United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the fiscal year ended September 30, 1996
Or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from to
Commission File Number 1-8408
THE ADVEST GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-0950444
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
90 State House Square, - Hartford, Connecticut 06103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (860) 509-1000
Securities registered pursuant to Section 12(b) of the Act: Yes
Name of each exchange on
Title of each class which registered
Common Stock, $.01 Par Value New York Stock Exchange, Inc.
9% Convertible Subordinated Debentures New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by an (X) whether the Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by an (X) if disclosure of delinquent filers pursuant to item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant was $72,359,499 as of December 2, 1996.
On December 2, 1996 the Registrant has outstanding 8,411,496 shares of common
stock of $.01 par value, which is the Registrant's only class of common stock.
Parts I, II and IV incorporate information by reference from the Registrant's
1996 Annual Report to Shareholders. Part III incorporates information by
reference from the Registrant's definitive proxy statement for the annual
meeting to be held on January 30, 1997.
Total of sequentialy numbered pages 59
Exhibit index sequetial page number page 28
-1-
Part I
Item 1. Business
General Development of Business
(1) The Advest Group, Inc. ("AGI"), a Delaware corporation, is a financial
services holding company engaged, with its operating subsidiaries (collectively
the "Company"), in securities brokerage, trading, investment banking,
residential mortgage, consumer lending, asset management, trust and related
financial services. It is organized under the laws of Delaware and commenced
operations on January 1, 1977. AGI is successor to a partnership which resulted
from mergers of five New York Stock Exchange, Inc. ("NYSE") member firms
organized between 1898 and 1919. The Company's broker-dealer subsidiary,
Advest, Inc. ("Advest"), was organized to succeed the business of the
partnership, effective January 1, 1977. Since that date, a number of other
operating subsidiaries in the brokerage and financial services industries have
been established or acquired.
In addition to Advest, operating subsidiaries include Advest Bank (the
"Bank"), a Connecticut-chartered capital stock savings bank; Boston Security
Counsellors, Inc. ("BSC"), an investment management company; and Billings &
Company, Inc. ("Billings"), a real estate services company. Material
acquisitions and dispositions byof the Company during the past five years
follow.
In November 1992, the Company sold substantially all the assets, the
business and name of Shore & Reich, Ltd. ("S&R"), its subsidiary specializing
in pension plan administration, to an unrelated third party. Consideration
included an initial cash payment of $600,000 and future payments over a five
year period based on revenues of the business sold.
In January 1994, Lyons, Zomback & Ostrowski, Inc., a financial consulting
company specializing in the banking industry and a subsidiary of AGI, was
merged into the corporate finance division of Advest as the Financial
Institutions Group (the "FIG"). The FIG unit serves as an advisor to small and
medium-sized community banks.
During fiscal 1995, the Company sold the investment advisory business
related to its proprietary mutual funds in three separate transactions. In the
first quarter, a pre-tax gain of $.8 million was realized from the sale of the
business related to the Scottish Widows International Fund to an unrelated
third party. During the third quarter, the businesses related to the six
taxable and three non-taxable funds, respectively, in the Advantage Family of
Funds ("Funds") were sold to two other unrelated third parties for total
consideration of $11.2 million. Net of expenses, the Company realized a pre-tax
gain of $9.3 million from the two transactions. The total gain from all sales
was $10.1 million and is reported separately on the Consolidated Statement of
Earnings. Additional consideration of $.6 million was received in fiscal 1996
under the terms of one of the sales agreements.
(2) Advest is engaged in a broad range of activities in the securities
brokerage, investment banking and asset management businesses. Specific
services include retail brokerage, institutional sales, origination of and
participation in underwritings and distribution of corporate and municipal
securities, market making and trading activities in corporate securities,
government and municipal bonds, research, custody and money management.
Advest has been classified by the Securities and Exchange Commission
("SEC") and the Securities Industry Association as a "large regional" brokerage
firm. "Regional" is a term commonly used in the securities industry to indicate
that a firm's headquarters are located outside New York City. Advest has retail
clients in all fifty states with the largest concentration in the
-2-
Northeast and Midwest regions and also services institutional accounts
throughout the country. During fiscal 1996, Advest opened 2 new sales offices.
At September 30, 1996, Advest had sales locations, including satellite offices,
and account executives in 16 states and the District of Columbia as follows:
Number of
Number of Account
State Locations Executives
--------------------------------------------------------------
Connecticut 8 77
District of Columbia 1 10
Florida 7 59
Illinois 2 9
Kentucky 3 15
Maine 6 23
Maryland 1 5
Massachusetts 7 53
Missouri 2 11
New Hampshire 3 7
New Jersey 4 23
New York 16 124
Ohio 13 59
Pennsylvania 12 54
Rhode Island 1 9
Vermont 1 2
Virginia 4 10
-- ---
91 550
== ===
Advest is a member of all major securities exchanges in the United States,
the National Association of Securities Dealers ("NASD") and the Securities
Investor Protection Corporation ("SIPC"). In addition, Advest is registered
with the Commodity Futures Trading Commission ("CFTC") as a commodity trading
advisor and a futures commission merchant and clears all option transactions
through an independent third party broker.
The Bank is a Connecticut-chartered capital stock savings bank which
opened for business in 1984. The Bank's headquarters and sole retail branch are
located at 90 and 10 State House Square, respectively, Hartford, Connecticut
06103. The Bank also has representative offices in Springfield, Massachusetts
and Columbus, Ohio for trust and mortgage origination, respectively. Both
representative offices share office space with Advest retail offices. The
Bank's principal business activities consist of soliciting and servicing
fiduciary and retirement plan trust business and conducting a broad range of
mortgage banking services, primarily to clients of Advest. The Bank is also
engaged in the businesses of attracting deposits and investing such deposits,
together with funds from capital and other borrowings, in various types of
loans, primarily residential, and investments. In recent years the latter
activities have decreased in volume, and, correspondingly, the total assets of
the Bank have declined. The Bank's loan portfolio includes single and multi-
family residential mortgages, consumer, commercial mortgages and commercial and
construction loans. The Bank has expanded its residential mortgage lending
production in recent years, and places excess volume not retained in portfolio
with investors, principally federal agencies and major private mortgage
conduits. Investments include government and agency obligations, mortgage-
backed securities and money market instruments. The Bank does not currently
have a material source of deposits other than those obtained through Advest.
Deposits in the Bank are
-3-
insured by the Bank Insurance Fund of the FDIC, subject to applicable limits.
In fiscal 1991, the Office of Thrift Supervision ("OTS") approved requests
by AGI and the Bank for the Bank to be deemed a "savings association" by virtue
of its meeting the test for a qualified thrift lender and for AGI, as the sole
shareholder of a "savings association", to be treated as a unitary thrift
holding company. In order to retain its status as a "savings association" the
Bank must continue to satisfy the "qualified thrift lender" test. This test
generally requires that an institution maintain a minimum of 65% of its assets
in residential real estate and related investments. At September 30, 1996,
83.7% of the Bank's portfolio consisted of such assets.
(3) The Company's principal executive offices are located at 90 State House
Square, Hartford, Connecticut, 06103 (telephone number (860) 509-1000). At
September 30, 1996, the Company employed 1,612 persons.
Financial Information about Industry Segments
The information required by this item is disclosed on pages 40 and 41 of the
1996 Annual Report to Shareholders in Note 16 of Notes to Consolidated
Financial Statements. Such information is hereby incorporated by reference.
Narrative Description of Business
(1) Revenues
The principal sources of revenue for the last five years are disclosed on page
17 of the 1996 Annual Report to Shareholders under the caption "Five Year
Financial Summary". A discussion of the components of services provided and
related compensation follows.
Commissions
Listed Advest acts as an agent for its customers in the purchase and
sale of securities on the major securities exchanges. Commissions generated by
these customers represent a large portion of the Company's revenue.
Mutual Funds Advest executes purchases and redemptions of shares for its
clients in many diverse mutual funds. Prior to the fiscal 1995 sale of the
investment advisory business related to its proprietary mutual funds, Advest
served as sole distributor for The Advantage Family of Mutual Funds and the
Advantage Municipal Bond Fund and acted as a distributor of the Scottish Widows
International Fund.
Nasdaq In executing customers' orders in the Nasdaq market, Advest
generally acts as agent with another firm which is a market maker in the
securities being purchased or sold. The market price executed represents the
best inter-dealer market price available.
Insurance Advest acts as agent for several life insurance companies and
sells life insurance and tax-advantaged annuities to its brokerage clients. A
principal objective of Advest's insurance department is to assist account
executives in protecting the assets of high net worth individuals and
businesses. The department provides customized advice and recommends
appropriate products to meet unique individual, professional or business needs.
Options Advest also effects for its customers the purchase and sale of
put and call options traded on all major stock exchanges.
Other Other commissions include commissions from commodity trading,
international stocks and bonds, certificates of deposit and income from
correspondent brokers. In addition, Advest markets private placement and
registered offerings of limited partnerships investing in various ventures,
primarily real estate. Certain of these limited partnerships are originated by
Advest or Billings who, consequently, receive management and other fees.
-4-
Principal Transactions
Revenue from principal transactions includes realized and unrealized gains and
losses on trading positions of Advest and related sales credits as well as
realized gains on available for sale securities of the Bank. The Company does
not actively participate in the high yield securities market. Advest also
hedges its corporate and municipal bond inventories by entering into derivative
transactions when certain inventory levels are reached. Derivative positions
are generally not material and are marked-to-market daily.
Advest actively engages in trading as principal in various phases of the
over-the-counter securities business and acts as principal to facilitate the
execution of customers' orders. Advest buys, sells and maintains an inventory
of a security in order to "make a market" in that security. As of September 30,
1996, Advest made dealer markets in the common stock or other equity securities
of approximately 158 corporations. Advest also actively engages in trading
municipal bonds and unit trust instruments.
Investment Banking
Advest manages and participates as an underwriter of corporate, municipal and
government securities, mutual funds and private placement offerings. The
Syndicate Department is responsible for Advest's participation in underwritings
managed by Advest and other firms. The Corporate Finance and Public Finance
Departments are responsible for offerings managed or co-managed by Advest.
Underwriting involves both economic and regulatory risks. An underwriter
may incur losses if it is unable to resell the securities it is committed to
purchase or if it is forced to liquidate its commitments at less than the
agreed purchase price. In addition, under the Securities Act of 1933, other
laws and court decisions with respect to underwriters' liability and limitation
on indemnification of underwriters by issuers, an underwriter is subject to
substantial potential liability for material misstatements or omissions in
prospectuses and other communications with respect to underwritten offerings.
Further, underwriting commitments constitute a charge against net capital and
Advest's underwriting commitments may be limited by the requirement that it
must at all times be in compliance with the net capital Rule 15c3-1 of the SEC.
Advest also provides merger and acquisition advisory services, appraisals
and related services. Billings develops private placement offerings of limited
partnerships in real estate and other industries. As a general rule, the
Company does not engage in bridge financing activities.
Asset Management and Administration
BSC provides advisory services to a diverse clientele and, until the sale of
the investment advisory business related to the Advantage Family of Mutual
Funds and the Scottish Widows International Fund in fiscal 1995, acted as their
investment advisor. As of September 30, 1996, BSC had approximately $470
million of private account assets under management.
Advest provides money management services to its brokerage customers
through its Investment Management Group ("IM"). IM provides various services to
brokerage clients including client profiling, asset allocation, manager
selection, due diligence and performance measurement. Recommended portfolio
managers include managers in the proprietary Advest Managed Portfolio Services
as well as managers not affiliated with the Company. Revenue is generated from
fees and/or commissions. At September 30, 1996, IM had approximately $1.9
billion of assets under management.
Advest Transfer Services, Inc., a subsidiary of AGI, provided transfer
agency services to the former proprietary mutual funds of the Company through
November 1996. As of December
-5-
1996, an independent third party transfer agent assumed transfer agency
services for the funds. Advest provides dividend reinvestment for more than
1,400 equities and 1,300 mutual and closed-end funds.
The Advest Reserve Cash Account "ARCA" enables brokerage clients to
participate in an integrated financial services program. ARCA clients have
access to their assets through unlimited checkwriting and a VISA debit card
issued by a major third party bank as well as on-request loans collateralized
by margined securities. Direct deposit is available to ARCA accounts who can
select among several automatic investment options for idle cash balances,
including an FDIC-insured money market account with the Bank and five money
market mutual funds. Other services offered to all clients include retirement
plan servicing, securities custody and asset safekeeping.
The Bank, through its Trust Division, provides fiduciary, trustee and
custody services to individuals, corporate retirement plans, financial
institutions and other entities. The Bank primarily acquires trust and custody
accounts through Advest's retail sales force.
Advest Bank Net Interest Income
Net interest income is the excess of the interest income and loan fee income
over interest expense. The Bank derives interest income from loans extended for
the purposes of residential, commercial and consumer credit. Funds not used in
lending are invested primarily in money market instruments and short and
adjustable rate mortgage-backed securities. The Bank's loans and investments
are funded by interest bearing deposits, by debt (primarily advances from the
Federal Home Loan Bank of Boston), and by the Bank's equity capital. The Bank's
interest and loan fee income has historically exceeded the interest expense of
funding and has produced positive net interest income.
The Bank is subject to interest rate risk to the degree that the Bank's
interest-bearing liabilities reprice or mature more rapidly, and in greater
volume, as is the case currently, than its interest-earning assets (see
Distribution of assets, liabilities and shareholder's equity, interest rates
and interest differentials as disclosed on page 10 of this filing and in Note
15 of Notes to Consolidated Financial Statements on pages 39 and 40 in the 1996
Annual Report to Shareholders. Such information is hereby incorporated by
reference).
Interest Income and Customer Financing
Customers' transactions in securities are effected on either a cash or margin
basis. In a margin account, the customer pays less than the full cost of a
security purchased and the broker-dealer makes a loan for the balance of the
purchase price which is secured by the securities purchased, or other
securities owned by the investor. The amount of the loan is subject to the
margin regulations (Regulation T) of the Board of Governors of the Federal
Reserve System, NYSE margin requirements, and the firm's internal policies
which in some instances are more stringent than Regulation T or NYSE
requirements. Currently, in most transactions, Regulation T requires that the
amount loaned to a customer for a particular purchase not exceed 50% of the
purchase price of a security, so that initially the customer's equity in the
purchase exceeds the NYSE's rules. A member firm is required to have the
customer deposit cash or additional securities so that the loan to the customer
for which marginable equity securities are pledged as collateral is no greater
than 75% of the value of the securities in the account.
Interest is charged on the amount borrowed to finance customers' margin
transactions. The rate of interest charged customers is based primarily on the
brokers' call rate (the charge on bank loans to brokers secured by firm and
customers' securities), to which an additional amount is added up to 2.75%. The
amount of this interest surcharge is dependent on the average net margin
balance and the dollar amount of commissions charged on account transactions
during the month.
-6-
Customer credit balances, retained earnings, cash received from stock loan
activities, and short-term borrowings, are the primary source for financing
customer margin accounts.
Other Income
Other income includes execution fees, exchange and other marketing credits,
transfer and service fees as well as investment gains and losses.
Research
Through the combined resources of its in-house research staff and correspondent
research provided by three leading outside research firms, Advest provides its
brokerage clients with a full range of research services. These include
corporate data, financial analysis, identification of emerging trends and
objective recommendations. In-house analysts specialize in health care,
regional banking, insurance and technology. Correspondent research provides
information and recommendations on approximately 3,000 domestic and
international equities in over 60 industries in 30 countries.
(2) Competition
All aspects of the business of the Company are highly competitive. Advest
competes with numerous regional and national broker-dealers and other entities,
many of which have greater financial resources than the Company. Because of the
variety of financial services offered by the Company and the various types of
entities that provide such services (including other brokers, banks, insurance
companies and retail merchandise outlets), it is not possible to estimate the
number of companies that compete with the Company for investor assets. Advest
competes with other firms on the basis of transaction prices, quality of
service, product availability and locations. With respect to price, service and
product, the Company believes it is competitively well-positioned; it is
impossible to predict, however, the effect of the broader distribution locales
offered by competing entities or the lower costs which may be offered by
certain discount brokers. In addition, there is competition for investment
professionals among the large number of companies now in the financial services
field.
The mortgage banking environment that the Bank operates within is highly
competitive. The Bank competes with mortgage companies, banks, savings banks,
savings and loans, credit unions, finance companies and other financial
intermediaries for conventional and home equity residential loans. The market
for qualifying conventional loans is defined and dominated by federal agencies
such as Federal National Mortgage Association (FNMA) and the Federal Home Loan
Mortgage Corporation (FHLMC), who effectively act as the market makers and are
the dominant investors. This market is also highly sensitive to the level and
volatility of interest rates, which effects the volume of business being
conducted.
The Bank in soliciting trust business encounters significant competition
from trust companies, savings banks, savings and loans, insurance companies,
broker-dealers, investment firms, mutual funds, and law firms in attracting
trust accounts, particularly fiduciary relationships.
In attracting deposits, the Bank faces strong competition from numerous
savings banks, savings and loan associations, commercial banks, broker-dealers,
credit unions, insurance companies, investment firms and mutual funds with
offices located primarily in its primary market area. The Bank also faces
significant competition for investors' funds from short-term money market funds
and other corporate and government securities.
The Bank's deposit base is substantially derived from Advest's brokerage
clients. A portion of these deposits, primarily certificates of deposits, are
acquired on a fee basis and are considered "brokered" under FDIC rules. The
Bank does not possess branch operations with which it may attract significant
additional retail deposits other than those obtained through Advest. Pursuant
to
-7-
the terms of federal banking regulations concerning brokered deposits, the Bank
at September 30, 1996 was deemed to be a "well capitalized" bank, and as such
was not subject to restrictions regarding brokered deposits. Prior to September
30, 1996, the Bank was deemed to be an "adequately capitalized bank", and as
such was limited as to the maximum interest rates it could offer on its
brokered deposit products to rates which did not exceed (1) the rate paid on
deposits of similar maturity in the Bank's normal market area for deposits
accepted or (2) the "national rate" paid on deposits of comparable maturity for
deposits accepted outside the Bank's normal market area. The Bank had $62.7
million of brokered deposits as of September 30, 1996.
(3) Regulation
The securities industry in the United States is subject to extensive regulation
under both Federal and state laws. The SEC is the Federal agency charged with
administration of the Federal securities laws. Much of the regulation of broker-
dealers has been delegated to self-regulatory authorities, principally the
NASD, the CFTC and the securities exchanges. These self-regulatory
organizations conduct periodic examinations of member broker-dealers in
accordance with the rules they have adopted and amended from time to time,
subject to approval by the SEC. Securities firms are also subject to regulation
by state securities commissions in those states in which they do business.
Broker-dealers are subject to regulations which cover all aspects of the
securities business, including sales methods, trading practices among broker-
dealers, uses and safekeeping of customers' funds and securities, capital
structure of securities firms, recordkeeping and the conduct of directors,
officers and employees. Additional legislation, changes in rules promulgated by
the SEC and self-regulatory authorities, or changes in the interpretation or
enforcement of existing laws and rules, may directly affect the mode of
operation and profitability of broker-dealers. The SEC, self-regulatory
authorities and state securities commissions may conduct administrative
proceedings which can result in censure, fine, suspension or expulsion of a
broker-dealer, its officers or employees. Such administrative proceedings,
whether or not resulting in adverse findings, can require substantial
expenditures. The principal purpose of regulation and discipline of broker-
dealers is the protection of customers and the securities markets, rather than
protection of creditors and stockholders of broker-dealers.
The Company's investment advisory subsidiary, BSC, is also subject to
extensive Federal and state regulations by the SEC and state securities
commissions.
Advest is required by Federal law to belong to the Securities Investor
Protection Corporation ("SIPC"). The SIPC fund provides protection for
securities held in customer accounts up to $500,000 per customer, with a
limitation of $100,000 on claims for cash balances. The Company purchases
coverage which provides an additional $24.5 million of coverage per customer
for securities held in customers' accounts.
As a Connecticut-chartered capital stock savings bank whose deposits are
insured by the FDIC, subject to applicable limits, the Bank is subject to
extensive regulation and supervision by both the Commissioner of the Department
of Banking of the State of Connecticut and the Regional Director of the FDIC.
The Bank is also subject to various regulatory requirements of the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board")
applicable to FDIC insured financial institutions. This governmental regulation
is primarily intended to protect depositors, rather than shareholders, and
concerns, among other matters, capital requirements, safety and soundness,
permissible investments, community reinvestment and credit discrimination. AGI,
for the purpose of ownership of the Bank, is a Unitary Savings and Loan holding
company, and is subject to limited regulation and certain reporting
requirements by the Office of Thrift Supervision.
The Bank posted pre-tax income of $1.1 million for fiscal 1996 after
posting losses in each
-8-
of the previous six fiscal years. In July 1991, the Bank entered into a
Memorandum of Understanding ("MOU") with its regulators to address certain
concerns arising out of an examination of the Bank. In February 1993, the Bank
entered into a new MOU with its regulators with terms similar to the original
MOU. During 1996, the Bank achieved compliance with all requirements of the MOU
and, in July 1996, the MOU was lifted.
Refer to pages 18 through 25 of the 1996 Annual Report to Shareholders
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and on page 34 in Note 5 and on page 37 in Note 12
of the Notes to Consolidated Financial Statements for a further description of
capital and regulatory considerations concerning the Bank. Such information is
hereby incorporated by reference.
Certain legislative and regulatory proposals that could affect the Bank
and the banking business in general are pending, or may be introduced, before
the United States Congress, the Connecticut General Assembly and various
governmental agencies. These proposals include measures that may further alter
the structure, regulation and competitive relationship of financial
institutions and that may subject financial institutions to increased
regulation, disclosure and reporting requirements. The Bank in its present
status is restricted by state bank regulations from the declaration of
dividends. (For further discussion concerning dividend restriction applicable
to the Bank refer to page 37 of the 1996 Annual Report to Shareholders in Note
12 of Notes to Consolidated Financial Statements. Such information is hereby
incorporated by reference.) It cannot be predicted whether or in what form any
future legislation or regulations will be enacted or to what extent the
business of the Bank may be affected.
Federal banking regulations define five categories of capital adequacy for
all insured depository institutions, including categories that would prompt
supervisory actions. These categories include "well capitalized" (with total
risk based capital of greater than 10% of risk adjusted assets, Tier 1 capital
of greater than 6% of risk adjusted assets and leverage capital of greater than
5% of assets), "adequately capitalized" (greater than 8%, 5% and 4%
respectively), "undercapitalized" (less than 8%, less than 4% and less than 4%,
respectively), "significantly undercapitalized" (less than 6%, 3% and 3%,
respectively) and "critically undercapitalized" (tangible capital of less than
2% of total assets.) In addition, an institution may not be categorized as
"well capitalized" if it is subject to a regulatory order. Financial
institutions classified as one of the three undercapitalized categories are
subject to progressively more restrictive limitations on activities and may be
subject to orders to increase capital and to cease certain activities and
practices. A "critically undercapitalized" institution, among other additional
restrictions, may, under certain conditions, be placed in a receivership or a
conservatorship. Holding Company guarantees apply if an insured institution is
classified "undercapitalized". Such holding company guarantees include
guarantee of compliance with banking rules, regulations and laws and the
improvement of the bank, including limited capital support. As previously
disclosed, Advest Bank, meets the criteria to be classified "well capitalized"
bank as of September 30, 1996.
(4) Disclosure Requirements for Nonbank Holding Companies
Article 9 of Regulation S-X and Industry Guide 3 specify financial statement
and certain disclosure requirements for bank holding companies. SEC Staff
Accounting Bulletin #No. 69 ("SAB 69") details the view of the SEC staff
concerning the applicability of Article 9 and Industry Guide 3 to registrants
which are not bank holding companies. The bulletin concludes that a nonbank
holding company registrant engaged in similar lending and deposit activities
should provide certain disclosures relevant to an understanding of the
Registrant's operations. In accordance with SAB 69, the Company, a nonbank
holding company, makes the following disclosures regarding the Bank.
-9-
Distribution of Assets, Liabilities and Shareholder's Equity;
Interest Rates and Interest Differentials
The following table presents for the periods indicated (I) average assets,
liabilities and shareholder's equity, (II) interest income and expense, (III)
average yields on interest-earning assets and average rates incurred on
interest-bearing liabilities, (IV) the net interest spread and (V) net interest
margin on interest- earning assets. Yields and rates are computed on a
tax equivalent basis at tax rates of 34% for each of the three years ended
September 30, 1996. Average balances are calculated predominately on a
daily basis.
1996 1995 1994
--------------------------- --------------------------- ---------------------------
Interest Average Interest Average Interest Average
Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/
In thousands, except percentages Balance Expense Rates Balance Expense Rates Balance Expense Rates
- - ------------------------------------------------------------------ -------------------------------------------------------
Assets
Interest-earning assets
CD's, time deposits, federal funds
and other short-term investments $ 8,132 $ 436 5.36% $ 6,294 $ 366 5.82% $ 23,861 $ 785 3.29%
Investment securities: <F1>(1)
U.S. government and agency
obligations 541 32 5.91% 2,107 151 7.17% 2,163 160 7.40%
Other 606 40 6.60% 703 47 6.69% 827 41 4.96%
Mortgage-backed securities 21,815 1,378 6.32% 35,321 2,044 5.79% 66,312 2,574 3.88%
FHLB stock 2,233 145 6.49% 2,129 157 7.37% 2,127 162 7.62%
Loans(net of unearned income)<F2>(2) 206,832 16,040 7.76% 258,011 19,975 7.74% 247,075 18,987 7.68%
--------------------------- --------------------------- ---------------------------
Total interest-earning assets 240,159 18,071 7.52% 304,565 22,740 7.47% 342,365 22,709 6.63%
--------------------------- --------------------------- ---------------------------
Noninterest-earning assets
Cash and cash equivalents 874 960 1,472
Property and equipment 683 692 663
Interest receivable 1,593 2,339 1,818
OREO and other assets 5,441 16,421 26,209
Due from affiliates 135 255 115
Prepaid commissions 128 163 178
---------- ---------- ----------
Total noninterest-earning assets 8,854 20,830 30,455
---------- ---------- ----------
$249,013 $325,395 $372,820
========== ========== ----------
Liabilities and shareholder's equity
Interest-bearing liabilities
Total deposits <F3>(3) $215,117 $ 8,974 4.17% $275,962 $11,370 4.12% $325,993 $11,045 3.39%
FHLB advances 14,364 1,005 7.00% 23,965 1,605 6.70% 15,991 1,033 6.46%
--------------------------- --------------------------- ---------------------------
Total interest-bearing liabilities 229,481 9,979 4.35% 299,927 12,975 4.33% 341,984 12,078 3.53%
--------------------------- --------------------------- ---------------------------
Noninterest-bearing liabilities
Accrued interest payable 1,023 1,251 1,201
Other liabilities 3,961 5,067 5,506
Accrued expenses 474 232 969
Due to affiliates 43 71 58
---------- ---------- ----------
Total noninterest-bearing
liabilities 5,501 6,621 7,734
---------- ---------- ----------
Shareholder's equity 14,031 18,847 23,102
$249,013 $325,395 $372,820
========== ========== ==========
Net interest income (tax equivalent basis) $ 8,092 $ 9,765 $10,631
========== ========== ==========
Net interest spread (tax equivalent basis) 3.18% 3.14% 3.10%
======= ======= =======
Net interest income as a percentage of
interest-earning assets (tax equivalent basis) 3.37% 3.21% 3.11%
======= ======= =======
<FN>
<F1>(1) Securities available for sale and trading securities are included in investment securities.
<F2>(2) Non-accrual loans at year end are included in the total loan portfolio.
<F3>(3) Includes net cost of interest rate swaps and caps.
-10-
Analysis of Changes in Interest Income and
Interest Expense
The following table presents an analysis of
increases and decreases in interest income and
expense in terms of changes in volume and
interest rates for the periods indicated.
Changes not due solely to either a change in
volume or a change in rate have been allocated
based on the respective percentage changes in
average balances and average rates. The table
is presented on a tax equivalent basis at tax
rates of 34% for fiscal years 1996 and 1995.
1996 vs. 1995 1995 vs. 1994
Increase (decrease) due to change in Increase (decrease) due to change in
In thousands Volume Rate Total Volume Rate Total
- - --------------------------------------------------------------------------------------------------------------
Interest income
CD's, time deposits, federal funds
and other short-term investments $ 112 $(42) $ 70 $ (918) $ 499 $(419)
Investment securities: <F1>
US government and agency obligations (120) 1 (119) (4) (5) (9)
Other (6) (1) (7) (19) 25 6
Mortgage-backed securities (883) 216 (667) (2,270) 1,740 (530)
FHLB stock 50 (62) (12) (5) (5)
Loans (net of unearned income) <F2> (3,978) 43 (3,935) 695 293 988
--------------------------------- -------------------------
Total interest income (4,825) 155 (4,670) (2,516) 2,547 31
--------------------------------- -------------------------
Interest expense
Total deposits <F3> (2,634) 238 (2,396) (2,004) 2,329 325
FHLB advances (420) (180) (600) 519 53 572
--------------------------------- -------------------------
Total interest expense (3,054) 58 (2,996) (1,485) 2,382 897
--------------------------------- -------------------------
Change in net interest income $(1,771) $ 97 $(1,674) $(1,031) $ 165 $(866)
================================= =========================
<FN>
<F1> (1) Securities available for sale and trading securities are included in investment securities.
<F2> (2) Non-accrual loans at year end are included in the total loan portfolio.
<F3> (3) Includes net cost of interest rate swaps and caps.
Investment Activities
The following table summarizes the composition
of the securities portfolio (book values) for
the three years ended September 30, 1996:
1996 1995 1994
-------------------------------------------------------
In thousands, except percentages Amount % Amount % Amount %
- - --------------------------------------------------------------------------------------------------------------
US government and agency obligations $ 599 2% $ 490 2% $ 4,888 9%
Mortgage-backed securities 10,635 42% 21,965 83% 48,003 79%
Other 500 2% 596 2% 818 1%
FHLB stock 2,233 10% 2,233 9% 2,045 3%
Securities available for sale (4) 11,157 44% 1,127 4% 4,902 8%
-------------------------------------------------------
Total $25,124 100% $26,411 100% $60,656 100%
=======================================================
The following table sets forth the maturities of
investment securities at September 30, 1996 and
the weighted average (tax equivalent) yields on
such securities:
Within After one but Five to ten After ten
one year within five years years years Total
------------------------------------------------------------------------------------------
In thousands, except percentages Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
- - -----------------------------------------------------------------------------------------------------------------------------
US government and
agency obligations - - $599 5.43% - - - - $ 599 5.43%
Mortgage-backed securities - - - - - - $10,635 6.39% 10,635 6.39%
Other - - 250 7.75% $250 7.75% - - 500 7.75%
FHLB stock $2,233 6.40% - - - - - - 2,233 6.40%
Securities available
for sale <F4>(4) 97 - - - - - 11,060 6.33% 11,157 6.27%
------------------------------------------------------------------------------------------
Total $2,330 6.13% $849 6.11% $250 7.75% $21,695 6.36% $25,124 6.34%
==========================================================================================
<FN>
<F4>(4) Securities available for sale are detailed
in Note 4 of Notes to Consolidated Financial
Statements in the 1996 Annual Report to
Shareholders.
As of September 30, 1996, the Bank held
investments of the following securities issuer
which exceeded 10% of shareholder's equity:
Maturity
Issuer Name Book value Market value Coupon date
- - -------------------------------------------------------------------------------------------------------
The Money Store Home Equity Trust $1,963,413 $1,956,275 4.875% 03/15/2008
-11-
Lending Activities
The following table summarizes the composition
of loan portfolio for the three years ended
September 30, 1996:
1996 1995 1994
-------------------- ---------------- --------------------
In thousands, except percentages Amount % Amount % Amount %
- - --------------------------------------------------------------------------------------------------------
Commercial and financial $ 2,757 1% $ 3,856 2% $ 7,021 3%
Real estate construction 4,946 3% 5,597 2% 2,819 1%
Real estate mortgage 176,479 94% 220,613 95% 262,797 95%
Installment 1,097 1% 922 - 913 -
Lease financing 1,587 1% 1,811 1% 2,199 1%
-------------------- ---------------- --------------------
Gross total loans 186,866 100% 232,799 100% 275,749 100%
========== ====== ==========
Less: Allowance for loan loss 2,278 2,213 4,645
---------- ---------- ----------
Net total loans $184,588 $230,586 $271,104
========== ========== ==========
Commercial loans, primarily to individuals and small to medium
sized firms, were made at a variety of repayment terms and are
primarily collateralized by equipment, marketable securities or
inventory primarily located in Connecticut. Real estate mortgage
and construction balances as of September 30, 1996 are comprised of
residential, commercial and multifamily mortgages of approximately
$144.0 million, $26.1 million and $11.3 million, respectively.
Commercial real estate loans are primarily located in the Northeast
and include as collateral multifamily, health care, office and
industrial property. The Bank is no longer an active loan
originator in the commercial real estate market. The Bank's
residential loan portfolio is primarily collateralized by mortgages
on 1-4 family residential properties located throughout theAfter one
United States with concentrations in Connecticut, New York,
Massachusetts, Ohio and Florida. Installment loans are made to
individuals. The Bank also occasionally purchases residential
mortgage loans for its portfolio from other financial institutions
and mortgage bankers for its portfolio. Such purchases are
primarily loans collateralized by property located in Connecticut.
There were no such purchases during fiscal 1996. The following
table shows the interest rate sensitivities of loans outstanding as
of September 30, 1996 which are due or repriced in the periods
indicated. Loans due within one year include demand loans.
After one
Within but within After five
In thousands one year five years years Total
- - --------------------------------------------------------------------------------------------------------
Commercial and financial $ 2,009 $ 663 $ 85 $ 2,757
Real estate construction 3,743 1,203 - 4,946
Real estate mortgage 88,116 32,621 55,741 176,478
Installment 338 441 318 1,097
Lease financing 31 411 1,146 1,588
-----------------------------------------------------------
Total $94,237 $35,339 $57,290 $186,866
-----------------------------------------------------------
Fixed interest rate $14,260 $57,290
Variable interest rate 21,079 -
---------- ---------
Total $35,339 $57,290
========== =========
Nonperforming Assets
A summary of nonperforming assets by type follows for the three
years ended September 30, 1996: In thousands, except percentages
1996 1995 1994
- - --------------------------------------------------------------------------------------------------------
Non-accrual loans $1,422 $ 290 $ 7,690
Restructured loans - - 638
Other real estate owned, net 984 2,849 13,414
---------- --------- ----------
Total nonperforming assets $2,406 $3,139 $21,742
---------- --------- ----------
Nonperforming assets as a percentage of loans
and other real estate owned 1.3% 1.3% 7.5%
========== ========= ==========
Generally loans are placed on non-accrual status when interest or
principal is past due for ninety days or earlier if circumstances
indicate collection is doubtful. The Bank resumes the accrual of
interest on such loans if, in the opinion of management, the
borrower has demonstrated adequate financial resources and intent
to meet the terms and conditions of the loan, and all payments are
again current. Interest income forgone on nonperforming loans in
fiscal years 1996, 1995, and 1994 amounted to $297,000, $508,000
and $754,000, respectively. During 1996 and 1995, approximately
$187,000 and $184,000, respectively, of income was recognized on
non-accrual loans. This income was recognized while the loans were
performing and was realized by cash payments. It is management's
policy to reverse all uncollected interest at the time a loan is
placed on non-accrual.
-12-
Summary of Loan Loss Experience
The following table summarizes the Bank's loan loss experience for
each of the three years ended September 30, 1996:
In thousands, except percentages 1996 1995 1994
- - -------------------------------------------------------------------------------------------------------------------
Balance at beginning of period $2,213 $4,645 $5,433
--------------------------------------------
Chargeoffs:
Real estate mortgage 1,196 7,831 2,640
Installment - - 27
Commercial 81 483 52
Lease financing - 14 97
--------------------------------------------
1,277 8,328 2,816
--------------------------------------------
Recoveries:
Real estate mortgage 210 239 136
Commercial 15 1 16
Lease financing 63 19 22
--------------------------------------------
288 259 174
--------------------------------------------
Net charge-offs 989 8,069 2,642
Additions charged to operations 1,054 5,637 1,854
--------------------------------------------
Balance at end of period $2,278 $2,213 $4,645
============================================
Ratio of net charge-offs to average loans
outstanding during the period 0.48% 3.13% 1.07%
============================================
The Bank maintains general reserves for potential losses from its
loan portfolio in an Allowance for Possible Loan and Lease Losses.
(the "ALLL"). The ALLL is maintained at a level considered by
management to be adequate. The adequacy of the ALLL is reviewed
quarterly by the Bank's management and its Board of Directors, and
is determined primarily by management's informed judgment
concerning the amount of risk inherent in the portfolio at a point
in time. Management's judgment is based on a number of factors
including: 1) a detailed risk rating system for commercial loans
in which loans are individually reviewed with respect to such
criteria as the estimated value of underlying loan collateral and
the financial condition of borrowers, 2) recent historical loan
loss experience, 3) industry and geographic concentrations, 4) the
results of the most recent regulatory examination available, 5)
current national and local economic conditions, and 6) other
relevant information as may be available. The balance of each risk
rating category has a reserve percentage applied for the purpose
of estimating each component of the ALLL. A substantial portion of
outstanding commercial loan portfolio balances on an annualized
basis are reviewed periodically by a third party that is
independent from the Bank and the results of such review are
factored into the risk rating system. Management also reviews
monthly, certain monitored performing and all nonperforming loans
individually and makes further reserve allocation adjustments. The
Bank's one to four family residential mortgage portfolio reserves
are evaluated primarily upon the basis of portfolio historical
performance. The Bank also maintains an unallocated and
supplemental reserve that reflects management's assessment of local
and national economic, business and real estate market trends, and
the Bank's procedures, controls and personnel. At September 30,
1996, the bank classified $5.3 million of loans as impaired
pursuant to the requirements of SFAS 114, "Accounting by Creditors
for Impairment of a Loan". Under SFAS 114 a loan is considered
impaired if it is probable that the Company will be unable to
collect scheduled payments according to the terms of the loan
agreement. Impaired loans include $3.8 million of loans
restructured and currently classified performing, and $.8 million
of loans in which potential credit problems may lead to future
non-accrual status or possible charge-off. All remaining amounts
classified impaired are included in non-accrual loans. Impairment
reserves as calculated under SFAS 114 resulted in no additional
allowance for loan losses. Loans are charged off against the ALLL
when management believes that collection is unlikely. Loan
charge-offs are identified during the loan review process. The
charge-offs recorded for all periods were primarily associated with
the real estate mortgage portfolios and resulted from the decline
in the value of the properties serving as collateral for the loans.
The charge-offs recorded during 1995 were also associated with the
discounts necessary to attract buyers of those distressed
commercial OREO assets included in the Bank's accelerated asset
disposition plan and other bulk asset sales. The following table
presents the allocation of the reserve for possible loan and lease
losses by loan categories for the three years ended September 30,
1996:
1996 1995 1996
-------------------- ------------------ ------------------
Loans in Loans in Loans in
Amount category Amount category Amount category
of as a % of of as a % of of as a % of
In thousands, except percentages reserve total loans reserve total loans reserve total loans
- - -------------------------------------------------------------------------------------------------------------------
Commercial and financial $ 24 1% $ 26 2% $ 83 3%
Real estate construction 44 3% 33 2% 37 1%
Real estate mortgage 1,555 94% 1,541 95% 4,050 95%
Installment 22 1% 18 - 18 -
Lease financing 32 1% 66 1% 105 1%
Commitments 340 - 219 - 151 -
Unallocated 261 - 310 - 201 -
-------------------- ------------------ ------------------
Total $2,278 100% $2,213 100% $4,645 100%
==================== ================== ==================
-13-
Deposits
The Bank offers a variety of deposit accounts designed to attract
both short and long term funds. The Bank provides a money market
deposit account to Advest's customers as a component of various
cash management products available to those customers. The Bank
primarily markets brokered Certificates of Deposit (CD's) through
Advest. The Bank also markets retail deposit accounts, such as
money market accounts, primarily through Advest. At September 30,
1996, deposits obtained through Advest constituted 84% of all
deposits at the Bank. Additional deposit information is disclosed
in Note 5 of Notes to Consolidated Financial Statements in the 1996
Annual Report to Shareholders.
The following table presents the average balances of and average
rates paid on deposits for the three years ended September 30,
1996: Average balances are calculated predominately on a daily
basis.
1996 1995 1994
---------------------- ---------------------- ------------------------
Average Average Average Average Average Average
In thousands, except percentages balance rate balance rate balance rate
- - -----------------------------------------------------------------------------------------------------------------------------
Savings noninterest-bearing $ 98 $ 66 $ 58
Savings 19 2.36% 33 1.99% 243 2.00%
Money market 149,347 2.90% 209,407 3.22% 274,715 2.76%
Time certificates 65,653 6.24% 66,456 6.41% 50,977 6.17%
--------------------------------------------------------------------------------------
Total deposits $215,117 4.17% $275,962 4.12% $325,993 3.39%
======================================================================================
The following table sets forth the maturity distribution of time
deposits of $100,000 or more as of September 30, 1996:
In thousands Amount
- - -----------------------------------------------------------------------------------
Three months or less $ 2,563
Over three months to six months 4,764
Over six months to twelve months 3,938
Over twelve months 6,329
--------------
$17,594
==============
Return on Equity and Assets
Years ended September 30,
--------------------------------------------------------
1996 1995 1994
- - -----------------------------------------------------------------------------------------------------------------------------
Return on assets (net income/average total assets) 0.41% * *
Return on equity (net income/average equity) 7.21% * *
Net interest margin 3.25% 3.00% 2.85%
Equity to assets (average equity/average assets) 5.63% 5.79% 6.20%
* As a result of net losses in 1995 and 1994, this information is
not meaningful.
Short-Term Borrowings
Years ended September 30,
--------------------------------------------------------
In thousands, except percentages 1996 1995 1994
- - -----------------------------------------------------------------------------------------------------------------------------
Other short-term borrowings
Balance at year end $ 4,750 $ 9,500 $ 9,500
Weighted-average interest rate at year end 6.76% 6.76% 5.58%
Average amount outstanding during the year $ 7,827 $ 6,692 $ 5,654
Maximum amount outstanding at any month end $10,500 $17,000 $17,300
Weighted-average interest rate during the year 7.01% 6.41% 5.89%
In the ordinary course of business, short-term borrowings of the
Bank consisted primarily of the current portion of fixed-term,
fixed-rate advances from the Federal Home Loan Bank.
-14-
Item 2. Properties
The Company conducts all of its operations from leased premises, generally
under non-cancelable leases with terms up to 15 years.
Item 3. Legal Proceedings
The Company has been named as defendant in a number of legal proceedings
arising principally from its securities and investment banking business. Some
of these actions involve claims by plaintiffs for substantial amounts. While
results of litigation cannot be predicted with certainty, in the opinion of
management, based on discussion with counsel, the outcome of these matters will
not result in a material adverse effect on the financial condition or future
results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The information required by this item is disclosed on page 35 of the 1996
Annual Report to Shareholders in Note 9 of the Notes to Consolidated Financial
Statements and on page 43 under the captions "Quarterly Financial Information"
and "Shareholder Information". Such information is hereby incorporated by
reference.
Item 6. Selected Financial Data
The information required by this item is disclosed on page 17 of the 1996
Annual Report to Shareholders under the caption "Five Year Financial Summary".
Such information is hereby incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this item is disclosed on pages 18 through 25 of
the 1996 Annual Report to Shareholders under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations". Such
information is hereby incorporated by reference.
Item 8. Financial Statements and Supplementary Data
The information required by this item is disclosed in the Consolidated
Financial Statements and Notes on pages 26 through 41 and under the caption
"Quarterly Financial Information" on page 43 of the 1996 Annual Report to
Shareholders. Such information is hereby incorporated by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no disagreements with the Company's independent accountants on any
accounting or financial disclosure matters.
Part III
Item 10. Directors and Executive Officers of the Registrant
The information required for "Directors" by this item is included under the
caption "Election of Directors" in the Company's Proxy Statement to be filed
with the Securities and Exchange Commission in connection with the Company's
annual meeting to be held January 30, 1997.
-15-
Such information is hereby incorporated by reference.
The following table sets forth the executive officers of the Company at
December 1, 1996. Executive officers of the Company are appointed annually by
the Board of Directors to hold office until their successors are appointed and
qualify.
Executive
Officer
Name Age Office Since
- - ---------------------------------------------------------------------------
Allen Weintraub 61 Chairman and
Chief Executive Officer 1977
Grant W. Kurtz 54 President 1985
Murray M. Beach 42 Senior Vice President - Corporate
Finance, Advest, Inc. 1996
Allen G. Botwinick 53 Executive Vice President, Administration
and Operations 1980
George A. Boujoukos 62 Executive Vice President - Capital
Markets, Advest, Inc. 1977
Harry H. Branning 45 Executive Vice President - National Sales
Manager, Advest, Inc. 1994
Lee G. Kuckro 55 Senior Vice President, Secretary
and General Counsel 1978
Martin M. Lilienthal 54 Senior Vice President, Treasurer and
Chief Financial Officer 1977
Item 11. Executive Compensation
The information required by this item is included under the caption
"Remuneration of Directors and Officers" and "Certain Transactions" of the
Company's Proxy Statement to be filed with the Securities and Exchange
Commission in connection with the Company's annual meeting to be held January
30, 1997. Such information is hereby incorporated by reference.
Item 12. Security Ownership Of Certain Beneficial Owners And Management
The information required by this item is contained under the caption "Election
of Directors" in the Company's Proxy Statement to be filed with the Securities
and Exchange Commission in connection with the Company's annual meeting to be
held January 30, 1997. Such information is hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this item is included under the caption "Certain
Transactions" of the Company's Proxy Statement to be filed with the Securities
and Exchange Commission in connection with the Company's annual meeting to be
held January 30, 1997. Such information is hereby incorporated by reference.
-16-
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- - --------------------------------------------------------------------------
Page Reference
--------------------------
Annual Report 10-K
--------------------------
(a) 1. Financial Statements
The Consolidated Financial Statements and The Report of
Independent Accountants contained in the 1996 Annual
Report to Shareholders are incorporated herein by reference:
Consolidated Balance Sheets 27
Consolidated Statements of Earnings 26
Consolidated Statements of Cash Flows 28
Consolidated Statement of Changes in
Shareholders' Equity 29
Notes to Consolidated Financial Statements 30-41
Report of Independent Accountants 42
2. Financial Statement Schedules
Report of Independent Accountants on all schedules 23
Schedule I - Condensed Financial Information of Registrant 24-26
Schedule II - Valuation and Qualifying Accounts 27
3. Exhibits
The following is a list of exhibits to this Report on Form 10-K filed
herewith or incorporated by reference herein.
Prior Filing(s) to which Reference
Exhibit Description is made, if applicable
- - -----------------------------------------------------------------------------
3(a) Restated Certificate of Exhibit 3(a) of Incorporation
Incorporation of Registration Registrant's Report on Form 10-Q for
the quarter ended March 31, 1989
3(b) By-laws of Registrant, as restated Exhibit 3(b) to Registrant's Report
and amended on Form 10-Q for the quarter ended
March 31, 1989 and Exhibit
3(a) to Registrant's Report on Form
10-Q for the quarter ended June 30,
1990
4(a) Shareholder Rights Agreement Exhibit to Registrant's Report on
dated as of October 31, 1988 Form 8-k dated November 1, 1988
between Registrant and The
Connecticut Bank and Trust
Company, N.A., as Rights Agent
4(b) Indenture pertaining to Exhibit 4(e) to Registrant's
Registrant's 9% Convertible Registration Statement on Form S-1,
Subordinated Debentures File No. 2-81977
-17-
Prior Filing(s) to which Reference
Exhibit Description is made, if applicable
- - -----------------------------------------------------------------------------
10(a) Registrant's 1994 Non-Employee Exhibit A to Registrant's Proxy
Director Stock Option Plan Statementdated December 20, 1994
10(b) Registrant's 1986 Stock Exhibit 10 to Registrant's Report on
Option Plan, as amended Form 10-Q for the quarter ended
March 31, 1987; Exhibit 10(a) to
Registrant's Report on Form 10-Q for
the quarter ended March 31, 1988
10(c) Registrant's 1993 Stock Option Exhibit A to Registrant's Proxy
Plan Statement Plan dated December 21,
1993
10(d) Registrant's 1981 and 1983 Exhibit A to Registrant's Proxy
Incentive Stock Option Plans Statements Incentive Stock Option
Plans, dated December 15, 1981 and
December 21, as amended 1983;
Exhibit 10(a) to Registrant's Report
on Form 10-Q for the quarter ended
March 31, 1988
10(e) Registrant's Deferred Exhibit 10(f) to Registrant's Report
Compensation Savings and on Form 10-K for the fiscal year
Investment Plan, Amended and ended September 30, 1989, Exhibit
Restated as of November 17, 10(j) to Registrant's Report on
1989, as amended Form 10-K for its fiscal year ended
September 30, 1990 and Exhibit 10(b)
of Registrant's Report onForm 10-Q
for the quarter ended December 31,
1992
10(f) Non-Employee Director Equity Exhibit 10(b) to Registrant's Report
Plan on Form 10-Q for the quarter ended
June 30, 1996
10(g) Key Professionals Equity Plan Exhibit 10(g) to Registrant's Report
on Form 10-Q for the quarter ended
June 30, 1996
10(h) Forms of Executive Officer Exhibit 10 to Registrant's Report on
Restricted Stock and Stock Form 10-Q for the quarter ended
Option Agreement for 1995, December 31, 1994 and Exhibit 10(c)
1996 (as supplemented) to Registrant's Report on Form
and 1997 10-Q for the quarter ended June 30,
1996 and Exhibit 4.4 to Registrant's
Registration Statement on Form S-8,
File No. 333-17711; and Exhibit
4.5 to Registrant's Registration
Statement on Form S-8, File No. 333-
17711
10(i) The Advest Thrift Plan of Exhibit 10(a) to Registrant's Report
Registrant, effective as of on Form 10-Q for the quarter ended
December 31, 1992 December 31, 1992, as amended and
Exhibit 10(a) to Registrant's Report
on Form 10-Q for the quarter ended
June 30, 1996
-18-
Prior Filing(s) to which Reference
Exhibit Description is made, if applicable
- - -----------------------------------------------------------------------------
10(j) Registrant's 1990 Top AE Exhibit 10(i) to Registrant's Report
Stock Option Plan, effective on Form 10-K for its fiscal year
as of October 26, 1990 ended September 30, 1990
10(k) Registrant's 1991 Top AE Exhibit 10(k) to Registrant's Report
Stock Option Plan, effective on Form 10-K for its fiscal year
as of November 22, 1991 ended September 30, 1991
10(l) Registrant's 1992 Top AE Exhibit 10(c) to Registrant's Report
Stock Option Plan on Form 10-Q for the quarter ended
December 31, 1992
10(m) Registrant's Account Executive Exhibit 10(m) to Registrant's Report
Nonqualified Defined Benefit on Form 10-K for its fiscal year
Plan, as amended ended September 30, 1993, Exhibit
10(p) to Registrant's Report on
Form 10-K for its fiscal year ended
September 30, 1995 and Exhibit 10(f)
to Registrant's Report on Form 10-Q
for the quarter ended June 30, 1996
10(n) Registrant's Nonqualified Exhibit 10(n) to Registrant's Report
Executive Post-employment on Form 10-K for its fiscal year
Income Plan, as amended ended September 30, 1994and Exhibit
10(e) to Registrant's Report on Form
10-Q for the quarter ended June 30,
1996
10(o) Registrant's 1995, 1996 and 1997 Exhibit 4.1 to Registrant's
Equity Plans Registration Statement on Form S-8,
File No. 33-56275; Exhibit 4 to
Registrant's Registration Statement
on Form S-8,File No. 333-00797; and
Exhibit 4.3 to Registrant's
Registration Statement on Form S-8,
File No. 333-17711
10(p) Amended and Restated Exhibit 10(h) to Registrant's
Employment Agreement with Report on Form 10-Q for the quarter
Chief Executive Officer ended June 30, 1996
11 Statement Regarding Filed Herewith
Computation of Net Income
per Common Share
13 Annual Report to Shareholders Filed Herewith *
for fiscal year ended
September 30, 1996
-19-
Prior Filing(s) to which Reference
Exhibit Description is made, if applicable
- - -----------------------------------------------------------------------------
21 Subsidiaries Filed Herewith
23 Consent of Independent Filed Herewith
Accountants
27 Financial Data Schedule Selected financial data - for EDGAR
electronic filing only to SEC
* Pursuant to Item 601(b) (13) of Regulation S-K, except for those portions of
the Annual Report expressly incorporated by reference and included in Exhibit
13, the Annual Report is not to be deemed filed as part of this filing on Form
10-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the year
ended September 30, 1996.
-20-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
THE ADVEST GROUP, INC.
By /s/Martin M. Lilienthal November 21, 1996
Martin M. Lilienthal
Senior Vice President and Treasurer
(Chief Financial and Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Chief Executive Officer,
Chairman of the Board
and Director (Principal
/s/Allen Weintraub Executive Officer) November 21, 1996
Allen Weintraub
Senior Vice President and
Treasurer (Chief Financial
and Principal Accounting
/s/Martin M. Lilienthal Officer) November 21, 1996
Martin M. Lilienthal
/s/George A. Boujoukos Director November 21, 1996
George A. Boujoukos
/s/Sanford Cloud, Jr. Director November 21, 1996
Sanford Cloud, Jr.
/s/Richard G. Dooley Director November 21, 1996
Richard G. Dooley
/s/William B. Ellis Director November 21, 1996
William B. Ellis
-21-
SIGNATURES
/s/Robert W. Fiondella Director November 21, 1996
Robert W. Fiondella
/s/Grant W. Kurtz President and Director November 21, 1996
Grant W. Kurtz
Vice Chairman of the
/s/Anthony A. LaCroix Board and Director November 21, 1996
Anthony A. LaCroix
/s/Barbara L. Pearce Director November 21, 1996
Barbara L. Pearce
/s/John A. Powers Director November 21, 1996
John A. Powers
-22-
Report of Independent Accountants
The Board of Directors and Shareholders
of The Advest Group, Inc.:
Our report on the consolidated financial statements of The Advest Group, Inc.
and Subsidiaries has been incorporated by reference in this Form 10-K from page
42 of the 1996 Annual Report to Shareholders of The Advest Group, Inc. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedules listed in the index on page 17 of
this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
/s/Coopers & Lybrand L.L.P.
Hartford, Connecticut
October 23, 1996
-23-
Schedule I
Condensed Financial Information of Registrant
The Advest Group, Inc.
(Parent Company)
Condensed Balance Sheets
September 30,
- - ---------------------------------------------------------------
In thousands 1996 1995
- - ---------------------------------------------------------------
Assets
Cash $ 1,213 $ 670
Investment in subsidiaries,
Equity method(a) 94,144 88,766
Receivables from subsidiaries(a) 5,857 3,038
Loans 9,787 10,922
Held to maturity securities 11,226 6,363
Other assets 9,855 10,997
---------- ----------
Total assets $132,082 $120,756
======== ========
Liabilities
Accounts payable and accrued expenses $ 12,241 $ 9,657
Payable to subsidiaries(a) 4,553 6,375
Borrowings 5,494 5,240
Subordinated liabilities 20,552 20,552
---------- ----------
Total liabilities 42,840 41,824
Shareholders' equity(b) 89,242 78,932
---------- ----------
Total liabilities and
shareholders' equity $132,082 $120,756
======== ========
(a)Eliminated in consolidation.
(b)For an analysis of shareholders' equity and its components, see Registrant's
Consolidated Balance Sheets and Statements of Changes in Shareholders'
Equity on pages 27 and 29 of the 1996 Annual Report to Shareholders.
-24-
Schedule I
(Continued)
The Advest Group, Inc.
(Parent Company)
Condensed Statements of Earnings
For the years ended September 30,
--------------------------------
In thousands 1996 1995 1994
- - --------------------------------------------------------------------
Revenues
Gain on sale of investment
advisory business, net $ 627 $10,092 $ --
Interest and other income 547 428 284
---------- ---------- ------
Total revenues 1,174 10,520 284
--------- -------- --------
Expenses
Interest 2,447 2,452 2,426
Other 1,259 807 2,723
-------- ---------- -------
Total expenses 3,706 3,259 5,149
--------- --------- -------
Income (loss) before income tax benefit
and equity in earnings
of subsidiaries (2,532) 7,261 (4,865)
Income tax benefit 459 542 2,787
---------- --------- -------
Income (loss) before equity in
earnings of subsidiaries (2,073) 7,803 (2,078)
Equity in income (loss)
of subsidiaries 13,871 (1,452) 5,131
-------- -------- -------
Net income $11,798 $ 6,351 $3,053
======= ======== ======
-25-
The Advest Group, Inc.
Schedule I
(Parent Company) (Continued)
Condensed Statements of Cash Flows
For the years ended September 30,
- - -------------------------------------------------------------------------
In thousands 1996 1995 1994
- - -------------------------------------------------------------------------
Operating Activities:
Net income $11,798 $ 6,351 $ 3,053
Equity in (loss) income
of subsidiaries (13,871) 1,452 (5,131)
Adjustments to reconcile net income to net cash
provide by operating activities 429 1,580 3,391
Gain on sale of investment
advisory business, net (627) (10,092) --
Net (increase) decrease in
operating assets (1,335) (20) 24
Net increase (decrease) in
operating liabilities 2,652 (2,103) (1,365)
-----------------------------
Net cash used for
operating activities (954) (2,832) (28)
------------------------------
Financing Activities:
Proceeds from long term borrowing 1,250 1,000 --
Repayment of short term borrowings (996) (798) (650)
Employee stock transactions 1,076 62 27
Repurchase of subordinated debentures -- (410) (365)
Net (decrease) increase in payables
to subsidiaries 3,863 3,018 (748)
Repurchase of common stock (3,799) (2,309) (3,090)
Other 1,101 846 --
-----------------------------
Net cash provided by (used for)
financing activities 2,495 1,409 (4,826)
-----------------------------
Investing Activities:
Proceeds from maturities of
held to maturity securities 18,400 12,500 39,000
Proceeds from investment
advisory business, net 788 10,141 --
Purchase of held to maturity
securities (23,388) (15,309) --
Purchase of available for sale
securities (23) -- --
Sales of OREO, net 2,090 -- --
Principal collections on loans 1,135 746 10
Purchases of investment securities -- -- (44,114)
Proceeds from sales of investment
securities -- -- 8,975
Acquisition of subsidiaries assets -- (4,585) --
Increase in investments in subsidiaries -- (152) (548)
Loans originated -- (1,761) (56)
Recovery on write-offs -- 161 --
---------------------------------
Net cash (used for) provided
by investing activities (998) 1,741 3,267
-----------------------------
Increase (decrease) in cash 543 318 (1,587)
Cash at beginning of period 670 352 1,939
------------------------------
Cash at period end $ 1,213 $ 670 $ 352
============================
Supplemental Information:
Interest paid $ 2,447 $ 2,452 $ 2,426
Income taxes paid $10,067 $ 2,273 $ 1,058
Non-cash transfers (reduction of payable to
subsidiaries effected in
the form of dividends) $ 8,500 $ 3,007 $ --
-26-
Schedule II
The Advest Group, Inc. and Subsidiaries
Valuation and Qualifying Accounts
Additions Charge-
Balance at charged to offs Balance
beginning cost and and at end
In thousands of period expenses recoveries period
- - --------------------------------------------------------------------
For the years ended September 30,
1996
Credit losses:
Brokerage customers $ 743 $ 160 $ (112) $ 791
Loans 2,334 1,022 (958) 2,398
Asset devaluation:
Other real estate owned 718 20 (738) --
Other investments/assets 1,250 56 144 1,450
Valuation reserve on
deferred taxes 1,510 161 -- 1,671
---------------------------------------
$ 6,555 $ 1,419 $ (1,664) $ 6,310
======================================
1995
Credit losses:
Brokerage customers $ 869 $ 473 $ (599) $ 743
Loans 4,900 5,637 (8,203) 2,334
Asset devaluation:
Other real estate owned 1,201 4,491 (4,974) 718
Other investments/assets 2,218 (263) (705) 1,250
Valuation reserve on
deferred taxes 1,360 150 -- 1,510
---- --------------------------------
$10,548 $10,488 $(14,481) $ 6,555
=====================================
1994
Credit losses:
Brokerage customers $ 1,305 $ 265 $ (701) $ 869
Loans 5,782 2,499 (3,381) 4,900
Other -- 6 (6) --
Asset devaluation:
Other real estate owned 2,201 772 (1,772) 1,201
Other investments/assets 1,383 1,869 (1,034) 2,218
Valuation reserve on
deferred taxes 575 785 -- 1,360
-------------------------------------
$11,246 $ 6,196$ (6,894) $10,548
=====================================
-27-
Form 10-K
Exhibit Index
Exhibit Description
11 Statement Regarding Computation of Net Income per Common Share
13 Selected Excerpts from the Annual Report to Shareholders for fiscal
year ended September 30, 1996
21 Subsidiaries
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule (Selected financial data - for EDGAR
electronic filing only to SEC
-28-