Exhibit 13
[page 9 of Annual Report]
Five Year Financial Summary
For the years ended September 30,
- -------------------------------------------------------------------------------------------------------------
In thousands, except per share amounts
1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------
Revenues
Commissions:
Listed $ 39,773 $ 36,284 $ 39,199 $ 40,208 $ 37,306
Mutual Funds 22,693 22,337 21,448 18,472 12,439
Over-the-counter 12,554 10,374 9,527 9,699 6,961
Insurance 4,487 5,164 3,634 3,260 2,629
Options 3,071 2,570 2,407 3,237 3,904
Other 1,686 2,761 1,620 1,626 2,683
---------------------------------------------------------------------------
84,264 79,490 77,835 76,502 65,922
---------------------------------------------------------------------------
Interest:
Loans 20,005 19,016 19,615 23,094 29,704
Margin accounts 23,761 17,868 14,158 17,990 18,227
Investments 6,132 6,793 6,227 8,738 18,330
Securities inventory 1,470 1,016 1,015 970 1,053
Other 4,714 1,391 1,428 1,985 2,689
---------------------------------------------------------------------------
56,082 46,084 42,443 52,777 70,003
Principal transactions 41,424 32,297 33,662 40,364 38,102
Investment banking 17,470 25,743 31,102 30,675 22,787
Asset management and administrat 16,810 16,399 14,111 15,669 12,818
Gain on sale of investment advisory
business, net 10,092 -- -- -- --
Other 6,491 5,216 2,878 3,894 2,614
---------------------------------------------------------------------------
Total revenues 232,633 205,229 202,031 219,881 212,246
---------------------------------------------------------------------------
Expenses
Compensation and benefits 121,611 114,800 111,615 110,474 98,534
---------------------------------------------------------------------------
Interest:
Deposits 11,002 9,613 11,290 18,018 30,538
Brokerage customers 9,928 6,342 5,383 6,690 9,511
Borrowings 4,704 5,064 5,120 5,110 4,942
Other 4,932 1,565 1,229 1,618 2,170
---------------------------------------------------------------------------
30,566 22,584 23,022 31,436 47,161
Occupancy and equipment 17,123 15,508 15,516 17,663 19,035
Communications 18,418 18,662 16,627 14,771 14,202
Provision for credit losses and
asset devaluation 10,338 5,411 4,292 26,444 16,857
Professional 5,468 6,231 5,248 5,160 6,350
Business development 4,204 4,532 4,033 3,908 2,866
Brokerage, clearing and exchange 3,922 3,693 3,579 3,654 4,082
Provision for restructuring -- -- -- 1,020 --
Other 9,222 8,453 10,028 9,773 11,783
---------------------------------------------------------------------------
Total expenses 220,872 199,874 193,960 224,303 220,870
---------------------------------------------------------------------------
Income (loss) before income taxes
and extraordinary credit 11,761 5,355 8,071 (4,422) (8,624)
Provision (benefit) for income tax 5,410 2,302 2,903 175 (1,740)
---------------------------------------------------------------------------
Income (loss) before
extraordinary credit 6,351 3,053 5,168 (4,597) (6,884)
Extraordinary credit - utilization
of operating loss carryforward -- -- 2,103 -- --
---------------------------------------------------------------------------
Net income (loss) $ 6,351 $ 3,053 $ 7,271 $ (4,597) $ (6,884)
===========================================================================
Per share data
Primary net income (loss) $ 0.73 $ 0.34 $ 0.79 $ (0.48) $ (0.70)
Net income (loss) assuming full di $ 0.71 $ 0.34 $ 0.75 $ (0.48) $ (0.70)
Book value $ 9.42 $ 8.62 $ 8.16 $ 7.22 $ 7.52
Other data
Total assets $ 830,815 $ 884,855 $ 885,182 $ 796,102 $ 904,899
Shareholders' equity $ 78,932 $ 73,980 $ 73,989 $ 67,656 $ 73,178
Subordinated borrowings $ 20,552 $ 20,997 $ 21,375 $ 21,671 $ 21,835
Long-term borrowings $ 17,240 $ 30,388 $ 15,038 $ 11,688 $ 17,300
Return on average equity 8.40% 4.10% 10.20% * *
Average common and common equivalent
shares outstanding 8,735 8,997 9,248 9,598 9,832
<FN>
* As a result of net losses in 1992 and 1991, this item is not meaningful.
31
[page 10 of annual report]
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Business Environment
The Advest Group, Inc. ("AGI"), together with its subsidiaries
(the "Company"), provides diversified financial services including
securities brokerage, trading, investment banking, consumer
lending 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 some 85 sales offices
in 16 states and Washington, DC. Advest Bank (the "Bank"), an
FDIC-insured, Connecticut chartered savings bank, offers
residential mortgage lending and trust services primarily in the
northeast and through Advest's branch network. Other subsidiaries
include Boston Security Counsellors ("BSC"), an investment
management company serving private clients and, until their sale
in the current year, the Company's proprietary mutual funds and
Billings & Co., Inc. ("Billings"), a company specializing in
private placement offerings primarily in real estate.
All aspects of the Company's business are highly competitive
and impacted by regulatory and other factors outside of its
control, including general economic and financial conditions,
particularly in the northeastern United States, 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, 1995, the Company reported
net income of $6.4 million ($.73 per share) compared with net
income of $3.1 million ($.34 per share) in 1994 and income before
extraordinary credit of $5.2 million ($.56 per share) in 1993.
Fiscal 1993 benefited from a $2.1 million extraordinary credit
from the utilization of net operating loss carryforwards resulting
in net income of $7.3 million ($.79 per share).
Advest, Inc.
The securities markets rebounded during the first three calendar
quarters of 1995 after a dismal 1994. Corporate restructurings,
together with lower interest rates, contributed to strong earnings
of corporate issuers, and led the DOW and other major stock
indices to record highs. Despite continued concerns of an
expected correction, the DOW closed at 4789 on September 30, 1995,
a 25% increase from the prior year. The S&P 500, at 584, and the
NASDAQ Composite, at 1044, gained 26% and 37%, respectively,
during the past twelve months. For the securities industry
generally, a 43% year to year increase in the fourth quarter
lifted an otherwise mediocre underwriting year. The level of new
stock issues surged in the September 1995 quarter as corporate
issuers took advantage of higher stock prices to raise capital and
most issues sold at levels above their filing range. Related
underwriting fees rose significantly in the same quarter due to
higher fees from stock issues compared with debt issues. For the
first three calendar quarters of 1995, bond underwritings were
down 9% from the year earlier period. Driven by industry
consolidations, merger and acquisition activities achieved record
levels during the first three quarters of calendar 1995.
Advest reported pre-tax income for fiscal 1995 of $12.9
million, an increase of 13% from $11.4 million in the prior year.
Net revenues, total revenues less interest expense, increased 7%
to $179.2 million. Year to year revenue gains were posted for
principal transactions, up 27%, net interest, up 20%, asset
management activities, up 11%, commissions, up 6%, and other
revenues, up 28%. Current year investment banking revenues
declined 31%, despite a 17% year to year fourth quarter increase
reflective of the industry trend. Net expenses (total expenses
excluding interest), increased 6% to $166.3 million, primarily due
to increased compensation and computer equipment costs.
Advest Bank
During the current year, the Bank took action to enhance future
operating results by evaluating alternatives to expedite the
disposition of its nonperforming assets ("NPAs"). Through
December 1994, the Bank managed its NPAs primarily by acquiring
title to the properties through foreclosure and marketing the
foreclosed properties at fair value. This process has been
prolonged due to the sluggish economic conditions prevalent in the
Northeast, and in particular Connecticut, where the Bank's
commercial lending is concentrated. During the first half of
fiscal 1995, the Bank sold $14.5 million of NPAs and commercial
real estate loans in bulk sale transactions at discounts to
carrying value and recorded charges of $2.8 million. During the
third quarter, the Bank's Board of Directors approved and adopted
an accelerated asset disposition plan with the objectives of
allowing Bank management to focus on its residential mortgage
banking and trust businesses and expediting conditions under which
a Memorandum of Understanding ("MOU") the Bank is subject to would
be lifted or modified (See Note 2). In accordance with the
accelerated asset disposition plan, the Bank recorded loss
provisions of $6.0 million in the third quarter to write down
assets targeted for accelerated disposition. Under the plan, $.5
million of supplementary provisions were booked in the fourth
quarter to adjust third quarter estimates as additional
information became available. Substantial discounts to carrying
value were required for assets targeted for accelerated
disposition in order to attract buyers of distressed assets.
A further objective of the accelerated asset disposition plan
was to substantially improve the risk profile of the Bank's
32
[page 11 of Annual Report]
balance sheet by reducing its commercial loan portfolio. During
fiscal 1995, the Bank's commercial real estate mortgage portfolio
decreased by $50 million (47%) to $56 million at September 30,
1995 (24% of total Bank loans). In addition, under the plan, the
Bank transferred $4.6 million of NPAs to AGI on September 30,
1995. The transferred assets, which include $1.3 million under
sales contracts, are expected to be sold during fiscal 1996. To
preserve compliance with regulatory capital requirements, an
additional component of the accelerated asset disposition plan was
to reduce the Bank's asset base. Accordingly, total Bank assets
declined $84.2 million in fiscal 1995.
The Bank posted a $9.3 million pre-tax loss for the year
compared with a loss of $1.5 million in fiscal 1994. The Bank
recorded total loss provisions of $10.1 million for fiscal 1995,
including those required by the implementation of the accelerated
asset disposition plan as well as the bulk sales consummated in
the first half of the year. At September 30, 1995, the Bank's NPAs
were $3.1 million (1% of total bank assets) compared with $21.7
million (6% of total bank assets) a year earlier.
As a result of the current year's operating loss, the Bank's
leverage capital ratio was 5.03% which exceeded the 4% regulatory
requirement but was below the 6% required by the MOU. See further
discussion under the caption Liquidity and Capital Resources -
Advest Bank. At September 30, 1995, the Bank's risk-based and
Tier 1 capital ratios were 8.61% and 7.40%, respectively, which
met both the regulatory and MOU requirements.
The following table summarizes 1995 activity for NPAs and
commercial loans of the Bank, including the impact of the
accelerated asset disposition plan.
- -----------------------------------------------------------------
Commercial
Nonperforming performings
- ------------------------------------------------------------------
In thousands OREO Loans loans
- ------------------------------------------------------------------
Balance at September 30, 1994 $13,414 $8,328 $107,212
New NPAs 80 4,469 (4,469)
Transferred to performing -- (1,063) 1,063
Sales proceeds through March 31, 1995 (1,643) (733) (9,144)
Related OREO provisions and loan
charge-offs (461) (430) (676)
Transfers from Loans to OREO 2,830 (2,830) --
Sales proceeds (under accelerated
asset disposition plan) (2,764) (724) (19,004)
Related OREO provisions and loan
charge-offs (3,346) (2,569) (400)
Assets transferred to AGI (2,950) (1,635) --
Loan amortization and payoff, less
advances on loans -- -- (14,795)
Other payments and charge-offs, net (2,311) (2,523) --
- ------------------------------------------------------------------
Balance at September 30, 1995 $ 2,849 $ 290 $ 59,787
==============================
- ------------------------------------------------------------------
Other
During 1995, the Company sold the investment advisory business
related to its proprietary mutual funds in three separate
transactions. In the first quarter, a pre-tax gain of $.8 million
was realized from the sale of the business related to the Scottish
Widows International Fund to an unrelated third party. During the
third quarter, the businesses related to the six taxable and three
non-taxable funds, respectively, in the Advantage Family of Funds
("Funds") were sold to two other unrelated third parties for total
consideration of $11.2 million. Net of expenses, the Company
realized a pre-tax gain of $9.3 million from the two transactions.
The total gain from all sales was $10.1 million and is reported as
a separate line item on the 1995 Consolidated Statements of
Earnings. As a result of the sales, Advest's operating results
are expected to benefit because it will no longer pay up front
commissions to its brokers on Advantage fund sales. This
anticipated benefit should substantially negate the decline in
BSC's results (discussed below), consequently,the impact of the
sales on future consolidated results of operations is not expected
to be material, although there can be no assurance of this.
BSC reported pre-tax earnings of $1.1 million for the current
year compared with a record $1.6 million in 1994. Prior to the
sale of the Company's investment advisory business related to its
proprietary mutual funds, management fees related to the Funds
accounted for more than 70% of BSC's revenue. Although, BSC's
costs have significantly declined, primarily as a result of staff
reductions related to the Funds sales, its operating results will
be materially impacted by the sale of the advisory business.
Billings Management Company ("BIM"), a subsidiary of
Billings, has served as managing general partner of a real estate
limited partnership since 1990 when the original general partner
filed for bankruptcy protection. As a result, Billings has made
advances through charges to income to the partnership to cover
cash flow deficiencies. Over the past two years, the deficiencies
have declined substantially resulting in a favorable impact on
Billings' pre-tax results. Currently, the partnership property is
fully occupied, with a waiting list, and generates sufficient cash
flow from operations to meet its needs. In January 1993, a class
action lawsuit on behalf of the limited partners was certified.
On December 24, 1994, the US District Court for the District of
Connecticut signed an order approving a stipulation of settlement
whereby the plaintiffs retained their equity interests in the
partnership in exchange for annual cash distributions through 2004
and a substantial reduction in partnership debt. The settlement
was finalized on January 27, 1995. Management expects that the
partnership will generate sufficient cash flow to meet the cash
distributions through 2004. However, should funds not be
sufficient the Company will be required to make supplementary cash
payments to the partnership. The settlement did not have a
material impact on the Company's financial condition or 1995
results of operations. Billings pre-tax operating results
improved $.8 million and $.5 million, respectively, in fiscal 1995
and 1994.
33
[page 12 of Annual Report]
Results of Operations
Net income for the years ended September 30, 1995, 1994 and 1993
was $6.4 million, $3.1 million and $7.3 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, 1995.
- ---------------------------------------------------------------
% %
Increase Increase
In thousands 1995 (Decrease) 1994 (Decrease) 1993
- ---------------------------------------------------------------
Revenues
Commissions $ 84,264 6.01% $ 79,490 2.13% $ 77,835
Interest 56,082 21.70 46,084 8.58 42,443
Principal
transactions 41,424 28.26 32,297 (4.06) 33,662
Investment
banking 17,470 (32.14) 25,743 (17.23) 31,102
Asset
management and
administration 16,810 2.51 16,399 16.21 14,111
Gain on sale of investment
advisory
business, net 10,092 -- -- -- --
Other 6,491 24.44 5,216 81.24 2,878
---------------------------------------------
232,633 3.35 205,229 1.58 202,031
Interest
expense 30,566 35.34 22,584 (1.90) 23,022
--------------------------------------------
Net revenues 202,067 10.63 182,645 2.03 179,009
--------------------------------------------
Non-interest
expenses 190,306 7.34 177,290 3.72 170,938
--------------------------------------------
Pre-tax income $ 11,761 119.63% $ 5,355 (33.65%)$ 8,071
============================================
- ----------------------------------------------------------------
Net revenues were $202.1 million in the current year compared
with $182.6 million in 1994, an increase of 11%. Increases were
posted in all revenue categories, except investment banking, with
significant gains in revenue from principal transactions and net
interest. Non-interest expenses increased 7% primarily due to
higher sales-driven compensation, incentives and employee
insurance, increased equipment costs associated with technology
upgrades and loss provisions at the Bank related to the
accelerated asset disposition plan.
In fiscal 1994, net revenues were $182.6 million, a $3.6
million (2%) increase over 1993. Increases were posted in most
revenue categories, with significant gains in net interest, asset
management and other revenues. However, a $5.4 million (17%)
decline in investment banking revenue offset these gains to a
large extent. Total expenses, excluding interest, increased 4%
with employee compensation costs, communications expenses and loss
provisions at AGI level accounting for most of the increase.
Commissions
Commission revenue rose $4.8 million (6%) to $84.3 million in the
current year, the highest level since fiscal 1987. Significant
revenue gains in the second half of the fiscal year, including a
45% increase in the fourth quarter, offset a 17% decline through
the first six months. Commissions on over-the-counter issues
increased $2.2 million (21%) and listed securities increased $4.0
million (10%). Mutual fund sales, including distribution and
deferred sales charges, increased $.4 million (2%) in 1995 as a
result of a $2.0 million (42%) fourth quarter gain. Sales of
commodities and insurance products declined $.9 million (54%) and
$.7 million (13%), respectively.
In 1994, commissions rose $1.7 million (2%) to $79.5 million.
Through the first half of the fiscal year, commission revenue
increased $6.9 million, an 18% pace, however, various factors,
most notably higher interest rates, negatively impacted stock
volume and prices during the remainder of the year. Sales of
insurance products, primarily tax deferred annuities, increased
$1.5 million (42%). Revenue from mutual funds increased $.9
million (4%) and commissions from commodity trading more than
doubled to $1.6 million. Commissions on over-the-counter stocks
increased $.8 million (9%) from 1993 while sales of listed issues
declined $2.7 million.
Principal Transactions
Revenue from principal transactions includes realized and
unrealized gains and losses on Advest's securities inventory and
related sales credits. Advest enters into derivative transactions
to hedge certain trading positions, primarily municipal bonds.
Derivatives are marked to market daily with unrealized gains and
losses reflected in revenue from principal transactions. (Further
discussion of derivatives is under the caption "Derivative
Financial Instruments" and in Notes 1 and 17.) Advest holds only
nominal inventory positions of high yield securities. Gains and
losses on the Bank's trading and available for sale securities are
reflected in revenue from principal transactions.
Current year revenues were $41.4 million, a $9.1 million
(28%) increase over 1994 and a record high for the Company.
Revenue gains were posted across the board. Commissions on
equities gained $2.9 million (29%) and related trading profits
rose $.9 million (155%), reflecting the market rally in the second
half of the year. Sales credits on debt securities increased $2.0
million (9%), led by commissions on municipal bonds which
increased $3.0 million, due to strong sales in the first half of
the year. In the second half, municipal sales slowed
significantly due to investor concerns about tax changes,
specifically the possibility of a flat tax.
34
[page 13 of Annual Report]
During 1995, sales credits increased $1.1 million for government
zero coupon securities. Commissions on mortgage-backed
obligations declined $2.0 million. Trading profits on municipal,
government and corporate bonds increased $2.0 million, $.5 million
and $.4 million, respectively. Advest posted a $.1 million loss
from derivative transactions in the current year compared with a
negligible loss in 1994. The Bank posted a small loss from
principal trading in the current year.
Revenue declined $1.4 million (4%) to $32.3 million in fiscal
1994, as first quarter gains were more than offset by subsequent
declines, primarily in the fourth quarter. Equity commission
gains of $1.1 million (12%) during fiscal 1994, were negated by a
$1.1 million (5%) decline in sales credits from debt securities,
primarily government and mortgage-backed obligations. Trading
profits were lower on most firm inventories, particularly
municipal and corporate bonds which collectively declined $.8
million. The Bank posted a $.3 million loss on its portfolio
compared with a small profit in fiscal 1993.
Investment Banking
To generate investment banking revenue, Advest manages and
participates in underwritings of corporate and municipal
securities and closed-end funds. Advest also provides merger and
acquisition services and other consulting and valuation
activities. In general, the Company does not participate in
bridge financing activities, however, during 1995, Advest provided
such financing in one underwriting deal as discussed below.
Advest's Corporate Finance Department concentrates its efforts on
raising capital for mid-size companies, primarily in the banking,
insurance, high tech and health care industries. Public Finance
Divisions services healthcare and educational institutions as well
as state and local issuers. Lyons, Zomback & Ostrowski, Inc.
("LZO"), a financial consulting subsidiary of the Company
specializing in the banking and thrift industry, was merged into
Advest's Corporate Finance Department in January 1994. Renamed
the Financial Institutions Group ("FIG"), the unit chiefly serves
as an advisor to small- and medium-sized community banks.
Current year investment banking revenues declined $8.3
million (32%) to $17.5 million, the lowest level since fiscal
1990. Revenue from merger and acquisition services increased $3.1
million (437%) but was more than offset by declines in most other
categories. Underwriting commissions declined $4.2 million (39%),
reflecting a substantial decline in the number of new equity and
mutual and closed-end fund offerings. Syndicate trading profits
declined $1.2 million each for funds and equities. Corporate
finance underwriting fees declined $1.5 million (73%) and public
finance and syndicate underwriting fees declined $.5 million (54%)
and $.4 million (85%), respectively, reflecting both the lower
volume of new issues and lower fees. Revenue from consulting and
valuation services declined $1.1 million (36%) in 1995. Revenue
from the exercise of stock warrants was $1.0 million higher in
fiscal 1994. On August 3, 1995, Advest provided bridge financing
in the amount of $.5 million to a company for which Advest was
underwriting a secondary stock offering. The loan was repaid on
August 31, 1995.
Investment banking revenues were $25.7 million in 1994, a
decline of $5.4 million (17%) from 1993. Advest, excluding the
FIG, posted a $4.4 million (15%) revenue decline, reflecting the
negative impact of higher interest rates in the stock and bond
markets. Both the volume and size of new issues declined as well
as the underwriting fees earned. Syndicate participations in new
debt and equity issues were down $2.8 million (21%) and mutual
fund offerings declined $.5 million (14%). Corporate finance
underwriting fees increased $1.1 million (101%) primarily due to
two deals that closed in the first fiscal quarter, before the
underwriting slowdown commenced. In addition, a $1.3 million gain
was recognized on the exercise of warrants related to a prior
underwriting. These gains were more than offset by declines in
merger and acquisition fees, down $2.0 million (74%) and
consulting and valuation service fees, down $.6 million (34%).
FIG accounted for the balance of the 1994 decline.
Asset Management and Administration
Advest's investment management department provides various
services for its managed account base including client profiling,
asset allocation, manager selection and performance measurement.
BSC provides advisory services to a diverse clientele and, until
their sale in the current year, was investment advisor for the
Company's proprietary mutual funds. The Company acts as transfer
agent and provides dividend disbursing and reinvestment for its
formerly proprietary mutual funds as well as dividend reinvestment
for more than 1,200 equities and 1,100 mutual and closed-end
funds. Other services include retirement plan administration,
securities custody and safekeeping.
Current year revenues were $16.8 million, a $.4 million (3%)
increase over 1994 and a record high level for the Company.
Advest's revenues increased $1.3 million (11%) to $13.3 million.
Advest's managed account base increased 49% to $1.6 billion during
fiscal 1995 accounting for a $1.1 million increase in money
management fees. Increased money market service fees accounted
for the balance of the 1995 gain. BSC's revenue was $3.2 million,
a $1.0 million (24%) decrease from 1994. Fourth quarter revenue
declined $.8 million (73%), reflecting the third quarter sales of
the Company's proprietary mutual funds. At September 30, 1995,
private accounts under BSC's management were $358 million, a 222%
increase from the prior year.
Asset management and administration revenues were $16.4
million in 1994, a $2.3 million (16%) increase over 1993. BSC
posted revenues of $4.3 million, up 24% from fiscal 1993. Assets
under management increased 10% to $731 million, led by the
proprietary mutual funds which gained 12% to $580 million. In
July 1994, the Advantage Strategic Income Fund, which invests in
three diverse fixed income sectors, was introduced, bringing to 10
the number of proprietary funds offered by the Company. Advest's
1994 revenues were $12.0 million, a 19% increase, and managed
account assets surpassed the $1 billion mark.
35
[page 14 of Annual Report]
Other Income
Other income increased $1.3 million (24%) to $6.5 million in the
current year. Advest revenues increased $1.2 million (25%),
primarily due to a $.5 million gain on the sale of an exchange
seat and higher execution and service fee income. In 1994, other
income increased $2.3 million (81%) to $5.2 million as a result of
higher fee income, particularly compensation paid to Advest to
help defray various costs associated with marketing non-
proprietary products.
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 and commercial 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 costs of these contracts are accounted for as
an adjustment to interest expense. (Further discussion of
derivatives appears under the caption "Derivative Financial
Instruments.") Advest derives interest income from financing
brokerage customers margin transactions, entering into reverse
repurchase agreements and stock borrowing transactions as well as
from its securities inventory. Advest pays interest primarily on
brokerage customer credits held for re-investment, on its stock
lending activities and short and long-term borrowings.
Current year net interest income was $25.5 million, a $2.0
million (9%) increase from 1994 and a record high level for the
Company. Advest's net interest was $18.0 million, a 20% increase,
primarily due to higher income from margin accounts. Higher
average interest rates during the current year resulted in
increased spreads between interest charged on margin accounts and
the cost of funds, primarily interest paid on credit balances.
Gains from higher rates were partly offset by a decline in average
margin debit balances during fiscal 1995. Net revenue also
increased from short-term investments and stock lending
activities, as well as trading accounts, principally municipal
bonds.
The Bank's net interest income declined $.9 million (8%)
during 1995. The decline is attributable to an $84.2 million
(24%) decline in assets under management, partly offset by
improved interest margin on average assets. The Bank's earning
asset base improved to 97.2% in the current year from 93.1% in
1994, largely as a consequence of the accelerated asset
disposition plan which reduced NPAs substantially. (See Note 2 and
prior discussion under the caption "Advest Bank".)
Net interest income was $23.5 million in 1994, a 21% increase
over 1993 and the highest level achieved since fiscal 1990.
Advest's net interest income increased $3.1 million (27%)
primarily due to higher average margin debit balances throughout
the year. In addition, higher interest rates resulted in greater
spreads on all interest-earning assets.
The Bank's net interest income increased $.8 million (8%) to
$10.6 million in 1994 primarily due to growth of the loan
portfolio and increased interest spreads as interest rates on
earning assets increased more than the cost of funds. The ratio
of earning assets to total assets improved to 93.1% at September
30, 1994 compared with 92.9% at the previous fiscal year end.
Non-Interest Expenses
Current year compensation costs increased $6.8 million (6%) with
all of the increase coming in the fourth quarter. Advest's
compensation increased $7.3 million (7%) primarily due to
increased sales-driven salesmen's compensation and related
incentives. BSC's compensation costs declined $.4 million (22%)
due to staff reductions related to the third quarter sale of the
Company's mutual fund advisory business. The Bank's compensation
costs increased $.3 million primarily due to personnel additions
in its mortgage lending and trust departments. Occupancy and
equipment costs increased $1.6 million (10%). During the latter
part of fiscal 1994 and throughout the current year, Advest
upgraded the data processing network throughout its branch office
network and most operations departments. New workstations and
software enhancements were installed and connected to a firm-wide
local area network. Increased depreciation and maintenance costs
associated with the upgrade account for most of the increase in
occupancy and equipment costs with the balance primarily due to
higher office rent expense. The provision for credit losses and
asset devaluation increased $4.9 million (91%) to $10.3 million.
The Bank's loss provisions were $10.1 million, a $7.5 million
(286%) increase, and primarily related to writedowns associated
with the accelerated asset disposition plan and bulk sales. (See
discussions under the caption "Business Environment - Advest Bank"
and Note 2.) Provisions at AGI and Billings declined $2.0 million
and $.7 million, respectively, primarily related to reserves
recorded during fiscal 1994 to settle a limited partnership class
action suit. (See discussion under the caption "Business
Environment - Other".) Other expenses increased $.8 million (9%)
to $9.2 million primarily due to increased settlement, syndicate,
computer software and transfer fee expenses at Advest.
Professional fees declined $.8 million (12%) primarily due to
lower legal and/or consulting expenses at most subsidiaries and
AGI.
In 1994, compensation and benefits expenses were $114.8
million, an increase of 3% over 1993. The increase was primarily
due to general salary increases, the first full year of the
Company's matching contribution to employee 401(k) accounts and
higher salesmen's compensation. In addition, compensation at the
Bank increased 9% primarily as a result
36
[page 15 of Annual Report]
of efforts to expand its mortgage lending and trust businesses.
Communication costs increased $2.0 million (12%) to $18.7 million.
Most of the increase is attributable to the ADP conversion being
effective for all of fiscal 1994 (versus 9 months in 1993) as well
as certain non-recurring credits available in the prior year. In
1994, professional fees increased $1.0 million (19%) to $6.2
million. Advest's professional fees increased $.4 million (11%)
due equally to higher legal fees and personnel agency costs. The
Bank's professional fees were up $.4 million (31%) in great part
due to legal fees associated with the introduction of a new home
equity product. The provision for credit losses and asset
devaluation was $5.4 million, a 26% increase reflecting additional
reserves booked by AGI related to the potential settlement of
limited partnership activity discussed previously under the
caption "Business Environment - Other". Other expenses declined
$1.6 million (16%) to $8.5 million due primarily to lower OREO and
related expenses of the Bank and a decline in settlement costs at
Advest.
Income Taxes
The effective income tax rates were 46.0%, 43.0% and 9.9%,
respectively, for 1995, 1994 and 1993. The 1995 rate primarily
reflects the impact of higher levels of income apportioned to
states with higher average tax rates. The 1994 rate was higher
than the federal statutory rate due to the impact of minimum state
taxes imposed, most notably in Connecticut, where no benefit could
be realized from 1994 state net operating losses. The 1993 rate
benefited from significant federal net operating loss
carryforwards which were partially offset by state tax minimums.
As of October 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting For Income
Taxes" ("SFAS 109"). At September 30, 1995, the Company had net
deferred tax assets, net of a $1.5 million valuation allowance, of
$2.1 million. The company expects to realize all deferred tax
assets, except for certain state net operating loss carryforwards
for which it has established the above valuation allowance. For
further information on the Company's income taxes refer to Notes 1
and 15 to the Consolidated Financial Statements.
Derivative Financial Instruments
Advest Bank
The Bank enters into transactions involving derivative securities,
including interest rate swap and interest rate cap contracts as
part of the Bank's management of interest rate risk. (See Note
17.) Swap and cap contracts are used to hedge the cost of funds
so that a more stable net interest income will be earned by the
Bank. The net costs of these contracts are accounted for as an
adjustment to interest expense. The amounts exchanged are
determined by reference to the notional amounts and the other
terms of the derivative contracts. The Bank is exposed to credit-
related losses in the event of non-performance by counterparties
but does not expect any parties to fail to meet their obligations.
The Bank only enters into transactions with highly rated
counterparties and the FHLBB, which is the counterparty in $22.5
million and $5 million of the Bank's swap and cap contract
holdings, respectively. The following table identifies the
notional amounts of contracts entered into by the Bank and their
potential credit exposure:
- ------------------------------------------------------------------
1995 1994
-------------------- -----------------------
Notional Credit Notional Credit
amount exposure amount exposure
In thousands
- ------------------------------------------------------------------
Interest rate
swaps $27,500 $-- $52,500 $271
Interest rate
caps 5,000 61 $20,000 --
Unamortized cap
premiums 110 -- $ 234 --
- ------------------------------------------------------------------
The notional amounts of derivatives do not represent amounts
exchanged by the parties and thus are not a measure of the Bank's
exposure through the use of swap and cap contracts.Therefore, they
are not recognized as assets or liabilities on the balance sheet.
The current credit exposure of derivatives is represented by
contracts with a favorable fair value.
Advest, Inc.
Advest periodically hedges a portion of its trading inventory,
primarily municipal bonds, when the market risk based on inventory
levels, exceeds an acceptable limit, as defined in its hedging
policy. Hedge instruments used to date are short-duration
exchange-traded futures and options. Hedging is limited to the
underlying trading portfolio's interest rate risk, based on pre-
determined inventory levels, and is not speculative in and of
itself. Hedge positions are marked-to-market daily. Positions
are reviewed daily and, at each month end, the hedging strategy is
re-evaluated based on anticipated inventory levels and composition
and necessary transactions are executed to achieve the target
hedged position.
The fair value of a derivative contract is the amount Advest
would have to pay a third party to assume its obligation under the
contract or the amount Advest would receive for its benefits under
the contract in the reverse situation. At September 30, 1995,
Advest had no open hedge positions. At September 30, 1994, the
fair value of open hedge positions was $2.5 million. During 1995
and 1994, respectively, the average fair value of outstanding
hedge positions was $.7 million and $.1 million, respectively. A
net trading loss of $.1 million and a small gain were realized in
fiscal 1995 and 1994, respectively.
Asset Quality
Advest Bank
The Bank is primarily a secured lender, with real estate being the
predominant form of collateral. Lending activity during 1994
primarily concentrated on enlarging the Bank's single family
residential mortgage portfolio and shrinking its commercial real
estate portfolio, with the intention of shifting the Bank's loan
portfolio risk characteristics. During the current
37
[page 16 of Annual Report]
year, the Bank focused on expanding sales of its single family
residential mortgages in the secondary market and continuing to
reduce its commercial real estate exposure. Secondary market
sales of residential loans were $33.4 million in 1995. The
residential and commercial portfolios increased $11.2 million and
decreased $53.8 million, respectively, in 1995, and increased
$46.9 million and decreased $13.1 million, respectively, in 1994.
At September 30, 1995, the Bank's loan portfolio was comprised of
$170 million of single family residential mortgages and $63
million of commercial and other loans, representing 73% and 27% of
total loans, respectively.
At September 30, 1995 and 1994, respectively, earning assets
were 97.2% and 93.1% of total bank assets. Loss reserves were
80.8% and 24.7% of NPAs at September 30, 1995 and 1994,
respectively. Loan delinquency was .87% of total loans at
September 30, 1995 compared with 3.84% and 5.32% at September 30,
1994 and 1993, respectively. Had interest been accrued at
contractual rates on non-accrual and re-negotiated loans, interest
income would have increased by approximately $.5 million, $.8
million and $.8 million in 1995, 1994 and 1993, respectively.
The Bank has identified approximately $7.4 million of
performing commercial loans that are rated as "watch" due
primarily to certain perceived weaknesses in debt service capacity
and/or collateral values. Watch assets are closely monitored for
any deterioration which could result in future losses, and have
declined from $16.0 million at September 30, 1994.
Advest Group, Inc.
At September 30, 1995, the Bank transferred $4.6 million of NPAs
to AGI, as previously discussed. These assets are comprised of
$2.0 million of subdivision assets generally under contract to
sell as construction of single family residences is completed,
$1.5 million of delinquent residential mortgage loans in various
stages of foreclosure and liquidation and $1.1 million of
nonperforming commercial loans and OREO that are either under
contract to sell, under repayment plans or are being marketed for
sale. Substantially all of these assets are expected to be sold
or repaid during fiscal 1996. The assets were transferred at
their expected sales prices which reflect discounts from fair
value.
AGI also holds a $9.0 million first mortgage on a property
owned by a real estate limited partnership for which BIM serves as
general partner. The loan was restructured during 1995 as part of
a class action settlement on behalf of the limited partners.
(Refer to previous discussion under the caption "Business
Environment - Other".) The first payment under the mortgage is
not due until January 2000 therefore, the loan is technically
performing. The property has been at full occupancy with a
waiting list for nearly two years, however, given its significant
future financial commitments, management has decided to treat the
mortgage as a nonperforming loan and, accordingly, no interest
income is being accrued.
Liquidity and Capital Resources
The Company's total assets were $830.8 million at September 30,
1995, reflecting a 6% decline from both 1994 and 1993 levels which
were substantially equivalent. The decline in total assets
primarily reflects the Company's efforts to dispose of the Bank's
nonperforming assets and shrink the Bank's balance sheet to better
enable it to meet capital and other regulatory requirements. The
Bank's assets have declined $118.6 million (30%) during the past
two fiscal years. Conversely, Advest's assets have increased
$80.9 million (17%) to $550.9 million since fiscal 1993. Advest's
assets have increased during the past two years primarily due to
higher receivables related to stock loan/borrow activities,
increased trading account balances, primarily municipal bonds, and
higher margin debits.
Liquid assets which include cash and cash equivalents,
receivables from brokerage customers, interest-earning deposits,
securities purchased under agreements to resell, securities
borrowed, receivables from brokers and dealers, available for sale
and trading securities comprised 61% of total assets at September
30, 1995 compared with 55% for the prior year. The improved
liquidity is primarily a result of a planned decline in the Bank's
loan and OREO portfolios as well as changes in the Company's
securities holdings, with declines in held to maturity securities
and increases in available for sale and trading securities.
Long-term borrowings decreased $13.1 million (43%) primarily
due to current year dispositions of performing and nonperforming
assets, as discussed under the caption "Business Environment -
Advest Bank" and Note 2. Sales proceeds enabled the Bank to
substantially reduce borrowings $19.5 million (75%) during the
current year. Advest's long-term borrowing increased $6.25 million
during 1995, as discussed below and in Note 9.
Shareholders' equity increased $5.0 million (7%) to $78.9
million, as a result of a $6.4 million increase in retained
earnings from current year operating results. Treasury stock
increased $1.5 million (14%), due to repurchases of the Company's
common stock partly offset by sales of treasury shares under the
1995 Equity Plan (See Note 13). At September 30, 1995, 2,114,177
shares of the Company's common stock had been purchased since the
inception of the stock buyback program in August 1990, at an
average price of $5.21 per share. SFAS 115, which was adopted in
the current year (See Note 1), had an immaterial impact on
shareholders' equity during the year ended September 30, 1995.
AGI's principal source of funding is the earnings
distributions from its subsidiaries which, except as discussed
below, is unrestricted. During the current year, AGI netted $10.1
from the sale of the Company's proprietary mutual fund business.
$4.6 million of the proceeds were applied to acquire certain
nonperforming assets of the Bank in accordance with the
accelerated asset disposition plan previously discussed. The
balance of the proceeds were primarily invested in Treasury bills
by AGI.
38
[page 17 of Annual Report]
Advest, Inc.
Sources used by Advest to finance assets include credit balances
in brokerage accounts which decreased $10.5 million (3%), short-
term borrowings which decreased $22.5 million (100%), long-term
borrowings which increased $6.25 million (Advest had no long-term
debt at September 30, 1994) and operating cash flows. In
addition, Advest has arrangements with certain financial
institutions whereby it can borrow amounts on a collateralized
basis, principally to support securities settlements and
underwriting activities. Advest has substantial levels of
customer and firm securities which can be used for such purposes.
Management believes that operating cash flow together with
available credit lines will provide sufficient resources to meet
all present and reasonably foreseeable capital needs.
The Securities and Exchange Commission ("SEC") requires
Advest to maintain liquid net capital to meet its obligations to
customers. During the current year, Advest borrowed $6.25 million
under a non-recourse note with the purpose of increasing its net
capital. Although its net capital was in excess of that required,
the supplemental net capital generated by the non-recourse note
provides Advest additional flexibility in its business activities.
At September 30, 1995, Advest had excess net capital of
approximately $35.1 million, a 46% increase from the prior year
(See also Notes 9 and 14).
Advest Bank
The Bank's total assets declined $84.2 million (24%) to $270.5
million, with loans and cash and investments declining $42.9
million (16%) and $33.2 million (52%), respectively. Assets
declined $84.2 million (24%) in the current year primarily as a
result of three factors: (1) the disposition of $46.7 million of
performing commercial loans and nonperforming assets primarily in
accordance with the accelerated asset disposition plan and other
bulk sales and dispositions, (2) the sales of $33.4 million of
residential loans through the secondary market and (3) the sales
of $8.9 million of trading and available for sale securities,
offset by $4.8 million net increase in other assets. At September
30, 1995, the Bank's liquid assets included cash, federal funds
and available for sale securities of $8.0 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, 1995, the Bank had uncommitted,
eligible collateral of $115 million. Without giving effect to any
operating results from subsequent periods, management believes
that the Bank has sufficient capital to comply with the regulatory
requirements. Under state bank regulatory restrictions, the Bank
is currently prohibited from declaring dividends.
The Federal Deposit Insurance Corporation ("FDIC") requires
banks to maintain a minimum leverage capital ratio of between 4%
and 5%. Under the MOU, discussed previously, the Bank had
maintained the required leverage capital ratio of at least 6%
until the current year. Primarily as a result of the
implementation of the accelerated asset disposition plan
previously discussed, the Bank posted a $9.3 million pre-tax loss
in 1995. Consequently, the Bank's leverage capital ratio was 5.03
% which met the regulatory requirement but fell below the MOU
requirement (See Notes 2 and 14). The Bank does not expect
adverse action by its regulators who were aware of the probable
impact of the accelerated asset disposition plan and did not
object to its implementation. The Bank's regulators have
requested that the Bank submit a capital plan detailing estimates
of when the Bank will attain compliance with the 6% ratio
requirement, the Bank's risk management program and contingency
plans. Bank management expects to submit such plans to its
regulators by the second quarter of fiscal 1996.
The Bank is also subject to the FDIC's risk-based capital
regulations which require the Bank to maintain a total risk-based
capital ratio of 8%, including at least 4% Tier 1 capital. At
September 30, 1995, the Bank's total risk-based and Tier 1 capital
ratios were 8.61% (with capital of $15.8 million) and 7.40% (with
capital of $13.6 million), respectively, which met both the
regulatory and MOU requirements.
Pursuant to the FDIC Improvement Act ("FDICIA"), the Bank is
subject to rules limiting brokered deposits and interest rates.
Under FDICIA, the Bank meets the conditions to be deemed an
"adequately capitalized" bank which means it may accept brokered
deposits with a waiver from the FDIC. Under the terms of a
brokered deposit prohibition waiver received by the Bank in
September 1995, the Bank may accept brokered deposits without
limitation other than observing restrictions on the rate of
interest paid on such deposits and limiting the total outstanding
balances of brokered deposits of the Bank to $95.0 million, until
September 30, 1996. At September 30, 1995, the Bank had $69.6
million of brokered deposits. Prior to September 30, 1996, the
Bank must, under the provisions of the new rules, apply for a new
waiver if it wishes to continue to accept brokered deposits after
that date.
Cash Flows
Cash and cash equivalents increased $16,000 in the current year
compared with declines of $12.0 million and $11.9 million in 1994
and 1993, respectively. The break even results for 1995 resulted
from $1.0 million and $.3 million increases at the Bank and AGI,
respectively, which were offset by a $1.3 million decline at
Advest. The Bank's increase was primarily attributed to net funds
generated by the accelerated asset disposition plan and improved
cash flow from operations. Advest generated strong cashflow
primarily from operations and a $6.25 million borrowing in 1995.
However, the broker/dealer made significant current year capital
investments in computer hardware and software to support its sales
force. In addition, Advest incurred high costs associated with
the recruitment of investment professionals. The 1994 decline was
primarily due to a net $40.1 million increase in loan originations
(new loans less principal collections), a $52.4 million increase
in margin debits, a $54.8 million decline in bank deposits and a
$17.6 million decline in payables to brokerage customers. These
uses of cash were partly offset by
39
[page 18 of Annual Report]
increased short and long-term borrowings and proceeds from sales
and maturities of investments not reinvested. The 1993 decline
was primarily due to a $20.2 million decline in bank deposits
partly offset by a $9.4 million decrease in margin debits.
The Company generated $28.9 million of operating cash
primarily from $6.4 million of net income adjusted for non-cash
revenue and expense items. Margin debits declined $13.1 million
and 15c3-3 requirements for segregated customer funds declined
$18.0 million generating cash. Brokerage customer credits
declined $10.5 million and Advest increased its trading positions
$11.1 million decreasing operating cash. Financing activities
used $93.6 million primarily due to a $56.2 million decline in
customer deposits at the Bank. Advest's short-term borrowings
declined $22.5 million and its long-term debt increased $6.25
million. The Bank paid down its short-term and long-term
borrowings by $9.5 million and $10.0 million, respectively.
Investing activities produced positive cash flow of $64.7 million
primarily as a result of $49.5 million in proceeds from the sales
of performing and NPAs of the Bank and $29.6 million from
securities sales by the Bank. The Company generated $10.1 million
of cash from the sales of its proprietary mutual fund investment
advisory business. Uses of investing cash included $4.2 million
for Advest's capital expenditures and for the Bank a net $4.4
million increase in loans originated compared with principal
collections on loans.
In 1994, the Company used $16.0 million of operating cash
primarily due to the increased margin debits and decreased
brokerage customer payables noted above which were partly offset
by a $56.9 million decrease in segregated cash and securities
required under SEC Rule 15c3-3. Financing activities used net
cash of $11.9 million as the previously noted significant decline
in bank deposits was partly offset by a net $25.9 million increase
in short-term borrowings and a $20.5 million increase in long-term
borrowings. Investing activities generated $16.0 million in net
cash due to net proceeds from the sale and maturity of investments
exceeding net new loans originated.
The Company generated $26.2 million in operating cash during
the year ended September 30, 1993, including $18.2 million from
net income and addbacks for noncash operating expenses. Net cash
used for financing activities declined $25.5 million primarily due
to a $20.2 million decline in bank deposits and net $3.2 million
in repayments of borrowings. A net $12.6 million was used for
investing activities primarily due to net increases in investment
securities.
Recently Issued Accounting Pronouncements
In May 1993, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") 114
"Accounting by Creditors for Impairment of a Loan." SFAS 114
addresses those circumstances where a creditor should measure
impairment of a loan based on the discounted present value of
expected future cash flows or fair value, if collateral dependent.
In October 1994, the FASB issued SFAS 118 "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures," an
amendment of SFAS 114. SFAS 114 and SFAS 118 are required to be
adopted for fiscal years beginning after December 15, 1994,
although earlier implementation is encouraged. The Company will
adopt SFAS 114 and SFAS 118 in its 1996 fiscal year as required,
but does not expect its implementation to have a material impact
on the Company's financial condition or results of operations.
In March 1995, the FASB issued SFAS 121, "Accounting for the
Impairment Of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." SFAS 121 establishes accounting standards for the
impairment of long-lived assets and certain identifiable
intangibles to be held and used by an entity or disposed of. SFAS
121 is effective for fiscal years beginning after December 15,
1995, although earlier implementation is encouraged. The Company
has not determined when it will adopt SFAS 121 but does not expect
its implementation to have a material effect on results of
operations or financial condition.
In May 1995, the FASB issued SFAS 122 "Accounting for
Mortgage Servicing Rights." SFAS 122 amends SFAS 65 "Accounting
for Certain Mortgage Banking Activities" to require that a
mortgage banking entity recognize as separate assets rights to
service mortgage loans for others, however those servicing rights
are acquired. SFAS 65 required separate capitalization of the
cost of rights which were acquired through a purchase transaction
but prohibited separate capitalization when the rights were
acquired through loan origination activities. SFAS 122 also
requires that a mortgage banking entity assess capitalized rights
for impairment and establish valuation allowances based on the
fair value of those rights, including rights acquired prior to
adoption of SFAS 122. Prospective adoption of SFAS 122 is
required for fiscal years beginning after December 15, 1995. The
Company has not decided when it will adopt SFAS 122 and has not
yet assessed its impact on financial condition or results of
operations.
In October 1995, the FASB issued SFAS 123 "Accounting For
Stock-based Compensation." SFAS 123 encourages, but does not
require, companies to recognize compensation expense for grants of
stock, stock options and other equity instruments to employees
based on fair value accounting rules. Companies may opt to
continue accounting for stock-based compensation under Accounting
Principles Board Opinion No. 25 ("APB 25"). However, SFAS 123
requires these companies to disclose pro forma net income and
earnings per share using the fair value based method. SFAS 123 is
required for fiscal years beginning after December 15, 1995,
although earlier implementation is encouraged. The Company is
required to adopt SFAS 123 in fiscal 1997 and has not yet made a
determination as to whether it will adopt the new fair value
accounting rules of expense recognition or continue to follow APB
25.
40
[page 19 of Annual Report]
Report of Independent Accountants
We have audited the accompanying consolidated balance sheets
of The Advest Group, Inc. and Subsidiaries as of September
30, 1995 and 1994, and the related consolidated statements
of earnings, changes in shareholders' equity and cash flows
for each of the three years in the period ended September
30, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the consolidated financial position of The Advest Group,
Inc. and Subsidiaries as of September 30, 1995 and 1994, and
the consolidated results of their operations and their cash
flows for each of the three years in the period ended
September 30, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial
statements, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities", as of
October 1, 1994.
As discussed in Notes 1 and 15 to the consolidated financial
statements, the Company adopted the provisions of Statements
of Financial Accounting Standards No. 109, "Accounting for
Income Taxes", as of October 1, 1993.
Coopers & Lybrand L.L.P.
Hartford, Connecticut
October 26, 1995
41
[page 20 of Annual Report]
The Advest Group, Inc.
Consolidated Statements of Earnings
Fiscal year ended September 30,
- ----------------------------------------------------------------------------------------------------
In thousands, except per share amounts 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
Revenues
Commissions $ 84,264 $ 79,490 $ 77,835
Interest 56,082 46,084 42,443
Principal transactions 41,424 32,297 33,662
Investment banking 17,470 25,743 31,102
Asset management and administration 16,810 16,399 14,111
Gain on sale of investment advisory business, net 10,092 - -
Other 6,491 5,216 2,878
---------------------------------------------
Total revenues 232,633 205,229 202,031
---------------------------------------------
Expenses
Compensation 121,611 114,800 111,615
Interest 30,566 22,584 23,022
Communications 18,418 18,662 16,627
Occupancy and equipment 17,123 15,508 15,516
Provision for credit losses and asset devaluation 10,338 5,411 4,292
Professional 5,468 6,231 5,248
Business development 4,204 4,532 4,033
Brokerage, clearing and exchange 3,922 3,693 3,579
Other 9,222 8,453 10,028
---------------------------------------------
Total expenses 220,872 199,874 193,960
---------------------------------------------
Income before taxes and extraordinary credit 11,761 5,355 8,071
Provision for income taxes 5,410 2,302 2,903
---------------------------------------------
Income before extraordinary credit 6,351 3,053 5,168
Extraordinary credit - utilization of
operating loss carryforwards -- -- 2,103
---------------------------------------------
Net income $ 6,351 $ 3,053 $ 7,271
=============================================
Net income per common and common equivalent shares:
Primary:
Income before extraordinary credit $ 0.73 $ 0.34 $ 0.56
Extraordinary credit -- -- $ 0.23
Net income $ 0.73 $ 0.34 $ 0.79
Assuming full dilution:
Income before extraordinary credit $ 0.71 $ 0.34 $ 0.56
Extraordinary credit -- -- --
Net income $ 0.71 $ 0.34 $ 0.75
Average common and common equivalent shares outstanding:
Primary 8,735 8,997 9,248
Assuming full dilution 10,298 8,997 11,097
- ----------------------------------------------------------------------------------------------------
<FN>
See Notes to Consolidated Financial Statements.
42
[page 21 of Annual Report]
The Advest Group, Inc.
Consolidated Balance Sheets
September 30,
- --------------------------------------------------------------------------------------------------------
In thousands, except share and per share amounts 1995 1994
- --------------------------------------------------------------------------------------------------------
Assets
Cash and short-term investments
Cash and cash equivalents $ 7,294 $ 7,278
Cash and securities segregated under federal and other regulations 31,259 49,305
Interest-earning deposits and investments - 3,000
--------------- ---------------
38,553 59,583
--------------- ---------------
Receivables
Brokerage customers, net 308,714 321,776
Loans, net 242,575 280,480
Securities borrowed 110,681 65,751
Brokers and dealers 2,391 3,539
Other 11,179 10,810
--------------- ---------------
675,540 682,356
--------------- ---------------
Securities
Trading, at market value 41,500 34,810
Held to maturity (market values of $31,473 and $53,102) 31,469 53,850
Available for sale, at market value 3,360 4,902
--------------- ---------------
76,329 93,562
--------------- ---------------
Other assets
Other real estate owned, net 5,799 13,414
Equipment and leasehold improvements, net 12,115 11,537
Other 22,479 24,403
40,393 49,354
--------------- ---------------
Total assets $830,815 $884,855
=============== ===============
Liabilities & shareholders' equity
Liabilities
Brokerage customers $300,011 $310,537
Deposits 235,656 291,885
Securities loaned 113,632 79,459
Compensation and benefits 16,529 14,053
Short-term borrowings 10,251 32,652
Brokers and dealers 9,744 6,023
Checks payable 6,751 6,800
Securities sold, not yet purchased, at market value 4,847 2,187
Other 16,670 15,894
--------------- ---------------
714,091 759,490
--------------- ---------------
Long-term borrowings 17,240 30,388
Subordinated borrowings 20,552 20,997
--------------- ---------------
751,883 810,875
--------------- ---------------
Commitments and contingent liabilities (see Notes 1, 14 and 16)
Shareholders' equity
Common stock, par value $.01, authorized 25,000,000 shares,
issued 10,584,488 and 10,570,222 shares 106 106
Paid-in capital 67,467 67,405
Retained earnings 22,956 16,605
Treasury stock, at cost, 2,202,519 and 1,987,357 shares (11,599) (10,136)
Net unrealized gain on securities available for sale, net of taxes 2 -
--------------- ---------------
78,932 73,980
--------------- ---------------
Total liabilities and shareholders' equity $830,815 $884,855
=============== ===============
<FN>
See Notes to Consolidated Financial Statements.
43
[page 22 of Annual Report]
The Advest Group, Inc.
Consolidated Statements of Cash Flows
Fiscal year ended September 30,
- -------------------------------------------------------------------------------------------------------
In thousands 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 6,351 $ 3,053 $ 7,271
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 8,905 7,067 6,613
Provision for credit losses and asset devaluation 10,338 5,411 4,292
Gain on investment advisory business, net (10,092) 0 0
Other 1,512 2,156 50
Deferred ESOP contribution 0 0 1,000
(Increase) decrease in operating assets:
Receivables from brokerage customers 13,079 (52,432) 9,389
Securities borrowed (44,930) (36,623) (9,878)
Receivables from brokers and dealers 1,148 (406) 9,385
Trading securities (6,633) (9,094) (963)
Cash and securities segregated under federal
other regulations 18,046 56,868 (104,911)
Other 104 3,000 (803)
Increase (decrease) in operating liabilities:
Brokerage customers (10,526) (17,613) 86,726
Securities loaned 34,173 40,458 14,535
Brokers and dealers 3,721 (3,573) 417
Checks payable (49) (8,207) 3,337
Other 3,723 (6,089) (236)
------------------------------------------
Net cash provided by (used for) operating activities 28,870 (16,024) 26,224
------------------------------------------
FINANCING ACTIVITIES
Net decrease in deposits (56,229) (54,827) (20,178)
Proceeds from short-term borrowings 0 10,000 0
Repayment of short-term borrowings (10,298) (6,650) (6,650)
Short-term brokerage borrowings, net (22,501) 22,500 (1,500)
Proceeds from long-term borrowings 7,250 20,500 5,000
Repayment of long-term borrowings (10,000) 0 0
Other (1,811) (3,428) (2,219)
------------------------------------------
Net cash used for financing activities (93,589) (11,905) (25,547)
------------------------------------------
INVESTING ACTIVITIES
Proceeds from (payments for):
Sales of available for sale securities 23,075 0 0
Maturities of available for sale securities 2,544 0 0
Maturities of held to maturity securities 18,466 0 0
Purchase of available for sale securities (1,215) 0 0
Purchase of held to maturity securities (16,439) 0 0
Purchase of investment securities and
short-term investments 0 (95,847) (274,243)
Maturities of investments 0 131,734 242,256
Sales of investments 0 23,028 20,653
Sale of investment advisory business, net 10,141 0 0
Loans sold 36,129 0 0
Sales of OREO, net 6,021 11,379 11,278
Principal collections on loans 60,432 53,704 48,264
Loans originated (67,674) (93,774) (52,822)
Other (6,745) (14,249) (7,949)
------------------------------------------
Net cash provided by (used for) investing activities 64,735 15,975 (12,563)
------------------------------------------
Increase (decrease) in cash and cash equivalents 16 (11,954) (11,886)
Cash and cash equivalents at beginning of period 7,278 19,232 31,118
------------------------------------------
Cash and cash equivalents at period end $ 7,294 $ 7,278 $ 19,232
==========================================
Interest paid $ 30,560 $ 22,853 $ 23,183
Income taxes paid $ 2,273 $ 1,058 $ 2,406
Non-cash activities:
Loans to OREO $ 2,830 $ 3,028 $ 2,210
Securities available for sale (from) to
investment securities $ (20,891) $ 27,910 $ 0
Change in SFAS 115 valuation reserve $ 2 $ 0 $ 0
<FN>
See Notes to Consolidated Financial Statements.
44
[page 23 of Annual Report]
The Advest Group, Inc.
Consolidated Statements of Changes in Shareholders' Equity
Net
unreal-
lized
gain
In thousands, (loss)
on
except securities
share and $.01 par value Deferred Treasury available,
Common stock Paid ESOP stock for Share-
per share -----------------------------in Retained contr- ---------------------------- sale holders'
amounts Shares Amount capital earnings butions Shares Amount net equity
of taxes
- ------------------------------------------------------------------------------------------------------------- -------------------
Balance as of
September
30 992 10,544,322 $ 105 $ 67,312 $ 6,281 $ (1,000) (1,172,701) $ (5,042) $ 0 $ 67,656
Net Income 7,271 7,271
Exercise of
stock optio 19,100 66 4,267 18 84
Deferred ESOP
contr-
butions, net 1,000 1,000
Repurchase of
common
stock (330,371) (2,022) (2,022)
- ------------------------------------------------------------------------------------------------------------- -------------------
Balance as of
September
30, 1993 10,563,422 105 67,378 13,552 0 (1,498,805) (7,046) 0 73,989
Net Income 3,053 3,053
Exercise of
stock optio 6,800 1 27 28
Repuchase of
common
stock (488,552) (3,090) (3,090)
- ------------------------------------------------------------------------------------------------------------- -------------------
Balance as of
September
30, 1994 10,570,222 106 67,405 16,605 0 (1,987,357) (10,136) 0 73,980
Adjustment
to beginning
balance for
adoption
SFAS 115 (57) (57)
Net income 6,351 6,351
Exercise of
stock optio 14,266 62 62
Repurchase of
common stock (344,554) (2,309) (2,309)
Sale of
treasury
stock to 1995
equity plan 129,392 846 846
Change in
unrealized
gain(loss)
net of taxes 59 59
- ------------------------------------------------------------------------------------------------------------- -------------------
Balance as of
September
30, 1995 10,584,488 $ 106 $ 67,467 $ 22,956 $ 0 (2,202,519) $ (11,599) $ 2 $ 78,932
============================================================================================================= ===================
<FN>
See Notes to Consolidated Financial Statements.
45
[page 24 of Annual Report]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts of The
Advest Group, Inc. ("AGI") and all subsidiaries collectively (the
"Company"), including Advest, Inc. ("Advest"), a broker-dealer;
Advest Bank (the "Bank"), a state-chartered savings bank; Boston
Security Counsellors, Inc. ("BSC"), an investment management
company; and Billings & Company, Inc. ("Billings"), a real estate
services company. All material intercompany accounts and
transactions are eliminated. Certain 1994 and 1993 amounts have
been reclassified in the accompanying consolidated financial
statements to provide comparability with the current year
presentation.
Cash equivalents are defined as short-term, highly liquid
investments with an original maturity of three months or less
including amounts due from banks, federal funds sold and overnight
time deposits. Federal funds sold were $3,660,000 and $1,980,000
at September 30, 1995 and 1994, respectively.
Cash and securities segregated under federal and other regulations
Pursuant to SEC Rule 15c3-3, Advest is required to segregate funds
and qualified securities for the exclusive benefit of customers.
Investments held in special reserve accounts for the exclusive
benefit of customers are primarily securities purchased under
agreements to resell which are financing transactions
collateralized by US Government and Agency obligations. It is the
policy of Advest to obtain collateral with a market value in
excess of the principal amount loaned plus accrued interest. The
collateral, which is held by a third party custodian bank, is
valued daily and additional collateral is obtained when
appropriate. Securities purchased under agreements to resell are
carried at the amounts at which the securities will be
subsequently resold. As of September 30, 1995 and 1994, securities
purchased under agreements to resell were $31,000,000 and
$49,050,000, respectively.
In addition, certain interest-bearing cash deposits are held
in special reserve accounts for the exclusive benefit of
customers.
Loans
Loans are carried at their unpaid principal balances, and related
interest is recognized as income when earned but only to the
extent considered collectible. Generally loans are placed on a
nonaccrual status when interest or principal is unpaid for ninety
days or earlier if circumstances indicate collection is doubtful.
The Company resumes the accrual of interest on a delinquent loan
if, in the opinion of management, the borrower has demonstrated
adequate financial resources and intent to meet the terms and
conditions of the loan, and all payments are current. If a loan
has been restructured during a period in which it was delinquent,
or had sufficiently met the definition of a restructured troubled
loan in any other regard, a loan would not be restored to accruing
status until 1) adequate collateral coverage had been provided and
2) an appropriate period (minimum six months) has elapsed during
which the restructured loan has performed according to the terms
and conditions of the restructuring.
Loan origination fees and direct costs related to origination
are deferred and amortized into interest income over the
contractual life of the loan, using the level yield method. When a
loan is prepaid or sold, any remaining unamortized fees and costs
are credited or charged to income at that time.
In May 1993, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") 114 "Accounting by Creditors for Impairment of a Loan."
SFAS 114 addresses those circumstances where a creditor should
measure impairment of a loan based on the discounted present value
of expected future cash flows or fair value, if collateral
dependent. In October 1994, the FASB issued SFAS 118 "Accounting
by Creditors for Impairment of a Loan - Income Recognition and
Disclosures," an amendment of SFAS 114. SFAS 114 and SFAS 118 are
required to be adopted for fiscal years beginning after December
15, 1994, although earlier implementation is encouraged. The
Company will adopt SFAS 114 and SFAS 118 in its 1996 fiscal year
as required, but does not expect its implementation to have a
material impact on the Company's financial condition or results of
operations.
In May 1995, the FASB issued SFAS 122 "Accounting for
Mortgage Servicing Rights." SFAS 122 amends SFAS 65 "Accounting
for Certain Mortgage Banking Activities" to require that a
mortgage banking entity recognize as separate assets rights to
service mortgage loans for others, however those servicing rights
are acquired. SFAS 65 required separate capitalization of the
cost of rights which were acquired through a purchase transaction
but prohibited separate capitalization when the rights were
acquired through loan origination activities. SFAS 122 also
requires that a mortgage banking entity assess capitalized rights
for impairment and establish valuation allowances based on the
fair value of those rights, including rights acquired prior to
adoption of SFAS 122. Prospective adoption of SFAS 122 is
required for fiscal years beginning after December 15, 1995. The
Company has not decided when it will adopt SFAS 122 and has not
yet assessed its impact on financial condition or results of
operations.
Allowance for loan losses
In management's opinion, the allowance, established through
charges against income, is adequate to absorb potential losses on
loans, commitments and other extensions of credit.
46
[page 25 of Annual Report]
Management's determination of the adequacy of the allowance 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 when received.
The Company's reserves are general reserves and are available
to absorb losses to the total loan portfolio as well as off-
balance sheet commitments, such as commitments to extend credit,
guarantee and standby letters of credit. At September 30, 1995 and
1994, the allowances for loan losses were $2,334,000 and
$4,900,000, respectively.
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. It is
the policy of Advest to monitor the market value of the collateral
and request additional collateral when required. The collateral is
not reflected in the accompanying financial statements. A reserve
for doubtful accounts is maintained at a level that in
management's judgment is adequate to absorb potential credit
losses. The reserve is based upon reviews of individual credit
risks, as well as prevailing and anticipated economic conditions
and is increased by provisions charged to income as well as
recoveries and is reduced by chargeoffs. At September 30, 1995 and
1994, the reserves were $743,000 and $869,000, respectively.
Included in payables to brokerage customers are free credit
balances of $278,450,000 and $297,416,000 at September 30, 1995
and 1994, respectively. Advest pays interest on credit balances
when the customer has indicated that the funds are for
reinvestment purposes.
Securities loaned and securities borrowed
Advest loans, to other brokers and dealers, securities owned by
its customers and others for which it receives cash deposits or
other securities as collateral. Advest also acts in an agency
capacity whereby it borrows securities from one broker-dealer and
lends to another. Securities borrowed and securities loaned are
recorded at the amount of cash collateral advanced or received,
respectively. The initial collateral advanced or received has a
market value equal to the market value of the underlying
securities. Advest monitors the market value of securities
borrowed and loaned on a daily basis and requests additional
collateral or returns excess collateral, when appropriate. The
values of such securities at September 30, 1995 and 1994
approximate amounts owed.
Trading positions
Advest's trading securities and securities sold, not yet purchased
are valued at market with unrealized gains and losses reflected in
current period revenues from principal transactions and investment
banking. Trading securities are generally held for resale within a
relatively short time period. Securities sold, not yet purchased
represent an obligation of Advest to deliver specific equity and
debt securities at predetermined prices. Advest is obligated to
acquire the securities at prevailing market prices in the future
to satisfy this obligation. At September 30, 1994, the Bank's
trading securities consisted entirely of government securities and
were carried at market value with unrealized gains and losses
reflected in revenue from principal transactions. The Bank held
no trading securities at September 30, 1995.
Investment securities
Effective October 1, 1994, the Company prospectively adopted SFAS
115, "Accounting for Certain Investments in Debt and Equity
Securities" and revised its securities accounting policy. SFAS
115 requires the Company to classify investments in debt and
certain equity securities into three categories: "trading",
"available for sale" or "held to maturity". The Bank holds
substantially all of the Company's non-trading securities which
consist primarily of bonds, notes and mortgage-backed securities.
Securities available for sale are carried at fair value with
unrealized holding gains or losses credited or charged directly to
shareholders' equity. Realized gains and losses are recorded on
trade date by the specific identification method and are included
in revenue from principal transactions. Securities, which the
Company has the positive intent and ability to hold until
maturity, are carried at amortized cost and classified as held to
maturity investments. Available for sale and held to maturity
securities are reduced to fair value, through charges to income,
for declines in value that are considered to be other than
temporary. The accounting treatment for securities classified as
"trading" did not change with the adoption of SFAS 115. The
adoption did not have a material effect on the Company's results
of operations or financial condition.
In previous fiscal years, certain securities were classified
as available for sale or held for investment using definitions
that differed from those specified in SFAS 115. Consequently,
upon adoption of SFAS 115, available for sale securities as of
October 1, 1994 increased by $20,891,000.
Prior to the adoption of SFAS 115, investment securities were
classified as such when purchased with the intent they would be
held to maturity. Securities available for sale were
identified as assets which were held for indefinite time periods
but were likely to be sold prior to maturity. Investment
securities were carried at amortized cost and available for sale
47
[page 26 of Annual Report]
securities were carried at the lower of aggregate cost or market.
When, in the opinion of management, the value of an investment
securities had experienced an other than temporary impairment in
value, the carrying value of the security was written down to its
estimated market value by a charge to other income. Gains and
losses on the sale of investment securities were recorded on trade
date by the specific identification method and were included in
other revenues. Realized and unrealized gains and losses on
securities available for sale were included in revenue from
principal transactions.
Equipment and leasehold improvements
Depreciation of equipment for financial accounting purposes, is
calculated primarily using the straight-line method and is based
upon the estimated useful lives of the assets ranging from three
to ten years. Leasehold improvements are amortized over the
shorter of the terms of the respective leases or the estimated
useful lives of the improvements. At September 30, 1995 and 1994,
accumulated depreciation and amortization were $31,942,000 and
$28,367,000, respectively.
Other real estate owned
Other real estate owned ("OREO") of the Company is comprised of
real estate and other assets acquired through foreclosure,
acceptance of a deed in lieu of foreclosure or loans which are in-
substance foreclosed. These assets are generally carried at the
lower of cost or fair value, inclusive of selling expenses. Any
excess of cost over the estimated fair value at the time of
acquisition is charged to the allowance for loan losses.
Writedowns subsequent to acquisition are charged against the
reserve for OREO losses, which is established through charges
against income and maintained at a level management considers
adequate to absorb potential losses on OREO. OREO is reported net
of related reserves on the consolidated balance sheets.
Intangible assets
The excess cost over the fair value of net assets of acquired
companies is recorded as goodwill and is amortized on a straight-
line basis over periods between 15 and 40 years. At September 30,
1995 and 1994, the amount of goodwill reported in other assets is
$6,374,000 and $6,624,000, respectively.
Revenues from securities transactions and investment banking
Advest records securities transactions on a settlement date basis,
which does not materially differ from a trade date basis. Revenues
and related expenses for transactions executed but not settled are
accrued on a trade date basis. Securities transactions of the
Bank are recorded on a trade date basis.
Investment banking revenues are recorded, net of expenses, on
the settlement date for management fees and sales concessions, and
on the dates the underwriting syndications are closed for
underwriting fees.
Provision for credit losses and asset devaluation
The provision for credit losses and asset devaluation reflects
reserve accruals and writedowns for loans, OREO and certain other
investments and receivables.
Income taxes
Effective October 1, 1993, the Company adopted, on a prospective
basis, SFAS 109, "Accounting for Income Taxes," which requires the
use of the asset/liability method of accounting for 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.
Prior to the adoption of SFAS 109, the Company accounted for
income taxes using the deferred method under Accounting Principles
Board Opinion No. 11. Deferred income taxes were provided on items
of income and expense which were recognized in different periods
for financial reporting and tax purposes.
Net income per common and common equivalent share
Primary income per share is calculated by dividing net income by
the average shares of common stock and common stock equivalents
outstanding during the period. Common stock equivalents are
dilutive stock options which are assumed exercised for calculation
purposes. Fully diluted calculations assume full conversion of the
Company's outstanding subordinated debentures into common stock
and elimination of the related interest expense, net of taxes.
Derivative financial instruments
Advest enters into derivative transactions to hedge certain
trading positions, primarily municipal bonds. Derivatives to
hedge trading inventory positions are marked to market daily with
unrealized gains and losses reflected in revenue from principal
transactions. Market values for exchange-traded derivatives,
principally futures, are based on quoted market prices. At
September 30, 1995 there were no hedge positions.
Amounts receivable or payable under derivative financial
instruments used to manage interest rate risks arising from the
Bank's financial assets and financial liabilities are recognized
as interest income or expense. Gains and losses on early
terminations of derivatives are included in the carrying amount of
the related loans or debt and amortized as yield adjustments over
the remaining terms of the loans or debt.
48
[page 27 of Annual Report]
Other accounting pronouncements
In March 1995, the FASB issued SFAS 121, "Accounting for the
Impairment Of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." SFAS 121 establishes accounting standards for the
impairment of long-lived assets and certain identifiable
intangibles to be held and used by an entity or disposed of. SFAS
121 is effective for fiscal years beginning after December 15,
1995, although earlier implementation is encouraged. The Company
has not determined when it will adopt SFAS 121 but does not expect
its implementation to have a material effect on results of
operations or financial condition.
In October 1995, the FASB issued SFAS 123 "Accounting For
Stock-based Compensation." SFAS 123 encourages, but does not
require, companies to recognize compensation expense for grants of
stock, stock options and other equity instruments to employees
based on fair value accounting rules. Companies may opt to
continue accounting for stock-based compensation under Accounting
Principles Board Opinion No. 25 ("APB 25"). However, SFAS 123
requires these companies to disclose pro forma net income and
earnings per share using the fair value based method. SFAS 123 is
required for fiscal years beginning after December 15, 1995,
although earlier implementation is encouraged. The Company is
required to adopt SFAS 123 in fiscal 1997 and has not yet made a
determination as to whether it will adopt the new fair value
accounting rules of expense recognition or continue to follow APB
25.
Note 2: Accelerated Asset Disposition Plan
During the third quarter, the Company completed a previously
announced evaluation of alternatives for the disposition of the
Bank's non-performing assets ("NPAs"). As a result, the Bank's
board of directors approved a plan for the accelerated disposition
of NPAs and certain commercial real estate loans primarily through
bulk and other institutional sales. In accordance with the plan,
the Bank recorded a $6.0 million provision for loss in the third
quarter to reflect the discounts required by the accelerated
disposition.
Through September 30, 1995, the Bank has completed sales of
NPAs and commercial real estate loans selected for this program
with carrying amounts of $9.4 million and $19.4 million ,
respectively. Additionally, the accelerated disposition plan
provided for the transfer of certain of the Bank's unsold NPAs at
September 30, 1995 to AGI. Accordingly, $4.6 million of such
assets were transferred to AGI. The transferred NPAs included
$1.3 million of assets under contract for sale, and the total
amount is expected to be disposed in fiscal 1996. Refer to
discussion in Management's Discussion and Analysis under the
caption "Business Environment - Advest Bank."
The Bank recorded a significant operating loss for the 1995
fiscal year due to its implementation of the accelerated
disposition plan. Consequently, the Bank's leverage capital ratio
as of September 30, 1995 was 5.03%, which exceeded the 4%
statutory requirements, but was below the 6% requirement of the
MOU (see Note 14). The 1995 operating loss was expected as a
result of the accelerated disposition plan and was, therefore,
discussed with the Bank's regulators prior to the implementation
of the plan. The regulators have required the Bank to submit a
capital plan detailing the Bank's estimate of when it will attain
the 6% capital ratio requirement, its risk management program and
contingency plans. Bank management expects to submit such plans
to its regulators before the second quarter of fiscal 1996.
Management believes that the Bank's non-compliance with the
required leverage capital ratio is unlikely to result in adverse
action by its regulators.
Note 3: Loans
The Bank originates one to four family residential mortgage loans
for resale to the secondary market or for portfolio. Residential
mortgages are primarily marketed to clients of Advest, who are
largely located in the eastern and central United States and to
the general public in Connecticut. Additionally, the Bank
originates a small volume of secured consumer loans for portfolio
drawn substantially from the same client base. The Bank maintains
a commercial mortgage portfolio but is no longer an active lender
in the commercial market. Although the Bank has a diversified and
substantially collateralized commercial loan portfolio, the
ability of many debtors to meet their commitments is largely
dependent on the real estate sector of the economy. At
September 30, 1995 and 1994, loans consisted of:
-----------------------------------------------
In thousands 1995 1994
-------------------------------------------------
Advest Bank:
Mortgages
Commercial $ 43,908 $ 75,276
Multi-family
residential 12,256 31,538
1 - 4 family
residential 170,046 158,801
Commercial 3,856 7,021
Consumer 922 913
Installment note and lease
loan financing 1,811 2,200
Advest Group, Inc.:
Mortgages
Commercial 9,031 8,000
1 - 4 family
residential 1,460 --
Other 431 371
Other: 1,188 1,260
----------------------
$244,909 $285,380
======================
- ---------------------------------------------------------
The Company maintains an allowance for possible future loan
losses. For the three years in the period ended September 30,
1995, activity in the allowance for loan losses was as follows:
--------------------------------------------------
In thousands 1995 1994 1993
--------------------------------------------------
Balance at
September 30, $4,900 $5,782 $5,986
Provisions 5,637 2,499 1,690
Charge-offs (8,462) (3,555) (1,963)
Recoveries 259 174 69
--------------------------------
Balance at
September 30, $2,334 $4,900 $5,782
==============================
----------------------------------------------------
49
[page 28 of Annual Report]
Note 4: Nonperforming Assets
Nonperforming assets include nonaccruing loans, loans ninety days
past due and accruing interest, loans renegotiated on other than
prevailing market terms and OREO. OREO is reported separately on
the accompanying consolidated balance sheets. All other
nonperforming assets are classified as loans.
The following table details the composition of nonperforming
assets at September 30, 1995 and 1994:
- -----------------------------------------------------------------
Accuring
loans
Non- past due Total non-
accrual 90 or Renegotiated performing
In thousands loans more days loans OREO assets
- ------------------------------------------------------------------
1995
Real estate:
Residential $ 1,401 $116 $ -- $ 40 $ 1,557
Commercial 9,264 -- -- 2,853 12,117
Land and land development-- -- -- 3,624 3,624
Other 925 -- -- -- 925
Valuation
reserve (718) (718)
---------------------------------------------
$11,590 $116 $ -- $ 5,799 $17,505
=============================================
1994
Real estate:
Residential $ 1,202 $229 $264 $ 356 $ 2,051
Commercial 12,638 731 374 8,043 21,786
Land and land
development -- -- -- 6,216 6,216
Other 1,640 -- -- -- 1,640
Valuation
reserve (1,201)(1,201)
---------------------------------------------
$15,480 $ 960 $638 $13,414 $30,492
=============================================
- -----------------------------------------------------------------
Residential real estate is comprised of one to four family
properties. Multi-family properties are included in commercial
real estate. Renegotiated loans are troubled debt restructurings.
The OREO valuation reserve is a general valuation reserve. At
September 30, 1995 and 1994, respectively, the gross balance of
OREO includes approximately $6,081,000 and $10,836,000 of real
estate to which the Company has title and approximately $435,000
and $3,779,000 representing in-substance foreclosures.
The following table summarizes changes in nonperforming
assets for the two years ended September 30, 1995:
- ------------------------------------------------------------------
Non- Accruing loans Total non-
accrual past due 90 Renegotiated performing
In thousands loans or more days loans OREO assets
- ------------------------------------------------------------------
Balance at September
30, 1993 $13,404 $ 19 $665 $22,683 $36,771
Increases, net 8,587 1,636 28 -- 10,251
Transfers, net (2,340) (688) -- 3,028 --
Net loan charge-offs and
provisions to
OREO reserve (2,683) -- -- (772)(3,455)
Amounts capitalized
on OREO -- -- -- 6,234 6,234
Collections and proceeds
from sales (1,488) (7) (55)(17,951)(19,501)
Recoveries from sales of
OREO, net -- -- -- 192 192
-------------------------------------------
Balance at September
30, 1994 15,480 960 638 13,414 30,492
Increases, net 5,248 825 -- 3,016 9,089
Transfers, net (1,367) (1,463) -- 2,830 --
Net loan charge-offs and
provisions to
OREO reserve (3,094) -- (71)(4,491) (7,656)
Amounts capitalized
on OREO -- -- -- 4,569 4,569
Collections and proceeds
from sales (3,592) (206) (502)(13,327)(17,627)
Recoveries from sales of
OREO, net (1,085) -- (65) (212) (1,362)
--------------------------------------------
Balance at September
30, 1995 $11,590 $ 116 $ -- $ 5,799 $17,505
=============================================
50
[page 29 of Annual Report]
At September 30, 1995 and 1994, nonperforming assets were
comprised of:
- ----------------------------------------------------
In thousands 1995 1994
- ----------------------------------------------------
Advest Group, Inc.:
- Loans $10,666 $ 8,000
- OREO 2,950 --
Advest Bank:
- Loans 290 8,328
- OREO, net 2,849 13,414
Other 750 750
-------------------
$17,505 $30,492
==================
Nonperforming assets as a percentage
of loans and OREO 7.0% 10.2%
======== ======
Nonperforming assets as a percentage
of total assets 2.1% 3.4%
======== ======
- ---------------------------------------------------
During 1995 and 1994, respectively, approximately $184,000
and $291,000 of income was recognized on non-accrual loans. This
income was recognized while the loans were performing and was
realized by cash payments. It is management's policy to reverse
all uncollected interest at the time a loan is placed on non-
accrual. Interest forgone on nonaccrual and restructured loans of
the Bank were $509,000, $754,000 and $700,000 for the years ended
September 30, 1995, 1994 and 1993, respectively. As of September
30, 1995, no additional funds were committed to clients whose
loans have been restructured or were non-performing.
As of September 30, 1995 and 1994, OREO balances included
approximately $816,000 and $2,448,000, respectively, of
construction costs associated with the sellout activities of
certain land development projects.
The Bank evaluates the real property collateral supporting
defaulted income property and other loans for potential
environmental risks prior to completing foreclosure. If the Bank
elects to complete a foreclosure on a property that is
contaminated, the costs to remediate identified environmental
conditions are recognized as an adjustment to the carrying value
of the asset through a charge to the OREO reserve.
For the three years in the period ended September 30, 1995,
activity in the reserve for OREO losses was as follows:
--------------------------------------------
In thousands 1995 1994 1993
--------------------------------------------
Balance at September
30,1995 $1,201 $2,201 $2,830
Provision 4,491 772 2,190
Charge-offs (5,186) (1,922) (3,028)
Recoveries 212 150 209
---------------------------
Balance at September
30,1995 $ 718 $1,201 $2,201
==========================
--------------------------------------------
Note 5: Trading Securities
At September 30, 1995 and 1994, the Company's trading securities
consisted of:
--------------------------------------------------
In thousands 1995 1994
--------------------------------------------------
State and municipal
obligations $26,052 $19,749
US government and agency
obligations 6,252 10,301
Stocks and warrants 5,722 3,564
Corporate obligations 3,474 1,196
--------- ---------
$41,500 $34,810
======= ======
--------------------------------------------------
The 1994 balances include $4,395,000 of the Bank's government
securities; all other inventory represents holdings of Advest.
Note 6: Investment Securities
The amortized cost and fair values of the Bank's available for
sale securities at September 30, 1995 and 1994 were:
- ------------------------------------------------------------------
Amortized Gross unrealized Fair
----------------
In thousands cost gains losses value
- ------------------------------------------------------------------
1995
FHLB stock $2,233 $-- $ -- $2,233
Mortgage-backed securities
of federal agencies 861 2 -- 863
Other mortgage-backed
securities 264 -- -- 264
-------- ---- ------ --------
$3,358 $ 2 $ -- $3,360
====== === ===== ======
1994
Mortgage-backed securities
of federal agencies $ 691 $ -- $ (3) $ 688
Other mortgage-backed
securities 4,236 1 (23) 4,214
-------- ----- ------ -------
$ 4,927 $ 1 $(26) $4,902
======= ==== ==== ======
For the three years ended September 30, 1995, 1994 and 1993,
respectively, proceeds from the sale of securities available for
sale were $23,075,000, $14,003,000 and $20,429,000. Gross gains
reported were $152,000, $60,000 and $76,000 and gross losses were
$255,000, $59,000 and $29,000 for 1995, 1994 and 1993,
respectively.
51
[page 30 of Annual Report]
The amortized cost and fair values of the Company's held to
maturity securities at September 30, 1995 and 1994 were:
- ------------------------------------------------------------------
Amortized Gross unrealized Fair
----------------
In thousands cost gains losses value
- ------------------------------------------------------------------
1995
Mortgage-backed
securities $21,965 $107 $(105) $21,967
US government and agency
obligations 6,854 2 -- 6,856
Limited partnership 1,718 -- -- 1,718
Other 932 -- -- 932
--------------------------------------
$31,469 $109 $(105) $31,473
=====================================
1994
Mortgage-backed
securities $48,003 $ 34 $(784) $47,253
FHLB stock 2,045 -- -- 2,045
Limited partnerships 1,760 -- -- 1,760
US government and agency
obligations 493 2 -- 495
Other 1,549 -- -- 1,549
-------------------------------------
$53,850 $ 36 $(784) $53,102
====================================
- ------------------------------------------------------------------
There were no sales of held to maturity securities during the
three years in the period ended September 30, 1995.
As of September 30, 1995, the amortized cost and fair values
of investment 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 $ --$ --$ 6,854$ 6,856
Due after five years
through ten years -- -- 500 500
Due after ten years 1,125 1,127 21,965 21,967
-------------------------------------
$1,125 $1,127 $29,319 $29,323
====================================
- -----------------------------------------------------------------
Note 7: Deposits
Pursuant to the FDIC Improvement Act ("FDICIA"), the Bank is
subject to rules limiting brokered deposits and related interest
rates. Under these rules, banks that are deemed "well capitalized"
may accept brokered deposits without restriction, and banks deemed
"adequately capitalized" may do so with a waiver from the FDIC. An
"undercapitalized" bank is not eligible for a waiver and may not
accept brokered deposits. The Bank meets the conditions of such
rules to be deemed an "adequately capitalized" bank. Under the
terms of a brokered deposit prohibition waiver granted to the Bank
by the FDIC in September 1995, the Bank may accept brokered
deposits without limitation other than observing restrictions on
the rate of interest paid on such deposits and limiting the total
outstanding balances of brokered deposits of the Bank to
$95,000,000. Prior to September 30, 1996, the Bank, under FDICIA
rules, must apply for a new waiver if it wishes to continue to
accept brokered deposits.
At September 30, 1995 and 1994, client deposits at the Bank
consisted of:
- ------------------------------------------------------------------
In thousands 1995 1994
- ------------------------------------------------------------------
Money market $167,778 $230,931
Certificates of deposit 67,790 60,862
Savings 88 92
------------------------
$235,656 $291,885
========================
- ------------------------------------------------------------------
Note 8: Short-term Borrowings
In the ordinary course of business, Advest obtains bank loans
which are collateralized by its own securities inventory and
customers' margin securities. The loans are payable on demand and
bear interest based on the federal funds rate. At September 30,
1994, Advest had $14,901,000 in firm loans and $7,601,000 in
customer loans outstanding. There were no outstanding loans at
September 30, 1995. The weighted average interest rate on bank
loans outstanding at September 30, 1994 was 5.27% and the weighted
average interest rates during fiscal 1995 and 1994 were 6.14% and
4.29%, respectively.
Short-term borrowings of the Bank consisted primarily of the
current portion of advances from the Federal Home Loan Bank
("FHLB"). At September 30, 1995, borrowings totaled $9,500,000 at
rates from 5.24% to 9.11%. At September 30, 1994, borrowings
totaled $9,500,000 at rates from 4.80% to 8.74%. The Bank has
unused short term credit lines of approximately $8,000,000 with
the FHLB at September 30, 1995. The Bank's borrowings with the
FHLB are collateralized by its holdings of FHLB stock as well as
otherwise unencumbered mortgage loans and investment securities.
Based on available qualified collateral balances of approximately
$182.5 million at September 30, 1995, the Bank had additional
borrowing capacity with the FHLB of approximately $140.0 million
at September 30, 1995.
Included in the 1996 total is an advance maturing February
1996 in the amount of $2,500,000 which is putable to the FHLB at
par on specified dates with 36 days prior written notice. The
remaining advances are subject to prepayment penalties.
AGI's short-term borrowings at September 30, 1995 and 1994
were $750,000 and $650,000, respectively. The borrowings
represent the current portion of a promissory note due a third
party lender. Refer to Note 9 for additional information.
52
[page 31 of Annual Report]
Note 9: Long-term Borrowings
Long-term borrowings of the Bank were $6,500,000 and $26,000,000
as of September 30, 1995 and 1994, respectively, and represent the
non-current portion of FHLB advances. The borrowings are
collateralized in the same manner as short-term borrowings. As of
September 30, 1995, the interest rates and maturities of
outstanding borrowings were:
- ------------------------------------------------------------------
In thousands Interest rates Amount
- ------------------------------------------------------------------
Year Ending
September 30, 1997 6.30% - 8.60% $4,750
Year Ending
September 30, 1998 7.17% 1,750
-------
$6,500
======
- ------------------------------------------------------------------
During the current year, Advest borrowed $6.25 million under
a non-recourse note, collateralized exclusively by furniture and
computer equipment. Under the terms of the note, the principal is
due October 1, 1998, unless extended at Advest's option, with
interest payments due monthly beginning April 1, 1995. The note
bears interest at the variable rate of the LIBOR rate plus 2.5%
per annum. The interest rate on the long-term note outstanding at
September 30, 1995 was 8.37%. The purpose of the loan was to
increase Advest's regulatory net capital. As required by the non-
recourse note, AGI signed a letter of credit with a third party
bank guaranteeing 20% of Advest's debt. The letter of credit is
fully collateralized by government securities.
At September 30, 1995 and 1994, long-term borrowings of AGI
were $4,490,000 and $4,388,000, respectively and represent a loan
from a third party lender on a first mortgage acquired by AGI in
July 1992. The debt bears interest at 1.25% over prime with
interest and principal payments due monthly, and is due July 1,
1997 unless extended at AGI's discretion to July 1, 1999. AGI
borrowed an additional $1,000,000 under the same terms during the
current year. The debt is collateralized by the first mortgage on
real estate managed by a subsidiary. The mortgage is currently
classified as a nonperforming asset and is due December 31, 2005.
Note 10: Subordinated Borrowings
At September 30, 1995 and 1994, the Company had $20,552,000 and
$20,997,000, respectively, of 9% convertible subordinated
debentures outstanding with interest payable semiannually. The
debentures are convertible at any time prior to maturity into
common stock of The Advest Group, Inc. at $13.57 per share. The
debentures are redeemable currently at 101.8% of the principal
amount plus accrued interest and at declining prices hereafter.
The debentures are subordinated to the claims of general
creditors.
The debentures are due on March 15, 2008. Commencing March
15, 1995, annual sinking fund requirements of 5% of the aggregate
principal amount of the debentures or at least 70% of the
debentures prior to maturity are due. At its option, the Company
may make sinking fund payments in cash or in debentures or by a
credit for debentures previously converted or redeemed. The 1995
sinking fund requirement was satisfied by the Company's election
to use previously redeemed securities. The Company has purchased
and retired $6,948,000 of the initial offering amount and,
consequently, has currently satisfied the entire sinking fund
requirement through fiscal 1998.
During the two years ended September 30, 1995 and 1994,
respectively, the Company purchased and retired debentures with a
total par value of $445,000 and $378,000.
Note 11: Common Stock
In August 1990, the Company announced its intention to repurchase
up to 2,000,000 shares, approximately 20%, of its common stock. In
August 1995, the Board of Directors voted to increase the number
of shares authorized for repurchase to 2,500,000 shares. During
the years ended September 30, 1995 and 1994, 344,554 and 488,552
shares, respectively, were acquired under the repurchase program
for a total of 2,114,177 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) the restriction of
the Company's Indenture with respect to its 9% Convertible
Subordinated Debentures due 2008 and (3) the restriction of the
Company's Loan and Security Agreement dated as of July 2, 1992
with Fleet Bank, N.A. Such restrictions have never curtailed the
Company's dividend payments, however, the Company has not declared
a dividend since December 1990 primarily as a result of weak
economic conditions in New England and their impact on the Bank.
In 1988, the Board of Directors of the Company adopted a
shareholder rights plan. The plan provides for the distribution of
one common stock purchase right for each outstanding share of
common stock of the Company. Each right entitles the holder,
following the occurrence of certain events, to purchase one share
of common stock at a purchase price of $30 per share subject to
adjustment. The rights will not be exercisable or transferable
apart from the common stock except under certain circumstances in
which either a person or group of affiliated persons acquires, or
commences a tender offer to acquire, 20% or more of the Company's
common stock or a person or group of affiliated persons acquires
15% of the Company's common stock and is determined by the Board
of Directors to be an "Adverse Person." Rights held by such an
acquiring person or persons may thereafter become void. Under
certain circumstances, a right may become a right to purchase
common stock or assets of the Company or common stock of an
acquiring company at a substantial discount. Under certain
circumstances, the Company may redeem the rights at $.01 per
right. The rights will expire in October 1998 unless earlier
redeemed or exchanged by the Company.
53
[page 32 of Annual Report]
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 12: Stock Option Plans
During fiscal 1994, the Company established the 1993 Stock Option
Plan (the "1993 Plan") providing 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, 1995, options for
177,500 shares had been granted under the 1993 Plan, of which
175,500 options were outstanding. Option grants under the 1993
Plan are made at the discretion of the Stock Option and
Compensation Committee of the Board of Directors and become
exercisable at such times (but not within six months of grant) and
expire at such time (but not later than 10 years after grant), as
that committee determines.
During fiscal 1995, the Company established the 1994 Non-
Employee Director Stock Option Plan (the "1994 Plan"), providing
for annual grants of 1,500 incentive stock options to each
director not employed by the Company up to an aggregate of 60,000
options for all directors. At September 30, 1995, options for
9,000 shares had been granted and were outstanding under the 1994
Plan. Options granted under the 1994 Plan become exercisable in
equal thirds 30, 42 and 54 months after grant and expire 60 months
after the grant.
At September 30, 1995, the Company had outstanding an
aggregate of 614,143 options issued to employees under stock
option plans maintained by the Company prior to the 1993 Plan and
the 1994 Plan and under which no further grants are authorized.
These include 204,407, 125,638 and 36,597 nonqualified stock
options granted to top account executives under performance-based
plans offered in calendar 1990, 1991 and 1992, respectively.
These account executive options become exercisable five years
after grant and expire one year thereafter. The remainder of the
614,143 options consist of five-year options granted to executive
officers and key employees other than account executives on five
occasions between April 1991 and February 1993.
During calendar 1995 the Company is offering the Advest
Equity Plan (the "Equity Plan") to certain eligible employees.
The Equity Plan is a salary deferral investment program and is
described in more detail in Note 13. Participants in the Equity
Plan will receive nonqualified stock options on January 1, 1996
which will become exercisable on January 1, 2001 and expire
December 31, 2002. Based upon participation in the Equity Plan
through September 30, 1995 (without giving effect to additional
participation for the period through December 31, 1995),
participants will be granted options for 134,084 shares.
All options granted by the Company to date, or which may be
granted under the 1993 Plan, the 1994 Plan and the Equity Plan for
calendar 1995, have or will have exercise prices not less than
100% of the fair market value of the Company's common stock on the
date of grant.
Transactions under the Company's stock option plans are
summarized below:
- -----------------------------------------------------------------
Number of Option Price
Shares Per Share
- -----------------------------------------------------------------
Options outstanding at September
30, 1992
(384,805 exercisable) 877,275 $2.00- $9.09
Granted 191,481 5.75- 6.63
Forfeited (282,993) 2.00- 9.09
Exercised (23,367) 2.00- 4.00
----------
Options outstanding at September
30, 1993
(223,768 exercisable) 762,396 2.00- 8.13
Granted 30,000 5.13
Forfeited (79,829) 2.00- 8.13
Exercised (6,800) 4.00
----------
Options outstanding at September
30, 1994
(179,301 exercisable) 705,767 2.00- 7.00
Granted 156,500 5.63- 6.00
Forfeited (50,358) 2.00- 7.00
Exercised (13,266) 4.00- 6.25
---------
Options outstanding at September
30, 1995
(190,501 exercisable) 798,643 $2.00- $6.25
=========
- -----------------------------------------------------------------
Note 13: Employee Compensation and Benefits Plan
Advest Thrift Plan
The Company maintains the Advest Thrift Plan (the "Thrift Plan")
which is a qualified employee stock ownership plan ("ESOP") and
401(k) plan covering all employees who have completed one year of
service. The Thrift Plan is the successor to the December 31,
1992, merger of the Employee Stock Ownership Plan, Incentive
Savings Plan and Employees' Retirement Plan. The Company matches
100% of participants' contributions to their Thrift Plan accounts
up to 2% of compensation. In addition, since January 1993 the
Company has made discretionary contributions to participants'
Thrift Plan accounts equal to 1.5% of their compensation, and as
of December 31, 1995, the Company will make an additional
contribution of 0.5% of calendar 1995 compensation. Contribution
expense for fiscal 1995, 1994 and 1993 was $2,624,281, $2,552,180
and $2,041,082, respectively. No ESOP contributions have been
made by the Company since 1993.
Defined Benefit Plans
The Company's Account Executive Nonqualified Defined Benefit Plan
(the "AE Defined Benefit Plan"), effective October 1, 1992, offers
certain high-performing account executives retirement benefits
based upon a formula reflecting their years of service, the gross
commissions they generate and Company contributions to their
Thrift Plan 401(k) accounts.
The Company's Executive Nonqualified Post-Employment Income
Plan (the "Executive Defined Benefit Plan"), effective
54
[page 33 of Annual Report]
October 1, 1993, provides certain senior executives with income
for 10 years after retirement equal to a percentage of their final
average earnings based upon a formula reflecting years of service,
assumed social security benefits and Company contributions to
certain other benefit plans on the executive's behalf.
Although the AE Defined Benefit Plan and the Executive
Defined Benefit Plan are considered to be "unfunded," assets have
been set aside in revocable trusts for each to fund future
payments. These trusts are available to general creditors of the
Company in the event of liquidation. The fair value of these
trusts, which are included in trading securities, at September 30,
1995 was $3,826,000, which was less than the projected benefit
obligation by $26,000.
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, 1995 and 1994:
- ------------------------------------------------------------------
In thousands 1995 1994
- ------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested $ -- $ --
Non-vested 2,673 911
----------------
Accumulated benefit obligation 2,673 911
Effect of projected future
compensation levels 1,179 1,308
----------------
Projected benefit obligation 3,852 2,219
Unrecognized net (loss) gain (369) 239
Unrecognized prior service cost (341) (375)
-----------------
Accrued pension liability $3,142 $2,083
==================
- -----------------------------------------------------------------
Pension expense for the plans for the three years ended
September 30, 1995 included in the following components:
- ------------------------------------------------------------------
In thousands 1995 1994 1993
- ------------------------------------------------------------------
Service cost $ 878 $1,042 $ 915
Interest cost 175 92 --
Net amortization and deferral 6 34 --
------------------------------
Net benefit costs $1,059 $1,168 $ 915
==============================
- ------------------------------------------------------------------
The following table provides the assumptions used in
determining the projected benefit obligation for the plans for the
three years ended September 30, 1995:
- -----------------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------
Weighted-average discount rate 7.0% 8.5% 7.0%
Rate of increase in future
compensation levels 5.0 5.0 5.0
Expected long-term rate of
return on plan assets 6.5 7.5 6.0
- -----------------------------------------------------------------
Equity Plans
During calendar 1995, the Company is offering the Advest Equity
Plan (the "Equity Plan") to certain top performing account
executives and designated key employees. The Equity Plan allows
those employees to invest a portion of their 1995 compensation on
a pretax basis in units consisting of one share of the Company's
common stock and one option to purchase an additional share of
common stock. The share portion of the unit is issued monthly
from treasury stock and will be restricted until January 1, 1999.
The option portion will be granted on January 1, 1996 and is
described under Note 12. Both the restricted stock and options
will be subject to forfeiture under certain circumstances. The
Company is offering a substantially similar plan to executive
officers, although their restricted stock will be purchased on the
open market and their options will be granted under the 1993 Stock
Option Plan.
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 1995 and 1993, MIP compensation was $1,330,000, and
$778,000, respectively. There was no MIP compensation in fiscal
1994.
Note 14: 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, 1995, Advest's regulatory net
capital of $41,644,000 was 13% of aggregate debit balances and
exceeds required net capital by $35,064,000.
Under state bank regulatory restrictions, the Bank is
required to maintain a minimum level of capital and to limit
annual dividends to the total of the current and prior two years
retained net income. As a result of these restrictions, the Bank
with an accumulated deficit at September 30, 1995 is prohibited
from declaring dividends.
The FDIC requires most banks to establish and maintain a
leverage capital ratio of 4% to 5%. Pursuant to a Memorandum of
Understanding (the "MOU") with the Regional Director of the FDIC
and the Banking Commissioner of the State of Connecticut, the Bank
is required to exercise all reasonable good faith efforts to
achieve (generally within unspecified time periods) certain goals,
including among others: to achieve and maintain a leverage capital
ratio of at least 6% and a risk-based capital ratio of 8%, to
ensure that there are adequate loan loss reserves and quarterly
evaluations of such reserves, to reduce the level of adversely
classified assets to not more than 40% of total capital and
reserves, and to provide periodic progress reports to regulatory
agencies.
The Bank recorded a significant operating loss for the 1995
fiscal year due to its implementation of the accelerated
disposition plan for NPAs (Refer to Note 2). Consequently, the
Bank's leverage capital ratio as of September 30, 1995
55
[page 34 of Annual Report]
was 5.03%, which exceeded the regulatory requirements, but was
below the requirement of the MOU. The Bank's leverage capital
ratio as of September 30, 1994 was 6.32%, which exceeded both the
regulatory and MOU requirements. At September 30, 1995, the
Bank's total risk-based capital ratio was 8.61%, and the Tier 1
ratio was 7.40%, which exceeded both the regulatory and MOU
requirements. At September 30, 1994, risk-based capital and Tier
1 capital were 10.44% and 9.18%, respectively.
Note 15: Income Taxes
As discussed in Note 1, the Company adopted SFAS 109 as of October
1, 1993. The cumulative effect of adopting SFAS 109 did not have a
material impact on the Company's financial condition or results of
operations.
The provision for income taxes for the three years ended
September 30, 1995 consisted of the following:
- ------------------------------------------------------------------
Liability method Deferred method
- ------------------- ----------------
- ------------------------------------------------------------------
In thousands 1995 1994 1993
- ------------------------------------------------------------------
Current:
Federal $1,695 $ -- $ --
State and local 1,985 1,015 800
-------- ----- ----
3,680 1,015 800
-------- ----- ----
Deferred:
Federal 1,747 1,280 --
State and local (17) 7 --
----------------- --------
1,730 1,287 --
-------- ------ --------
Provision for income taxes,
net of extraordinary
credit $5,410 $2,302 $800
======== ===== =====
- -----------------------------------------------------------------
At September 30, 1995 and 1994, deferred tax assets and
liabilities were comprised of:
- ------------------------------------------------------------------
In thousands 1995 1994
- ------------------------------------------------------------------
Deferred tax assets:
Provision for credit losses and
asset devaluation $3,853 $4,338
Employee benefits 3,810 3,759
Net operating loss
carryforwards -- 830
General business tax credits -- 633
Other 4 303
--------- --------
Total deferred tax assets $7,667 $9,863
--------- ------
Deferred tax liabilities:
Tax loan loss reserve in
excess of base year $ 433 $ 764
Depreciation 620 162
Investment income 1,002 1,899
Partnership basis difference3,082 2,919
Other 400 259
------------------
Total deferred tax liabilities $5,537 $6,003
------------------
Net deferred tax asset $2,130 $3,860
=================
- ------------------------------------------------------------------
The Company will only recognize a deferred tax asset when,
based on available evidence, realization is more likely than not.
Accordingly, at September 30, 1995 and 1994, the Company has
recorded no valuation allowance against federal deferred tax
assets based on reversals of existing taxable amounts and
anticipated future earnings. On the date SFAS 109 was adopted, a
valuation reserve of $575,000 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,
1995 and 1994, the valuation reserve was $1,510,000 and
$1,360,000, respectively, reflecting increasing state net
operating loss carryforwards. At September 30, 1995, state net
operating loss carryforwards were approximately $13.4 million
which expire in various years between 1998 and 2000.
For the year ended September 30, 1993, the principal
components of deferred tax expense (benefit) were:
- ------------------------------------------------------------------
In thousands 1993
- ------------------------------------------------------------------
Provision for losses $1,674
Employee benefits 1,185
Investment income 632
Impact of operating losses (3,350)
Depreciation (136)
Other (5)
-----------
$ --
===========
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, 1995:
- ------------------------------------------------------------------
Percent of pre-tax income 1995 1994 1993
- ------------------------------------------------------------------
Statutory income tax rate 34.0% 34.0% 34.0%
State and local income taxes,
net of federal tax effect 11.1 12.6 6.5
Rate differential due to carryforward
of net operating losses -- -- (26.1)
Tax-exempt interest income (1.9) (4.6) (2.7)
Intangible assets .7 1.6 (2.2)
Dividend income -- (0.3) (0.1)
Effect of limitation on operating
loss carrybacks -- -- --
Other 2.1 (0.3) 0.5
--------------------------
Effective income tax rate 46.0% 43.0% 9.9%
==========================
- ------------------------------------------------------------------
As of September 30, 1995, the Bank's allowance for possible
loan losses for federal income tax purposes was approximately
$4,447,000 of which $3,369,000 represents reserves that arose in
tax years beginning before December 31, 1987 (base year amount). A
deferred tax liability has not been recognized for possible loan
losses to the extent of the base year amount. If the reserve were
to be used for any purpose other than to absorb loan losses or if
the Bank's
56
[page 35 of Annual Report]
qualifying assets as defined by the Internal Revenue Code are less
than 60% of total assets, a federal income tax liability could be
incurred. It is not anticipated that the reserve will be made
available for other purposes or that qualifying assets will be
less than 60%.
Note 16: Commitments and Contingent Liabilities
Leases
The Company conducts all of its operations from leased premises,
and leases data processing and communications equipment under
noncancelable operating leases primarily varying from one to ten
years, with certain renewal options for similar terms. Minimum
rentals based upon the original terms (excluding taxes, insurance
and maintenance expenses which also are obligations) are (in
thousands):
- ------------------------------------------------------------------
Data processing
Fiscal year ended Office & communications
September 30, facilities equipment Total
- ------------------------------------------------------------------
1996 $ 6,091 $1,233 $ 7,324
1997 5,560 1,138 6,698
1998 5,160 761 5,921
1999 4,363 222 4,585
2000 3,927 -- 3,927
2001 and thereafter 14,231 -- 14,231
--------------------------------------
$39,332 $3,354 $42,686
====================================
Rental expense under these leases was $9,458,000, $9,938,000,
and $10,079,000 for the years ended September 30, 1995, 1994 and
1993, respectively.
Loan guarantees and letters of credit
The Company has guaranteed loans to certain of its employees from
a third party lender. At September 30, 1995 and 1994, the total
principal outstanding on these loans was $2,000 and $75,000,
respectively.
Billings Management Company ("BIM"), a subsidiary of
Billings, acts as general partner in various real estate limited
partnerships. Under the terms of one of the partnership
agreements, the Company has guaranteed half of an institutional
loan to the partnership for which the partnership has pledged
individual investor notes as collateral. At September 30, 1994,
AGI's guarantee covered borrowings in the amount of $915,000. The
loans were paid off during fiscal 1995. In September 1995, AGI
guaranteed additional partnership borrowings of $750,000 from a
third party lender. The 1995 borrowings are uncollateralized.
At September 30, 1995, AGI was contingently liable under a
bank letter of credit in the amount of $1.25 million. The letter
of credit was required under the terms of a non-recourse note
entered into between Advest and a third party lender and covers
20% of the note amount. It is fully collateralized by government
securities. Refer to Note 9.
At September 30, 1995 and 1994, respectively, Advest was
contingently liable under bank letter of credit agreements in the
amounts of $1,255,000 and $1,232,000, which are collateralized by
securities held in customer accounts.
At September 30, 1995 and 1994, the Bank was contingently
liable under standby letters of credit and commitments to extend
credit to its customers in the amount of $45,177,000 and
$30,006,000, respectively. The value of collateral held for letter
of credit commitments as of September 30, 1995 varies from 0% to
466% of individual commitments with a weighted average of 22%.
At September 30, 1995, the Bank was contingently liable under
letters of credit of $200,000 from the FHLB of Boston pledged as
security for $5,000,000 of interest rate swaps. No amounts have
been drawn against these letters of credit. (See Note 17.)
Litigation
The Company has been named as defendant in various legal actions
some of which claim substantial damages. The actions have arisen
principally from the securities and investment banking business.
In the opinion of management, based on discussions with counsel,
the outcome of these matters will not result in a material adverse
effect on the results of operations and financial condition of the
Company.
Note 17: Financial Instruments With Off-Balance-Sheet and
Concentrations of Credit Risk
In the normal course of business, Advest's securities activities
involve execution, settlement and financing of various securities
transactions for customers. These activities may expose Advest to
risk in the event customers, other brokers and dealers, banks,
depositories or clearing organizations are unable to fulfill
contractual obligations.
In accordance with industry practice, Advest records
securities transactions executed on behalf of its customers on
settlement date which is generally three business days after trade
date. Through May 31, 1995 the settlement cycle was five business
days. The shortened settlement cycle is intended to reduce the
market risk of trades. The risk of loss on these transactions is
identical to settled transactions and relates to the customer or
brokers and dealers inability to meet the terms of their
contracts. Advest generally conducts business with brokers and
dealers located in the New York metropolitan area that are members
of the major securities exchanges. Advest's clients are
predominantly retail investors located throughout the United
States but primarily in the Northeast.
For transactions in which Advest extends credit to customers,
it seeks to control the risk associated with these activities by
requiring customers to maintain margin collateral in compliance
with various regulatory and internal guidelines. Advest monitors
required margin levels daily and, pursuant to such guidelines,
requests customers to deposit additional collateral, or liquidate
securities positions when necessary.
Advest's collateralized financing activities require it to
pledge customer securities as collateral for various secured
financing sources such as bank loans and securities loaned. In the
event the counterparty is unable to meet its contractual
obligations, Advest may be exposed to off-balance-sheet risk of
acquiring securities at prevailing market prices. The Company
monitors the credit standing of counterparties with
57
[page 36 of Annual Report]
whom it conducts business. Risk is further controlled by
monitoring the market value of securities pledged on a daily basis
and by requiring adjustment of collateral levels as needed.
Advest has sold securities that it does not currently own and
will therefore be obligated to purchase such securities at a
future date. These obligations are recorded in the financial
statements at the September 30, 1995 and 1994 market values of the
related securities. Advest will incur a loss if the market value
of the securities increases subsequent to September 30, 1995.
Advest seeks to control interest rate risk associated with
its trading positions, primarily its municipal bond inventory, by
entering into derivative transactions, principally short-term
futures contracts. The average fair value of futures contracts
during the year ended September 30, 1995 was $675,380. Net
trading losses were $103,000 for fiscal 1995 and a negligible
trading profit in 1994. Advest held no open positions at
September 30, 1995.
The Bank is a party to financial instruments with off-balance-
sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments involve, to
varying degrees, elements of credit and interest rate risk. The
Bank's exposure to credit loss in the event of non-performance by
the other party to the financial instrument is represented by the
contractual amount of these instruments. The Bank uses the same
credit policies in making commitments as it does for existing
loans and management believes that the Bank controls the risk of
these financial instruments through credit approvals, limits and
monitoring procedures. Commitments to extend credit are agreements
to lend to a customer as long as there is no violation of any
condition established in the contract. Since many of the
commitments could expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. The amount of collateral obtained, if deemed
necessary by the Bank, upon extension of credit is based on credit
evaluation of its customer. Collateral held varies but may include
income-producing commercial properties, accounts receivable,
inventory and property, plant and equipment.
Standby letters of credit are conditional commitments issued
by the Bank to guarantee the performance of customers to a third
party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in standing loan facilities
to customers. The Bank holds real estate and marketable securities
as collateral supporting those commitments for which collateral is
deemed necessary.
. The Bank enters into interest rate swap and cap contracts as
part of its interest rate risk management strategy. Such
instruments are held for purposes other than trading. These swaps
and caps are intended to maintain a targeted level of net interest
margin between the return on the Bank's interest earning assets
and the cost of funds. Interest rate swaps involve the exchange of
fixed and floating rate interest payments based on an underlying
notional amount. The notional values do not represent direct
credit exposures. The Bank's credit exposure is limited to the net
difference between the calculated pay and receive amounts on each
transaction which is generally netted and paid quarterly. Interest
rate cap contracts provide that in exchange for the payment of an
initial premium, the Bank will receive payments from the
counterparty in the event that interest rates rise above a
predetermined level (the "strike rate").
Entering into interest rate swap agreements involves the risk
of dealing with counterparties and their ability to meet the terms
of the contracts. The Bank enters into swap and cap contracts
with counterparties that are either highly rated by recognized
rating agencies or are federal agencies. The Bank minimizes the
credit risk by performing credit reviews on the swap
counterparties and minimizes the interest rate risk by its asset
and liability management policies
The following table illustrates the Bank's outstanding swap
and cap contracts at September 30, 1995:
- ------------------------------------------------------------------
Maturities Balance Balance
-----------------------
In thousands
1996 1997 1998 1999 9/30/95 9/30/94
- ------------------------------------------------------------------
Fixed pay interest rate swaps:
Notional value $7,500 $10,000 $5,000 $5,000 $27,500 $52,500
Weighted average
received rate 5.757% 6.063% 5.875% 5.875% 6.009% 4.932%
Weighted average
pay rate 9.352% 6.350% 8.790% 7.090% 7.747% 6.676%
Interest rate caps:
Notional value $ -- $ 5,000 $ -- $ -- $5,000 $20,000
Strike rate -- 5.500% -- -- -- --
Unamortized premium $ -- $ 110 $ -- $ -- $ 110 $ 234
Total notional
value $7,500$15,000 $5,000 $5,000 $32,500 $72,500
- ------------------------------------------------------------------
58
[page 37 of Annual Report]
In the absence of these interest rate swaps, net interest
income would have been higher by approximately $472,000 in 1995,
$1,361,000 in 1994 and $1,619,000 in 1993. In the absence of these
cap contracts, net interest income would have been lower by
approximately $128,000 in 1995, and higher by approximately
$64,000 in 1994 and $22,000 in 1993.
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 mortgage, leasing and other lending and investment of
funds generated from borrowings and customer deposits. Financial
information by industry segments for the three years ended
September 30, 1995 are summarized as follows:
- ------------------------------------------------------------------
Financial
In thousands services Banking Other Consolidated
- ------------------------------------------------------------------
1995
Total revenues $207,573$ 23,464 $ 1,596 $232,633
Operating
income (loss) 23,175 (9,301) (2,113) 11,761
Identifiable
assets 530,997 269,500 30,318 830,815
Capital
expenditures 4,182 193 2 4,377
Depreciation 2,806 184 2 2,992
Amortization 5,585 129 199 5,913
1994
Total revenues $181,389$ 23,185 $ 655 $205,229
Operating
income (loss) 12,874 (1,480) (6,039) 5,355
Identifiable
assets 508,001 353,150 23,704 884,855
Capital
expenditures 7,001 313 -- 7,314
Depreciation 2,075 141 3 2,219
Amortization 4 ,507 149 192 4,848
1993
Total revenues $177,232$ 24,379 $ 420 $202,031
Operating
income (loss) 15,045 (2,102) (4,872) 8,071
Identifiable
assets 464,922 388,996 31,264 885,182
Capital
expenditures 2,750 110 -- 2,860
Depreciation 1,778 114 2 1,894
Amortization 3,483 1,043 193 4,719
Note 19: Related Parties
As of September 30, 1995 and 1994, loans to related parties made
by the Bank totaled approximately $5,578,000 and $4,271,000,
respectively. There were approximately $2,124,000 of new loans and
$1,573,000 of repayments during 1995. Related parties include
directors and executive officers of the Company, and their
respective affiliates in which they have a 10% or more interest.
Such loans were made in the ordinary course of business and at
terms substantially comparable to loan transactions with others.
As of September 30, 1995, all loans to related parties were
performing.
Note 20: 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. 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 methods and assumptions used to estimate fair value
follow. Financial instruments not specifically addressed are
reported in the financial statements at fair value or amounts that
approximate fair value where other estimation methods are used.
Securities
Fair value is based upon quoted market prices, where available. If
a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities and adjusted for
differences between the quoted instrument and the instrument being
valued.
Loans
For commercial real estate loans, multi-family mortgage loans,
lease loan financings and commercial and consumer loans, fair
value is estimated by discounting the expected future cash flows
using the current rates at which similar loans would be originated
to borrowers with similar credit ratings for comparable remaining
maturities. 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.
The fair value of nonperforming loans is based on recent
appraisals or estimated cash flows discounted at a rate
commensurate with the risk associated with such cash flows.
Assumptions regarding credit risk, cash flows and discount rates
are judgmentally determined using available market and borrower
information.
Deposits
Fair values for regular savings and money market accounts are
equal to the amount payable on demand at the reporting date. 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.
Borrowings
The fair value of advances from the Federal Home Loan Bank,
including the current portion, are estimated using rates which
approximate those currently being offered by the
59
[page 38 of Annual Report]
FHLB for advances with similar remaining maturities. The fair
values of subordinated debentures and other long-term borrowings
are based on quoted market prices or rates available to the
Company for similar debt.
Derivative financial instruments
The fair value of interest rate swap and cap agreements are
obtained from 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 derivatives entered into by
Advest are based on quoted market prices.
Commitments to extend credit, standby letters of credit and
financial guarantees written
The fair value of commitments is estimated using the fees
currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the present
credit worthiness of the counterparties. For fixed-rate loan
commitments, fair value also considers the difference between
current levels of interest rates and the committed rates. The fair
values of guarantees and letters of credit generally are based on
fees currently charged for similar agreements or on the estimated
cost to terminate or otherwise settle the obligations with the
counterparties at the reporting date. The fair value of certain
loan guarantees made by the Company is not practicable to estimate
as there is no market for the loans.
The fair values of the Company's financial instruments at
September 30, 1995 and 1994 are:
- -----------------------------------------------------------------
1995 1994
---------------- -----------------
Carrying Fair Carrying Fair
In thousands amount value amount value
- -----------------------------------------------------------------
Financial assets:
Loans, net $242,575 $243,319 $280,480 $272,390
Investment
securities 34,829 34,833 58,752 58,004
Financial liabilities:
Deposits 235,656 236,461 291,885 292,417
Short-term
borrowings 10,251 10,313 32,652 32,666
Long-term
borrowings 17,240 17,387 30,388 29,967
Subordinated
debentures 20,552 20,655 20,997 19,527
Unrecognized financial instruments:
Fixed pay interest
rate swaps 27,500 (759) 52,500 (271)
Interest rate caps 5,000 61 20,000 379
Commitments to
extend credit (42,763) 32 (28,013) (84)
Standby letters
of credit (4,919) (9) (3,225) (46)
- ------------------------------------------------------------------
60
[page 39 of Annual Report]
Quarterly Financial Information (unaudited)
- -------------------------------------------------------------------------------------------
In millions, except 1995 by fiscal quarters 1994 by fiscal quarters
--------------------------------------------------------
per share data 1st 2nd 3rd 4th 1st 2nd 3rd 4th
- -------------------------------------------------------------------------------------------
Cash dividends per common share $- $- $- $- $- $- $- $-
Stock price range: High $5-1/2 $6-3/8 $8 $9-3/8 $8-1/8 $6-7/8 $6-1/4 $5-1/2
Low $5 $5 $5-1/2 $7-3/8 $6-3/8 $6 $5 $5
Clos$5-1/8 $5-3/4 $7-7/8 $9-1/8 $6-5/8 $6-1/4 $5-3/8 $5-1/8
Revenues $51.0 $53.6 $66.9 $61.2 $56.3 $52.0 $47.8 $49.1
Income before income taxes $1.5 $0.3 $6.2 $3.7 $3.8 $0.5 $0.4 $0.7
Net income $0.9 $0.2 $3.3 $2.0 $2.2 $0.3 $0.2 $0.4
Net income per common share $.10 $.02 $.38 $.23 $.24 $.03 $.02 $.05
Annual Meeting
The annual meeting of stockholders will be held
at the Sheraton Hotel, Hartford, CT on January
25, 1996 at 10:30 AM. Proxy statements an proxies
are mailed to stockholders of record as of
December 11, 1995. As of September 30, 1995
there were 971 common stockholders of record.
Additional Information-Form 10k
One copy of the Company's annual report on Form
10k to the Securities and Exchange Commission
will be provided at no charge upon written
request to Coporate Marketing, The Advest Group,
Inc.
The Advest Group, Inc. is listed on the New York
Stock Exchange under the symbol ADV.
Registrar and Transfer Agent
Fleet Bank N.A. Stock Transfer Department P.O.
Box 366 Providence, RI 02901
61