 1998, 1,819
shares were issued with a fair value of $41,000, at discounts ranging from
75% to 80% of fair market value. These shares are subject to forfeiture if
certain conditions are not met.
Note 11: 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, 1998, Advest's regulatory net capital of $65,371,000 was
13.93% of aggregate debit balances and exceeds required net capital by
$55,985,000.
Advest maintains separate accounts for the exclusive benefit of
customers in accordance with Securities and Exchange Commission Rule 15c33,
as determined by periodic computations. The rule allows Advest to maintain
the required amounts in cash or qualified securities.
Under bank regulatory restrictions, the Bank is required to maintain a
minimum level of capital. With its conversion to a federal charter during
fiscal 1997, the Bank is required to limit annual dividends to a percentage
of retained net income of the most recent four-quarter period, as defined.
No dividends were declared or paid by the Bank in fiscal 1998 or 1997. At
September 30, 1998, the Bank's Tier 1 leverage capital, Tier 1 risk-based,
and total risk-based capital ratios were 7.61%, 9.58% and 10.83%,
respectively, which met all regulatory requirements for well capitalized
banks.
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<PAGE>
Note 12: Income Taxes
The provision for income taxes for the three years ended September 30, 1998
consisted of the following:
In thousands 1998 1997 1996
-------------------------------------------------------------
Current:
Federal $12,280 $ 7,549 $5,893
State and local 3,866 2,453 3,270
------- ------- ------
16,146 10,002 9,163
------- ------- ------
Deferred:
Federal (3,436) 803 (155)
State and local (1,233) (429) (161)
------- ------- ------
(4,669) 374 (316)
------- ------- ------
Provision for income taxes $11,477 $10,376 $8,847
======= ======= ======
At September 30, 1998 and 1997, deferred tax assets and liabilities
were comprised of:
In thousands 1998 1997
----------------------------------------------------------
Deferred tax assets:
Provision for credit losses and
asset devaluation $ 3,720 $2,709
Employee benefits 5,503 5,156
FAS115 losses 9 35
State NOL carryforwards 444 1,069
Valuation allowance - state taxes -- (499)
Other 375 46
------- ------
Total deferred tax assets $10,051 $8,516
======= ======
Deferred tax liabilities:
Tax loan loss reserve in
excess of base year $ 414 $ 528
Depreciation 914 1,430
Investment income 70 168
Partnership basis difference 1,500 2,487
Other 1,077 2,470
------- ------
Total deferred tax liabilities $ 3,975 $7,083
------- ------
Net deferred tax asset $ 6,076 $1,433
======= ======
The Company will only recognize a deferred tax asset when, based on
available evidence, realization is more likely than not. Accordingly, at
September 30, 1998 and 1997, the Company has recorded no valuation
allowance against federal and state deferred tax assets based on reversals
of existing taxable amounts and anticipated future earnings. At September
30, 1997 a state valuation reserve was established to cover state net
operating loss carryforwards which were not expected to be realized due to
short carryforward time periods. At September 30, 1998, state net operating
loss carryforwards were approximately $8,500,000 which expire in various
years between 1999 and 2000.
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<PAGE>
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, 1998 follows:
Percent of pre-tax income 1998 1997 1996
-----------------------------------------------------------------
Statutory income tax rate 35.0% 35.0% 35.0%
State and local income taxes,
net of federal tax effect 6.9 6.9 9.8
Recognition of state net
operating losses (1.1) (1.5) --
Tax-exempt interest income (1.1) (1.5) (1.6)
Intangible assets 0.3 0.4 0.4
Other (1.0) 1.7 0.4
----- ----- -----
Effective income tax rate 39.0% 41.0% 44.0%
===== ===== =====
Effective fiscal 1997, the Bank changed its tax bad debt method to the
specific charge-off method in accordance with provisions of the Small
Business Job Protection Act. The change in method resulted in taxable
income of approximately $1,485,000 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 reserve).
Generally, the income is being recognized ratably over a six year period.
Accordingly, the deferred tax liability resulting from the change in method
is approximately $414,000 and $528,000, at September 30, 1998 and 1997,
respectively.
As of September 30, 1998, the Bank has not recorded a deferred tax
liability for its base year reserve of $2,155,000. An income 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 be made.
Note 13: Commitments and Contingencies
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) at September 30, 1998 are (in thousands):
Data processing
Fiscal year ended Office & communications
September 30, facilities equipment Total
-------------------------------------------------------------
1999 $ 7,771 $1,303 $ 9,074
2000 7,557 851 8,408
2001 7,197 823 8,020
2002 5,990 412 6,402
2003 5,129 -- 5,129
2004 and thereafter 10,521 -- 10,521
------- ------ -------
$44,165 $3,389 $47,554
======= ====== =======
Rental expense under these leases was $9,637,000, $9,338,000 and
$8,928,000 for the years
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<PAGE>
ended September 30, 1998, 1997 and 1996, respectively.
Loan guarantees and letters of credit
At September 30, 1998 and 1997, Advest was contingently liable under bank
letter of credit agreements in the amount of $3,335,000 and $1,835,000,
respectively, which are collateralized by securities held in customer
accounts.
At September 30, 1998 and 1997, the Bank and AGI were contingently
liable under standby letters of credit and commitments to extend credit to
customers in the amount of $101,675,000 and $88,800,000, respectively. The
value of collateral required to be held for letter of credit commitments as
of September 30, 1998 ranges from 0% to 1639% of individual commitments
with a weighted average of 207%.
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 or future operating results of the Company.
Year 2000
Costs associated with achieving Year 2000 readiness are expensed as
incurred and consist primarily of compensation and benefits expense of
employees dedicated to the Year 2000 project. Management does not expect
that ongoing costs associated with Year 2000 compliance will have a
material impact on the Company's financial condition, results of operations
or cash flows.
Note 14: Financial Instruments With Off-Balance-Sheet Risk
In the normal course of business, Advest executes, settles and finances
customer and proprietary securities transactions. These activities may
expose Advest to off-balance-sheet risk in the event that customers or
other parties are unable to fulfill their 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. Should a customer or
broker fail to deliver cash or securities as agreed, Advest may be required
to purchase or sell securities at unfavorable market prices.
Customer securities activities, including the sale of securities not
yet purchased ("short sales"), are transacted on either a cash or margin
basis. For margin transactions, in which Advest extends credit to
customers, it seeks to control its risk by requiring customers to maintain
margin collateral in compliance with various regulatory and internal
guidelines. Advest monitors required margin levels daily and requests
customers to deposit additional collateral or liquidate securities
positions when necessary. Such transactions expose Advest to off-balance
sheet risk in the event margin requirements are not sufficient to cover
customer losses.
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 the
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
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<PAGE>
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 prevailing market
prices in the future. These obligations are recorded in the financial
statements at the market values of the related securities and Advest will
incur a loss if the market value of the securities increases.
Advest seeks to manage the interest rate risk associated with its
municipal 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, 1998 and 1997 were $797,325
and $875,752, respectively. Net trading profits (losses) of $(162,000),
$(76,000) and $20,000 were realized in 1998, 1997 and 1996, respectively.
At September 30, 1998, Advest had no open positions. At September 30,
1997, Advest had only nominal open positions. Advest hedges its taxable
fixed income positions by taking short positions in like products with
similar maturities as well as U.S. treasuries.
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 nonperformance 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 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. 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.
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<PAGE>
The following table illustrates the Bank's outstanding swap and cap
contracts at September 30, 1998:
Maturities
------------------ Balance Balance
In thousands 1999 2001 9/30/98 9/30/97
- -----------------------------------------------------------------------
Fixed pay interest rate swaps:
Notional value $5,000 $ -- $ 5,000 $10,000
Weighted average
receive rate 5.688% --% 5.688% 5.719%
Weighted average
pay rate 7.090% --% 7.090% 7.940%
Interest rate caps:
Notional value $ -- $5,000 $ 5,000 $ 5,000
Strike rate --% 6.000% 6.000% 6.000%
Unamortized premium $ -- $128 $ 128 $ 167
Total notional value $5,000 $5,000 $10,000 $15,000
In the absence of these interest rate swaps, net interest income would
have been higher by approximately $126,000, $233,000 and $441,000 in 1998,
1997 and 1996, respectively. In the absence of these cap contracts, net
interest income would have been higher by approximately $39,300, $75,000,
and $57,000 in 1998, 1997 and 1996, respectively.
Note 15: Concentrations of Credit Risk
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.
Advest's activities primarily involve collateralized arrangements and may
result in credit exposure if the counterparties do not fulfill their
obligations. Advest's exposure to credit risk can be directly impacted by
volatile securities markets which may impair the ability of counterparties
to satisfy their contractual obligations.
When entering into interest rate swap and cap agreements, the Bank is
subject to 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.
Note 16: Related Parties
As of September 30, 1998 and 1997, loans to related parties made by the
Bank totaled approximately $2,556,000 and $3,585,000, respectively. There
were approximately $1,721,000 of new loans and advances and $2,750,000 of
net repayments during 1998. Related parties include directors and executive
officers of the Company, and their respective affiliates in which they have
a
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<PAGE>
10% or more interest. Such loans were made in the ordinary course of
business. As of September 30, 1998, all loans to related parties were
performing.
Note 17: 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 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,
1998 and 1997 are:
1998 1997
------------------ ------------------
Carrying Fair Carrying Fair
In thousands amount value amount value
---------------------------------------------------------------
Financial assets:
Loans, net $180,528 $181,249 $199,166 $202,103
Investment securities 30,563 30,698 35,012 34,909
Financial liabilities:
Deposits 171,074 171,973 169,583 169,747
Short-term borrowings 134,762 134,804 61,496 61,544
Long-term borrowings 41,308 41,834 41,321 41,273
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<PAGE>
Notional Fair Notional Fair
In thousands amount value amount value
---------------------------------------------------------------
Unrecognized financial instruments:
Fixed pay interest-
rate swaps $5,000 $(92) $10,000 $(163)
Interest rate caps 5,000 14 5,000 114
Commitments to extend
credit (100,814) (28) (87,922) 6
Standby letters of
credit (4,196) (17) (2,193) (3)
Note 18: Segment Reporting
The Company operates principally in the financial services and banking
industries. Operations in the financial services industry include agency
transactions, principal transactions, investment banking, asset management
and consulting. The banking operations include residential mortgage
lending, trust services and investment of funds generated from borrowings
and customer deposits. Financial information by industry segments for the
three years in the period ended September 30, 1998 are summarized as
follows:
Financial
In thousands services Banking Other Consolidated
- -----------------------------------------------------------------------
1998
Total revenues $304,276 $16,479 $4,473 $ 325,228
Operating income 27,797 782 850 29,429
Identifiable assets 998,266 208,579 26,426 1,233,271
Capital expenditures 3,885 137 -- 4,022
Depreciation and amortization 9,409 537 (152) 9,794
1997
Total revenues $272,967 $16,925 $1,315 $ 291,207
Operating income (loss) 27,310 720 (2,722) 25,308
Identifiable assets 814,149 222,014 42,676 1,078,839
Capital expenditures 4,235 377 4 4,616
Depreciation and amortization 8,230 364 (68) 8,526
1996
Total revenues $239,030 $19,324 $1,548 $ 259,902
Operating income (loss) 21,643 1,074 (2,610) 20,107
Identifiable assets 712,844 219,245 33,756 965,845
Capital expenditures 5,573 344 14 5,931
Depreciation and amortization 7,694 332 196 8,222
-60-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of The Advest Group, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of earnings and changes in shareholders'
equity and of cash flows present fairly, in all material respects, the
financial position of The Advest Group, Inc. and its subsidiaries (the
"Company") at September 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended September 30, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards, which
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, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 8 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting
Standards No. 128 "Earnings per Share" as of October 1, 1997.
PricewaterhouseCoopers LLP
Hartford, Connecticut
October 21, 1998
-61-
<PAGE>
<TABLE>
Quarterly Financial Information (unaudited)
In millions, 1998 by fiscal quarters 1997 by fiscal quarters *
except per ------------------------------------------------------------------
share data 1st* 2nd* 3rd 4th 1st 2nd 3rd 4th
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data:
Dividends $0.04 $0.04 $0.04 $0.04 $- $0.03 $0.03 $0.03
Stock price range:
High $26-15/16 $25-1/2 $33-3/4 $32 $10-7/8 $15 $27-1/2 $27-1/2
Low $21-3/4 $21 $24-1/2 $16-1/2 $9 $10-3/8 $11-1/2 $20-1/2
Close $24-11/16 $24-5/8 $28-7/8 $20-3/8 $10-3/4 $11-7/8 $23-3/4 $26-5/16
Diluted earnings $0.43 $0.51 $0.44 $0.54 $0.35 $0.34 $0.42 $0.51
Revenues $78.0 $82.4 $82.9 $81.9 $70.2 $68.2 $73.8 $79.0
Income before taxes$ 6.7 $ 7.9 $ 6.9 $ 7.9 $ 6.1 $ 5.3 $ 6.6 $ 7.3
Net income $ 4.0 $ 4.8 $ 4.2 $ 5.0 $ 3.4 $ 3.0 $ 3.8 $ 4.7
</TABLE>
* As a result of a retroactive change in accounting for warrants, adopted
during the third quarter of fiscal 1998, the revenues, income before taxes
and net income amounts reported for the first and second quarters of fiscal
1998 and for all four quarters of fiscal 1997 have been restated. Refer to
discussion of accounting change in Management's Discussion and Analysis of
Financial Condition and Results of Operations.
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.
-62-
<PAGE>
Part III
Item 10. Directors and Executive Officers of the Registrant
The information required for "Directors" by this item is included under the
caption "Election of Directors" 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 28, 1999. Such information is
hereby incorporated by reference.
The following table sets forth the executive officers of the Company
at December 11, 1998. 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 63 Chairman and
Chief Executive Officer 1977
Grant W. Kurtz 56 President 1985
Allen G. Botwinick 55 Executive Vice President, Administration
and Operations 1980
George A. Boujoukos 64 Senior Executive Vice President of
Capital Markets, Advest, Inc. 1977
Harry H. Branning 47 Senior Executive Vice President and
National Sales Manager, Advest, Inc. 1994
Lee G. Kuckro 57 Executive Vice President, Secretary
and General Counsel 1978
Martin M. Lilienthal 56 Executive 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 28, 1999. 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 28, 1999. 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 28, 1999. Such information is hereby
incorporated by reference.
-63-
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Page Reference
(a) 1. Financial Statements
The Consolidated Financial Statements and The Report of
Independent Accountants contained herein:
Consolidated Statements of Earnings 34
Consolidated Balance Sheets 35
Consolidated Statements of Cash Flows 36
Consolidated Statement of Changes in Shareholders' Equity 37
Notes to Consolidated Financial Statements 38-60
Report of Independent Accountants 61
2. Financial Statement Schedules
Report of Independent Accountants on all schedules 70
Schedule II-Valuation and Qualifying Accounts 71
3. Exhibits
The following is a list of exhibits to this Report on Form 10K filed
herewith or incorporated by reference herein.
Prior Filing(s) to which
Reference is made, if
Exhibit Description applicable
- -----------------------------------------------------------------------
3(a) Restated Certificate of Exhibit 3(a) to Registrant's
Incorporation of Registration Report on Form 10-Q for the
quarter ended March 31, 1989
3(b) By-laws of Registrant, as Exhibit 3(b) to Registrant's
restated and amended Report 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
3(c) Second Amendment to Restated Exhibit 3(c) to Registrant's
By-laws of Registrant Report on Form 10-K for its
fiscal year ended September
30, 1997
4(a) Shareholder Rights Agreement Exhibit to Registrant's Report
dated as of October 31, 1988, on Form 8-K dated November 1,
as amended on March 12, 1998 1988 and to Exhibit 4 to
Registrant's Report on Form 8-K
dated March 13, 1998
-64-
<PAGE>
Prior Filing(s) to which
Reference is made, if
Exhibit Description applicable
- -----------------------------------------------------------------------
10(a) Registrant's 1994 Non-Employee Exhibit A to Registrant's Proxy
Director Stock Option Plan dated December 20, 1994
10(b) First, Second and Third Filed Herewith
Amendments to Non-Employee
Director Stock Option Plan
10(c) Registrant's 1993 Stock Exhibit A to Registrant's Proxy
Option Plan Statement dated December 21,1993
10(d) Registrant's 1983 Incentive Exhibit A to Registrant's Proxy
Stock Option Plan, as amended Statement dated December 21,
1983 and Exhibit 10(a) to
Registrant's Report on Form 10-Q
for the quarter ended March 31,
1988
10(e) Registrant's Deferred Exhibit 10(f) to Registrant's
Compensation Savings and Report on Form 10-K for the
Investment Plan, Amended fiscal year ended September 30,
and Restated as of November 1989, Exhibit 10(j)to
17, 1989, as amended Registrant's Report on Form 10-K
for its fiscal year ended
September 30, 1990 and Exhibit
of Registrant's Report on Form
10-Q for the quarter ended
December 31, 1992
10(f) Non-Employee Director Exhibit 10(b) to Registrant's
Equity Plan Report on Form 10-Q for the
quarter ended June 30, 1996
10(g) Key Professionals Equity Plan, Exhibit 10(g) to Registrant's
as amended and restated as of Report on Form 10-K for its
October 1, 1997 fiscal year ended September 30,
1997
10(h) Forms of Executive Officer Exhibit 10 to Registrant's
Restricted Stock and Stock Report on Form 10-Q for the
Option Agreement for 1995, quarter ended December 31, 1994
1996 (as supplemented) and Exhibit 10(c) to
and 1997 and 1998 Registrant's Report on Form
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; Exhibit 4.5 to
Registrant's Registration
Statement on Form S-8, File No.
333-17711; and Exhibit 10(i) to
Registrant's Report on Form
10-K for its fiscal year ended
September 30, 1997
-65-
<PAGE>
Prior Filing(s) to which
Reference is made, if
Exhibit Description applicable
- -----------------------------------------------------------------------
10(i) The Advest Thrift Plan of Exhibit 10(a) to Registrant's
Registrant, effective as of Report on Form 10-Q for the
December 31, 1992, as quarter ended December 31, 1992;
amended Exhibit 10(a) to Registrant's
Report on Form 10-Q for the
quarter ended June 30, 1996 and
Exhibit 10(k) to Registrant's
Report on Form 10-K for its
fiscal year ended September 30,
1997
10(j) Registrant's 1992 Exhibit 10(c) to Registrant's
Top AE Stock Option Plan Report on Form 10-Q for the
quarter ended December 31, 1992
10(k) Registrant's Account Exhibit 10(m) to Registrant's
Executive Nonqualified Report on Form 10-K for its
Defined Benefit Plan, fiscal year ended September 30,
as amended 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(l) Registrant's Nonqualified Exhibit 10(n) to Registrant's
Executive Post-employment Report on Form 10-K for its
Income Plan, as amended fiscal year ended September 30,
1994 and Exhibit 10(e) to
Registrant's Report on Form
10-Q for the quarter ended June
30, 1996
10(m) Registrant's 1995 through Exhibit 4.1 to Registrant's
1998 Advest 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; Exhibit 4.3 to
Registrant's Registration
Statement on Form S-8, File No.
333-17711; and Exhibit 10(p) to
Registrant's Report on Form10-K
for its fiscal year ended
September 30, 1997
10(n) Advest Equity Plan effective Filed Herewith
November 19, 1998
10(o) Amended and Restated Exhibit 10(h) to Registrant's
Employment Agreement with Report on Form 10-Q for the
Chief Executive Officer quarter ended June 30, 1996
10(p) Employment Agreement with Exhibit 10(r) to Registrant's
President Report on Form 10-K for its
fiscal year ended September 30,
1997
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<PAGE>
Prior Filing(s) to which
Reference is made, if
Exhibit Description applicable
- -----------------------------------------------------------------------
10(q) Form of Executive Agreement Filed Herewith
dated September 24, 1998
10(r) Note Purchase Agreement of Exhibit 10(a) to Registrant's
Registrant dated as of Report on Form 10-Q for the
December 27, 1996 with quarter ended December 31, 1996
respect to Registrant's
7.95% Senior Notes due
December 31, 2003
10(s) Cash Subordination Agreement Exhibit 10(b) to Registrant's
of the Registrant dated as Report on Form 10-Q for the
of January 31 1997 quarter ended December 31, 1996
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
- -----------------------
(b) Reports on Form 8-K
Report on Form 8-K filed July 17, 1998 concerning third quarter
earnings results, a change to the Company's accounting procedures and the
related restatement of financial statements.
-67-
<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 December 18, 1998
Martin M. Lilienthal
Executive 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) December 18, 1998
- ---------------------------
Allen Weintraub
Executive Vice President
Treasurer(Chief Financial
and Principal Accounting
/s/Martin M. Lilienthal Officer) December 18, 1998
- ----------------------------
Martin M. Lilienthal
/s/Sanford Cloud, Jr. Director December 18, 1998
- ----------------------------
Sanford Cloud, Jr.
/s/Ronald E. Compton Director December 18, 1998
- ----------------------------
Ronald E. Compton
/s/Richard G. Dooley Director December 18, 1998
- ----------------------------
Richard G. Dooley
/s/William B. Ellis Director December 18, 1998
- ----------------------------
William B. Ellis
-68-
<PAGE>
SIGNATURES
/s/Robert W. Fiondella Director December 18, 1998
- ----------------------------
Robert W. Fiondella
/s/Grant W. Kurtz President and Director December 18, 1998
- ----------------------------
Grant W. Kurtz
/s/Marne Obernauer, Jr. Director December 18, 1998
- ----------------------------
Marne Obernauer, Jr.
/s/Barbara L. Pearce Director December 18, 1998
- ----------------------------
Barbara L. Pearce
/s/John A. Powers Director December 18, 1998
- ----------------------------
John A. Powers
-69-
<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 is included on page 61 of this Form 10-K. In
connection with our audits of such financial statements, we have also
audited the related financial statement schedule listed in the index on
page 64 of this Form 10-K.
In our opinion, the financial statement schedule 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/ PricewaterhouseCoopers LLP
Hartford, Connecticut
October 21, 1998
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<PAGE>
Schedule II
The Advest Group, Inc. and Subsidiaries
Valuation and Qualifying Accounts
Additions
Balance at charged to Charge-offs Balance
beginning cost and and at end
In thousands of period expenses recoveries of period
- -------------------------------------------------------------------------
For the years ended September 30,
1998
Credit losses:
Brokerage customers $ 719 $ 88 $ (16) $ 791
Loans 2,479 245 (457) 2,267
Asset devaluation:
Other investments/assets 1,507 (13) (123) 1,371
------ ------ ------- ------
$4,705 $ 320 $ (596) $4,429
====== ====== ======= ======
1997
Credit losses:
Brokerage customers $ 791 $ 91 $ (163) $ 719
Loans 2,398 671 (590) 2,479
Asset devaluation:
Other investments/assets 1,708 153 (354) 1,507
------ ------ ------- ------
$4,897 $915 $(1,107) $4,705
====== ====== ======= ======
1996
Credit losses:
Brokerage customers $743 $ 103 $ (55) $ 791
Loans 2,334 1,022 (958) 2,398
Asset devaluation:
Other real estate owned 718 20 (738) --
Other investments/assets 1,647 113 (52) 1,708
------ ------ ------- ------
$5,442 $1,258 $(1,803) $4,897
====== ====== ======= ======
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<PAGE>
Form 10-K Exhibit Index
Exhibit Description
10(b) First, Second and Third Amendments to Non-Employee
Director Stock Options Plan
10(n) Advest Equity Plan
10(q) Form of Executive Agreement dated September 24, 1998
21 Subsidiaries
23 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule (Selected financial data - for
EDGAR electronic filing only to SEC)
-72-
<PAGE>
Exhibit 10(b)
As adopted by the Board of
Directors of The Advest Group,
Inc. on September 26, 1996
FIRST AMENDMENT TO
THE NON-EMPLOYEE DIRECTOR
STOCK OPTION PLAN
Effective as of September 26, 1996
The Advest Group, Inc. 1994 Non-Employee Director Stock Option Plan
(the "Plan") is hereby amended, effective for all grants after the date
hereof, to substitute "2,500 Shares" for "1,500 Shares" in each place
where it appears.
In other respects, the Plan will continue in full force and effect.
As adopted by the Board of
Directors of The Advest Group, Inc.
on March 13, 1997
SECOND AMENDMENT TO
THE NON-EMPLOYEE DIRECTOR
STOCK OPTION PLAN
Effective as of March 13, 1997
Section 3 of The Advest Group, Inc. 1994 Non-Employee Director Stock
Option Plan (the "Plan") is hereby amended by deleting the first sentence
thereof and substituting the following: "100,000 in the aggregate of the
authorized but unissued shares of the Company's common stock, $.01 par
value per share (the "Shares") and/or treasury shares shall be reserved for
the issuance upon the exercise of Options; provided, that no more than
50,000 of such shares will be authorized but unissued shares of the
Company's common stock, and the remainder will be treasury shares."
In other respects, the Plan will continue in full force and effect.
-73-
<PAGE>
As adopted by the Board of
Directors of The Advest Group,
Inc. on November 20, 1997
THIRD AMENDMENT TO
THE NON-EMPLOYEE DIRECTOR
STOCK OPTION PLAN
Effective as of November 20, 1997
Section 11(b) of The Advest Group, Inc. 1994 Non-Employee Director
Stock Option Plan (the "Plan") is hereby amended by inserting the phrase
"or other Departures" after "Disability or Death" in the heading of that
Section.
Section 11(b) is further amended by inserting the following
additional sentence at the end thereof: "If a Participant's service as
Director is terminated for any other reason, other than voluntary
resignation or failure to stand for reelection, any outstanding options
shall immediately become exercisable and the Participant shall have the
right to exercise any outstanding Option for a three month period following
the termination of the Participant's service.
In other respects, the Plan will continue in full force and effect.
-74-
<PAGE>
Exhibit 10(n)
THE ADVEST GROUP, INC.
EQUITY PLAN
The Advest Group, Inc. hereby establishes The Advest
Group, Inc. Equity Plan, effective November 19, 1998 for a select group of
top performing account executives and key employees. The purpose of the
Plan is to further the long term growth in earnings of the Company by
offering incentives to select Employees to compensate them for their
contributions to the Company's growth and profits, to encourage their
ownership of the Company's stock, and to encourage them to remain in the
employ of the Company.
ARTICLE I
DEFINITIONS
When used herein, each of the following terms shall
have the corresponding meaning set forth below unless a different meaning
is plainly required by the context in which a term is used.
Section 1.1. "Affiliate" means the Company's present or future parent
corporation, each of the present or future subsidiaries of the Company, and
any subsidiaries of the present or future parent of the Company in which
the parent holds a controlling interest.
Section 1.2. "Beneficiary" means any person (including, but not
limited to, a Participant's estate) designated by a Participant on a form
provided or approved by the Committee to receive any Stock or Options to
which such Participant shall be entitled upon such Participant's death in
accordance with the terms of the Plan. No designation of Beneficiary shall
be effective until filed with the Committee. If more than one Beneficiary
shall be designated, the Beneficiaries shall share equally in any rights or
interests of the Participant under the Plan. If a Participant shall fail
to file a valid designation form, or if all persons designated on the
designation form shall have predeceased the Participant, the Company shall
distribute all of the Participant's Stock and Options to which he shall
have been entitled upon his death to such Participant's estate.
Section 1.3. "Board of Directors" means the Board of Directors of
the Company or the Executive Committee of such Board.
Section 1.4. "Cause" shall be deemed to include any act of
dishonesty or fraud, gross negligence, gross insubordination or willful or
reckless conduct detrimental to the business of the Company or an
Affiliate.
Section 1.5. "Change of Control" means a transfer or sale of
substantially all of the assets of the Company or merger or consolidation
of the Company into or with any
-75-
<PAGE>
other corporation or entity that occurs after the Effective Date, provided
either (a) the other corporation or entity is engaged in the retail
securities brokerage business at the date of the transaction and such
transaction results in the Company not surviving such merger or
consolidation or (b) a substantial change in the senior management of the
Company occurs within six months as a result of the transaction.
Section 1.6. "Code" means the Internal Revenue Code of 1986, as
amended.
Section 1.7. "Committee" means an administrative committee designated
to administer this Plan in accordance with Article X.
Section 1.8. "Company" means The Advest Group, Inc. and any successor
thereto by merger, consolidation, purchase or otherwise.
Section 1.9. "Compensation" means the amount of earnings due to the
Participant for the Deferral Period as defined by the Company.
Compensation shall include amounts contributed to a Participant's account
established under the Company's or an Affiliate's 401(k) plan or The Advest
Group, Inc.'s Deferred Compensation Savings and Investment Plan, or any
successor plan(s).
Section 1.10. "Deferral Period" means the period beginning on January
1, 1999 and ending on the earliest of: (a) the termination of a
Participant's employment with the Company or an Affiliate, (b) the
termination of the Plan in accordance with Article IX, or (c) December 31,
1999. In the event that this Plan is extended for additional years under
Section 9.3, "Deferral Period" for purposes of those additional years shall
mean the period beginning on the first day of such year and ending on the
earliest of: (a) the termination of a Participant's employment with the
Company or an Affiliate, (b) the termination of the Plan in accordance with
Article IX, or (c) the last day of such year.
Section 1.11. "Deferred Amount" or "Amount Deferred" means that
portion of a Participant's Compensation a Participant has elected to
receive in the form of Units in accordance with Section 3.1.
Section 1.12. "Employee" means any person who is a common-law
employee of the Company or an Affiliate.
Section 1.13. "Executive Officer" means any person who is an
"executive officer" for purposes of Section 16 of the 1934 Act.
Section 1.14. "Options" means non-qualified stock options to purchase
shares of Stock that are not incentive stock options under Section 422 of
the Code and that are received as a part of a Unit by Participants with
Deferred Amounts.
Section 1.15. "Participant" means an Employee participating in the
Plan as provided in Article II.
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<PAGE>
Section 1.16. "Permanent Disability" means a mental or physical
condition which renders a Participant permanently unable or incompetent to
engage in any substantial gainful activity.
Section 1.17. "Plan" means "The Advest Group, Inc. Equity Plan". The
Plan offered during calendar 1999 may sometimes be referred to as "The
Advest Group, Inc. 1999 Equity Plan," and, in the event that this Plan is
extended for additional years under Section 9.3, the Plan offered during
those additional years may be referred to in a corresponding manner.
Section 1.18. "Restricted Stock" means shares of Stock subject to the
restrictions set forth in Article IV that are received as part of a Unit by
Participants with Deferred Amounts.
Section 1.19. "Retirement" means the date a Participant retires after
attaining the age of fifty-five.
Section 1.20. "Stock" means the common stock of the Company.
Section 1.21. "Unit" means a grouping consisting of one share of
Restricted Stock and one Option.
Section 1.22. "Unit Price" means the amount of Compensation a
Participant must elect to forego receiving in cash in order to receive a
Unit under the Plan. Such price shall be the closing price per share of
the Stock portion of the Unit on the Composite Tape of the New York Stock
Exchange on the day the Unit is acquired.
ARTICLE II
ELIGIBILITY
Section 2.1. Participants. An Employee eligible to become a
Participant in this Plan for the Deferral Period is any Employee who:
(a) is an account executive, other than an account executive in
the first 36 months of a recruitment loan program (measured as of
the first day of the Deferral Period), who is a member of the
Chairman's Council, the Advisory Council, the President's
Council, or the Associates' Council by the standards the Company
has set based upon levels of achievement with respect to the last
complete fiscal year commencing prior to such Deferral Period; or
(b) is a an Executive Officer or another key employee designated
by the Chief Executive Officer of the Company on a list provided
by the Chief Executive Officer to the Committee before the first
day of the Deferral Period as eligible to participate in the Plan
("Key Employees").
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<PAGE>
Section 2.2. Duration of Participation. A Participant shall cease to
be a Participant on the earliest of: (a) the date all restrictions with
respect to Stock purchased hereunder lapse and all Options purchased
hereunder have terminated, (b) the date such Stock and Options are
forfeited in accordance with Section 4.3 or Section 5.5, or (c) the date
the Plan is terminated in accordance with Article IX.
Section 2.3. Reemployment. Reemployment of a former Participant by
the Company or an Affiliate shall not entitle such individual to become a
Participant in the Plan unless the individual again becomes a Participant
in accordance with Section 2.1, and reemployment of a former Participant by
the Company or an Affiliate shall not result in the restoration of any
Stock or Options previously forfeited by such Participant.
ARTICLE III
DEFERRAL
Section 3.1. Amount Deferred. During the Deferral Period:
(a) A Participant who is a member of the Chairman's Council may
elect to receive a minimum of 2.5% and a maximum of 10% of his or
her Compensation in the form of Units.
(b) A Participant who is (i) a member of the Advisory Council,
(ii) a member of the President's Council, or (iii) an Executive
Officer or other Key Employee who had total compensation of
$125,000 or more during the calendar year immediately preceding
the Deferral Period, may elect to receive a minimum of 2.5% and a
maximum of 7.5% of his or her Compensation in the form of Units.
(c) A Participant who is (i) a member of the Associates'
Council, or (ii) a Key Employee other than one described in
paragraph (b) above, may elect to receive a minimum of 1.5% and a
maximum of 5% of his or her Compensation in the form of Units.
(d) In addition to the percentage elections set forth above in
clause (b) or (c), whichever may be applicable, a salaried Key
Employee who elects at least the minimum level of investment may
also elect to receive a greater percentage, up to a maximum
aggregate of 100%, of his or her Compensation above base salary
in the form of Units, provided that at no time may the amount of
Compensation received in the form of Units exceed the maximum
permitted percentages of Compensation specified in clause (b) or
(c) above, whichever may be applicable.
Notwithstanding the foregoing, no Participant may elect to receive
during the Deferral Period Units with an aggregate Unit Price in excess of
$50,000, and no further
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<PAGE>
Units shall be acquired for Participants under the Plan if such acquisition
would cause the aggregate number of Units sold to exceed 400,000. If,
based upon Participant elections, the Committee anticipates at the
commencement of the Deferral Period that these aggregate limit is likely to
be exceeded, the Committee may reduce the maximum percentage investments in
a manner it determines to be equitable to all participants. Participants
will be notified of any reduction applicable to them by the end of the
first month of the Deferral Period.
Section 3.2. Receipt of Units. Amounts deferred hereunder shall be
withheld from a Participant's paycheck in periodic installments. On the
last business day of each month, the total of a Participant's Deferred
Amounts under Section 3.1 shall be applied to acquire Units for such
Participant at the then Unit Price. No interest or other earnings shall
accrue on amounts deferred prior to acquisition of Units. Fractional units
may be acquired by a Participant; provided, that the Committee may
establish procedures to eliminate any fractional holdings of Units held on
behalf of Participants as of the last day of the Deferral Period in a
manner equitable to all Participants.
Section 3.3. Stock Subject to Purchase. Shares of Stock subject to
purchase hereunder shall be previously issued shares reacquired by the
Company (including any shares forfeited under this Plan).
ARTICLE IV
RESTRICTED STOCK
Section 4.1. Stock. All shares of Restricted Stock shall be held in
the name of The Advest Group, Inc. as escrow agent for Participants.
Section 4.2. Restrictions. The shares of Restricted Stock purchased
hereunder shall be subject to the following restrictions and conditions:
(a) Subject to the provisions of the Plan and the Restricted
Stock Agreements, during the period commencing on the date of the
acquisition of any shares of Restricted Stock hereunder and
terminating on the fourth anniversary of the first day of the Deferral
Period (together with any extensions of such period approved as
provided herein) (the "Restriction Period"), a Participant shall not
be permitted to sell, transfer, pledge or assign shares of Restricted
Stock acquired under the Plan. One year extensions of the Restriction
Period for Restricted Stock purchased hereunder will be made at a
Participant's election, which election must be in writing on a form
provided by the Committee and must be made no later than one year
before the Restriction Period would otherwise terminate; provided,
however, that the Committee may at any time determine that no
additional extensions of Restriction Periods will be effective.
(b) A Participant shall have the right to direct the vote of
such Participant's shares of Restricted Stock during the Restriction
Period, in
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accordance with Section 4.4. A Participant shall have the right to
receive any regular dividends on such shares of Restricted Stock. The
Committee shall in its sole discretion determine a Participant's
rights with respect to extraordinary dividends on the shares of
Restricted Stock.
(c) Shares of Restricted Stock shall be transferred to a
Participant's brokerage account with Advest, Inc. within a reasonable
time after, and only after, the Restriction Period shall expire (or
such earlier time as the restrictions may lapse in accordance with
Section 4.2(a) or Section 4.3) without forfeiture in respect of such
shares of Restricted Stock.
Section 4.3. Termination of Employment. Subject to the provisions of
Section 4.2(a), the following provisions shall apply to a Participant's
shares of Restricted Stock prior to the end of the Restriction Period
(including extensions):
(a) Upon a Participant's death, Permanent Disability, Retirement
with the written consent of the President or the Chief Executive
Officer of the Company or the Affiliate by which the Participant is
employed, voluntary termination of employment more than nine months
after a Change of Control, or involuntary termination of employment
(other than a termination for Cause), the restrictions on such
Participant's Restricted Stock shall immediately lapse, and such
shares shall be delivered to the Participant or the Participant's
designated Beneficiary, as the case may be, within a reasonable time
after the occurrence of any such event.
(b) Upon a Participant's Retirement without the written consent
of the President or the Chief Executive Officer of the Company or the
Affiliate by which the Participant is employed or voluntary
termination of employment within nine months of a Change of Control,
the Participant shall forfeit all of such Participant's shares of
Restricted Stock and receive in return, without interest, a cash
payment equal to (i) the lesser of: (1) the aggregate Unit Price for
such Restricted Stock, and (2) the closing price per share of Stock on
the Composite Tape of the New York Stock Exchange on the Participant's
date of termination or Retirement, multiplied by (ii) the number of
shares of Restricted Stock owned by the Participant.
(c) If a Participant voluntarily terminates employment (other
than as set forth in subsections (a) or (b) of this Section 4.3), is
involuntarily terminated for Cause, or retires prior to attaining the
age of fifty-five, such Participant shall forfeit such Participant's
Restricted Stock.
Section 4.4. Voting Rights. During the Restriction Period the
shares of Restricted Stock shall be voted by the Chairman of the Committee,
and the Chairman shall vote such shares in accordance with instructions
received from Participants. Shares as to which no instructions are
received shall be voted by the Chairman proportionately in accordance with
instructions received from Participants in the Plan.
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ARTICLE V
OPTIONS
Section 5.1. Issuance.
(a) Except with respect to Executive Officers, options received
as part of a Unit shall be issued to the Participant (or the
Participant's designated Beneficiary in accordance with Section 5.5(c)
below) on the first July 1st and January 1st following commencement of
the Deferral Period, in each case with an exercise price per share
equal to the closing price per share on the Composite Tape of the New
York Stock Exchange on the last business day prior to the issuance of
the Options and covering the purchase of a number of shares of Stock
equal to the number of shares of Restricted Stock acquired by the
Participant during the period from January 1st to June 30 (in the case
of the July 1st grant) or July 1st to December 31st (in the case of
the January 1st grant). Options granted to Participants other than
Executive Officers shall be subject to the terms and conditions
specified in Section 5.2 to 5.5 below.
(b) For Executive Officers, options received as part of a Unit
shall be issued to the Participant (or the Participant's designated
Beneficiary in accordance with Section 5.5(c) below) promptly
following the end of the Deferral Period under The Advest Group, Inc.
1993 Stock Option Plan at an exercise price per share equal to the
closing price per share on the Composite Tape of the New York Stock
Exchange on the date of the issuance of the Options and covering the
purchase of a number of shares of Stock equal to the number of shares
of Restricted Stock acquired by the Participant during the Deferral
Period. Options granted to Participants who are Executive Officers
shall be subject to the terms and conditions of the 1993 Stock Option
Plan and, to the extent consistant with the 1993 Stock Option Plan, to
the terms and conditions specified in Section 5.2 to 5.5 below.
Section 5.2. Stock Option Certificate. Recipients of Options shall
receive a notification or certificate, in such form as the Committee shall
determine, which shall set forth, among other things, the exercise price or
prices of the Options (or the formula for determining such exercise price),
the term of the Option and provisions regarding exercisability of the
Options granted thereunder.
Section 5.3. Transfer Restrictions. Options are not transferable
other than by will or the laws of descent and distribution. During the
lifetime of a Participant, the Options may be exercised only by the
Participant.
Section 5.4. Exercise of Options. Options acquired hereunder will
vest and become exercisable on the sixth anniversary of the first day of
the Deferral Period (unless earlier forfeited or terminated) and will
remain exercisable for a period of twenty-four months, termining on the
last day of the second year. An Option shall not be exercisable unless
payment in full is made for the shares being acquired thereunder at the
time of exercise; such payment shall be made (a) in United States dollars
by cash or check, or (b) in lieu thereof, unless the Committee shall in its
sole discretion
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determine otherwise, by tendering to the Company Stock owned by the person
exercising the Option (or owned by the person exercising the Option and his
or her spouse, jointly) and acquired more than six months prior to such
tender, and having a fair market value equal to the cash exercise price
applicable to such Option, such fair market value to be determined in such
reasonable manner as may be provided for from time to time by the Committee
or as may be required in order to comply with or to conform to the
requirements of any applicable or relevant laws or regulations, or (c) by a
combination of United States dollars and Stock as aforesaid.
Section 5.5. Termination of Employment. An Option shall not be
exercisable unless the person exercising the Option has been, at all times
during the period beginning with the date of purchase of the Option and
ending on the date of such exercise, an Employee of the Company, except
that:
(a) Upon a Participant's death, Permanent Disability, Retirement
with the written consent of the President or the Chief Executive
Officer of the Company or the Affiliate by which such Participant is
employed, voluntary termination of employment more than nine months
after a Change of Control, or involuntary termination of employment
(other than a termination for Cause), the Options shall immediately
vest and shall be exercisable for a period of three months after the
Participant's termination of employment by the Participant or the
Participant's designated Beneficiary, as the case may be.
(b) Upon a Participant's voluntary termination of employment
(other than as set forth in subsection (a) of this Section 5.5),
involuntary termination for Cause, retirement prior to attaining the
age of fiftyfive, or Retirement without the written consent of the
President or the Chief Executive Officer of the Company or the
Affiliate by which such Participant is employed, the Participant shall
forfeit such Participant's unvested Options.
(c) If a Participant shall have terminated employment for any
reason after the acquisition of Units hereunder but prior to the
issuance of the Option portion of such Units, any Option acquired as
part of the Unit shall be forfeited as provided in subsection (b) of
this Section 5.5.
ARTICLE VI
ELECTION
Section 6.1. Election. A Participant as defined in Section 2.1
shall elect the Amount Deferred as defined in Section 3.1 for the Deferral
Period on such forms as the Committee may prescribe according to Section
10.2(h). Such election shall be made prior to the commencement of the
Deferral Period.
Section 6.2. Change of Election. Following an election by a
Participant made pursuant to Section 6.1 to have an Amount Deferred, such
Participant at any time during the Deferral Period may choose to
discontinue all (but not less than all) Amounts
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Deferred with respect to Compensation due to the Participant during
subsequent calendar quarters of the Deferral Period. Such election shall
be made on such form as the Committee may prescribe and shall become
effective as of the first day of the calendar quarter following receipt of
such form by the Committee.
ARTICLE VII
ADJUSTMENTS UPON A CHANGE IN COMMON STOCK
In the event of any change in the outstanding Stock of the Company by
reason of any stock split, stock dividend, recapitalization, merger,
consolidation, reorganization, combination or exchange of shares or other
similar event if such change equitably requires an adjustment in the number
or kind of shares that may be issued under the Plan, or in the number or
kind of shares subject to, or the option price per share under, any
outstanding Option which has been purchased by any Participant, such
adjustment shall be made by the Committee and shall be conclusive and
binding for all purposes of the Plan. In no event shall the excess of the
aggregate fair market value of the Stock subject to the Options immediately
after any substitution, exchange or adjustment over the aggregate option
price for such Stock be more than the excess of the aggregate fair market
value of all of the Stock subject to the Option immediately before any such
substitution, exchange or adjustment over the aggregate option price of
such Stock nor shall the adjusted Option give the holder thereof any
additional benefits he did not have under the old Option.
ARTICLE VIII
WITHHOLDING
In the event that the Company determines that it or an Affiliate is
required by law to withhold taxes at any time, including, but not limited
to, upon the exercise of an Option or upon the vesting of shares of
Restricted Stock, the Company shall have the right to require a Participant
to pay to the Company the amount of taxes that the Company or Affiliate is
required to withhold or, in lieu thereof, (a) to retain, or sell without
notice, a sufficient number of shares of Restricted Stock held by it for
the Participant to cover the amount to be withheld, or (b) to withhold the
amount of such taxes from any other sums due or to become due from the
Company or an Affiliate to the Participant upon such terms and conditions
as the Committee shall prescribe.
ARTICLE IX
AMENDMENT; TERMINATION; EXTENSION
Section 9.1. Power to Amend. The Board of Directors may amend,
modify, change, or revise the Plan by amendment at any time; provided,
however, that (a) no amendment shall increase the duties or liabilities of
the Board of Directors or the Committee without written consent of each
member and (b) no amendment shall be made without the written covenant of a
Participant if the effect of such amendment would reduce the rights of a
Participant with respect to Units acquired prior to the date of the
amendment.
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Section 9.2. Plan Termination. The continuation of the Plan is not
assumed as a contractual obligation of the Company and the right is
reserved by the Company at any time to discontinue the Plan. The Plan may
be terminated by the Board of Directors at any time, when in its judgment,
business, financial or other good causes make such termination necessary or
appropriate; such termination to become effective upon the delivery of
notice by the Board of Directors or the Committee to the Participants.
Section 9.3. Plan Extension. The Board of Directors may elect to
continue this Plan for additional years after calendar 1999, in which case
the Plan shall apply to the successive Deferral Periods after calendar 1999
in the same manner as to the calendar 1999 Deferral Period.
ARTICLE X
ADMINISTRATION OF THE PLAN
Section 10.1. Authority and Responsibility of the Committee. The
Board of Directors shall appoint the members of a Committee, which members
shall hold office at the pleasure of the Board of Directors. Said
Committee shall consist of not less than three nor more than eight members,
any one or more of whom may, but need not, be an officer of the Company.
If there is at any time a vacancy on the Committee for any reason, the
Board of Directors shall fill such vacancy, but the Committee may act
notwithstanding the existence of vacancies as long as there shall continue
to be at least two members of the Committee. The Committee shall select a
Chairman from among its members. The Committee shall have overall
responsibility for the administration and operation of the Plan. The
Committee will have all powers as may be necessary to discharge its duties
hereunder.
Section 10.2. Committee Duties. The Committee, on behalf of the
Participants and all other Beneficiaries of the Plan, will administer and
operate the Plan in accordance with the terms of the Plan and will have all
powers necessary to accomplish that purpose, including, but not limited to,
the following:
(a) To issue rules and regulations necessary for the proper
conduct and administration of the Plan and to change, alter, or
amend such rules and regulations;
(b) To construe the Plan;
(c) To determine all questions arising in the administration of
the Plan, including those relating to the eligibility of persons
to become Participants in accordance with Article II and the
rights of Participants and their Beneficiaries, and its decisions
thereon shall be final and binding upon all persons hereunder;
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(d) To oversee the retention of records relating to Participants
and other matters applicable to the Plan;
(e) To make available to Participants and Beneficiaries upon
request, for examination during business hours, such records as
pertain exclusively to the examining Participant (or
Beneficiary);
(f) To prescribe procedures to be followed by Participants and
Beneficiaries in making claims hereunder;
(g) To make available for inspection and to provide upon request
at such charge as may be permitted and determined by the Company,
such documents and instruments, if any, as the Committee deems
appropriate;
(h) To prescribe and adopt the use of necessary forms;
(i) To appoint such agents and other specialists to aid it in
the administration of the Plan as it deems necessary; and
(j) To make periodic reports on the operation and administration
of the Plan to the Board of Directors as may be required in any
articles of incorporation, charter, or by-laws pertaining to the
Company.
Section 10.3. Records. The regularly kept records of the Committee
and the Company shall be conclusive evidence as to all matters contained
therein applicable to this Plan.
Section 10.4. Committee Decisions Final. The decisions of the
Committee concerning matters within its jurisdiction shall be final,
binding, and conclusive upon the Company and its Affiliates, the
Participants, Beneficiaries and any other person or party interested or
concerned.
Section 10.5. Committee as Agent. The Committee shall act as agent
for the Company in the administration of the Plan.
Section 10.6. Plan Expenses. All clerical, legal and other expenses
of the Plan shall be paid by the Company.
Section 10.7. Allocations and Delegations of Responsibility.
(a) Delegations. The Committee shall have the authority to
delegate, from time to time, all or any part of its
responsibilities under the Plan to such person or persons as it
may deem advisable and in the same manner to revoke any such
delegation of responsibility. Any action of the delegate in the
exercise of such delegated responsibilities shall have the same
force and effect for all purposes herein as if such action had
been taken by the Committee. The Board of Directors or the
Committee shall not be liable for any act or omission of any such
delegate. The delegate
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shall report periodically to the Committee concerning the
discharge of the delegated responsibilities.
(b) Allocations. The Committee shall have the authority to
allocate, from time to time, all or any part of its
responsibilities under the Plan to one or more of its members as
it may deem advisable, and in the same manner to revoke such
allocation of responsibilities. Any action of the member to whom
responsibilities are allocated in the exercise of such allocated
responsibilities shall have the same force and effect for all
purposes hereunder as if such action had been taken by the
Committee. The Board of Directors or the Committee shall not be
liable for any acts or omissions of such member. The member to
whom responsibilities have been allocated shall report
periodically to the Committee concerning the discharge of the
allocated responsibilities.
(c) Limit on Liability. Duties and responsibilities which are
carried out in good faith by the Committee hereunder or which
have been allocated or delegated pursuant to the terms of the
Plan or subsections (a) or (b) of this Section 10.7 shall not
create any liability of the Company, Board of Directors, or
Committee, or any member thereof.
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.1. Merger. Any successor corporation to the Company, by
merger, consolidation, purchase or otherwise, shall be substituted
hereunder for the Company. This Plan shall be binding on all successors to
and assignsof the Company; provided that such successors or assigns may
terminate the Plan in accordance with the provisions hereof.
Section 11.2. Securities Laws. The Committee may require each person
purchasing shares pursuant to an Option or shares of Restricted Stock to
represent and agree with the Company in writing that such person is
acquiring the shares without a view to distribution thereof. The
certificates for such shares may include any legend which the Committee
deems appropriate to reflect any restriction on transfer. Furthermore, all
certificates for shares of Stock delivered under the Plan shall be subject
to such stock-transfer orders and other restrictions as the Committee may
deem advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Stock
is then listed, and any applicable Federal or state securities law, and the
Committee may cause a legend or legends to be put on any such certificates
to make appropriate reference to such restrictions.
Section 11.3. Indemnification. The Company shall indemnify and hold
harmless to the extent legally permitted each member of the Board of
Directors, the Committee and each officer and Employee of the Company to
whom are delegated duties, responsibilities, and authority with respect to
the Plan against all claims,
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liabilities, fines and penalties, and all expenses reasonably incurred by
or imposed upon such delegate or agent (including but not limited to
reasonable attorney fees) which arise as a result of actions or failure to
act in connection with the operation and administration of the Plan.
Section 11.4. Contract of Employment. Nothing contained herein shall
be construed to constitute a contract of employment between the Company or
an Affiliate and any Employee or Participant. Nothing contained herein
will confer upon any Participant the right to be retained in the service of
the Company or an Affiliate or limit the right of the Company or an
Affiliate to discharge or otherwise deal with any Participant without
regard to the existence of the Plan.
Section 11.5 Disclosure. Each Participant shall receive a copy of
the summary of the Plan and the Committee will make available for
inspection by any Participant or Beneficiary a copy of the Plan and any
written procedures used by the Committee in administering the Plan.
Section 11.6. Headings. The headings of Articles and Sections are
included solely for convenience of reference, and if there is any conflict
between such headings and the text of the Plan, the text shall control.
Section 11.7. Invalidity of Certain Provisions. If any provision of
the Plan shall be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provisions hereof, and the Plan
shall be construed and enforced as if such provisions, to the extent
invalid or unenforceable, had not been included.
Section 11.8. Law Governing. The Plan shall be construed and
enforced according to the laws of the State of Connecticut (other than its
laws respecting choice of law).
Section 11.9. Limitation on Liability. Neither the Company nor any
agent or representative of the Company who is an employee, officer, or
director of the Company in any manner guarantees the payments to be made
under the Plan against loss or depreciation, and to the extent not
prohibited by federal law, none of them shall be liable (except for his own
gross negligence or willful misconduct), for any act or failure to act,
done or omitted in good faith, with respect to the Plan. The Company shall
not be responsible for any act or failure to act of any agent appointed to
administer the Plan.
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Section 11.10. Gender. Except when otherwise indicated by the
context, any masculine terminology herein shall also include the feminine,
and the definition of any term herein in the singular shall also include
the plural.
THE ADVEST GROUP, INC.
By:_____________________________
Allen Weintraub
Chief Executive Officer
ATTEST:
__________________________________
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Exhibit 10(q)
EXECUTIVE AGREEMENT
This Agreement is dated as of September 24, 1998, by and between THE
ADVEST GROUP, INC. a Delaware corporation ("Advest") and _____________ (the
"Executive"). The Executive has rendered valuable services to Advest and
its subsidiaries and Advest desires to be assured that the Executive will
continue rendering such services to Advest and its subsidiaries and the
Executive is willing to continue to serve Advest and its subsidiaries but
desires assurance that he will be protected in the event of any Change of
Control, as defined below. Accordingly, in consideration of the mutual
covenants and promises herein, the parties agree as follows.
Section 1. Definitions. For purposes of this Agreement, the
following terms shall have the meanings indicated:
(a) "Cause" shall mean willful misconduct, gross negligence, the
conviction of Executive of a criminal offense for violation of the
securities laws or involving moral turpitude, or a determination by the
Board (a "Determination") that (i) Executive has or is engaged in the
securities industry in any capacity, including as an employee or
consultant, that the Board has determined to be materially detrimental to
Advest or its business, and Executive has not provided the Board with
adequate assurance that he will refrain therefrom after written request
from the Board, or (ii) Executive has breached his obligation under Section
7.
(b) "Change of Control" shall mean a change in control of Advest
of a nature that would be required to be reported in response to Item 6(e)
of Schedule 14A of Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), whether or not Advest is
subject to such reporting requirement; provided that, without limitation,
such a change in control shall be deemed to have occurred if (A) any
"person" (as such term is used in Section 13(d) and 14(d) of the Exchange
Act), other than a trustee or fiduciary holding securities under an
employee benefit plan of Advest, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing thirty percent (30%) or more of the
combined voting power of Advest's then outstanding voting securities; (B)
there is a merger or consolidation of Advest in which Advest does not
survive as an independent public company; or (C) the principal portion of
the business or businesses of Advest are disposed of pursuant to a partial
or complete liquidation of Advest, or a sale of assets (including stock of
a subsidiary) of Advest.
(c) "Good Reason" shall mean the occurrence of any one of the
following events:
(i) failure of Executive to continue to be appointed or elected
to his current position, or a position of comparable seniority;
(ii) assignment to Executive of any duties materially and
adversely inconsistent with Executive's position, including
status, offices,
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or responsibilities, or any other action of Advest that results
in a material and adverse change in such position, status,
offices, titles or responsibilities or any other material adverse
change to the terms and conditions of Executive's employment
prior to the Change of Control;
(iii) any material and adverse change in Executive's
reporting responsibilities;
(iv) any material breach by Advest of the provisions of this
Agreement;
(v) Advest's or any of its subsidiaries' requiring, without
written consent of Executive, that Executive be based at any
office or location more than 30 miles from his regular place of
business as of the date of the Change of Control;
(vi) any purported termination of Executive's employment under
this Agreement which is not for Cause in strict accordance with
this Agreement;
(vii) any reduction of Executive's annual base salary below
the levels established in the last full fiscal year completed
prior to the Change of Control, unless in conjunction with salary
reductions applicable to all similarly situated employees; or
(viii) any reduction of Executive's MIP Bonus (as defined
below) below the amount paid in the last full fiscal year
completed prior to the Change of Control, unless total MIP
Bonuses paid all executive officers decline and Executive's MIP
Bonus as a percentage of that total is at least as high as those
paid Executive for that last full fiscal year.
(d) "Permanent Disability" means a mental or physical condition which
renders the Executive permanently unable or incompetent to engage in any
substantial gainful activity.
Section 2. Severance Payments. If a Change of Control of Advest
occurs and within five years after the Change of Control Executive is
terminated by Advest other than for Cause, or terminates employment for
Good Reason, then within seven business days after the date Executive
leaves the employment of Advest (the "Severance Date") the Executive shall
receive a lump sum cash payment equal to the sum of:
(a) Executive's annual base salary which is accrued but unpaid as of
the Severance Date;
(b) that portion of Executive's additional compensation under the
Management Incentive Plan, or any successor plan (the "MIP Bonus") or under
any alternative incentive plan which is earned with respect to the fiscal
year ending prior to the Severance Date but that is unpaid as of the
Severance Date;
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(c) the product of (i) 100% of the Executive's average annual MIP
Bonus or alternative incentive bonus for the last three full fiscal years
completed prior to the Change of Control multiplied by (ii) a fraction, the
numerator of which is the number of days during the period from the first
day of the fiscal year in which the Severance Day occurs through the
Severance Day and the denominator of which is 365; and
(d) the product of (i) 100% of Executive's average annual base salary
measured over the last three full fiscal years completed prior to the
Change of Control, multiplied by (ii) the fraction, the numerator of which
is the number of days during the period from the Severance Day through the
fifth anniversary of the Change of Control (or the first anniversary of the
Severance Day, if greater) and the denominator of which is 365.
The amounts paid to the Executive hereunder shall be
considered severance pay in consideration of the past services he has
rendered to Advest and in consideration of his continued service from the
date hereof to his entitlement to those payments. The Executive shall have
no duty to mitigate his damages by seeking other employment. Should the
Executive actually receive other payments from any such other employment,
the payments called for hereunder shall not be reduced or offset by any
such future earnings.
Section 3. Other Benefits. In addition, if a Change of Control of
Advest occurs and within five years after the Change of Control Executive
is terminated by Advest other than for Cause, or terminates employment for
Good Reason:
(a) All options or restricted shares or other rights granted to
Executive under any stock option or equity plan or agreement (collectively,
"Equity Incentive Awards"), shall immediately and fully vest upon the date
of termination, and, in the case of options, shall remain exercisable for
not less than 90 days therefrom.
(b) Through the fifth anniversary of the Change of Control (or the
first anniversary of the Severance Day, if greater), Executive shall also
continue to participate in all Advest-sponsored incentive, savings and
retirement plans, and shall continue to receive benefits under all welfare
benefit plans, practices, policies and programs provided by Advest
(including, and without limitation, medical, prescription, dental,
disability, employee life, group life, dependent life, accidental death and
travel insurance plans and programs) applicable to other senior executives
of Advest; provided, however, that any amounts paid under this sentence
shall be reduced by any similar benefits earned by Executive as a result of
employment by another employer.
(c) The Executive shall receive additional benefits, over and above
that which the Executive would normally be entitled to under Advest's
Nonqualified Executive PostEmployment Income Plan, or any successor plan or
similar plan providing post-employment income, equal to the benefits that
the Executive would have earned under such plans or plans had he
accumulated additional years of service through the fifth
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anniversary of the Change of Control (or the first anniversary of the
Severance Day, if greater).
(d) The arrangements called for by this Agreement are not intended to
have any effect on the Executive's participation in any other benefits
available to executive personnel or to preclude other compensation or
additional benefits as may be authorized by the Board of Directors from
time to time. The payments provided in Section 2 shall be in addition to
other payments on severance which Executive may be entitled to under
Advest's policies.
Section 4. Alternative Form of Benefits. Notwithstanding anything to
the contrary set forth in this Agreement, if Advest is otherwise obligated
to provide certain benefits under this Agreement, Advest may elect to
provide alternative benefits as follows:
(a) If Advest would otherwise be obligated to alter the vesting or
exercisability provisions of any Equity Incentive Awards, in its discretion
Advest may offer to pay to Executive in lieu thereof a lump sum amount
equal to the amount, if any, by which the market value of the underlying
equity as of the date of termination exceeds the exercise price.
Executive may accept this offer by Advest or elect to exercise any rights
he may have under the Equity Incentive Awards without modification.
(b) To the extent that it would violate applicable law or regulation
or the provisions of any Advest-sponsored incentive, savings or retirement
plan or any welfare benefit plan, practices policy or program, Advest shall
be excused from offering Executive participation in such plan, policy or
program. In that event, Advest shall pay to Executive an amount equal to
the net after-tax cost that would be incurred by Executive in obtaining
comparable alternative benefits. In the case of any benefits receivable
under health, life or disability insurance policies, this amount will be
deemed to be the net after-tax cost of obtaining such coverage.
Section 5. Termination Prior to a Change of Control. In the event
that prior to a Change of Control Executive is terminated by Advest other
than for Cause or terminates employment for Good Reason, and a Change of
Control occurs within six months following the date of termination, the
provisions of this Agreement will apply as though the termination occurred
immediately following the Change of Control.
Section 6. Adjustments to Payments. In the event that (a) any
portion of the payments and benefits to which Executive would otherwise be
entitled under this Agreement would be subject to an excise tax under the
provisions of Section 280G and 4999 of the Internal Revenue Code as "excess
parachute payments", or would otherwise be subject to an excise tax under
any substantially equivalent successor provisions of the Internal Revenue
Code, and (b) following application of such excise tax, the net present
value of the payments and benefits which Executive would receive would be
less than the maximum net present value of payments and benefits which
Executive would be entitled to receive without giving rise to such excise
tax, then the payments which Executive will be entitled to receive under
Section 2 of this Agreement will be reduced to the extent
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<PAGE>
necessary to avoid application of such excise tax. The amount of any
reduction necessary pursuant to this Section 6 shall be determined by
Advest's regular accountants, and any such determination shall be binding
on the parties. Such reduction shall be made in the benefits otherwise
payable hereunder in the order selected by Executive prior to termination
of employment; provided, however, that if no such election has been made,
benefits shall be reduced, to the extent necessary, in the following order:
first, any amounts payable under Section 2(d), second, any amounts payable
under Section 2(c), and last, by reduction in the number of options vested
pursuant to Section 3(b).
Section 7. Confidential Information. Executive shall not at any
time after termination of employment reveal to anyone other than authorized
representatives of Advest, or use for his own benefit or the benefit of any
third party, any trade secrets, customer information or other information
that has been designated as confidential by Advest or is understood by
Executive to be confidential, unless such information is or becomes
available to the public or is otherwise public knowledge or in the public
domain for reasons other than Executive's acts or omissions.
Section 8. Term. This Agreement shall continue for a period of
five years from the date hereof. Thereafter, it shall be continued only
if Executive and Advest (with the approval of its Board of Directors)
mutually agree in writing to extend this Agreement for an additional term.
Not less than one year prior to the expiration of the initial term or any
extended term of this Agreement, the parties shall meet to discuss whether
this Agreement shall be extended beyond that expiration. This Agreement
shall terminate earlier: (a) upon the death or Permanent Disability of
Executive; (b) prior to a Change of Control, upon the termination of
Executive's employment with Advest for any reason (other than a termination
covered by Section 5 of this Agreement); (c) following a Change of
Control, upon the termination of Executive's employment with Advest by
Advest for Cause or by Executive other than for Good Reason.
Notwithstanding the foregoing, the provisions of Section 4 shall continue
indefinitely.
Section 9. Miscellaneous. This Agreement can only be altered by
written amendment executed by both parties. Any claim controversy arising
between the parties shall be settled by arbitration before a New York Stock
Exchange panel. The arbitrators shall have no authority to modify any
provision of this Agreement or to award a remedy for a dispute involving
this Agreement other than a benefit specifically provided under this
Agreement. The decision of the arbitrators shall be final and binding on
Advest and Executive, who shall each pay their own legal fees and expenses
associated with arbitration and share any arbitration fees. This Agreement
shall be binding and shall inure to the benefit of the respective
successors, assigns, legal representatives and heirs to the parties hereto.
Advest will require any successor corporation to expressly assume the
obligations of Advest under this Agreement. This Agreement shall be
governed under the laws of the State of Connecticut. The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision.
The parties have signed this Agreement as of the date
first set forth above.
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<PAGE>
THE ADVEST GROUP, INC. EXECUTIVE
__________________________ __________________________
Allen Weintraub
Chief Executive Officer
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<PAGE>
Exhibit 21
The Advest Group, Inc.
List of Subsidiaries
Jurisdiction Present
Name Where Incorporated Ownership
Advest, Inc. Delaware 100%
Advest Insurance Agency, Inc. Massachusetts 100%
Balanced Capital Services, Inc. Connecticut 100%
Advest Bank and Trust Company Connecticut 100%
A.B. Realty Corp. Connecticut 100%
Advest Capital, Inc. Connecticut 100%
Advest Properties, Inc. Delaware 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%
The Hannah Consulting Group, Inc. Connecticut 100%
Vercoe Insurance Agency, Inc. Ohio 100%
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<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, Form S-8 (File No. 33-56275)
concerning its 1995 Equity Plan; Form S-8 (File No. 333-00797) concerning
its Executive Officer 1996 Restricted Stock and Stock Option Agreement; and
Form S-8 (File No. 33-60425) concerning its 1990, 1991 and 1992 Top Account
Executive Stock Option Plans, its 1993 Stock Option Plan and its 1994 Non-
Employee Director Stock Option Plan; 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; and Form S-3 (File No. 333-
43053), of our reports dated October 21, 1998, on our audits of the
consolidated financial statements and financial schedule of The Advest
Group, Inc. and Subsidiaries as of September 30, 1998 and 1997 and for each
of the three years in the period ended September 30, 1998, which reports
are included in the Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
December 16, 1998
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