SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
X SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-8408
THE ADVEST GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-0950444
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
90 State House Square
Hartford, Connecticut 06103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (860) 509-1000
NONE
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $.01 par value 8,947,933 Shares
Class Outstanding at May 1, 1998
Total of sequentially numbered pages 17
<PAGE>
THE ADVEST GROUP, INC.
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1998 and September 30, 1997 3
Condensed Consolidated Statements of Earnings
Three and Six Months Ended March 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
Part II. Other Information
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 15
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<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The Advest Group, Inc.
Consolidated Balance Sheets
(Unaudited)
In thousands, except share and per share amounts March 31, 1998 September 30, 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and short-term investments
Cash and cash equivalents $ 11,173 $ 12,459
Cash and securities segregated under federal and other regulations 246 265
-----------------------------------
11,419 12,724
-----------------------------------
Receivables
Brokerage customers, net 446,022 389,137
Loans, net 204,938 199,166
Securities borrowed 339,898 290,745
Brokers and dealers 7,200 4,096
Other 15,723 12,751
-----------------------------------
1,013,781 895,895
-----------------------------------
Securities
Trading, at market value 154,090 94,841
Held to maturity (market values of $19,612 and $20,931) 19,754 21,034
Available for sale, at market value 7,940 13,978
-----------------------------------
181,784 129,853
-----------------------------------
Other assets
Equipment and leasehold improvements, net 14,171 14,500
Other 24,042 23,834
-----------------------------------
38,213 38,334
-----------------------------------
$ 1,245,197 $1,076,806
===================================
Liabilities & shareholders' equity
Liabilities
Brokerage customers 341,471 319,101
Securities loaned 289,177 258,295
Deposits 163,712 169,583
Short-term borrowings 130,621 61,496
Securities sold, not yet purchased, at market value 95,458 52,113
Long-term borrowings 48,192 41,321
Checks payable 6,119 18,366
Compensation and benefits 21,491 25,477
Brokers and dealers 15,835 9,389
Other 18,753 17,074
-----------------------------------
1,130,829 972,215
-----------------------------------
Shareholders' equity
Common stock, par value $.01, authorized 25,000,000 shares,
issued 10,884,739 and 10,812,404 shares 109 108
Paid-in capital 71,739 71,309
Retained earnings 56,486 48,198
Net unrealized gain (loss) on securities available for sale, net of taxe 13 (63)
Treasury stock, at cost, 1,946,314 and 2,179,725 shares (13,270) (14,390)
Unamortized restricted stock compensation (709) (571)
-----------------------------------
114,368 104,591
-----------------------------------
$ 1,245,197 $ 1,076,806
===================================
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<FN>
See Notes to Consolidated Financial Statements
</TABLE>
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<TABLE>
The Advest Group, Inc.
Consolidated Statements of Earnings
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
--------------------------------------------------------------------
(In thousands, except per share amounts) 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Commissions $ 33,422 $ 29,844 $ 65,844 $ 58,344
Interest 17,448 14,736 34,090 29,632
Principal transactions 11,563 10,218 22,325 20,545
Investment banking 8,766 5,281 19,118 13,984
Asset management and administration 8,319 6,249 16,293 11,966
Other 1,925 2,154 3,342 3,889
--------------- --------------- --------------- ---------------
Total revenues 81,443 68,482 161,012 138,360
--------------- --------------- --------------- ---------------
Expenses
Compensation and benefits 46,408 38,147 92,050 77,391
Interest 10,132 8,225 19,529 16,268
Communications 7,143 5,762 13,165 11,137
Occupancy and equipment 4,675 4,433 9,227 8,779
Business development 1,787 1,413 3,456 3,032
Professional 1,163 1,605 2,688 3,195
Brokerage, clearing and exchange 1,080 1,151 2,252 2,275
Other 1,757 2,285 3,646 4,944
--------------- --------------- --------------- ---------------
Total Expenses 74,145 63,021 146,013 127,021
--------------- --------------- --------------- ---------------
Income before taxes 7,298 5,461 14,999 11,339
Provision for income taxes 2,919 2,289 6,000 4,876
--------------- --------------- --------------- ---------------
Net Income $ 4,379 $ 3,172 $ 8,999 $ 6,463
=============== =============== =============== ===============
Net income per common and common equivalent shares:
Basic $ 0.54 $ 0.40 $ 1.11 $ 0.80
Diluted $ 0.47 $ 0.35 $ 0.97 $ 0.70
Cash dividend per common share $ 0.04 $ 0.03 $ 0.08 $ 0.03
Average common and common equivalent shares outstanding:
Basic 8,158 8,010 8,130 8,031
Diluted 9,356 9,142 9,277 9,581
<FN> -4-
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
The Advest Group,Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended March 31,
-------------------------------------
In thousands 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 8,999 $ 6,463
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Depreciation and amortization 4,412 3,932
Provision for credit losses and asset devaluation 105 317
Loss on retirement of subordinated borrowings 0 608
Deferred income taxes (80) (21)
Other 283 138
(Increase) decrease in operating assets:
Receivables from brokerage customers, net (56,932) (18,976)
Securities borrowed (49,153) (15,597)
Receivables from brokers and dealers (3,104) 2,728
Trading securities (53,735) (5,192)
Cash and securities segregated under federal and other regulations 19 (1,982)
Proceeds form sales of mortgages held for sale 18,631 13,808
Originations and purchases of mortgages held for resale (32,649) (14,573)
Other (4,665) (1,732)
Increase (decrease) in operating liabilities:
Brokerage customers 22,370 40,463
Securities loaned 30,882 19,532
Securities sold, not yet purchased 43,345 (8,929)
Checks payable (12,247) (5,801)
Other 4,814 (2,175)
----------------- -----------------
Net cash (used for) provided by operating activities (78,705) 13,011
----------------- -----------------
FINANCING ACTIVITIES
Net decrease in deposits (5,871) (9,326)
Proceeds from short-term borrowings 24,584 539
Repayment of short-term borrowings (28,188) (1,970)
Short-term brokerage borrowings, net 72,600 (12,800)
Proceeds from long-term borrowings 7,000 35,000
Repayment of long-term borrowings 0 (3,570)
Retirement of subordinated borrowings 0 (20,545)
Other 748 (1,117)
----------------- -----------------
Net cash provided by (used for) financing activities 70,873 (13,789)
----------------- -----------------
INVESTING ACTIVITIES
Proceeds from (payments for):
Sales of available for sale securities 17,447 3,818
Maturities of available for sale securities 2,260 898
Maturities of held to maturity securities 11,681 11,907
Purchases of available for sale securities (17,709) (27)
Purchases of held to maturity securities (10,500) (5,000)
Investment advisory business, net 0 160
Loans sold 5,742 0
Sales of OREO, net 304 515
Principal collections on loans 40,915 12,695
Loans originated (38,880) (13,059)
Other (4,714) (5,628)
----------------- -----------------
Net cash provided by investing activities 6,546 6,279
----------------- -----------------
(Decrease) increase in cash and cash equivalents (1,286) 5,501
Cash and cash equivalents at beginning of period 12,459 11,461
----------------- -----------------
Cash and cash equivalents at end of period $ 11,173 $ 16,962
================= =================
Interest paid $ 14,690 $ 15,383
Income taxes paid $ 7,262 $ 3,576
Non-cash activities:
Securitization of mortgages $ 1,428 $ 2,633
Restricted stock awards, net of forfeitures $ 137 $ 0
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<FN>
See Notes to Consolidated Finanical Statements
</TABLE>
<PAGE>
The Advest Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Financial Statements:
The consolidated financial statements include the accounts of The
Advest Group, Inc. 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, 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. Management believes that all adjustments (consisting of normal
recurring accruals) necessary for a fair statement of the results of
operations for the periods presented have been included. All material
intercompany accounts and transactions have been eliminated. Certain fiscal
1997 amounts have been reclassified in the accompanying consolidated
financial statements to provide comparability with the current year
presentation. The results of operations for the interim periods are not
necessarily indicative of the results for a full year.
The statements should be read in conjunction with the Notes to
Consolidated Financial Statements and Management's Discussion and Analysis
of Financial Condition and Results of Operations included in the Company's
Annual Report for the year ended September 30, 1997, as filed with the
Securities and Exchange Commission on Form 10-K.
2. Summary of Significant Accounting Policies:
Earnings Per Share:
The Financial Accounting Standards Board ("FASB") has issued Statement
of Financial Accounting Standards ("SFAS") 128, "Earnings Per Share" in
February 1997. As of December 31, 1997, the Company adopted SFAS 128, as
required, and 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 calculation for
1997 also assumed full conversion of the Company's outstanding subordinated
debentures into common stock and elimination of the related interest
expense, net of taxes. The debentures were retired in January 1997.
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.
Securitized Lloans are held for sale, where securitized, are done so
on a servicing-retained basis, primarily to government agencies (e.g.
Federal National Mortgage Association ("FNMA") or Federal Home Loan
Mortgage Corporation ("FHLMC") and are done so on a servicing-retained
basis. Securitized loans are classified as trading securities, and
associated servicing rights for loans sold on a servicing-retained basis
are capitalized as a
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<PAGE>
component of other assets and amortized in accordance with SFAS 122. Gains
or losses resulting from securitizingation a loan transactions are included
in other income classified as Gains(Losses) on Sale of Residential Loans,
and gains or losses resulting from the sale of securitized loans are
included in classified as Revenue from Pprincipal tTransactions - Trading.
Accounting Pronouncements:
The FASB has issued SFAS 132, "Employers' Disclosures About Pensions and
Other Postretirement Benefits." 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.
The Advest Group, Inc.
3. Capital and Regulatory Requirements:
Advest is subject to the net capital rule adopted and administered by
the New York Stock Exchange, Inc. ("NYSE") and the Securities and Exchange
Commission. Advest has elected to compute its net capital under the
alternative method of the rule which requires the maintenance of minimum
net capital equal to 2% of aggregate debit balances arising from customer
transactions, as defined. The NYSE also may require a member firm to reduce
its business if net capital is less than 4% of aggregate debit balances and
may prohibit a member firm from expanding its business and declaring cash
dividends if net capital is less than 5% of aggregate debit balances. At
March 31, 1998, Advest's regulatory net capital of $60.7 million was 12% of
aggregate debit balances and exceeded required net capital by $50.7
million.
Under bank regulatory restrictions, the Bank is required to maintain a
minimum level of capital. As a federal chartered savings bank, the Bank is
required to limit annual dividends to the most recent four quarters of net
income, subject to limitations. No dividends have been declared or paid by
the Bank during the current fiscal year. At March 31, 1998, the Bank's
leverage capital, risk-based and Tier 1 capital ratios were 7.05%, 10.32%
and 9.07%, respectively, which met all regulatory requirements.
4. Common Stock:
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 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.
-7-
<PAGE>
The Advest Group, Inc.
The following table provides the calculation of net income per common
share for the quarters ended March 31, 1998 and 1997:
For the quarters ended March 31,
---------------------------------
Basic Diluted
In thousands, except per ---------------------------------
Share amounts 1998 1997 1998 1997
- -----------------------------------------------------------------
Net income $4,379 $3,172 $4,379 $3,172
Interest expense
on debentures, net -- -- -- 70
-----------------------------------
Net income applicable to
common stock $4,379 $3,172 $4,379 $3,242
===================================
Average number of common shares
outstanding during
the period 8,904 8,464 8,904 8,464
Adjustments:
Contingently issuable
shares (746) (454) -- --
Exercise of stock options -- -- 452 299
Conversion of debentures -- -- -- 379
------------------------------------
Average number of common
shares outstanding 8,158 8,010 9,356 9,142
====================================
Net income per common share $ .54 $ .40 $ .47 $ .35
====================================
For the six months ended March 31,
---------------------------------
Basic Diluted
In thousands, except per ---------------------------------
Share amounts 1998 1997 1998 1997
- -----------------------------------------------------------------
Net income $8,999 $6,463 $8,999 $6,463
Interest expense
on debentures, net -- -- -- 274
-----------------------------------
Net income applicable to
common stock $8,999 $6,463 $8,999 $6,737
===================================
Average number of common shares
outstanding during
the period 8,799 8,443 8,799 8,443
Adjustments:
Contingently issuable
shares (669) (412) -- --
Exercise of stock options -- -- 478 273
Conversion of debentures -- -- -- 865
-----------------------------------
Average number of common
shares outstanding 8,130 8,031 9,277 9,581
===================================
Net income per common share $ 1.11 $ .80 $ .97 $ .70
===================================
-8-
<PAGE>
The Advest Group, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
The Advest Group, Inc. ("AGI"), together with its subsidiaries,
provides diversified financial services including securities brokerage,
trading, investment banking, residential mortgage lending, trust and asset
management. All aspects of the Company's business are highly competitive
and regulated and impacted by a variety of factors outside of its control
including the political and economic climates both domestically and abroad,
interest rates and investor sentiment. Consequently, revenues and operating
results can vary significantly from one reporting period to the next.
The Company reported net income of $4.4 million for the quarter ended
March 31, 1998 compared with $3.2 million in the prior year, an increase of
38%. Current quarter basic and diluted earnings per share were $.54 and
$.47, respectively, compared with $.40 and $.35, respectively, a year ago.
Total revenues increased 19% to a record $81.4 million. Through the first
half of the fiscal year, net income was $9.0 million compared with $6.5
million last year, a 39% increase. Basic and diluted earnings per share
were $1.11 and $.97, respectively, compared with $.80 and $.70,
respectively, in the prior year. Total revenues increased 16% to a record
$161.0 million.
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.
In October 1997, the Company acquired Ironwood Capital Ltd., a private
investment bank. Ironwood personnel joined Advest's Investment Banking
Group as the Corporate Fixed Income Department. In December 1997, Hannah
Consulting Group, an investment management subsidiary of the Company, was
merged into Advest's Investment Management Department.
Advest, Inc.
Equity markets had their best March quarter in over a decade despite
interest rate concerns, the Asian crisis and lower corporate profit
expectations. The Dow Jones Industrial Average and S&P 500 gained 11% and
14%, respectively, during the quarter and 33% and 45%, respectively, from
the prior year to close at 8800 and 1102, respectively. Technology stocks,
despite earnings disappointments from several industry leaders, led the
Nasdaq Composite to a record close at 1836, up 17% and 51%, respectively,
for the quarter and year. Stock and bond underwritings increased 63% from
the prior year as a sharp drop in interest rates spurred corporate bond
refinancings. In addition, investor interest in high quality equities was
initiated by sell-off of Asian issues.
In this market environment, Advest achieved a third consecutive
quarter of record revenues. Year-to-year pre-tax income increased 28% to
$7.6 million and revenues increased 20% to $76.6 million. Agency
commissions increased 12% to $33.4 million and, for the second quarter in a
row, record highs were achieved for investment executive productivity as
well as profitability of our retail sales offices. Investment banking
revenue increased 64% to $8.8 million. During the quarter, Corporate
Finance served as lead or co-manager of five initial public offerings
raising $270 million for clients. Public Finance co-managed over $5 billion
of new issues, including three transactions for New York City totaling $2.7
billion. Asset management revenue increased 38% to $7.8 million, a record
high for the twelfth consecutive quarter. At March 31, client assets in
Advest's fee-based programs totaled close to $3 billion.
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The Advest Group, Inc.
Advest Bank and Trust
The Bank posted pre-tax income of $.2 million compared with $.1
million last year. The Bank remains well-capitalized and in full regulatory
compliance. At March 31, 1998, the Bank's nonperforming assets totaled $5.0
million (2.3% of total Bank assets) compared with $5.2 million (2.3% of
total Bank assets) at September 30,1997.
Results of Operations
Three Months Ended March 31, 1998 Versus
Three Months Ended March 31, 1997
Net revenues, total revenues less interest expense, were $71.3
million, an increase of $11.1 million (18%). Revenue gains were posted in
all categories with the exception of other income. Non-interest expenses
increased $9.2 million (17%) to $64.0 million primarily due to higher firm
payroll and sales-driven compensation at Advest. The effective tax rate was
40% in the current year versus 42% in the prior year. The lower rate
relates to lower state tax obligations, primarily in Connecticut.
Agency commissions increased $3.6 million (12%) with gains posted
across the board. Mutual fund commissions, including distribution fees,
increased $1.7 million (19%) reflecting record infusions of cash in the
market place, largely from 401k plans, into mutual funds. Listed
commissions increased $1.0 million (8%) and over-the-counter commissions
increased $.5 million (9%) reflecting the robust activity in the equity
markets. While the total number of investment executives actually declined
year-to-year, recruitment and retention of experienced professionals has
contributed to substantial increases in average annual production per
broker. Together with increased stock market volume and record prices, this
contributed to higher commission revenues in the current quarter.
Investment banking revenues increased $3.5 million (66%) primarily
due to a $2.2 million (166%) increase in commissions from equity offerings
and a $.4 million (59%) increase in related underwriting fees. Merger and
acquisition revenue increased $.9 million (434%) with $.5 million of
current quarter revenue related to one client.
Revenue from principal transactions increased $1.3 million (13%)
primarily due to higher trading profits consistent with activity in debt
and equity markets discussed previously. Over-the-counter trading profits
improved $.5 million to $.4 million compared with a trading loss in the
year earlier quarter. Corporate bond trading profits increased $.5 million
(95%) and related commissions increased $.4 million (9%).
Asset management and administration revenue increased $2.1 million
(33%) primarily related to growth in Advest's fee-based client base. Other
income declined $.2 million (11%) primarily related to lower execution fee
income at Advest related to regulatory changes which impact over-the-
counter trading revenue.
Net interest income increased $.8 million (12%) primarily related to
substantially higher average margin debits which are financed by increased
short-term borrowings and customer stock loan activities. This has
resulted in narrowing the overall interest spread compared with debits
financed by free credit balances which are paid a lower interest rate than
Advest's borrowing rate. The Bank's net interest income was substantially
unchanged year-to-year.
Compensation and benefits costs increased $8.3 million (22%) primarily
related to volume-driven sales compensation and related incentives as well
as increased firm payroll related to increased headcount and general
payroll increases. Communications costs increased $1.4 million (24%)
primarily related to increased computer software costs and enhanced
technology services as well as sales-volume-driven increases in costs paid
to Advest's third party data processor. Professional fees declined $.4
million (28%) primarily due to large personnel agency fees paid in
The Advest Group, Inc.
the year earlier quarter related to recruitment in Advest's capital markets
and sales departments. Business development costs increased $.4 million
primarily related to higher attendance at Advest's annual National Sales
and Training Conference for its retail sales force. Other expenses
decreased $.5 million (21%) primarily related to costs incurred in the
prior year related to
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<PAGE>
an initial public offering that was not consummated lower unreimbursed
underwriting costs andas well as lower costs associated with foreclosed
properties of the Bank.
Six Months Ended March 31, 1998 Versus
Six Months Ended March 31, 1997
Net revenues increased $19.4 million (16%) and non-interest expenses
increased $15.7 million (14%). Year-to-date variances in agency
commissions, principal transactions, net interest income, asset management
and other income are consistent with the March quarter analysis. On the
expense side, year-to-date variances for compensation and benefits,
business development and communications costs are consistent with the March
quarter analysis.
Investment banking revenues increased $5.1 million (37%). Commissions
related to equity underwritings increased $1.6 million (33%) and related
underwriting fees increased $.4 million (27%) with all of the increase
related to current quarter activity. Corporate Finance's revenue from
private placements increased $1.5 million primarily to deals completed by
the Corporate Fixed Income Group, formerly Ironwood Capital, an investment
bank acquired in the first quarter. Merger and acquisition fees declined
$.6 million (31%) as the current quarter's $.9 million increase partly
offset a $1.5 million first quarter decline.
Professional fees declined $.5 million (16%) primarily related to 66%
and 19% declines in personnel agency and legal fees, respectively, of
Advest. Other expenses decreased $1.1 million (23%) primarily as a result
of a $.6 million charge related to the early retirement of the Company's
outstanding convertible debentures in the prior year. In addition, other
expenses declined as a result of costs incurred in the prior year related
to an initial public offering that was not consummated lower unreimbursed
underwriting costs and as well as lower costs associated with foreclosed
properties of the Bank.
Liquidity and Capital Resources
Six Months Ended March 31, 1998
There have been no material changes to the Company's liquidity or
capital resources since September 30, 1997.
Receivables from brokerage customers increased $56.9 million (15%) and
were financed in part by an increase of $22.4 million (7%) in brokerage
customer payables. Short-term borrowings increased $69.1 million (112%)
primarily to finance the net increase in brokerage receivables over
payables as well as higher trading inventories (net increase in long
accounts over short accounts was $10.4 million) and increased stock
borrowing activities.(net increase in stock loan over stock borrow was
$18.3 million).
There were no other material changes to the Company's liquidity or
capital resources since September 30,1997.
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 and prices and other factors.
-11-
<PAGE>
The Advest Group, Inc.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes to the Company's market risk analysis
during the current quarter.
Part II. Other Information
Item 1. Legal Proceedings
The Company has been named as defendant in a number of legal
proceedings arising principally from its securities and investment banking
business. Some of these actions involve claims by plaintiffs for
substantial amounts. While results of litigation cannot be predicted with
certainty, in the opinion of management, based on discussion with counsel,
the outcome of these matters will not result in a material adverse effect
on the financial condition or future results of operations of the Company.
Item 2. Changes in Securities
During the current quarter the Company assigned 8,971 shares of its
common stock as compensation to employees under separate Employment
Agreements.
Item 4. Submission of Matters to a Vote of Security Holders
The Company commenced solicitation of proxies on December 24, 1997 in
connection with its Annual Meeting held on January 29, 1998. The
solicitation was performed in accordance with Section 14 of the Securities
and Exchange Act of 1934 and the rules thereunder. There was no
solicitation in opposition to management's solicitation. A total of
8,335,773 shares were represented at the meeting out of the total of
8,680,332 shares issued and outstanding as of the December 10, 1997 record
date for the meeting.
At the Annual Meeting, the reelection as director of William B. Ellis
and the election as directors of Ronald E. Compton and Marne Obernauer, Jr.
to serve for three year terms expiring in 2001 was considered. All such
nominees were reelected or elected to the Board of Directors. The nominees
received the following votes:
-12-
<PAGE>
The Advest Group, Inc.
In Favor
---------------------
Nominee In Person By Proxy Total Withheld
Ronald E. Compton. 1,597,766 6,630,270 8,228,036 216,147
William B. Ellis 1,604,237 6,603,566 8,207,803 206,460
Marne Obernauer, Jr. 1,533,727 6,638,098 8,171,825 163,949
The terms of office of the following continuing directors expire in
1999: Richard G. Dooley, Robert W. Fiondella, and John A. Powers. The terms
of office of the following continuing directors expire in 2000: Sanford
Cloud, Jr., Grant W. Kurtz, Barbara L. Pearce, and Allen Weintraub. The
following directors did not continue on the Board of Directors of the
Company following the January 29, 1998 Annual Meeting: George A. Boujoukos
and Anthony A. LaCroix.
The only other matter considered at the Annual Meeting was a
stockholder proposal submitted by Mr. John Jennings Crapo concerning
disclosure of charitable contributions by the Company. Mr. Crapo's proposal
was defeated, with the following votes:
In Favor Against Abstaining No Votes
1,038,677 5,377,335 162,580 1,757,181
No other matters were voted upon at the annual meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 -- Financial Data Schedule (Selected financial data -
for EDGAR electronicfiling only to SEC)
The interim financial information contained herein has been
subjected to a review by Coopers & Lybrand L.L.P., the registrant's
Independent Accountants, whose report is included on page 14 of
this filing.
(b) Reports on Form 8-K
Form 8-K filed March 16, 1998 reporting approval by the Board of
Directors of an Amendment to the Company's existing Shareholder
Rights Agreement.
-13-
<PAGE>
The Advest Group, Inc.
Report of Independent Accountants
To the Shareholders and Board of Directors of
The Advest Group, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of
The Advest Group, Inc. and subsidiaries (the "Company") as of March 31,
1998, and the related condensed consolidated statements of earnings for the
three-month and six-month periods ended March 31, 1998 and 1997 and cash
flows for the six-month periods ended March 31, 1998 and 1997. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of
Certified Public Accountants. A review of interim financial information
consists principally of applying analytical procedures to financial data
and making inquires of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the aforementioned financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of September 30, 1997, and the
related statements of earnings, changes in shareholders' equity and cash
flows for the year then ended (not presented herein), and in our report,
dated October 22, 1997, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of
September 30, 1997, is fairly stated, in all material respects, in relation
to the balance sheet from which it has been derived.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
April 15, 1998
-14-
<PAGE>
The Advest Group, Inc.
Signatures
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant duly caused this report to be signed on its behalf by
the thereunto duly authorized.
The Advest Group, Inc.
Registrant
Date May 12, 1998 /s/ Allen Weintraub
Allen Weintraub,
Chairman of the Board and
Chief Executive Officer
Date May 12, 1998 /s/ Martin M. Lilienthal
Martin M. Lilienthal,
Senior Vice President and
Chief Financial Officer
-15-
<PAGE>
The Advest Group, Inc.
Exhibit Index
Exhibit Description
27 Financial Data Schedule (Selected financial data - for EDGAR
electronic transmission only for SEC.)
-16-
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