-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WDY32qu3JipNgG1D6v3YnH5z/TrPknA3SmuFtIAMGgM+lGvA9w58jhKBFpASROpq y9aK6WGZJhdCySMrcxtnvQ== 0000720672-96-000011.txt : 19960327 0000720672-96-000011.hdr.sgml : 19960327 ACCESSION NUMBER: 0000720672-96-000011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960326 SROS: CSX SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STIFEL FINANCIAL CORP CENTRAL INDEX KEY: 0000720672 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 431273600 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09305 FILM NUMBER: 96538278 BUSINESS ADDRESS: STREET 1: 500 N. BROADWAY STREET 2: 14TH FLOOR CITY: ST LOUIS STATE: MO ZIP: 63102-2188 BUSINESS PHONE: 3143422000 MAIL ADDRESS: STREET 1: 500 N BROADWAY CITY: ST LOUIS STATE: MO ZIP: 63102-2188 10-K 1 FORM 10-K; DATED DECEMBER 31, 1995 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) /x/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the fiscal year ended December 31, 1995 / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period from to Commission file number 1-9305 STIFEL FINANCIAL CORP. (Exact name of registrant as specified in its charter) DELAWARE 43-1273600 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 500 N. Broadway, St. Louis, Missouri 63102-2188 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 314-342-2000 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class On Which Registered ------------------- --------------------- Common Stock, Par Value $.15 per share New York Stock Exchange Chicago Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Chicago Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports re- quired 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 report) and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No/ / Indicate by check mark 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 state- ments incorporated by reference in Part III of this Form 10-K, or any amend- ment to this Form 10-K. / / Aggregate market value of voting stock held by non-affiliates of the registrant at March 12, 1996 was $24,116,459. Shares of Common Stock outstanding at March 12, 1996: 4,476,725 shares, par value $.15 per share. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Stockholders for the year ended December 31, 1995 are incorporated by reference to Part II hereof. Portions of the Company's Proxy Statement filed with the SEC in connection with the Company's Annual Meeting of Stockholders to be held April 23, 1996 are incorporated by reference to Part III hereof. Exhibit Index located on pages 24. PART I ITEM 1. BUSINESS Stifel Financial Corp. ("Financial") was organized in fiscal year 1983 pursuant to a plan of reorganization whereby Stifel, Nicolaus & Company, Incorporated ("Stifel, Nicolaus") became a wholly-owned subsidiary of Financial. Stifel, Nicolaus is the successor to a partnership founded in 1890. The term "Company" as used herein means Financial and its subsidiaries. The Company offers securities-related financial services through its wholly owned operating subsidiaries, Stifel, Nicolaus, Century Securities Associates, Inc. Todd Investment Advisors, Inc., and Pin Oak Capital, Ltd. These subsidiaries provide brokerage, trading, investment banking, investment advisory, and related financial services primarily to customers throughout the United States from 43 locations. The Company's customers include individuals , corporations, municipalities and institutions. Although the Company has customers throughout the United States, its major geographic area of concentration is in the Midwest. On May 25, 1995 the Company sold the majority of the assets related to its operations in Oklahoma, which consisted of 26 retail securities offices and the municipal underwriting, trading, and institutional sales operations located in Oklahoma, and three retail offices in Texas. These operations comprised 14% of the Company's total revenue for 1994. (See proforma financial information in Note Q of the Consolidated Financial Statements incorporated by reference herein.) Principal Sources of Revenue The amounts of each of the principal sources of revenue of the Company for the calendar years 1995 and 1994, the five-month transition period and the prior fiscal year is contained on page 17 of the Company's 1995 Annual Report to Stockholders. Such information is hereby incorporated by reference. Commissions During recent years, most of the Company's securities commissions resulted from transactions with retail (individual) investor accounts. Retail commissions are charged on both stock exchange and over-the-counter transactions in accordance with the Company's commission schedule. In certain cases, discounts from that schedule are granted, usually on large trades or to active customers. The percentage of total commission revenue from institutional customers is not accounted for separately. Institutional accounts, which generate primarily fixed income transactions, are serviced mainly by the Company's offices in St. Louis. Retail investment executives also receive orders from institutional customers from time to time. Principal Transactions The Company trades as principal in the over-the-counter market. It acts as both principal and agent to facilitate the execution of customers' orders. The Company "makes a market" in various securities of interest to its customers through buying, selling and maintaining an inventory of these securities. The Company does not engage in a significant amount of trading for its own account. The Company also buys corporate and municipal bonds for its own account in the secondary market, maintains an inventory, and resells from that inventory to other dealers and to institutional and retail customers. Investment Banking The Company manages the underwriting of both corporate and municipal securities and participates as an underwriter in syndicates of issues managed by other firms. The corporate and public finance departments are responsible for originating underwritings, mergers and acquisitions, placements, valuations, financial advisory work and other investment banking matters. The Company acts as an underwriter and dealer in bonds issued by states, cities and other political subdivisions and may act as manager or participant in offerings managed by other firms. The majority of the Company's municipal bond underwritings and corporate underwritings are originated and sold through its office in St. Louis. Prior to 1994 the majority of the Company's investment banking related revenue was generated by its Oklahoma City based public finance department. As a result of the negative publicity surrounding the two year investigation and civil injunctive action by the Securities and Exchange Commission which was settled in August of 1995 related to certain municipal bond underwritings managed by the Oklahoma City office, the Company's ability to generate municipal bond underwritings in Oklahoma and elsewhere was adversely impacted (see also Item 7 "Management Discussion and Analysis" and Note H of the Consolidated Financial Statements incorporated by reference herein.) The level of production by the St. Louis public finance department did not meet management's expectations for 1995. The number of municipal bond offerings was not only affected by the negative publicity as a result of the Securities and Exchange Commission investigation and enforcement action but also was effected by the downturn in the public finance market experienced industry-wide. Interest rates have not fluctuated downward as dramatically as several years ago, and consequently the volume of refinancings by institutions and governmental agencies has remained low. While many large broker-dealers have ceased their public finance operations resulting from the industry-wide slowdown, management is uncertain at this time what effects, if any, that may have on the department's future performance. In calendar years 1995 and 1994 the majority of the Company's investment banking revenues have been generated by the corporate finance department. The growth in the revenue is due to the department's focus on providing research, financial advisory services, and consulting services for merger and acquisition and serving as a manager or co-manager for underwriting issuances of corporate debt or equity securities for financial institutions and Real Estate Investment Trusts (REITs) located primarily in the Midwest. Management expects the performance of the corporate finance department to remain strong. The management of and participation in public offerings involves significant risks. An underwriter may incur losses if it is unable to resell, at a profit, the securities it has purchased. Under the Securities Act of 1933 and other statutes and court decisions, an underwriter may be subject to substantial liability for misstatements or omissions that are judged to be material in prospectuses and other communications related to underwritings. Underwriting commitments cause a charge against net capital (as defined by Rule 15c3-1 of the Securities and Exchange Commission - -- see "Regulation"); and, consequently, the aggregate amount of underwriting commitments at any one time may be limited by the amount of available net capital of the Company. Other Business The Company has dealer-sales agreements with numerous distributors of investment company shares. These agreements provide generally for dealer discounts ranging up to 5.75 percent of the purchase price, depending upon the size of the transaction. The Company acts as an agent for its customers' transactions in put and call options traded on the Chicago Board Options Exchange, Inc., American Stock Exchange, Inc., Philadelphia Stock Exchange, Inc., and, to a much lesser extent, in the over-the-counter market. The Company has a wholly owned subsidiary, Century Securities Associates, Inc. ("CSA"), an introducing broker-dealer which clears its transactions through Stifel, Nicolaus. CSA contracts with independent licensed brokers to sell securities and other investment products to retail (individual) investor accounts. CSA is licensed in 50 states and has 88 registered representatives. Management expects CSA to continue to grow in significance to the Company's operation as a whole. In 1993 the Company formed a subsidiary, Stifel Asset Management Corp. ("SAM"), to act as a holding company for two investment advisory firms, Pin Oak Capital, Ltd. ("Pin Oak"), and Todd Investment Advisors, Inc. ("Todd"). Pin Oak, which operated formerly as the investment advisory division of Stifel, Nicolaus, was formed as an investment advisory firm and began operations during the five month transition period in 1993. SAM purchased all of the outstanding stock of Todd, an investment advisory firm located in Louisville, Kentucky, in December 1993. Both Pin Oak and Todd provide investment advice and services to individual, fiduciary and corporate clients. Combined assets under management for the two firms at December 31, 1995 was approximately $2,651,657,000. Pin Oak holds registrations as an investment advisor in six states. Todd is registered as an investment advisor in thirteen states. Coincidental with the sale of the Oklahoma based operations to Capital West Financial Corporation ("Capital West"), the Company entered into a clearing agreement to clear the trades of Capital West's broker-dealer subsidiary and carry its customer accounts on a fully disclosed basis. The Company charges Capital West for these services based upon the clearing agreement. Various subsidiaries of the Company act as General Partners in certain limited partnerships for which Stifel, Nicolaus has sold limited partnership interests to the public. The subsidiaries may receive distributions upon the dissolution of such partnerships, but the amount and timing of receipts of such distributions, if any, cannot be determined at this time and are subject to the usual risks and liabilities associated with acting as a general partner. Customer Financing Securities are purchased for customers on either a cash or margin basis. The customer deposits less than the full cost of the security when securities are purchased on a margin basis. The Company makes a loan for the balance of the purchase price. Such loans are collateralized by the securities purchased. The amounts of the loans are subject to the margin requirements of Regulation T of the Board of Governors of the Federal Reserve System, New York Stock Exchange, Inc. ("NYSE") margin requirements, and the Company's internal policies, which usually are more restrictive than Regulation T or NYSE requirements. In permitting customers to purchase securities on margin, the Company is subject to the risk of a market decline which could reduce the value of its collateral below the amount of the customers' indebtedness. Research The Company's research department provides retail and institutional customers information and recommendations on the securities of specific companies. These services are rendered without charge. The Company also purchases research services from other firms. Competition The Company competes with other securities firms, some of which offer their customers a broader range of brokerage services, have substantially greater resources, and may have greater operating efficiencies. In addition, an increasing number of specialized firms, as well as banks, savings and loans, and other financial institutions, now offer discount brokerage services to individual retail customers. These firms generally charge lower commission rates to their customers without offering services such as portfolio valuation, investment recommendations and research. Competition from such discount brokerage services may adversely affect revenues of the Company and other firms providing full retail brokerage services. Banks also compete with brokerage firms by offering certain investment banking and corporate finance services. Management relies on the expertise acquired in its market area over its 105-year history, its personnel, and its equity capital to operate in the competitive environment. Regulation The securities industry in the United States is subject to extensive regulation under federal and state laws. The Securities and Exchange Commission ("SEC") is the federal agency charged with the administration of the federal securities laws. Much of the regulation of broker-dealers, however, has been delegated to self-regulatory organizations, principally the National Association of Securities Dealers, Inc., the Municipal Securities Rulemaking Board, and the national securities exchanges, such as the NYSE. These self-regulatory organizations adopt rules (which are subject to approval by the SEC) which govern the industry and conduct periodic examinations of member broker-dealers. Securities firms are also subject to regulation by state securities commissions in the states in which they are registered. The regulations to which broker-dealers are subject cover all aspects of the securities business, including sales practices, trade practices among broker-dealers, capital structure of securities firms, record keeping, and the conduct of directors, officers and employees. Additional legislation, changes in rules promulgated by the SEC and by self-regulatory organizations, and changes in the interpretation or enforcement of existing laws and rules often directly affect the method of operation and profitability of broker-dealers. The SEC and the self-regulatory organizations may conduct administrative proceedings which can result in censures, fines, suspension or expulsion of a broker- dealer, its officers or employees. The principal purpose of regulation and discipline of broker-dealers is the protection of customers and the securities markets rather than the protection of creditors and stockholders of broker-dealers. As a broker-dealer and member of the NYSE, Stifel, Nicolaus is subject to the Uniform Net Capital Rule (Rule 15c3-1) promulgated by the SEC which provides that a broker-dealer doing business with the public shall not permit its aggregate indebtedness (as defined) to exceed 15 times its net capital (as defined) or, alternatively, that its net capital shall not be less than 2 percent of aggregate debit balances (primarily receivables from customers and broker-dealers) computed in accordance with the SEC's Customer Protection Rule (Rule 15c3-3). The Uniform Net Capital Rule is designed to measure the general financial integrity and liquidity of a broker-dealer and the minimum net capital deemed necessary to meet the broker-dealer's continuing commitments to its customers and other broker/dealers. Both methods allow broker-dealers to increase their commitments to customers only to the extent their net capital is deemed adequate to support an increase. Management believes that the alternative method, which is utilized by most full-service securities firms, is more directly related to the level of customer business. Therefore, Stifel, Nicolaus computes its net capital under the alternative method. Under SEC rules, a broker-dealer may be required to reduce its business and restrict withdrawal of subordinated capital if its net capital is less than 4 percent of aggregate debit balances and may be prohibited from expanding its business and declaring cash dividends if its net capital is less than 5 percent of aggregate debit balances. A broker-dealer that fails to comply with the Uniform Net Capital Rule may be subject to disciplinary actions by the SEC and self-regulatory agencies, such as the NYSE, including censures, fines, suspension, or expulsion. In computing net capital, various adjustments are made to net worth to exclude assets which are not readily convertible into cash and to state conservatively the other assets such as a firm's position in securities. Compliance with the Uniform Net Capital Rule may limit those operations of a firm such as Stifel, Nicolaus which require the use of its capital for purposes of maintaining the inventory required for a firm trading in securities, underwriting securities, and financing customer margin account balances. Stifel, Nicolaus had net capital of approximately $20,112,000 at December 31, 1995, which was approximately 11.3 percent of aggregate debit balances and approximately $16,550,000 in excess of required net capital. Employees There were 810 individuals employed by the Company as of February 29, 1996. This includes both full and part-time personnel. ITEM 2. PROPERTIES The headquarters and administrative offices of the Company, Stifel, Nicolaus and CSA are located in downtown Saint Louis, Missouri. Todd is located in Louisville, Kentucky. Pin Oak is located in New York, New York. Stifel Nicolaus has a branch office system located in 13 states, primarily in the Midwest. The Company has a total of 43 locations in 14 states. All offices of the Company are located in leased premises. The Company's management believes that at the present time the facilities are suitable and adequate to meet its needs and that such facilities have sufficient productive capacity and are appropriately utilized. The Company also leases communication and other equipment. Aggregate annual rental expense for the twelve month period ended December 31, 1995, for office space and equipment, was approximately $3,986,000. Further information about the lease obligations of the Company is provided in Note D to the Consolidated Financial Statements. ITEM 3. LEGAL PROCEEDINGS The Company is a defendant in several lawsuits and arbitrations which arose from its usual business activities. Some of these lawsuits and arbitrations claim substantial amounts, including punitive damages. While results of litigation and arbitration cannot be predicted with certainty, management, based on opinions of outside counsel, has provided for actions most likely of adverse disposition and believes that the effects of resolution of such litigation and arbitration beyond the amounts provided will not have a material adverse effect on the Company's consolidated financial position. However, depending upon the period of resolution, such effects could be material to the financial results of an individual operating period. It is reasonably possible that certain of these lawsuits and arbitrations could be resolved in the next year and management does not believe such resolutions will result in losses materially in excess of the amounts previously provided. During 1995, the SEC completed a formal investigation into possible violations of the federal securities laws in connection with certain municipal bond issues managed by the Company's former Oklahoma City based public finance department where the Company was the managing or co-managing underwriter. This investigation resulted in the Company consenting to a permanent injunction and ancillary relief whereby, the Company paid approximately $1.1 million in disgorgement and prejudgment interest, and $250,000 in fines. Additionally, the Company is named in lawsuits filed by The Oklahoma Turnpike Authority ("OTA") and The State of Oklahoma. The OTA suit seeks $6.5 million in compensatory damages and an unspecified amount of punitive damages. The State of Oklahoma seeks $7.6 million in compensatory damages and that these damages be trebled. The OTA suit alleges that an undisclosed fee paid to the Company by a third party for the placement of a forward purchase contract in an advance refunding escrow for the proceeds of the 1992 OTA $660 million refinancing should have been paid to the OTA. The State of Oklahoma suit alleges that the Company and two former executives of the Company committed violations of the Racketeer Influenced and Corrupt Organizations ("RICO") Act. This suit alleges essentially the same facts as are alledged in the OTA suit and were alledged by the SEC in its action against the Company which was settled in August, 1995, by the Company without admitting or denying the allegations. Management does not believe the ultimate resolution of these matters will have a materially adverse effect on the Company's financial position. See Note H to the Company's Consolidated Financial Statements, filed herein. Executive Officers of the Registrant - ------------------------------------ The following information is furnished pursuant to General Instruction G(3) of Form 10-K with respect to the executive officers of Financial: Positions or Offices Position with the Name Age with the Company Company Since George H. Walker III 65 Chairman of the Board of 1976 Financial and Stifel, Nicolaus Gregory F. Taylor 46 President and Chief Executive 1985 Officer of Financial and Stifel, Nicolaus Charles R. Hartman 52 General Counsel and Senior 1994 Vice President of Stifel, Nicolaus Mark D. Knott 47 Former Secretary, Treasurer 1986 and Chief Financial Officer of Financial and former Senior Vice President and Chief Financial Officer of Stifel, Nicolaus Rick E. Maples 37 Senior Vice President and 1984 Director of Investment Banking - Corporate Finance of Stifel, Nicolaus Michael A. Murphy 44 Senior Vice President - Director 1989 of Retail Group of Stifel, Nicolaus Edward L. Poth 35 Vice President - Director of 1990 Trading of Stifel, Nicolaus Rexford E. Riordan 62 Senior Vice President - Director 1979 of Investment Services Group of Stifel, Nicolaus J. Joseph Schlafly, III 44 Senior Vice President - Director 1980 of Investment Banking - Public Finance of Stifel, Nicolaus Lawrence E. Somraty 47 President of Century Securities 1977 Associates, Inc. David Soshnik 56 Senior Vice President - Director 1986 of Research of Stifel, Nicolaus James D. Sumption 56 Senior Vice President of Stifel, 1987 Nicolaus President of Pin Oak Capital, Ltd. Bosworth M. Todd 66 Chairman and Chief Executive 1993 Officer of Todd Investment Advisors, Inc. The following are brief summaries of the business experience during the past five years of each of the executive officers. Charles R. Hartman joined Stifel, Nicolaus in June of 1994. He is the General Counsel, Senior Vice President and Secretary of Stifel, Nicolaus. Prior to joining Stifel, Nicolaus, Mr. Hartman was the Regional Counsel for the Securities and Exchange Commission in Los Angeles, California and since April of 1982 a Los Angeles partner in the law firm of Rogers & Wells. Mark D. Knott joined Financial as Treasurer and Chief Financial Officer and Stifel, Nicolaus as Chief Financial Officer and Senior Vice President in 1986 and was elected Secretary of Financial in 1990. Mr. Knott served in this capacity until his resignation in February, 1996. Rick E. Maples joined Stifel, Nicolaus in 1984. He served as First Vice President and Investment Banker of the Corporate Finance Department until October, 1992, when he became Senior Vice President and Director of Investment Banking - Corporate Finance Department of Stifel, Nicolaus. Michael A. Murphy joined Stifel, Nicolaus in 1989. He is Senior Vice President and Director of Retail Group of Stifel, Nicolaus. From 1989 - 1994, Mr. Murphy served as First Vice President and Director of Branch Administration. Edward L. Poth joined Stifel, Nicolaus in 1990. He is Vice President and Director of Trading of Stifel, Nicolaus. From 1990 - - 1995, Mr. Poth served as Vice President and Bond Trader. Rexford E. Riordan joined Stifel, Nicolaus in 1979. He is Senior Vice President and Director of Investment Services Group of Stifel, Nicolaus. From 1979 - 1995, Mr. Riordan served in various capacities in the firm including assisting in the National Sales department, Manager of Mutual Funds and Unit Investment Trusts departments, Director of Training, and served as First Vice President. J. Joseph Schlafly, III joined Stifel, Nicolaus in 1980. He is Senior Vice President and Director of Investment Banking - Public Finance Department of Stifel, Nicolaus. Lawrence E. Somraty has been with Stifel, Nicolaus since 1977. He served as Option Department Manager, Senior Registered Options Principal, Investment Advisor and Branch Manager. He became the President of Century Securities Associates, Inc. in January 1991. David Soshnik joined Stifel, Nicolaus in 1986. He is Senior Vice President and Director of Research of Stifel, Nicolaus. Prior to 1995, Mr. Soshnik served as Senior Vice President of Investments. James D. Sumption joined Stifel, Nicolaus in 1987. He has served as Senior Vice President of Stifel, Nicolaus and became President of Pin Oak Capital, Ltd. in 1992. Gregory F. Taylor was branch manager of Stifel, Nicolaus' Chicago branch from October, 1985 until July, 1988. He became Executive Vice President and Director of National Sales and Marketing of Stifel, Nicolaus in July, 1988, Chief Operating Officer in November, 1991 and President and Chief Executive Officer as of October 26, 1992. He was elected a Vice President of Financial in October, 1991 and President and Chief Executive Officer as of October 26, 1992. Bosworth M. Todd joined the Company in 1993 when the Company purchased all of the outstanding stock of Todd. Mr. Todd has served as the Chairman and Chief Executive Officer of Todd since 1979. George H. Walker III joined Stifel, Nicolaus in 1976, became President and Chief Executive Officer of Stifel, Nicolaus in December, 1978, and became Chairman of Stifel, Nicolaus in July, 1982. From the time of the organization of Financial in 1981 Mr. Walker has served as its Chairman of the Board and, until October 26, 1992, Mr. Walker served as its President and Chief Executive Officer. Mr. Walker is a director of Laclede Steel Company, Laidlaw Corp., and EAC Corporation. He is active in various community activities and is a former Chairman of Downtown St. Louis, Inc. and Webster University. He currently is Chairman of the Missouri Historical Society and Chairman of the Advisory Committee of Webster University Business School. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS a.) Market Information The common stock of Financial is traded on the New York Stock Exchange and Chicago Stock Exchange under the symbol "SF." The high/low sales prices for Financial's Common Stock for each full quarterly period for the two most recent calendar years and the five-month transition period are as follows: Stock Price High - Low --------------------------------- Year 1995 By Quarter --------------------------------- First $ 6 1/2 - 5 1/4 Second 6 3/8 - 5 3/8 Third 6 3/4 - 5 7/8 Fourth 6 1/4 - 5 1/2 --------------------------------- Year 1994 By Quarter --------------------------------- First $ 9 3/8 - 7 7/8 Second 8 - 6 7/8 Third 7 1/4 - 5 1/2 Fourth 5 1/2 - 5 --------------------------------- Transition Period 1993 --------------------------------- First $ 9 7/8 - 8 5/8 Nov. & Dec., 1993 9 1/8 - 8 1/4 --------------------------------- b.) Holders The approximate number of stockholders of record on March 15, 1996 was 3,000. c.) Dividends Dividends paid were as follows: Record Payment Cash Stock Date Date Dividend Dividend -------- -------- -------- -------- 09/07/93 09/21/93 $0.025 - - 10/15/93 10/29/93 - - 5% 12/09/93 12/21/93 $0.03 - - 05/02/94 05/17/94 $0.03 - - 08/02/94 08/16/94 $0.03 - - 11/01/94 11/15/94 $0.03 - - 02/10/95 02/24/95 $0.03 5% 05/09/95 05/23/95 $0.03 - - 08/08/95 08/22/95 $0.03 - - 11/07/95 11/21/95 $0.03 - - A regular quarterly cash dividend of $0.025 per share was established on February 9, 1993. On November 30, 1993 the regular quarterly cash dividend was increased to $0.03 per share. ITEM 6. SELECTED FINANCIAL DATA Stifel Financial Corp. and Subsidiaries Financial Summary
Five Months Years Ended December 31, Ended Years Ended July ------------------------ ------------------------------- (In thousands, except per 1995 1994 Dec.31, 1993 1993 1992 1991 share and percentages) Revenues Commissions $ 28,292 $ 25,407 $ 11,949 $ 26,456 $ 25,204 $ 19,957 Principal transactions 18,980 22,567 9,313 25,201 25,260 19,432 Investment banking 11,674 11,969 10,885 30,551 29,791 14,030 Interest 13,002 10,918 4,057 8,851 9,130 8,613 Sale of Investment company shares 8,316 9,674 4,906 10,741 8,638 5,411 Sale of unit investment trusts 1,828 2,736 1,362 3,220 2,611 2,188 Sale of Insurance products 2,109 2,207 1,263 1,614 1,676 1,950 Other 11,159 8,448 2,720 6,837 5,699 5,635 -------- -------- -------- -------- -------- -------- 95,360 93,926 46,455 113,471 108,009 77,216 -------- -------- -------- -------- -------- -------- Expenses Employee compensation & benefits 57,187 60,652 29,421 68,657 63,891 46,126 Commissions & floor brokerage 2,319 2,120 845 2,485 2,437 2,055 Communications and office supplies 7,651 8,045 3,090 6,836 6,168 6,706 Occupancy & equipment rental 7,884 9,397 3,333 7,648 7,401 6,929 Promotional 2,024 2,868 1,231 2,925 2,206 1,604 Interest 8,312 6,138 1,763 4,838 5,505 5,892 Provision for litigation and bad debts 1,610 2,467 473 1,237 3,745 4,816 Restructuring charge - - 2,672 - - - - - - - - Other operating expenses 7,066 8,788 3,239 7,575 7,588 5,874 -------- -------- -------- -------- -------- -------- 94,053 103,147 43,395 102,201 98,941 80,002 -------- -------- -------- -------- -------- -------- Income (loss) before income taxes and extraordinary credit 1,307 (9,221) 3,060 11,270 9,068 (2,786) -------- -------- -------- -------- -------- -------- Provision (Benefit) for Income Taxes Current (73) (1,983) 1,352 4,223 2,918 426 Deferred 736 (1,735) (207) 9 445 (426) -------- -------- -------- -------- -------- -------- 663 (3,718) 1,145 4,232 3,363 - - -------- -------- -------- -------- -------- -------- Income (loss) before extraordinary credit 644 (5,503) 1,915 7,038 5,705 (2,786) Extraordinary Credit -- tax benefit from utilization of net operating loss carryforward - - - - - - - - 648 - - -------- -------- -------- -------- -------- -------- Net income (loss) $ 644 $ (5,503) $ 1,915 $ 7,038 $ 6,353 $ (2,786) ======== ======== ======== ======== ======== ======== Per Share Data Primary earnings (loss)(a) $ .14 $(1.23) $ .42 $ 1.60 $ 1.51 $ (.67) Fully Diluted earnings (loss)(a) $ .14 $(1.23) $ .38 $ 1.33 $ 1.27 $ (.67) Cash dividends $ .12 $ 0.09 $ 0.055 $ 0.15 $ 0.00 $ 0.00
Stifel Financial Corp. and Subsidiaries Financial Summary
Five Months Years Ended December 31, Ended Years Ended July ------------------------ ------------------------------- (In thousands, except per 1995 1994 Dec.31, 1993 1993 1992 1991 share and percentages) Other Data Total Assets $226,775 $222,208 $288,203 $196,539 $191,059 $121,997 Long-term obligations $ 10,760 $ 11,520 $ 11,520 $ 10,000 $ 10,000 $ 10,000 Stockholder's equity $ 34,795 $ 34,226 $ 40,609 $ 38,995 $ 31,597 $ 24,740 Net income as % average equity 1.87 % * N.M. 4.81 % 19.94 % 22.55 % * N.M. Net income as % revenues 0.68 % * N.M. 4.12 % 6.20 % 5.88 % * N.M. Average common shares and share equivalents outstanding (a): Primary 4,452 4,466 4,524 4,408 4,194 4,139 Fully Diluted 5,815 5,816 5,874 5,818 5,545 4,139
(a) Retroactively restated to reflect the 5 percent stock dividends declared September 9, 1992, September 14, 1993, January 24, 1995, and January 23, 1996. * Not Meaningful The information called for in items 7 and 8 of Part II is set forth on the pages listed below of the Company's 1995 Annual Report to Stockholders and is incorporated herein by reference: Pages In Annual Report To Stockholders (filed herewith in Exhibit 13) ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operation. 7 through 15 ITEM 8. Financial Statements and Supplementary Data. 16 through 37 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None PART III ITEMS 10 THROUGH 13 Financial intends to file with the Securities and Exchange Commission a definitive proxy statement pursuant to Regulation 14A involving the election of directors not later than 120 days after the end of its fiscal year ended December 31, 1995. Accordingly, except to the extent included in Part I under the caption "Executive Officers of the Registrant", the information required by Part III (Items 10, 11, 12 and 13) is incorporated herein by reference to such definitive proxy statement in accordance with General Instruction G(3) to Form 10-K. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this report: Reference (page) ------------ Annual Report to Stockholders ------------ 1. The following consolidated financial statements of Stifel Financial Corp. and subsidiaries, included on pages 7 through 37 in the 1995 Annual Report to Stockholders, are incorporated by reference in Item 8 Report of Independent Accountants....................... 16 Consolidated Statements of Financial Condition -- December 31, 1995 and December 31, 1994............. 18 - 19 Consolidated Statements of Operations -- Years ended December 31, 1995 and December 31, 1994, five-month transition period ended December 31, 1993 and fiscal year ended July 30, 1993.................... 17 Consolidated Statements of Stockholders' Equity -- Years ended December 31, 1995 and December 31, 1994, five-month transition period ended December 31, 1993 and fiscal year ended July 30, 1993................... 22 Consolidated Statements of Cash Flows -- Years ended December 31, 1995 and December 31, 1994, five-month transition period ended December 31, 1993 and fiscal year ended July 30, 1993................ 20 - 21 Notes to Consolidated Financial Statements.......... 23 - 36 2. The following consolidated financial statement schedules of Stifel Financial Corp. and subsidiaries are filed herewith pursuant to ITEM 14(d): Report of Independent Accountants Schedule I - Condensed Financial Information of Registrant Schedule II - Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. 3. Exhibits Exhibit No. (Referenced to Item 601(b) of Regulation S-K) (a)(1) Restated Certificate of Incorporation of Financial filed with the Secretary of State of Delaware on June 1, 1983, incorporated herein by reference to Exhibit 3.1 to Financial's Registration Statement on Form S-1, as amended (Registration File No. 2-84232) filed July 19, 1983. (a)(2) Amendment to Restated Certificate of Incorporation of Financial filed with the Secretary of State of Delaware on May 11, 1987, incorporated herein by reference to Exhibit (3)(a)(2) to Financial's Report on Form 10-K for the year ended July 31, 1987. (a)(3) Certificate of Designation, Preferences, and Rights of Series A Junior Participating Preferred Stock of Financial filed with the Secretary of State of Delaware on July 10, 1987, incorporated herein by reference to Exhibit (3)(a)(3) to Financial's Report on Form 10-K for the year ended July 31, 1987. (a)(4) Amendment to Restated Certificate of Incorporation of Financial filed with the Secretary of State of Delaware on November 28, 1989, incorporated herein by reference to Exhibit (3)(a)(4) to Financial's Report on Form 10-K for the year ended July 27, 1990. (b) Amended and Restated By-Laws of Financial, incorporated herein by reference to Exhibit 3(b)(1) to Financial's Report on Form 10-K for fiscal year ended July 30, 1993. 4. Note Agreement dated as of October 15, 1988, between Financial and Bankers United Life Assurance Company and Pacific Fidelity Life Insurance Company, incorporated herein by reference to Exhibit 4 to Financial's Report on Form 10-Q for the quarterly period ended April 28, 1989. The Company hereby agrees to furnish the Securities and Exchange Commission copies of such instruments upon request. 10. (a)(1) Employment Agreement with George H. Walker III dated August 21, 1987, incorporated herein by reference to Exhibit 10(c) to Financial's Report on Form 10-K for the fiscal year ended July 31, 1987. (a)(2) First Amendment to Employment Agreement with George H. Walker III, incorporated herein by reference to Exhibit 10(a)(2) to Financial's Report on Form 10-K for the fiscal year ended July 31, 1992. (b) Form of Indemnification Agreement with directors dated as of June 30, 1987, incorporated herein by reference to Exhibit 10.2 to Financial's Report on Form 8-K (date of earliest event reported - June 22, 1987) filed July 14, 1987. (c) 1983 Incentive Stock Option Plan of Financial, incorporated herein by reference to Exhibit 4(a) to Financial's Registration Statement on Form S-8 (Registration File No. 2-94326) filed November 14, 1984. (d) 1985 Incentive Stock Option Plan of Financial, incorporated herein by reference to Exhibit 28C to Financial's Registration Statement on Form S-8, as amended (Registration File No. 33-10030) filed November 7, 1986. (e) 1987 Non-qualified Stock Option Plan of Financial , incorporated herein by reference to Exhibit 10(h) to Financial's Report on Form 10-K for the fiscal year ended July 31, 1987. (f) Amendment to 1983 Incentive Stock Option Plan, 1985 Incentive Stock Option Plan and 1987 Non- Qualified Stock Option Plan, incorporated herein by reference to Exhibit 10(f) to Financial's Report on Form 10-K for the fiscal year ended July 28, 1989. (g)(1) 1993 Employee Stock Purchase Plan of Financial, incorporated herein by reference to ANNEX A of Financial's Definitive Proxy Statement (Registration File No. 33-16150) filed October 28, 1992. (g)(2) First Amendment to the 1993 Employee Stock Plan of Financial, incorporated herein by reference to Exhibit 4.5 to Financial's Registration Statement on Form S-8 (Registration File No. 33-53097) filed April 11, 1994. (h) Restricted Stock Agreement effective as of October 1, 1992 with Rick E. Maples, incorporated herein by reference to Exhibit 10(l) to Financial's Report on Form 10-K for fiscal year ended July 30, 1993. (i) Employment and Non-Competition Agreement with Gregory F. Taylor dated July 26, 1993, incorporated herein by reference to Exhibit 10(m) to Financial's Report on Form 10-K for fiscal year ended July 30, 1993. (j) Dividend Reinvestment and Stock Purchase Plan of Financial, incorporated herein by reference to Financial's Registration Statement on Form S-3 (Registration File No. 33-53699) filed May 18, 1994. (k) Restricted Stock Agreement effective as of August 1, 1992 with James D. Sumption, filed herewith. 11. Statement regarding computation of per share earnings, filed herewith. 13. Annual Report to Stockholders for the year ended December 31, 1995. Except for those portions of pages expressly incorporated by reference, the 1995 Annual Report to Stockholders is not deemed filed as part of this Annual Report on Form 10-K. 21. List of Subsidiaries of Financial, filed herewith. 23. Consent of Independent Accountants, filed herewith. 27. Financial Data Schedule BD, filed herewith. (b) Reports on Form 8-K: There were no reports on Form 8-K filed during the fourth quarter of Financial's fiscal year ended December 31, 1995. 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, in the City of St. Louis, State of Missouri, on the 22nd day of March, 1996. STIFEL FINANCIAL CORP. (Registrant) By /s/ Gregory F. Taylor Gregory F. Taylor (Principal Executive Officer) /s/ Stephen J. Bushmann Stephen J. Bushmann (Acting Principal Financial and 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 on March 22, 1996, in the capacities indicated. /s/ George H. Walker III Chairman of the Board George H. Walker III /s/ Gregory F. Taylor President, Chief Executive Gregory F. Taylor Officer, and Director /s/ Belle A. Cori Director Belle A. Cori /s/ Charles A. Dill Director Charles A. Dill /s/ Richard F. Ford Director Richard F. Ford /s/ John J. Goebel Director John J. Goebel Director Robert E. Lefton Report of Independent Accountants Board of Directors Stifel Financial Corp. St. Louis, Missouri: Our report on the consolidated financial statements of Stifel Financial Corp. and Subsidiaries has been incorporated by reference in this Form 10-K from page 16 of the 1995 Annual Report to Stockholders of Stifel Financial Corp. In connection with our audits of such financial statements, we have also audited the related financial statement schedules listed in the index on page 13 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. St. Louis, Missouri February 25, 1996 SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED BALANCE SHEETS STIFEL FINANCIAL CORP.
Dec. 31, 1995 Dec. 31, 1994 ------------- ------------- ASSETS Cash $ 9,155 $ 9,155 Due from subsidiaries (a) 3,887,790 4,255,352 Investment in subsidiaries (a) 37,421,622 36,214,874 Office equipment and leasehold improvements, at cost, less allowances for depreciation and amortization of $12,107,975 and $13,130,867, respectively 2,972,388 4,721,786 Investments, at cost 736,549 796,393 Goodwill and other intangible assets, net of amortization of $396,480 and $358,536, respectively 1,189,430 1,279,593 Other assets 2,102,135 731,945 ----------- ----------- TOTAL ASSETS $48,319,069 $48,009,098 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Due to subsidiaries (a) $ 402,336 $ 39,456 Obligation under Capital Lease 774,229 1,029,282 Long-term debt 10,760,000 11,520,000 Other liabilities 1,587,142 1,193,949 ----------- ----------- TOTAL LIABILITIES 13,523,707 13,782,687 Stockholders' Equity: Capital stock 681,134 648,743 Additional paid-in capital 19,622,646 18,491,086 Retained earnings 15,753,713 17,016,335 ----------- ----------- 36,057,493 36,156,164 Less cost of stock in treasury 1,162,376 1,731,974 Less unamortized stock awards 99,755 197,779 ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 34,795,362 34,226,411 ----------- ----------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $48,319,069 $48,009,098 =========== ===========
(a) Eliminated in consolidation. See Notes to Consolidated Financial Statements (Item 8) SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued) CONDENSED STATEMENTS OF OPERATIONS STIFEL FINANCIAL CORP.
Five Months Years Ended December 31, Ended Year Ended 1995 1994 Dec. 31, 1993 July 30, 1993 -------------- ------------ ------------- ------------- Revenues: Lease $ 1,708,160 $ 2,162,292 $ 791,330 $ 1,801,167 Other (162,347) (7,522) 57,398 520,319 ----------- ----------- ----------- ----------- 1,545,813 2,154,770 848,728 2,321,486 Expenses: Depreciation and amortization 1,751,250 2,325,301 870,926 2,004,720 Professional fees 170,664 236,506 121,574 549,122 Miscellaneous 135,363 128,882 38,636 258,866 ---------- ----------- ----------- ----------- 2,057,277 2,690,689 1,031,136 2,812,708 ----------- ----------- ----------- ----------- Loss before income taxes (511,464) (535,919) (182,408) (491,222) ----------- ----------- ----------- ----------- Provision (benefit) for income taxes: Current (53,447) 53,406 (15,165) (42,308) Deferred 105,547 (27,160) (34,501) (105,763) ----------- ----------- ----------- ----------- 52,100 26,246 (49,666) (148,071) ----------- ----------- ----------- ----------- Loss before equity in net income (loss) of subsidiaries (563,564) (562,165) (132,742) (343,151) Equity in net income (loss) of subsidiaries 1,207,085 (4,941,170) 2,048,059 7,381,245 ----------- ----------- ----------- ----------- NET INCOME (LOSS) $ 643,521 $(5,503,335) $ 1,915,317 $ 7,038,094 =========== =========== =========== ===========
See Notes to Consolidated Financial Statements (Item 8) SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued) CONDENSED STATEMENTS OF CASH FLOWS STIFEL FINANCIAL CORP.
Five Months Years Ended December 31, Ended Year Ended 1995 1994 Dec. 31, 1993 July 30, 1993 -------------------------- ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 643,521 $(5,503,335) $ 1,915,317 $ 7,038,094 Non-cash items included in net income (loss): Depreciation and amortization 1,751,250 2,325,301 870,926 2,004,720 Unrealized loss on investments - - 321,300 - - - - Deferred tax provision (benefit) 105,547 (27,160) (34,501) (105,763) Undistributed (income) loss of subsidiaries (1,207,085) 4,941,170 (2,048,059) (7,381,245) Amortization and forfeitures of restricted stock awards and stock benefits 84,346 107,341 421,968 506,373 ----------- ----------- ----------- ----------- 1,377,579 2,164,617 1,125,651 2,062,179 Net change in due to/due from subsidiaries 730,442 (718,361) (13,184) 1,094,158 (Increase) decrease in other assets (1,162,037) 1,365,788 840,208 (195,977) Increase in other liabilities 393,193 180,271 156,311 513,107 ----------- ----------- ----------- ----------- CASH PROVIDED BY OPERATING ACTIVITIES 1,339,177 2,992,315 2,108,986 3,473,467 ----------- ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from: Employee stock purchase plan 755,274 611,688 627,587 378,195 Exercised options 123,503 81,213 110,788 267,319 Dividend reinvestment plan 9,533 944 - - - - Payments for: Retirement of long-term debt (760,000) - - - - - - Purchase of stock for treasury (546,615) (1,416,932) (1,329,374) (301,813) Restricted stock awards - - - - (33,937) (81,449) Principal payments under capital lease (255,053) (710,089) (263,096) (590,252) Stock dividend fractional share payment - - - - (2,478) - - Cash dividend (500,611) (354,368) (215,361) (561,128) ----------- ----------- ----------- ----------- CASH USED FOR FINANCING ACTIVITIES (1,173,969) (1,787,544) (1,105,871) (889,128) ----------- ----------- ----------- -----------
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued) CONDENSED STATEMENTS OF CASH FLOWS (continued) STIFEL FINANCIAL CORP.
Five Months Years Ended December 31, Ended Year Ended 1995 1994 Dec. 31, 1993 July 30, 1993 -------------------------- ------------- ------------- CASH USED FOR FINANCING ACTIVITIES -- From Previous Page (1,173,969) (1,787,544) (1,105,871) (889,128) ----------- ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from: Distributions/sales received on investments 94,893 25,000 - - - - Sales of office equipment, leasehold improvements, and a building 909,762 24,235 - - 16,430 Dissolution of subsidiaries - - 505,000 - - - - Payments for: Investments in subsidiaries - - - - (5,000) (529,259) Acquisition ofinvestments - - (52,219) (250,000) (487,671) Office equipment, leasehold improvements and a building (1,169,863) (1,706,787) (748,115) (1,583,839) ----------- ----------- ----------- ----------- CASH USED FOR INVESTING ACTIVITIES (165,208) (1,204,771) (1,003,115) (2,584,339) ----------- ----------- ----------- ----------- Increase in cash 0 0 0 0 Cash (beginning of period) 9,155 9,155 9,155 9,155 ----------- ----------- ----------- ----------- Cash (end of period) $ 9,155 $ 9,155 $ 9,155 $ 9,155 =========== =========== =========== =========== Supplemental Disclosures of Cash Flow Information - ------------------------------------------------- Schedule of Non-cash Investing and Financing Activities Assumption of debt for acquisition of Todd - - - - $ 1,520,000 - - Fixed assets acquired under capital lease - - $ 808,000 $ 257,000 - - Stock dividends distributed $ 1,406,000 $ 1,287,000 - - $ 2,009,000 See Notes to Consolidated Financial Statements (Item 8)
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS STIFEL FINANCIAL CORP. AND SUBSIDIARIES
COL. A COL. B COL. C COL. D COL. E Balance at Additions Balance Beginning Charged to Costs at End Description of Period and Expenses Deductions of Period ----------- ---------- ---------------- ---------- --------- Year Ended December 31, 1995: Deducted from asset account: Allowances for doubtful accounts $1,070,985 $ 0 $ 266,069 $ 804,916 Deducted from asset account: Allowances for doubtful notes receivables 2,560,617 802,004 360,401 3,002,220 Deducted from asset account: Reserves for investments 972,795 88,500 422,933 638,362 Deducted from asset account: Reserves for securities owned 0 0 (200,000) 200,000 Year Ended December 31, 1994: Deducted from asset account: Allowances for doubtful accounts 1,435,058 0 364,073 1,070,985 Deducted from asset account: Allowances for doubtful notes receivables 0 3,040,969 480,352 2,560,617 Deducted from asset account: Reserves for investments 1,071,007 322,404 420,616 972,795 Deducted from asset account: Reserves for securities owned 450,000 0 450,000 0 Transition Period Ended December 31, 1993: Deducted from asset account: Allowances for doubtful accounts 1,283,800 253,500 102,242 1,435,058 Deducted from asset account: Reserves for investments 1,071,007 0 0 1,071,007 Deducted from asset account: Reserves for securities owned 450,000 0 0 450,000 Fiscal Year Ended July 30, 1993: Deducted from asset account: Allowances for doubtful accounts 1,455,627 32,500 204,327 1,283,800 Deducted from asset account: Reserves for investments 727,007 350,000 6,000 1,071,007 Deducted from asset account: Reserves for securities owned 0 450,000 0 450,000 Uncollected accounts written off and recoveries. Uncollected notes written off and recoveries. Investments disposed of. Securities disposed of. Reserve balance reclassified from Reserve for investments to conform to 1995 presentation.
EXHIBIT INDEX Stifel Financial Corp. and Subsidiaries Annual Report on Form 10-K Year Ended December 31, 1995 Exhibit Number Description - ------- ----------- 10(k) Restricted Stock Agreement effective as of August 1, 1992 with James D. Sumption 11. Statement regarding computation of per share earnings. 13. 1995 Annual Report to Stockholders.* 21. Subsidiaries of Stifel Financial Corp. 23. Consent of Independent Accountants. 27. Financial Data Schedule BD. * Certain portions of the Annual Report to Stockholders are incorporated herein by reference; the Annual Report to Stockholders is not to be deemed filed as a part of this Annual Report on Form 10-K. EX-10 2 EXHIBIT 10(K) RESTRICTED STOCK AGREEMENT EXHIBIT 10(k) STIFEL FINANCIAL CORP. AND SUBSIDIARIES STIFEL FINANCIAL CORP. RESTRICTED STOCK AGREEMENT Stifel Financial Corp., a Delaware Corporation, ("Company") and James D. Sumption ("Executive") hereby agree as follows: WHEREAS, Executive has heretofore performed valuable services for the Company and its wholly-owned subsidiaries, Stifel, Nicolaus & Company, Incorporated, and Pin Oak Capital Ltd., and the Company desires to encourage Executive to perform such services in the future; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties agree as follows: Section 1. Definitions As used in this Agreement, the following terms shall have the following meanings: A. "Award" means the award provided for in Section 2. B. "Board of Directors" means the Board of Directors of the Company. C. "Change of Control" means (1) the purchase or other acquisition, within the meaning of Section 13(d) of the Securities Exchange Act of 1934, in one or a series of transactions by a person or a group of persons acting in concert, of beneficial ownership in more than twenty- five percent of the then outstanding voting stock of the Company, (2) the receipt of proxies for the election of directors in opposition to management's slate of nominees which proxies aggregate more than forty percent of the then outstanding voting stock of the Company, or (3) the sale or issuance of such number of shares of voting stock of the Company for consideration of other than cash in any transaction or series of related transactions which constitutes more than twenty-five percent of the outstanding voting power of the Company after giving effect to such issuance or sale. D. "Date of Award" means August 1, 1992. E. "Permanent Disability" means total inability of Executive, because of bodily injury or mental or physical disease, to carry out his duties as Senior Vice President of the Company's Subsidiary, Stifel, Nicolaus & Company, Incorporated, for a period of six consecutive months. F. "Stock" means Common Stock of the Company, par value fifteen cents ($0.15) per share. G. "Subsidiary" means any corporation, other than the Company, in an unbroken chain of corporations beginning with the Company if, at the relevant date specified in Section 4, each of the corporations, other than the last corporation in the unbroken chain, owns stock possessing fifty percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. Section 2. Award Subject to the terms of this Agreement, the Company has awarded to Executive and there shall be issued to Executive, 12,000 shares of Stock, effective as of the Date of Award. Section 3. Restrictions Except as hereinafter provided, Executive shall sell to the Company, and the Company shall purchase from Executive, all of the shares of Stock awarded hereunder, and as to which this restriction shall not have lapsed as provided in Section 4 hereof, at a purchase price of five cents ($.05) per share in the event of, and within thirty days following, Executive's termination of employment for any reason. Section 4. Lapse of Restrictions The restrictions imposed by Section 3 shall lapse and the shares of Stock shall vest in Executive on the following specified dates provided Executive shall have been continuously employed by the Company or a Subsidiary or the successor to all or substantially all of the business operations of the Company or a Subsidiary from the Date of the Award to each such date: A. On July 31, 1993, the restrictions shall lapse as to 2,400 shares of Stock subject to the Award; B. On July 31, 1994, the restrictions shall lapse as to an additional 2,400 shares of Stock subject to the Award; and C. On July 31, 1995, the restrictions shall lapse as to an additional 2,400 shares of Stock subject to the Award; D. On July 31, 1996, the restrictions shall lapse as to an additional 2,400 shares of Stock subject to the Award; E. On July 31, 1997, the restrictions shall lapse as to an additional 2,400 shares of Stock subject to the Award; provided, however, that in the event of a Change of Control of the Company or the death or Permanent Disability of Executive, the restrictions shall lapse for 100% of the total number of shares of Stock subject to the Award not then free of the restrictions. For purposes of this Section 4, a leave of absence granted to Executive with the approval of the Board of Directors shall not be deemed to cause Executive to cease to be continuously employed by the Company or by a Subsidiary. Section 5. Legend Each certificate of Stock representing the shares subject to the Award shall bear a legend referring to this Agreement and the fact that such shares are nontransferable and subject to the restrictions hereunder until such restrictions have lapsed and the legend has been removed. The Company shall cause certificates without such legend to be issued, upon Executive's request, for any shares of Stock subject to the Award as, and when, such restrictions lapse as provided in Section 4. Section 6. Shares Non-Transferable Shares of Stock awarded hereunder shall not be transferable by Executive until after the removal of the legend described in Section 5 with respect to such shares. Executive recognizes that the shares of Stock will not be registered under the Securities Act of 1933, as amended (the "1933 Act), in reliance on an exemption thereunder for transaction not involving a public offering, or under the laws of any state. Executive is acquiring such shares of Stock for Executive's own account for investment purposes only. Prior to any proposed transfer of such shares, unless there is in effect a registration statement under the 1933 Act covering the proposed transfer, Executive shall give written notice to the Company of Executive's intention to effect such transfer. Each such notice shall describe in detail the manner and circumstances of the proposed transfer, and shall, if the Company so requests, be accompanied (except in transactions in compliance with Rule 144 under the 1933 Act) by either (i) an unqualified written opinion of legal counsel who shall be reasonably satisfactory to the Company, addressed to the Company and reasonably satisfactory in form and substance to the Company's counsel, to the effect that the proposed transfer of such shares may be effected without registration under the 1933 Act and applicable state securities laws, or (ii) a "no action" letter from the Securities and Exchange Commission to the effect that the transfer of such shares without registration will not result in a recommendation by the staff of the Securities and Exchange Commission that action be taken with respect thereto, whereupon Executive would be entitled to transfer such shares in accordance with the terms of the notice delivered by Executive to the Company. Each certificate evidencing any such shares shall bear the following restrictive legend: "'THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS ("THE ACTS"), AND MAY NOT BE SOLD, OFFERED FOR SALE, OR TRANSFERRED, EXCEPT PURSUANT TO (1) A REGISTRATION STATEMENT EFFECTIVE UNDER THE ACTS, OR (2) IN RELIANCE UPON AN EXEMPTION FROM SUCH REGISTRATION." Section 7. Adjustment in Certain Events If there is any change in the Stock by reason of stock dividends, split-ups, mergers, consolidations, reorganizations, combinations or exchanges of shares or the like, the right and obligation of the Company to purchase provided for in Section 3 hereof shall extend not only to the Stock awarded hereunder, but also to all stock and other property received by Executive pursuant to any such event with respect to Stock that is subject to Section 3 hereof without any increase in the aggregate consideration as provided in Section 3. Any additional shares issued in connection by reason of stock dividends, split-ups, mergers, consolidations, reorganizations, combinations or exchanges of shares or the like, with respect to shares remaining restricted, shall also bear the restrictive legend noted in Sections 5 and 6 of this Agreement. Section 8. Amendment This Agreement may be amended by mutual consent of the parties hereto by written agreement. Section 9. Governing Law This Agreement shall be construed and administered in accordance with the laws of the State of Missouri. IN WITNESS WHEREOF, the Company and Executive have caused this Agreement to be executed on this 31st day of August, 1993, effective as of August 1, 1992. STIFEL FINANCIAL CORP. By: /s/ Gregory F. Taylor Gregory F. Taylor President and Chief Executive Officer By: /s/ James D. Sumption James D. Sumption Executive EX-11 3 EXHIBIT 11 - STATEMENT OF EARNINGS PER SHARE EXHIBIT 11 STIFEL FINANCIAL CORP. AND SUBSIDIARIES STATEMENT REGARDING COMPUTATION OF CONSOLIDATED EARNINGS PER SHARE
Five Months Years Ended Ended Year Ended December 31, Dec. 31, July 30, 1995 1994 1993 1993 ---- ---- ---- ---- Primary - ------- Net income (loss) $ 643,521 $(5,503,335) $ 1,915,317 $ 7,038,094 ----------- ----------- ----------- ----------- Average number of common shares outstanding during the period 4,387,614 4,354,969 4,383,463 4,289,458 Additional Shares assuming exercise of stock options 63,913 111,139 140,724 118,990 ----------- ----------- ----------- ----------- Common shares and equivalents used to calculate earnings (loss) per share 4,451,527 4,466,108 4,524,187 4,408,448 ----------- ----------- ----------- ----------- Primary earnings (loss) per share $ 0.14 $ (1.23) $ 0.42 $ 1.60 =========== =========== =========== =========== Fully Diluted - ------------- Income (loss) before $ 643,521 $(5,503,335) $ 1,915,317 $ 7,038,094 After-tax interest savings assuming con- version of Senior Convertible Notes 553,902 684,075 293,391 702,553 ----------- ----------- ----------- ----------- Net income (loss) $ 1,197,423 $(4,819,260) $ 2,208,708 $ 7,740,647 ----------- ----------- ----------- ----------- Average number of common shares outstanding during the period 4,387,614 4,354,969 4,383,463 4,289,458 Additional Shares assuming exercise of stock options 76,898 111,139 140,724 178,217 Additional Shares assuming conversion of Senior Convertible Notes 1,350,275 1,350,275 1,350,275 1,350,275 ----------- ----------- ----------- ----------- Common shares and equivalents used to calculate earnings (loss) per share 5,814,787 5,816,383 5,874,462 5,817,950 ----------- ----------- ----------- ----------- Fully diluted earnings (loss) per share $ 0.14 $ (1.23) $ 0.38 $ 1.33 =========== =========== =========== =========== Represents the number of shares of common stock issuable on the exercise of dilutive employee stock options less the number of shares of common stock which could have been purchased with the proceeds from the exercise of such options. For primary earnings per share computations, these purchases were assumed to have been made at the average market price of the common stock during the period or that part of the period for which the option was outstanding. For fully diluted earnings per share computations, these purchases were assumed to have been made at the greater of the market price of the common stock at the end of the period or average market price of the common stock during the period or that part of the period for which the option was outstanding. Represents the after-tax interest savings resulting from assumed conversion of $10,000,000 aggregate principal 11.25% Senior Convertible Notes. Represents the number of shares of common stock issuable upon conversion of $10,000,000 aggregate principal 11.25% Senior Convertible Notes at a conversion price of $7.41 share. Net fully diluted earnings (loss) per share computes to $0.21 and ($0.83) for the years ended December 31, 1995 and December 31, 1994, respectively. Since this is anti-dilutive, fully diluted earnings (loss) per share is equivalent to primary earnings (loss) per share.
EX-13 4 EXHIBIT 13 - PORTIONS OF 1995 ANNUAL REPORT EXHIBIT 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's Financial Discussion Stifel Financial Corp. and Subsidiaries Business Environment Stifel Financial Corp. and subsidiaries (the "Company"), through its principal subsidiary, Stifel, Nicolaus & Company, Incorporated ("Stifel, Nicolaus"), provides securities brokerage and investment management and advisory services primarily to individuals, provides investment banking services to municipal and corporate clients, and trades fixed income securities and over-the-counter equity securities. Century Securities Associates, Inc. ("CSA"), a wholly owned subsidiary of the Company, provides administration services to independent registered investment executives. Additionally, Pin Oak Capital Ltd. ("Pin Oak") and Todd Investment Advisors, Inc. ("Todd"), both wholly owned subsidiaries of the Company, provide fee-based investment advisory services to both individual and institutional clients. These business activities are sensitive to a variety of factors, including the securities trading volume, the volatility and price level of securities markets, the demand for investment banking services, the level and volatility of interest rates, and investor sentiment. Many of the Company's activities have fixed operating costs which do not decrease proportionately with reduced levels of activity. Although the Company is building its fee-based money management business and continually controlling recurring operating expenses, sustained periods of reduced transaction activity or loss of clients may adversely affect profitability. The Company faces increasing competition from other financial institutions such as commercial banks, thrifts, and investment firms. Certain financial services, traditionally provided only by securities firms, are increasingly being provided by these other financial institutions. The business environment for the securities industry during 1995 was one of the most prosperous in recent years. More investors, larger holdings, and more active participants fueled record market activity and prices. Individuals continued to evolve from savers to investors as lower interest rates and slow growth in the U.S. economy boosted the equity markets. Historically, a significant source of the Company's investment banking revenues originated from Oklahoma municipal securities issuances. During 1994, the Company's municipal investment banking business was significantly impaired by the negative publicity surrounding a formal investigation by the Securities and Exchange Commission into certain municipal bond issues managed by the Company's Oklahoma public finance department. During 1995, this investigation was completed and resulted in the Company consenting to a final judgement whereby, among other things, the Company paid approximately $1.1 million in disgorgement and prejudgement interest and $250,000 in fines. However, also during 1995, the municipal finance industry continued to experience pressure on its profit margins due to a decline in the number of underwritings and the narrowing of underwriting spreads. Additionally, in December of 1994, the Company was approached by a group of investors (primarily former employees of the Company) offering to purchase the Company's operations in Oklahoma and several retail sales offices in Texas. On May 25, 1995, the sale was consummated with Capital West Financial Corporation ("Capital West"). (See Note Q to the Notes to Consolidated Financial Statements filed herein.) Additionally, in late 1994, after enduring adverse market conditions and significant costs associated with litigation in Oklahoma, it became necessary to downsize certain areas of the Company. As a result, during the fourth quarter of 1994, management and the Board of Directors developed and began implementation of a plan to restructure certain operations, primarily related to retail sales operations and certain home office management and product support functions. Prior to its completion in 1995, the plan resulted in the closing or downsizing of 31 office locations and termination of approximately 70 officers and employees. During 1995, the Company focused on its retail investment and fee-based money management services and intends to increase its reliance on these services for its revenues. With the divestiture of the Company's Oklahoma division, management is placing far less reliance on municipal finance as a significant source of revenues. During 1995, municipal finance fee revenue totaled $1.6 million compared to $4.0 million and $16.1 million for 1994 and 1993, respectively. Results of Operations In 1993, the Company changed its fiscal year-end from the last Friday in July to a calendar year-end. Accordingly, results of operations for the transition period cover a five-month period. The following table summarizes amounts and percentages of changes in the major categories of revenues and expenses for the periods indicated:
Year Ended Year Ended Five Months Ended December 31, December 31, December 31, December 31, December 31, December 31, 1995 vs. 1994 1994 vs. 1993 1993 vs. 1992 Increase (Decrease) (Unaudited) (Unaudited) Amounts in thousands Amount Percentage Amount Percentage Amount Percentage - -------------------- ------------ ------------ ------------ ------------ ------------ ----------- Revenues: Commissions $ 2,885 11.4 % $ (2,989) (10.5)% $ 1,941 19.4 % Principal transactions (3,587) (15.9) (665) (2.9) (1,969) (17.5) Investment banking (295) (2.5) (18,316) (60.5) (266) (2.4) Interest 2,084 19.1 1,602 17.2 (44) (1.1) Sale of investment company shares (1,358) (14.0) (2,459) (20.3) 1,392 39.6 Sale of unit investment trusts (908) (33.2) (992) (26.6) 508 59.5 Sale of insurance products (98) (4.4) (175) (7.3) 767 155.0 Other 2,711 32.1 2,360 38.8 (749) (21.6) --------- -------- --------- ------- --------- ------- $ 1,434 1.5 % $ (21,634) (18.7)% $ 1,580 3.5 % ========= ======== ========= ======= ========= ======= Expenses: Employee compensation and benefits $ (3,465) (5.7)% $ (11,567) (16.0)% $ 3,543 13.7 % Commissions and floor brokerage 199 9.4 (290) (12.0) (75) (8.1) Communications and office supplies (394) (4.9) 864 12.0 345 12.6 Occupancy and equipment rental (1,513) (16.1) 1,599 20.5 150 4.7 Promotional (844) (29.4) (200) (6.5) 143 13.1 Interest 2,174 35.4 1,340 27.9 (549) (23.7) Provision for litigation and bad debts (857) (34.7) 1,560 172.0 (632) (57.4) Restructure charge (2,672) (100.0) 2,672 * N.M. 0 0 Other operating expenses (1,722) (19.6) 1,498 20.5 36 1.1 --------- -------- --------- ------- --------- ------- $ (9,094) (8.8)% $ (2,524) (2.4)% $ 2,961 7.3 % ========= ======== ========= ======= ========= =======
*Not meaningful 1995 As Compared to 1994 For 1995, the Company had net income of $644,000, or $.14 per primary share, on revenues of $95,360,000. During the twelve-month period ended December 31, 1994, the Company had a net loss of $5,503,000, or $1.23 per primary share, on revenues of $93,926,000. Revenues for 1995 increased in commissions, interest income, and other revenue. Revenues declined in principal transactions, sale of investment company shares, unit investment trusts, and insurance products. Commissionable revenues (commissions, principal transactions, sale of investment company shares, unit investment trusts, and insurance products) decreased in the aggregate $3,066,000 (4.9%) in 1995. This decrease was primarily due to the reduction in the number of Investment Executives which resulted from the sale of the Company's Oklahoma-based operations and to the net loss of Investment Executives, primarily in the early part of 1995, due to the restructuring plan of 1994. The number of Investment Executives decreased by 79 (21.8%) to 283 at December 31, 1995, from 362 at December 31, 1994. Despite this decline, average production per Investment Executive increased $13,000 to $194,000 from $181,000. Management is continuing its effort to recruit Investment Executives with above industry average performance records. Principal transactions decreased $3,587,000 (15.9%) to $18,980,000 from $22,567,000 largely as a result of decreased fixed income trading activity. Investment banking decreased only slightly in 1995, $295,000 (2.5%) to $11,674,000 from $11,969,000. Public finance-related income decreased significantly, $2,342,000 (58.8%) to $1,638,000 from $3,980,000, due to the negative publicity surrounding the SEC's investigation into certain municipal finance underwritings by the Company's Oklahoma City public finance department and the reduced number of transactions by municipalities experienced industry-wide. These decreases were offset by an increase in corporate finance-related investment banking revenue which increased $3,803,000 (279.6%) to $5,163,000 from $1,360,000 largely as a result of increased public offerings, particularly for financial institutions and real estate investment trusts (REITs). In addition, underwriting and syndicate participation fees and profits on trading new underwriting issues decreased $1,757,000 primarily as a result of the aforementioned decreased municipal finance activity. Interest income increased $2,084,000 (19.1%) to $13,002,000 from $10,918,000, and net interest (interest income less interest expense) decreased $90,000. The revenue increase is primarily due to higher customer borrowings which resulted from increased retail investor activity experienced industry-wide. Because of the generally corresponding increase in borrowings by the Company to finance the purchase of marketable securities and underwrite new securities issues, the net interest retention percentage decreased from 43.8% to 36.1%. Other revenue increased $2,711,000 (32.1%) to $11,159,000 from $8,448,000 primarily as a result of increases in managed account fees, money market distribution fees, clearing revenues, and realized gains on sale of investments, which increased approximately $1.0 million, $800,000, $500,000, and $400,000, respectively. Managed account fees increased because of the introduction of the managed account program in late 1994. Management expects the managed account fees to continue to grow, which are generated by charging a fixed rate for managing investment portfolios of customers. Realized gain on sale of investments increased primarily due to sales of investments held by the Company's venture capital subsidiary. Money market distribution fees increased because of higher levels of customer funds invested in money market funds and the Company's switch to omnibus processing of these funds. Clearing revenues increased as a direct result of the clearing for Capital West Securities, Inc., the broker-dealer subsidiary of Capital West, which began in June 1995. Total expenses decreased $9,094,000 (8.8%) to $94,053,000 from $103,147,000. With the exception of commissions and floor brokerage and interest expense, all expense categories decreased for the year as a result of the sale of the Oklahoma-based operations and the downsizing and restructuring plan implemented in the fourth quarter of 1994. The Company charged $2,672,000 to operations related to this plan in the fourth quarter of 1994. There were no expenses related to that plan charged to operations in 1995. Employee compensation and benefits decreased $3,465,000 (5.7%) to $57,187,000 from $60,652,000. Investment Executives' aggregate compensation decreased $1,891,000 directly attributable to the decrease in aggregate revenue production. Profitability and production-based incentive compensation increased $2,132,000 due to increased profitability and achievement of production goals. Salaries and benefits decreased $4,581,000 (17.8%) to $21,210,000 from $25,791,000. Total full-time and part-time salaried employees decreased by 93 to 417 from 510. Commissions and floor brokerage increased $199,000 (9.4%) to $2,319,000 from $2,120,000 as a result of increased agency commissions. Communications and office supplies, occupancy and equipment rental, and promotional expenses decreased $394,000 (4.9%) to $7,651,000 from $8,045,000, $1,513,000 (16.1%) to $7,884,000 from $9,397,000, and $844,000 (29.4%) to $2,024,000 from $2,868,000, respectively. Interest expense increased $2,174,000 (35.4%) to $8,312,000 from $6,138,000 due primarily to increased levels of short-term borrowings by the Company and its customers and increased average borrowing rates. The average level of short-term borrowings from banks for the year was $61,440,000 as compared to $58,953,000 for 1994. The average interest rate charged for these borrowings was 6.57% for 1995 as compared to 4.90% for 1994. The Company's borrowings increased due to decreased available capital which resulted primarily from the operating loss in 1994. Other operating expenses decreased $1,722,000 (19.6%) to $7,066,000 from $8,788,000. Included in the caption "Other operating expenses" are legal fees which increased $600,000 due to continuing litigation surrounding certain municipal bond issues and transactions completed by the Company's former Oklahoma City-based public finance department. Management expects legal fees to decrease in 1996. Provision for litigation and bad debts decreased $857,000 (34.7%) to $1,610,000 from $2,467,000 in 1994. The provision in 1995 includes an amount for doubtful collection related to notes and advances receivable of former employees and provision for settlements of Oklahoma suits. The larger provision in 1994 included doubtful collection of employee note receivables and advances of $1,976,000. 1994 As Compared to 1993 For 1994, the Company had a net loss of $5,503,000, or $1.23 per primary share, on revenues of $93,926,000. During the twelve-month period ended December 31, 1993, the Company had net income of $6,231,000, or $1.47 per primary share, on $115,560,000 in revenues. This $21,634,000 (18.7%) decrease in total revenues was the result of the aforementioned general market conditions and the changes in the Company's operations. Revenues declined from 1993 in every major revenue category except interest income and investment advisory fees. Commissionable revenue (commissions, principal transactions, sale of investment company shares, unit investment trusts, and insurance products) in the aggregate decreased $7,280,000 (10.4%) from 1993. This decrease occurred despite significant efforts to upgrade and add to the retail sales force. Every major commissionable product area had decreased revenues from 1993 levels. The taxable fixed income, syndicate, and mutual fund areas were off by 11%, 45%, and 20%, respectively, primarily due to the generally decreased market activity caused by increasing interest rates. Principal transactions, which includes inventory gains and losses as well as commissionable sales credits, was lower in 1994 primarily due to losses in the Company's equity inventories and substantially lower profits in the fixed income inventories. These decreased trading results occurred in traditional products, as the Company does not carry complex derivative products or significant amounts of low-priced equities (penny stocks). In terms of both amount and percentage, the largest decrease in revenues during 1994 occurred in the investment banking area. Investment banking revenues, which includes managed fixed income and equity underwriting, financial advisory, placement, and mergers and acquisition services, decreased $18,316,000 (60.5%) from 1993 levels. Reflecting the historical cyclicality and volatility of the securities markets, the investment banking area of the Company had one of its worst years in 1994 following its best year ever in 1993. This trend was generally consistent industry- wide. The most significant reason for the Company's decrease in this area was the sharp fall-off in business in the municipal finance sector. 1993 saw a record level of activity as municipal issuers took advantage of low and declining interest rates to refinance and restructure outstanding issues and issue new debt. 1994 saw a reversal of that interest rate trend which eliminated the benefits of refundings that were unable to be accomplished earlier and made new issuances more costly. In addition to the significantly less favorable conditions in the industry generally, the Company suffered additional decreases in business because of the activities related to its Oklahoma City-based municipal finance operation. Historically, the Company has been a major underwriter of Oklahoma municipal issues. In 1994, in addition to the generally lower issuances of municipal debt, the Company's revenue generation from Oklahoma issues decreased substantially in part because of negative publicity relating to the SEC's investigation of the Company's involvement in transactions in certain Oklahoma municipal securities. During 1994, the negative publicity related to the investigation significantly impaired the ability of the Company to generate investment banking revenues from its Oklahoma operations and was a significant factor in the Company's decision to pursue the sale of both its retail and investment banking businesses in Oklahoma. Although affected somewhat by the negative publicity from Oklahoma, it is encouraging to note that the St. Louis-based municipal investment banking group performed better than the industry in general during 1994. Whereas industry sources reported a 44% decline in municipal issuances in 1994, the St. Louis-based group's revenues were off only 11%. Interest income increased $1,602,000 (17.2%), and net interest (interest income less interest expense) increased $261,000. The revenue increase is due to two factors: higher average customer borrowings and higher interest rates charged to customers resulting from the increases caused by the Federal Reserve's interest rate hikes. Because of the generally corresponding rise in both rates charged to customers and the Company's borrowing rates, the net interest retention percentage decreased from 48.5% in 1993 to 43.8% in 1994. Other revenues, which consists primarily of investment advisory fees and account service fees, increased $2,360,000 (38.8%). The most significant component of this increase was from investment advisory fees. On December 28, 1993, the Company acquired Todd Investment Advisors, Inc. ("Todd"), an asset management company located in Louisville, Kentucky. During 1994, Todd's fees added $1,661,000 to the Company's investment advisory business. Total expenses decreased $2,524,000 (2.4%) from $105,671,000 to $103,147,000. While employee compensation and benefits, a major component of total expenses, decreased significantly, almost all other expense categories increased. In addition, the Company charged to expenses $2,672,000 in the fourth quarter related to a restructuring and downsizing plan approved by the Parent Company's Board of Directors (see Note P of Notes to Consolidated Financial Statements filed herein). Employee compensation and benefits decreased $11,567,000 (16%) from $72,219,000 to $60,652,000 largely as a result of decreased variable compensation which decreased $14,770,000 (29.2%) from $50,506,000 to $35,736,000 as a direct result of decreased commissionable revenue and profitability. The decrease was partially offset by an increase in salaries and benefits which increased $3,997,000 (18.3%) from $21,813,000 to $25,810,000 as a result of the additional home office revenue support staff and the opening of new branch locations. The additions were made to facilitate revenue growth and to continue the firm's efforts to expand its retail branch system and to increase administrative expertise in key areas. Commission and floor brokerage decreased $290,000 (12%) from $2,410,000 to $2,120,000 as a result of decreased commissionable revenue. Communication and supplies and occupancy and equipment rental increased $864,000 (12%) from $7,181,000 to $8,045,000 and $1,599,000 (21%) from $7,798,000 to $9,397,000, respectively, as a direct result of 13 additional branch offices opened in 1994. Travel and promotion decreased $200,000 (6.5%) from $3,068,000 to $2,868,000 as a result of the decreased general business environment. Interest expense increased $1,340,000 (27.9%) from $4,798,000 to $6,138,000 as a result of the Company's increased borrowing rates. The Company's short-term borrowings bore interest at a weighted average of 6.81% at December 31, 1994, compared to a weighted average of 3.79% at December 31, 1993. Other expenses increased $1,498,000 (20.5%) from $7,290,000 to $8,788,000 largely as a result of the increase in professional fees which increased $1,407,000 primarily as a result of the ongoing SEC investigation into certain municipal bond issues managed by the Oklahoma City-based public finance department. Provision for litigation and bad debt increased $1,560,000 largely as a result of reserving for doubtful collection of employee notes receivable and advances of $2,467,000. In the fourth quarter, the Company charged to expenses $2,672,000 for restructuring and downsizing unprofitable and potentially unprofitable areas of the firm. Included in the costs are $1,400,000 net lease commitments for 31 closed and reduced office locations; $875,000 for approximately 70 terminated employees' severance and extended benefits, and reserve for uncollectible notes receivable; $206,000 for leasehold improvements related to closed offices; and $191,000 for contractual commitments. The plan of restructuring and downsizing was completed during 1995. Five Months Ended December 31, 1993 Compared With Five Months Ended December 31, 1992 Results of operations for the five-month transition period ended December 31, 1993, compared to the same five-month period of the previous year reflected favorable market conditions experienced by the industry as total revenues increased slightly to $46,455,000 from $44,875,000, a modest 3.5% increase over a strong five-month period of the previous year. Total expenses, however, were up 7.3% or $2,961,000 to $43,395,000 from $40,434,000 reflecting the costs associated with management's commitment to growth and the pursuit of other sources of revenues to mitigate market downturns. Accordingly, net income after tax decreased $807,000 (30%) to $1,915,000 from $2,722,000 for the five-month transition period compared to the previous year's five-month period. Commissionable revenue (commissions, principal transactions, sales of investment company shares, unit investment trusts, and insurance products) for the five-month transition period ended December 31, 1993, increased $2,639,000 (10%) to $28,793,000 from $26,154,000 as a result of favorable markets for equity products, mutual funds, life insurance, and annuity products. The increase also resulted from an increase in the number of experienced full-time Investment Executives, which increased to 375 at December 31, 1993, from 355 at December 31, 1992. Sale of investment company shares (mutual funds) increased 40% to $4,906,000 from $3,514,000 in 1992's five-month period as a result of the continued demand for this product as retail investors sought alternatives to low interest-bearing depository products offered by banking institutions. The increase was also reflective of the continued demand for these products industry-wide. Principal transactions decreased 17% to $9,313,000 from $11,282,000 primarily as a result of a decrease in sales of taxable fixed income products, principally mortgage-backed securities, which were made less attractive because of low coupon rates. Sales of insurance products increased 155% to $1,263,000 from $496,000 from the previous five-month period largely as a result of the increased demand for annuity and life insurance products precipitated by the 1993 tax law changes. Sales of unit investment trusts increased 59% to $1,362,000 from $854,000 in the same period of the previous year largely as a result of management's continued emphasis to provide proprietary offerings and the retail investor's continued demand for this product. Other revenues decreased 22% to $2,720,000 from $3,469,000 in the previous year largely as a result of the recognition of a one-time gain of $850,000 on the sale of a partnership investment in November 1992. Investment banking revenue decreased $266,000 (2.4%) from the comparable five-month period in 1992. Indications are that the public finance portion of investment banking, which was the most significant portion of investment banking and which experienced excellent business conditions over the past two years, may not reach levels achieved historically in future periods. Total expenses increased largely as a result of the increase in employee compensation and benefits which increased $3,543,000 (13.7%) to $29,421,000 from $25,878,000. The variable portion of compensation and benefits increased $2,100,000 to $16,300,000 from $14,200,000 as a result of an increase in commissionable revenues and bonuses paid for production and profitability of certain functions. Salaries and the other fixed portions of compensation and benefits increased $1,400,000 (17%) to $9,500,000 from $8,100,000 as a result of annual salary adjustments (approximately 6% firm-wide), increases in the number of branch offices, an increase in the number of Investment Executive trainees whose salaries are fixed during their training period, and an increase in the number of professional staff in key areas of revenue production and direct support such as investment banking, trading, and research. In addition, staff was added to bolster the firm's focus on developing alternative sources of revenues. Communication and supplies, rent and depreciation, and travel and promotion increased $345,000 to $3,090,000 from $2,745,000, $150,000 to $3,333,000 from $3,183,000, and $143,000 to $1,231,000 from $1,088,000, respectively, as a result of the increase in the number of branch offices opened during the period. The Company added four offices over the previous year's total. Interest expense decreased $549,000 to $1,763,000 from $2,312,000 as a result of more favorable borrowing rates. Provision for bad debt and litigation decreased $632,000 to $473,000 from $1,105,000 due largely to a decrease in the amount of settlements paid for claims by customers which decreased $600,000 from the $1,200,000 in 1994. Liquidity and Capital Resources The Company's assets are highly liquid, consisting mainly of cash or assets readily convertible into cash. These assets are financed primarily by the Company's equity capital, customer credit balances, short-term bank loans, proceeds from securities lending, long-term notes payable, and other payables. Changes in securities market volumes, related customer borrowing demands, underwriting activity, and levels of securities inventory affect the amount of the Company's financing requirements. During the year ended December 31, 1995, cash and cash equivalents decreased $581,000. Cash used for operating activities totaled $21,192,000 due primarily to increases in operating receivables as a result of increased borrowing by customers and a decrease in operating payables resulting mainly from a decline in stock loaned. The decrease in cash used for operating activities was funded by short-term borrowings which increased by $20,800,000. During 1994, Stifel, Nicolaus obtained a revolving subordinated note agreement in the amount of $5,500,000. The note will be used to finance underwritings should the need arise. At December 31, 1995, Stifel, Nicolaus had an advance of $50,000 against this revolving subordinated note. The Company has $3,002,000 in receivables from Investment Executives and other employees who terminated employment with the Company. The Company intends to vigorously pursue collection of these receivables and does not anticipate that the outcome of these activities will adversely affect liquidity or capital resources. Management believes that funds from operations and available informal short- term credit arrangements of $118,550,000 at December 31, 1995, and the available revolving subordinated debt of $5,450,000 at December 31, 1995, will provide sufficient resources to meet its present and anticipated financing needs. Stifel, Nicolaus & Company, Incorporated, the Company's principal broker/dealer subsidiary, is subject to certain requirements of the Securities and Exchange Commission with regard to liquidity and capital requirements (see Note E of the Notes to Consolidated Financial Statements). At December 31, 1995, Stifel, Nicolaus had net capital of approximately $20,112,000, which exceeded the minimum net capital requirements by approximately $16,550,000. Inflation The Company's assets are primarily monetary, consisting of cash, securities inventory, and receivables. These monetary assets are generally liquid and turn over rapidly and, consequently, are not significantly affected by inflation. However, the rate of inflation affects various expenses of the Company, such as employee compensation and benefits, communications, and occupancy and equipment, which may not be readily recoverable in the price of its services. Recent Accounting Pronouncements The Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," in the five-month transition period ended December 31, 1993. The standard requires, among other provisions, that companies adjust their deferred tax asset or liability to reflect current rates and recognize the effect of the change in operations. The adoption of this new standard did not have a material impact on the Company's consolidated financial statements. The Company deals in listed options and other products such as collateralized mortgage obligations which derive their values from the price of some other security or index. The Company does not deal in complex derivative financial instruments, such as futures, forwards, and swaps, and therefore has no disclosure requirements in accordance with the Financial Accounting Standard Board's Statement 119, "Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments." The Financial Accounting Standards Board (FASB) has issued Statements of Financial Accounting Standards (SFAS) 121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed of," and SFAS 123, "Accounting for Stock-Based Compensation," both effective in fiscal years beginning after December 15, 1995. Management does not believe adoption of these standards will have a material impact on the Company's consolidated financial statements. Item 8. Financial Statements and Supplementary Data (a) Financial Statements Report Of Independent Accountants Stifel Financial Corp. and Subsidiaries Report of Independent Accountants Stockholders and Board of Directors Stifel Financial Corp. St. Louis, Missouri We have audited the accompanying consolidated statements of financial condition of Stifel Financial Corp. and Subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years ended December 31, 1995 and December 31, 1994, the five-month transition period ended December 31, 1993, and the year ended July 30, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Stifel Financial Corp. and Subsidiaries as of December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for the years ended December 31, 1995 and December 31, 1994, the five-month transition period ended December 31, 1993, and the year ended July 30, 1993, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. St. Louis, Missouri February 25, 1996 Consolidated Statements Of Operations Stifel Financial Corp. and Subsidiaries
Five-Month Transition Year Ended Year Ended Period Ended Fiscal Year Ended (In thousands, except per share amounts) December 31, 1995 December 31, 1994 December 31, 1993 July 30, 1993 - ---------------------------------------- ----------------- ----------------- --------------------- ----------------- Revenues Commissions $ 28,292 $ 25,407 $ 11,949 $ 26,456 Principal transactions 18,980 22,567 9,313 25,201 Investment banking 11,674 11,969 10,885 30,551 Interest 13,002 10,918 4,057 8,851 Sale of investment company shares 8,316 9,674 4,906 10,741 Sale of unit investment trusts 1,828 2,736 1,362 3,220 Sale of insurance products 2,109 2,207 1,263 1,614 Other 11,159 8,448 2,720 6,837 --------- --------- --------- --------- 95,360 93,926 46,455 113,471 Expenses Employee compensation and benefits 57,187 60,652 29,421 68,657 Commissions and floor brokerage 2,319 2,120 845 2,485 Communications and office supplies 7,651 8,045 3,090 6,836 Occupancy and equipment rental 7,884 9,397 3,333 7,648 Promotional 2,024 2,868 1,231 2,925 Interest 8,312 6,138 1,763 4,838 Provision for litigation and bad debts 1,610 2,467 473 1,237 Restructuring charge - - 2,672 - - - - Other operating expenses 7,066 8,788 3,239 7,575 --------- --------- --------- --------- 94,053 103,147 43,395 102,201 --------- --------- --------- --------- Income (loss) before income taxes 1,307 (9,221) 3,060 11,270 --------- --------- --------- --------- Provision (Benefit) for Income Taxes Current (73) (1,983) 1,352 4,223 Deferred 736 (1,735) (207) 9 --------- --------- --------- --------- 663 (3,718) 1,145 4,232 --------- --------- --------- --------- Net income (loss) $ 644 $ (5,503) $ 1,915 $ 7,038 ========= ========= ========= ========= Earnings (Loss) Per Common Share and Share Equivalents Net income (loss) per share: Primary earnings (loss) per share $ 0.14 $ (1.23) $ 0.42 $ 1.60 Fully diluted earnings (loss) per share $ 0.14 $ (1.23) $ 0.38 $ 1.33
See Notes to Consolidated Financial Statements. Consolidated Statements Of Financial Condition Stifel Financial Corp. and Subsidiaries
(In thousands) December 31, 1995 December 31, 1994 - -------------- ----------------- ----------------- Assets Cash and cash equivalents $ 6,344 $ 6,925 Cash segregated for the exclusive benefit of customers 776 1,316 Receivable from brokers and dealers: Securities failed to deliver 1,790 3,105 Deposits paid for securities borrowed 4,912 3,530 Settlement balances with clearing organizations 9,722 15,198 -------- -------- 16,424 21,833 -------- -------- Receivable from customers, less allowance for doubtful accounts of $805 and $1,071, respectively 156,904 139,899 Securities owned, at market value: U.S. Government obligations 6,529 4,642 State and municipal obligations 7,111 13,231 Corporate obligations 2,394 3,240 Corporate stocks 3,487 2,206 -------- -------- 19,521 23,319 -------- -------- Memberships in exchanges, at cost (approximate market value: $1,904 and $1,655, respectively) 513 513 Office equipment and leasehold improvements, at cost, less allowances for depreciation and amortization of $12,517 and $13,518, respectively 3,015 4,779 Goodwill, net of accumulated amortization of $827 and $574, respectively 3,985 4,290 Notes and non-securities receivable from employees, net of allowance for doubtful receivables of $3,002 and $2,561, respectively 4,328 5,620 Current income tax receivable 254 1,515 Deferred tax asset 3,902 4,638 Miscellaneous other assets 10,809 7,561 -------- -------- TOTAL ASSETS $226,775 $222,208 ======== ========
Consolidated Statements Of Financial Condition (continued) Stifel Financial Corp. and Subsidiaries
(In thousands, except share amounts) December 31, 1995 December 31, 1994 - ------------------------------------ ----------------- ----------------- Liabilities and Stockholders' Equity Short-term borrowings from banks $ 86,450 $ 65,650 Payable to brokers and dealers: Securities failed to receive 2,572 2,991 Deposits received from securities loaned 20,555 43,405 -------- -------- 23,127 46,396 -------- -------- Payable to customers, including free credit balances of $21,079 and $15,601, respectively 31,806 24,369 Market value of securities sold, but not yet purchased 2,744 4,252 Drafts payable 17,867 14,576 Accrued employee compensation 9,526 9,110 Obligations under capital leases 774 1,029 Accounts payable and accrued expenses 8,876 11,030 Long-term debt 10,760 11,520 -------- -------- Total 191,930 187,932 -------- -------- Commitments and Contingencies (Notes D, H, and I) -------- -------- Subordinated note 50 50 -------- -------- Stockholders' equity: Preferred stock - $1 par value; authorized 3,000,000 shares; none issued Common stock - $.15 par value; authorized 10,000,000 shares; issued 4,540,890 and 4,324,951 shares, respectively; outstanding 4,357,665 and 4,085,615 shares, respectively 681 649 Additional paid-in capital 19,622 18,491 Retained earnings 15,754 17,016 -------- -------- 36,057 36,156 -------- -------- Less: Treasury stock, at cost 183,225 and 239,336 shares, respectively 1,162 1,732 Unamortized expense of restricted stock awards 100 198 -------- -------- Total Stockholders' Equity 34,795 34,226 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $226,775 $222,208 ======== ========
See Notes to Consolidated Financial Statements. Consolidated Statements Of Cash Flows Stifel Financial Corp. and Subsidiaries
Five-Month Transition Year Ended Year Ended Period Ended Fiscal Year Ended (In thousands) December 31, 1995 December 31, 1994 December 31, 1993 July 30, 1993 - -------------- ----------------- ----------------- --------------------- ----------------- Cash Flows From Operating Activities Net income (loss) $ 644 $( 5,503) $ 1,915 $ 7,038 Noncash items included in earnings: Depreciation and amortization 1,990 2,572 880 2,020 Provision for litigation and bad debts 1,610 2,467 473 1,237 Unrealized (gain) loss on investments (57) (96) - - 440 Bonus notes amortization 1,033 1,134 321 600 Deferred compensation 468 538 202 429 Amortization of restricted stock awards and stock benefits 84 107 65 177 Deferred tax provision (benefit) 736 (1,735) (207) 9 Restructuring charge - - 2,672 - - - - --------- --------- --------- --------- 6,508 2,156 3,649 11,950 Gain on sale of memberships in exchanges - - - - (179) - - (Increase) decrease in operating receivables: Customers (17,005) 13,474 (36,058) (11,047) Brokers and dealers 5,409 (4,548) (3,063) 4,997 Increase (decrease) in operating payables: Customers 7,437 (11,955) 8,158 4,722 Brokers and dealers (23,268) 21,873 (9,607) 7,899 Decrease (increase) in assets: Cash and U.S. Government securities segregated for the exclusive benefit of customers 540 (54) (2) 1,993 Securities owned 3,798 63,191 (48,489) 898 Notes receivable from officers and employees (1,190) (5,427) (788) (1,148) Miscellaneous other assets (2,125) (1,779) (497) ( 768) (Decrease) increase in liabilities: Securities sold, not yet purchased (1,508) 345 (2,542) 3,105 Drafts payable, accounts payable and accrued expenses, and accrued employee compensation 212 (1,919) (5,568) 4,127 --------- --------- --------- --------- Cash (Used For) Provided By Operating Activities (21,192) 75,357 (94,986) 26,728 --------- --------- --------- ---------
Consolidated Statements Of Cash Flows (continued) Stifel Financial Corp. and Subsidiaries
Five-Month Transition Year Ended Year Ended Period Ended Fiscal Year Ended (In thousands) December 31, 1995 December 31, 1994 December 31, 1993 July 30, 1993 - -------------- ----------------- ----------------- --------------------- ----------------- Cash (Used For) Provided By Operating Activities -- From Previous Page $ (21,192) $ 75,357 $ (94,986) $ 26,728 --------- --------- --------- --------- Cash Flows From Financing Activities Net proceeds (payments) for short-term borrowings from banks 20,800 (71,300) 97,275 (22,375) Proceeds from: Employee stock purchase plan 755 613 628 378 Exercised stock options 124 81 111 268 Subordinated borrowings - - 50 - - - - Dividend reinvestment plan 10 1 - - - - Payments for: Settlement of long-term debt (760) - - - - - - Purchases of stock for treasury (547) (1,417) (1,329) (302) Restricted stock awards - - - - (34) (81) Principal payments under capital lease obligation (256) (710) (264) (591) Cash dividends (500) (356) (218) (561) --------- --------- --------- --------- Cash Provided By (Used For) Financing Activities 19,626 (73,038) 96,169 (23,264) --------- --------- --------- --------- Cash Flows From Investing Activities Proceeds from: Sale of office equipment, leasehold improvements, and a building 910 24 23 16 Sale of investments 1,694 32 509 1,103 Sale of memberships in exchanges - - - - 840 - - Payments for: Acquisition of office equipment, leasehold improvements, and a building (1,179) (1,734) (752) (1,634) Acquisition of investments (440) (258) (250) (1,021) Acquisition of subsidiary - - - - (1,981) - - --------- --------- --------- --------- Cash Provided By (Used For) Investing Activities 985 (1,936) (1,611) (1,536) --------- --------- --------- --------- (Decrease) increase in cash and cash equivalents (581) 383 (428) 1,928 Cash and cash equivalents - beginning of year 6,925 6,542 6,970 5,042 --------- --------- --------- --------- Cash and cash equivalents - end of period $ 6,344 $ 6,925 $ 6,542 $ 6,970 ========= ========= ========= =========
Consolidated Statements Of Cash Flows (continued) Stifel Financial Corp. and Subsidiaries
Five-Month Transition Year Ended Year Ended Period Ended Fiscal Year Ended (In thousands) December 31, 1995 December 31, 1994 December 31, 1993 July 30, 1993 - -------------- ----------------- ----------------- --------------------- ----------------- Supplemental disclosures of cash flow information: Interest payments $ 8,237 $ 5,897 $ 984 $ 4,424 Income tax payments $ 372 $ 118 $ 2,080 $ 6,619 Schedule of Noncash Investing and Financing Activities Assumption of debt for acquisition of Todd - - - - $ 1,520 - - Fixed assets acquired under capital lease - - $ 808 $ 257 - - Stock dividends distributed $ 1,406 $ 1,287 - - $ 2,009
See Notes to Consolidated Financial Statements. Stifel Financial Corp. and Subsidiaries Consolidated Statements Of Stockholders' Equity
Unamortized Additional Expense of Common Stock Paid-In Retained Treasury Stock Restricted (In thousands, except share amounts) Shares Amount Capital Earnings Shares Amount Stock Awards Total - ------------------------------------- ------------- ------- ----------- -------- ---------- ---------------- ------- ------- Balance at July 31, 1992 3,923,315 $587 $14,968 $18,068 (342,012) $(1,874) $(152) $31,597 - ------------------------------------- ------------- ------- ----------- -------- ---------- ---------------- ------- ------- Cash dividends -- common stock ($.15 per share) (561) (561) Purchase of treasury shares (41,468) (302) (302) Employee benefit plans 53 132,201 725 778 Stock options exercised (2) 47,019 270 268 Restricted stock awards granted 17 21,000 115 (132) - - Amortization of restricted stock awards 177 177 Net income for the year 7,038 7,038 5% stock dividend 196,033 30 2,052 (2,082) (9,163) - - - ------------------------------------- ------------- ------- ----------- -------- ---------- ---------------- ------- ------- Balance at July 30, 1993 4,119,348 617 17,088 22,463 (192,423) (1,066) (107) 38,995 - ------------------------------------- ------------- ------- ----------- -------- ---------- ---------------- ------- ------- 5% stock dividend -- fractional shares (109) (1) (1) (2) Cash dividends -- common stock ($.055 per share) (215) (215) Purchase of treasury shares (137,771) (1,329) (1,329) Employee benefit plans 163 144,416 907 1,070 Stock options exercised (17) 19,050 128 111 Restricted stock awards granted 21 12,600 100 (122) (1) Amortization of restricted stock awards 30 30 Net income for the period 1,915 1,915 Stock bonuses issued 15 3,675 20 35 - ------------------------------------- ------------- ------- ----------- -------- ---------- ---------------- ------- ------- Balance at December 31, 1993 4,119,239 617 17,269 24,162 (150,453) (1,240) (199) 40,609 - ------------------------------------- ------------- ------- ----------- -------- ---------- ---------------- ------- ------- Cash dividends -- common stock ($.09 per share) (356) (356) Purchase of treasury shares (188,964) (1,417) (1,417) Employee benefit plans 88 72,883 614 702 Stock options exercised (34) 13,884 115 81 Restricted stock awards granted (87) 24,500 194 (107) - - Amortization of restricted stock awards 108 108 Stock benefits 60 1 1 Dividend reinvestment 151 1 1 Net loss for the year (5,503) (5,503) 5% stock dividend 205,712 32 1,255 (1,287) (11,397) - - - ------------------------------------- ------------- ------- ----------- -------- ---------- ---------------- ------- ------- Balance at December 31, 1994 4,324,951 649 18,491 17,016 (239,336) (1,732) (198) 34,226 - ------------------------------------- ------------- ------- ----------- -------- ---------- ---------------- ------- ------- Cash dividends -- common stock ($.12 per share) (500) (500) Purchase of treasury shares (88,656) (547) (547) Employee benefit plans (195) 132,173 948 753 Stock options exercised (36) 22,425 159 123 Restricted stock awards granted (14) 13,000 96 (82) - - Restricted stock awards forfeited 3 (16,125) (96) 79 (14) Amortization of restricted stock awards 101 101 Dividend reinvestment (1) 2,019 10 9 Net income for the year 644 644 5% stock dividend 215,939 32 1,374 (1,406) (8,725) - - - ------------------------------------- ------------- ------- ----------- -------- ---------- ---------------- ------- ------- Balance at December 31, 1995 4,540,890 $681 $19,622 $15,754 (183,225) $(1,162) $(100) $34,795 - ------------------------------------- ------------- ------- ----------- -------- ---------- ---------------- ------- -------
See Notes to Consolidated Financial Statements. Notes To Consolidated Financial Statements Stifel Financial Corp. and Subsidiaries Note A -- Accounting and Reporting Policies Nature of Operations Stifel Financial Corp. ("the Parent"), through its wholly owned subsidiaries, principally Stifel, Nicolaus & Company, Incorporated ("Stifel, Nicolaus"), collectively referred to as ("the Company"), is principally engaged in retail brokerage, securities trading, investment banking, investment advisory, and related financial services throughout the United States. Although the Company has offices throughout the United States, its major geographic area of concentration is in the Midwest. The Company's principal customers are individual investors, with the remaining client base composed of corporations, municipalities, and institutions. Basis of Presentation The consolidated financial statements include the accounts of the Parent and its wholly owned subsidiaries, principally Stifel, Nicolaus. Stifel, Nicolaus is a broker-dealer registered under the Securities Exchange Act of 1934. All material intercompany balances and transactions are eliminated in consolidation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Where appropriate, prior years' financial information has been reclassified to conform with the current year presentation. In 1993, the Company changed its fiscal year-end to a calendar year-end. Accordingly, results of operations for the transition period cover a five-month period (22 weeks). Previously, the Company's full fiscal year was the 52- or 53-week period ending the last Friday in July. The year ended July 30, 1993 contained 52 weeks. For purposes of presenting the consolidated statements of cash flows, the Company has defined cash equivalents as short-term, highly liquid investments with maturities of 90 days or less other than those held for sale in the ordinary course of business. Security Transactions Security transactions are recorded on a trade date basis. Trading and investment securities owned and securities sold but not yet purchased are carried at market value, and unrealized gains and losses are reflected in operations. Securities held for investment, which are included in other assets, are carried at the lower of historical cost or market for the Parent. Investment securities of the subsidiaries are carried at market value or fair value as determined by management. Securities failed to deliver and receive represent the contract value of securities that have not been delivered or received by settlement date. Receivable from customers includes amounts due on cash and margin transactions. The value of securities owned by customers and held as collateral for these receivables is not reflected in the consolidated statements of financial condition. Customers' security transactions, including sales of investment company shares and unit investment trusts, are recorded on a settlement date basis with related commission income and expense recorded on a trade date basis. Securities accounts of officers and directors are included in amounts receivable from and payable to customers, since they are subject to the normal terms and regulations as to payment and, in the aggregate, are not significant. Fair Value The Company's financial instruments are carried at fair value or amounts that approximate fair value. Securities inventory and securities sold but not yet purchased are valued using quoted market or dealer prices. Customer receivables, primarily consisting of floating-rate loans collateralized by margin securities, are charged interest at rates similar to other such loans made throughout the industry. The Company's remaining financial instruments are generally short-term in nature, and their carrying values approximate market value. The Company has estimated the fair value of its long-term debt using the discounted cash flow analysis of payments. At December 31, 1995, the estimated fair value of the notes was $11,814,000. Income Taxes During the transition period ended December 31, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." This standard required a change from the "deferred method of accounting for income taxes" to the "asset and liability" method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying amounts and their respective tax bases using enacted tax rates in effect in the years in which the differences are expected to reverse. The cumulative effect of this change in accounting for income taxes was not material to the consolidated financial statements. Other Investment banking revenue is recorded as follows: management fees on offering date, selling concessions on trade date, underwriting fees upon completion of the underwriting, and other investment banking revenue upon the completion of the service. Amortization of capital leases is computed on a straight-line basis over the estimated useful life of the asset. Leasehold improvements are amortized over the lesser of the economic useful life of the improvement or the term of the lease. Depreciation of office equipment is computed on a straight-line basis for equipment purchased prior to January 1, 1994, and an accelerated method for equipment purchased thereafter. Goodwill recognized in business combinations accounted for as purchases is being amortized over 15 to 40 years on a straight- line basis. Earnings (loss) per share of common stock is based upon the weighted average number of common shares and share equivalents outstanding during the periods. Common share equivalents include dilutive stock options under the treasury stock method (see Note G) and dilutive shares from Senior Convertible Notes under the if converted method (see Note J). Note B -- Short-Term Borrowings From Banks In the normal course of business, Stifel, Nicolaus borrows from various banks on a demand basis with securities pledged as collateral. Available credit arrangements with banks totaled $205,000,000 at December 31, 1995, of which $118,550,000 was unused. There were no compensating balance requirements under these arrangements. The Company's short-term borrowings bore interest at a weighted average rate of 6.63% and 6.81% at December 31, 1995 and 1994, respectively. Certain short-term borrowings were collateralized by Company-owned securities valued at approximately $20,844,000 on a settlement date basis. Short- term borrowings used to finance receivables from customers were collateralized by customer-owned securities valued at approximately $125,275,000 at December 31, 1995. The value of these customer-owned securities is not reflected in the consolidated statement of financial condition (see Note A). Note C -- Subordinated Note Stifel, Nicolaus has a revolving subordinated note agreement in the amount of $5,500,000 which terminates January 31, 1997. The agreement, approved by the New York Stock Exchange, Inc. (the "NYSE"), allows Stifel, Nicolaus to borrow up to this amount and would be available for the computation of adjusted net capital under the Uniform Net Capital Rule of the Securities and Exchange Commission (the "SEC"). To the extent that borrowings under this agreement are required for Stifel, Nicolaus' continued compliance with minimum net capital requirements, such borrowings may not be repaid. The rights of the note holders to receive any payment from Stifel, Nicolaus under the terms of the note are subordinated to the claims of all present and future creditors of Stifel, Nicolaus which arise prior to maturity. Under the terms of the note agreement, Stifel, Nicolaus must meet various financial requirements specified in the agreement. Stifel, Nicolaus is charged an annual commitment fee in an amount equal to 1/2 of 1% of the average daily balance of the unused portion of the amount available under the agreement. Such fee is payable quarterly. During the year, Stifel, Nicolaus charged to operations $23,000 for this fee. At December 31, 1995, Stifel, Nicolaus had an advance outstanding against the revolving subordinated note agreement of $50,000. Interest on this advance is paid quarterly based upon the prime rate (8.5% at December 31, 1995). Future advances, if any, would be charged interest based on the published "LIBOR" rate in effect during the term the advance is outstanding. Note D -- Commitments and Contingencies In the normal course of business, Stifel, Nicolaus enters into underwriting commitments. Settlement of transactions relating to such underwriting commitments which were open December 31, 1995, had no material effect on the consolidated financial statements. In connection with margin deposit requirements of The Options Clearing Corporation (the "OCC"), Stifel, Nicolaus has on deposit with OCC a standby letter of credit amounting to $1,000,000 and has pledged cash and customer-owned securities valued at $18,995,762. At December 31, 1995, the amounts on deposit satisfied the minimum margin deposit requirement of $17,568,161. Pursuant to the provisions of Rule 15c3-3 of the Securities and Exchange Commission, Stifel, Nicolaus is required to maintain a Special Reserve Bank Account for the exclusive benefit of customers ("15c3-3 Accounts"). Deposits to the 15c3-3 Accounts are required in the amount of the excess of total customer-related credits over total customer-related debits, as defined. Withdrawals from these 15c3-3 Accounts may be made to the extent of the excess of the account balance over deposit requirements. At December 31, 1995, no deposit was required; however, Stifel, Nicolaus had cash and qualified securities in the amount of $776,286 on deposit in its 15c3-3 Accounts. The future minimum rental commitments at December 31, 1995, with initial or remaining non-cancellable lease terms in excess of one year for office space and equipment are as follows (see Note M):
Operating Leases ----------------------------------------------- Minimum Future Lease Payments Under Minimum Rental Year Ending December 31 Capital Leases Commitments Related Sublease Commitment - ----------------------- -------------- ----------- ---------------- ---------- 1996 $325,000 $ 4,383,000 $(431,000) $ 3,952,000 1997 303,000 2,653,000 (325,000) 2,328,000 1998 238,000 1,690,000 (127,000) 1,563,000 1999 0 1,458,000 (66,000) 1,392,000 2000 0 1,328,000 (3,000) 1,325,000 Thereafter 0 2,798,000 0 2,798,000 -------- ----------- --------- ----------- Minimum Commitments $866,000 $14,310,000 $(952,000) $13,358,000 Less Interest 92,000 =========== ========= =========== -------- Net Present Value of Capital Lease Obligations $774,000 ========
Rental expense for the calendar years ended 1995 and 1994, the five-month transition period ended December 31, 1993, and the fiscal year ended July 30, 1993, amounted to approximately $3,986,000, $4,596,000, $1,685,000, and $4,021,000, respectively. Office equipment, under capital leases, with a recorded cost of approximately $766,000, collateralizes the above capital lease obligations and is included in the consolidated statements of financial condition in the caption of "Office equipment and leasehold improvements." The Company purchased equipment for approximately $440,000 in the first quarter of 1995. During the fourth quarter of 1995, management determined that certain of that equipment with a carrying value of approximately $248,000, which was originally intended for use in operations, was not immediately required and therefore recorded a $195,000 charge to fourth quarter operations to write the equipment down to net recoverable value based on outside dealer quotes. Depreciation expense for capitalized leases and owned furniture and equipment for the calendar years 1995 and 1994, the five- month transition period ended December 31, 1993, and the fiscal year ended July 30, 1993, amounted to approximately $1,732,000, $2,192,000, $795,000, and $1,808,000, respectively. Note E -- Net Capital Requirements and Dividend Restrictions Stifel, Nicolaus is subject to the Uniform Net Capital Rule of the Securities and Exchange Commission (the "rule") which requires the maintenance of minimum net capital, as defined. Stifel, Nicolaus has elected to use the alternative method permitted by the rule which requires maintenance of minimum net capital equal to the greater of $250,000 or 2 percent of aggregate debit balances arising from customer transactions, as defined. The rule also provides that equity capital may not be withdrawn or cash dividends paid if resulting net capital would be less than 5 percent of aggregate debits. At December 31, 1995, Stifel, Nicolaus had net capital of $20,111,930, which was 11.3 percent of aggregate debit balances and $16,549,640 in excess of minimum required net capital. At December 31, 1995, the net assets of Stifel, Nicolaus were $35,727,712, of which $24,571,507 was restricted as to the payment of dividends. In addition, there are restrictions in the Parent's long-term note agreement on payment of dividends by the Parent to its stockholders based on the amount of the Company's cumulative consolidated net income, as defined. At December 31, 1995, $1,864,000 was available for payment of future dividends under such provisions. Note F -- Employee Benefit Plans The Company has a profit sharing plan and an employee stock purchase plan (the "ESPP") covering qualified employees as defined in the plans. Contributions to the profit sharing plan were based upon a company match of 50% of the employees' first $500 in annual contributions for the calendar years 1995 and 1994 and the five-month transition period ended December 31, 1993. Contributions prior to the transition period were discretionary. Under the ESPP, the Company contributes 15% of the purchase price of employee stock purchases of the Parent's stock. The Company also has an employee stock ownership plan (the "ESOP") covering qualified employees as defined in the plan. Employer contributions are made to the ESOP as determined by the Compensation Committee of the Board of Directors of the Parent on behalf of all eligible employees based upon the relationship of individual compensation (up to a maximum of $150,000) to total compensation. At December 31, 1995, the plan held and has allocated 247,172 shares of Stifel Financial Corp. common stock valued at $1,637,515. The following approximate amounts were charged to operations for the periods indicated: Five Months Calendar Years Ended Ended Fiscal Year Ended 1995 1994 December 31, 1993 July 30, 1993 Employee Stock Purchase Plan $ 92,600 $112,500 $92,000 $ 94,000 Profit Sharing Plan 165,900 185,000 91,000 442,000 Employee Stock Ownership Plan - - - - 91,000 442,000 Restricted stock awards were made to certain key employees during fiscal years 1989, 1993, the five-month transition period, and calendar years 1995 and 1994. The shares are restricted as to resale over a five-year service period for awards made in 1989 commencing in 1989, a three- to five-year service period for awards made in 1993 commencing in 1993, a three- to five-year service period for awards made in the transition period commencing in the transition period, a three- to five-year service period for awards made in 1994 commencing in 1994, and a three-year service period for awards made in 1995 commencing in 1995. The restrictions lapse with respect to 20 percent of such shares in fiscal 1991 and 1992 and 30 percent of such shares in fiscal 1993 and the five-month transition period for awards made in 1989. For all other awards, restrictions lapse ratably over the three- and five-year service periods. The deferred cost of the restricted stock awards is amortized on a straight-line basis. The Company charged to operations for the calendar years 1995 and 1994, the five-month transition period, and fiscal year 1993, approximately $86,000, $108,000, $30,000, and $177,000, respectively. Stifel, Nicolaus also has a deferred compensation plan available to Investment Executives. The amounts charged to operations related to this plan were approximately $468,000, $539,000, $202,000, and $429,000 for the calendar years 1995 and 1994, for the five-month transition period, and for fiscal year 1993, respectively. Note G -- Stock Option Plans Under the Company's 1983 and 1985 Incentive Stock Option Plans, the Company may grant options up to an aggregate of 450,000 shares to key employees. Under the Company's 1987 non-qualified stock option plan, the Company may grant options up to an aggregate of 100,000 shares. All options under these plans are granted at market value and expire 10 years from the date of grant. The Company has also granted stock options to external board members under a non-qualified plan. These options were granted at market value and are exercisable one year from date of grant and expire 10 years from date of grant. Activity, adjusted for stock dividends distributed, under all plans for the calendar years ended 1995 and 1994, the five-month transition period ended December 31, 1993, and for the year ended July 30, 1993, respectively, is set forth on the following table. All amounts and prices have been adjusted to reflect the 5 percent stock dividends declared September 9, 1992, September 14, 1993, January 24, 1995, and January 23, 1996. - ------------------------------------------------------------------------------- Shares Under Option Price Option Range - ------------------------------------------------------------------------------- Outstanding at July 31, 1992 (263,188 exercisable) 401,127 $4.32 - 11.10 - ------------------------------------------------------------------------------- Granted 7,230 4.94 - 6.15 Exercised (54,437) 4.32 - 7.25 Cancelled (4,055) 4.94 - 11.10 - ------------------------------------------------------------------------------- Outstanding at July 30, 1993 (316,613 exercisable) 349,865 $4.32 - 9.36 - ------------------------------------------------------------------------------- Granted 69,183 6.15 - 8.96 Exercised (21,003) 4.83 - 5.96 Cancelled (2,178) 4.32 - 4.94 - ------------------------------------------------------------------------------- Outstanding at December 31, 1993 (315,977 exercisable) 395,867 $4.32 - 9.36 - ------------------------------------------------------------------------------- Granted 50,336 5.44 - 6.92 Exercised (15,308) 4.83 - 7.25 Cancelled (36,831) 4.32 - 6.46 - ------------------------------------------------------------------------------- Outstanding at December 31, 1994 (285,119 exercisable) 394,064 $4.32 - 9.36 - ------------------------------------------------------------------------------- Granted 31,763 5.33 - 6.31 Exercised (23,545) 4.83 - 5.66 Cancelled (69,960) 4.32 - 8.95 - ------------------------------------------------------------------------------- Outstanding at December 31, 1995 (250,200 exercisable) 332,322 $4.32 - 9.36 - ------------------------------------------------------------------------------- All option plans are administered by the Compensation Committee of the Board of Directors of the Parent which has the authority to interpret the Plans, determine to whom options may be granted under the Plans, determine the terms of each option, and cancel, with the consent of an optionee, any option previously granted to such optionee and to grant a new option in place thereof. Note H -- Legal Proceedings The Company is a defendant in several lawsuits and arbitrations which arose from its usual business activities. Some of these lawsuits and arbitrations claim substantial amounts, including punitive damage claims. While results of litigation and arbitration cannot be predicted with certainty, management, based on opinions of outside counsel, has provided for actions most likely of adverse disposition and believes that the effects of resolution of such litigation and arbitration beyond the amounts provided will not have a material adverse effect on the Company's consolidated financial position. However, depending upon the period of resolution, such effects could be material to the financial results of an individual operating period. It is reasonably possible that certain of these lawsuits and arbitrations could be resolved in the next year, and management does not believe such resolutions will result in losses materially in excess of the amounts previously provided. During 1995, the SEC completed a formal investigation into possible violations of the federal securities laws in connection with certain municipal bond issues managed by the Company's former Oklahoma City public finance department where the Company was the managing or co-managing underwriter. This investigation resulted in the Company consenting to a final judgement of permanent injunction whereby, among other things, the Company paid approximately $1.1 million in disgorgement and prejudgement interest, and $250,000 in fines. Additionally, the Company is named in lawsuits filed by The Oklahoma Turnpike Authority ("OTA") and The State of Oklahoma. The OTA suit seeks $6.5 million in compensatory damages and an unspecified amount of punitive damages. The State of Oklahoma seeks $7.6 million in compensatory damages and that these damages be trebled. The OTA suit alleges that an undisclosed fee paid to the Company by a third party for the placement of a forward purchase contract in an advance refunding escrow for the proceeds of the 1992 OTA $660 million refinancing should have been paid to the OTA. The State of Oklahoma suit alleges that the Company and two former executives of the Company committed violations of the Racketeer Influenced and Corrupt Organizations ("RICO") Act. This suit alleges essentially the same facts as are alleged in the OTA suit and were alleged by the SEC in its action against the Company which was settled in August 1995 by the Company without admitting or denying the allegations. Management does not believe the ultimate resolution of these matters will have a materially adverse effect on the Company's financial position. Note I -- Financial Instruments With Off-Balance-Sheet Credit Risk In the normal course of business, the Company's activities involve the execution, settlement, and financing of various securities transactions. These activities may expose the Company to off-balance-sheet risk in the event the customer or other party is unable to fulfill its contracted obligations. A portion of the Company's customer activity involves the sale of securities not yet purchased ("short sales") and the writing of option contracts through margin accounts. Such transactions may expose the Company to significant off-balance-sheet risk in the event collateral is not sufficient to cover losses which customers may incur upon significant market changes. The Company receives cash representing at least the market value of securities loaned. In the event the other party to these transactions is unable to return the securities loaned, the Company may be exposed to the risk of replacing the securities at prevailing market prices. The Company pledges customer securities as collateral for bank loans and to satisfy margin deposits of clearing organizations (see Note B and Note D). In the event such party is unable to return customer securities pledged as collateral, the Company may be exposed to the risk of acquiring the securities at prevailing market prices. The Company, as a part of its normal brokerage activities, assumes short positions in its inventory. The establishment of short positions exposes the Company to off-balance-sheet risk in the event prices increase, as the Company may be obligated to cover such positions. The Company does not engage in proprietary trading of volatile securities such as short options and futures. At December 31, 1995, 74 percent of the value of the Company's short positions consisted of equity securities, and the remainder consisted of debt securities. The Company controls off-balance-sheet risk by monitoring the market value and marking to market securities on a daily basis and by requiring adjustments of collateral levels in accordance with industry regulations and internal policies. The Company establishes credit limits for margin trading and monitors compliance with the applicable limits on a daily basis. Securities collateralizing customer accounts are held by the Company or held by other depository institutions, principally the Depository Trust Company. Concentrations of Credit Risk The Company maintains margin and cash security accounts for its customers located throughout the United States. The majority of the Company's customer receivables are serviced by branch locations in Missouri and Illinois. As a securities broker and dealer, a substantial portion of the Company's transactions are collateralized. The Company's exposure to credit risk associated with the nonperformance in fulfilling contractual obligations pursuant to securities transactions can be directly impacted by volatile trading markets which may impair the customers' or counterparties' ability to satisfy their obligations to the Company. The Company controls its exposure to credit risk by continually monitoring its counterparties' position, and where deemed necessary, the Company may require a deposit of additional collateral and/or a reduction or diversification of positions. The Company maintains its cash deposits in various financial institutions, several of which include amounts in excess of that insured by the Federal Deposit Insurance Corporation. Note J -- Long-Term Debt The Parent has outstanding $10,000,000 aggregate principal amount of its 11.25 percent Senior Convertible Notes due September 1, 1997, through September 1, 2000 in equal installments. The notes are convertible into shares of the Company's $.15 par value common stock at any time prior to maturity, unless previously redeemed, at a conversion price of $7.41 per share. Under certain conditions, the notes are redeemable in whole or in part at the option of the Parent by payment of the principal and the accrued interest on the notes to be redeemed plus a premium of 4.1 percent. The premium decreases approximately one percentage point each September 1 from 1996 through 1999. The Company is required to maintain consolidated tangible net worth (as defined by the note agreement) at an amount not less than $22,000,000 as long as any amount remains unpaid. (Also see Note E.) The Parent has outstanding $760,000 in promissory notes issued for the purchase of Todd Investment Advisors, Inc. The principal of the notes is due on January 2, 1996, with interest at 3.83% per annum of the unpaid balance. Interest charged to operations for these notes was $29,108 and $58,216 for calendar years 1995 and 1994, respectively. Note K -- Preferred Stock Purchase Rights On June 30, 1987, the Company's Board of Directors declared a distribution of one preferred stock purchase right for each share of the Company's common stock. Each right will entitle the holder to buy 1/100 of a share of a Series A Junior Participating Preferred Stock at an exercise price of $40 per right. The rights become exercisable on the tenth day after public announcement that a person or group has acquired 20 percent or more of the Company's common stock or upon commencement or announcement of intent to make a tender offer for 30 percent or more of the outstanding shares of common stock without prior written consent of the Company. The rights may be redeemed by the Company prior to becoming exercisable by action of the Board of Directors at a redemption price of $.05 per right. If the Company is acquired by any person after the rights become exercisable, each right will entitle its holder to purchase stock of the acquiring company having a market value of twice the exercise price of each right. The rights were issued to shareholders of record at the close of business on July 14, 1987, and expire in July 1997. Note L -- Income Taxes The Company's provision (benefit) for income taxes consists of: Year Year Five Months Year Ended Ended Ended Ended December 31, December 31, December 31, July 30, 1995 1994 1993 1993 ------------ ------------ ------------ -------- Current: Federal $(59,000) $(1,601,000) $1,092,000 $3,448,000 State (14,000) ( 382,000) 260,000 775,000 --------- ------------ ---------- ---------- $(73,000) $(1,983,000) $1,352,000 $4,223,000 Deferred: Federal $594,000 $(1,401,000) $ (167,000) $ (22,000) State 142,000 (334,000) (40,000) 31,000 -------- ------------ ----------- ----------- $736,000 $(1,735,000) $ (207,000) $ 9,000 -------- ------------ ----------- ----------- $663,000 $(3,718,000) $1,145,000 $4,232,000 ======== ============ =========== =========== The provision (benefit) for income taxes differs from the amount computed by applying the statutory federal income tax rate to (loss) income before income taxes for the following reasons:
Year Year Five Months Year Ended Ended Ended Ended December 31, December 31, December 31, July 30, 1995 1994 1993 1993 ------------ ------------ ------------ -------- Federal tax computed at statutory rates $444,000 $(3,135,000) $1,040,000 $3,832,000 State income taxes, net of federal income tax benefit 84,000 (450,000) 145,000 532,000 Tax-exempt interest, net of related interest expense (62,000) (143,000) (7,000) (237,000) Goodwill amortization 80,000 80,000 3,000 11,000 Meals and entertainment 96,000 107,000 12,000 38,000 SEC fine 85,000 - - - - - - Increase in cash surrender value of life insurance (27,000) 9,000 (20,000) 7,000 Other, net (37,000) (186,000) (28,000) 49,000 -------- ----------- ---------- ---------- Provision (benefit) for income taxes $663,000 $(3,718,000) $1,145,000 $4,232,000 ======== =========== ========== ==========
The net deferred tax asset consists of the following temporary differences: December 31, December 31, 1995 1994 ------------ ------------ Deferred Tax Asset Receivables from customers, principally due to allowance for doubtful accounts $ 314,000 $ 417,000 Office equipment and leasehold improvements, principally book over tax depreciation 777,000 784,000 Deferred compensation 693,000 669,000 Deferred revenue 171,000 217,000 Investments, principally due to valuation allowance 155,000 242,000 Provision for litigation and settlements 644,000 1,017,000 Receivables from officers and employees, principally due to allowance for doubtful accounts 1,169,000 997,000 Accrued expenses 485,000 681,000 Other 8,000 9,000 ---------- ---------- Deferred Tax Asset 4,416,000 5,033,000 ---------- ---------- Deferred Tax Liability Intangible assets, principally tax over book amortization (220,000) (215,000) Investment fee revenue installment receivable (294,000) (180,000) ---------- ---------- Total Gross Deferred Tax Liability (514,000) (395,000) ---------- ---------- Net Deferred Tax Asset $3,902,000 $4,638,000 ========== ========== The Company believes that a valuation allowance with respect to the realization of the total gross deferred tax asset is not necessary. Based on the Company's historical earnings, future expectations of taxable income, and the future reversals of gross deferred tax liability, management believes it is more likely than not that the Company will realize the gross deferred tax asset. For years prior to the adoption of SFAS No. 109, "Accounting for Income Taxes," the components of deferred income taxes are as follows: Year Ended July 30, 1993 ------------- Accruals currently not deductible $ 259,000 Depreciation and amortization (55,000) Deferred compensation (143,000) Bad debts 58,000 Unrealized gains and losses 35,000 Other, net (145,000) --------- Deferred income taxes $ 9,000 ========= Note M -- Related Party Transactions Three directors and one former director of the Parent are associated with firms which provide legal and consulting services to the Company. Additionally, several employees of Stifel, Nicolaus, through their individual ownership or interest in a corporation or partnership, provide leasing services primarily for branch office space. The Company charged to operations in the aggregate approximately $1,283,000, $1,369,000, $315,000, and $386,000 for calendar years 1995 and 1994, the five-month transition period ended December 31, 1993, and the fiscal year 1993, respectively, for these services. A director of the Parent has a general partnership interest in an enterprise in which the Company also holds general and limited partnership interests carried at approximately $623,000 at December 31, 1995, and $530,000 at December 31, 1994. The Company has receivables aggregating $1,976,000 at December 31, 1995 and 1994, from two former employees who were also directors and officers of the Company. These receivables arose from employment contracts which were to be earned or forgiven if performance criteria defined in the contracts were met. In 1994, the employees terminated with the Company. The Company filed suits to recover the balance of the receivables. Note N -- Transition Period and Comparable Prior Year The Company changed its fiscal year from the last Friday in July to a calendar year-end. Comparative results of operations are shown below:
Five-Month Calendar Year Ended Transition Five Months Ended December 31, 1994 December 31, 1993 Period Ended December 31, 1992 (unaudited) December 31, 1993 (unaudited) --------------------------------------------------------------------------- Revenues Commissions $ 25,407,000 $ 28,396,000 $ 11,949,000 $ 10,008,000 Principal transactions 22,567,000 23,232,000 9,313,000 11,282,000 Investment banking 11,969,000 30,285,000 10,885,000 11,151,000 Interest 10,918,000 9,316,000 4,057,000 4,101,000 Sale of investment company shares 9,674,000 12,133,000 4,906,000 3,514,000 Sale of unit investment trusts 2,736,000 3,728,000 1,362,000 854,000 Sale of insurance products 2,207,000 2,382,000 1,263,000 496,000 Other revenues 8,448,000 6,088,000 2,720,000 3,469,000 ------------ ------------ ------------ ------------ Total Revenues 93,926,000 115,560,000 46,455,000 44,875,000 ------------ ------------ ------------ ------------ Expenses Employee compensation and benefits 60,652,000 72,219,000 29,421,000 25,878,000 Commissions and floor brokerage 2,120,000 2,410,000 845,000 920,000 Communications and office supplies 8,045,000 7,181,000 3,090,000 2,745,000 Occupancy and equipment rental 9,397,000 7,798,000 3,333,000 3,183,000 Promotional 2,868,000 3,068,000 1,231,000 1,088,000 Interest 6,138,000 4,798,000 1,763,000 2,312,000 Provision for litigation and bad debts 2,467,000 907,000 473,000 1,105,000 Restructuring charge 2,672,000 0 0 0 Other expenses 8,788,000 7,290,000 3,239,000 3,203,000 ------------ ------------ ------------ ------------ Total Expenses 103,147,000 105,671,000 43,395,000 40,434,000 ------------ ------------ ------------ ------------ Pre-tax income (loss) (9,221,000) 9,889,000 3,060,000 4,441,000 Income tax provision (benefit) (3,718,000) 3,658,000 1,145,000 1,719,000 ------------ ------------ ------------ ------------ Net income (loss) $ (5,503,000) $ 6,231,000 $ 1,915,000 $ 2,722,000 ============ ============ ============ ============
Note O -- Acquisition On December 28, 1993, the Company purchased all of the outstanding stock of Todd Investment Advisors, Inc. (Todd), an investment advisory firm registered with the SEC under the Investment Advisory Act of 1940, for $1,780,000 in cash and $1,520,000 in promissory notes, payable in two installments. The transaction was accounted for as a purchase and resulted in the recognition of goodwill of approximately $3,201,000, which is being amortized on a straight-line basis over a fifteen-year period. Unaudited pro forma financial data for the combined operations, assuming the transaction had taken place at the beginning of the periods presented, follows: Five-Month Transition Period Ended Fiscal Year Ended December 31, 1993 July 30, 1993 ----------------- ----------------- Revenue $47,251,000 $115,379,000 Net income 1,945,000 7,102,000 Primary earnings per share 0.43 1.61 Note P -- Plan of Restructuring During the fourth quarter of 1994, the Board of Directors of the Parent approved a restructuring and downsizing plan for the Company to be implemented beginning in December 1994, which involved the closing or downsizing of 31 office locations and termination of approximately 70 officers and employees. The plan was completed during 1995. Following is a summary of activity in the accounts related to the restructuring accrual recorded at December 31, 1994: Adjustments Balance Recorded Balance December 31, Payments/ Through December 31, 1994 Charges Operations 1995 --------------------------------------------------------- Net lease commitments for closed offices $1,400,000 $ 440,153 $ 64,387 $895,460 Severance pay, extended benefits, and receivables written off for terminated employees 695,000 627,270 1,215 66,515 Contractual commitments 191,000 61,000 130,000 - - Abandonment of leasehold improvements 206,000 197,271 - - 8,729 ---------- ---------- -------- -------- Total $2,492,000 $1,325,694 $195,602 $970,704 ========== ========== ======== ========
The severance pay accrual as of December 31, 1994, disclosed in the above table has been amended from amounts previously reported to reflect the reclassification of a $180,000 reserve for bonus notes, which has been reclassified to conform to the 1995 presentation. The balances at December 31, 1995 and December 31, 1994 are included in the statement of financial condition under the caption Accounts payable and accrued expenses. During the year, the Parent Company's Board of Directors reversed its decision regarding the payment of certain philanthropic commitments which had been accrued in 1994 as part of the restructuring charge and included in "Contractual commitments" above. As a result of this decision, $130,000 related to accrued contractual commitments was reversed and credited to operations in 1995. Note Q -- Sale of Oklahoma-Based Assets On May 25, 1995, the Company sold the majority of the assets of its Oklahoma-based operations to Capital West Financial Corporation ("Capital West"). Capital West is primarily owned by former employees of the Company. Included in the sale were the majority of the assets related to the Company's retail offices in Oklahoma, several retail offices in Texas, and the Oklahoma-based public finance, institutional trading, and sales departments. The Company received cash, secured and senior notes, and warrants to purchase a minority interest in Capital West. In addition, Capital West assumed or subleased certain office and equipment lease obligations of the Company. The sale resulted in the reduction of approximately 70 investment executives and approximately 50 support staff located in 26 branch offices. The Company received secured and senior notes with a face amount of $1,850,000 bearing interest at a 10% annual rate with the final payments due May 24, 2000, in connection with the sale of its Oklahoma-based assets. The notes were recorded at a discounted rate of 17%. The Company has deferred recognition of the gain on the sale in the amount of $570,120 and has deferred recognition of any interest income related to the notes until such time that Capital West has demonstrated the ability to generate earnings and cash flow to fund interest and principal payments when scheduled. The notes receivable net of the discount of $335,617 and deferred gain of $570,120 are included in the statement of financial condition under the caption "Miscellaneous other assets" at December 31, 1995. Pro forma financial information assuming the transaction had taken place at the beginning of the year is presented below: Unaudited Pro Forma Combined Results of Operations Year Ended December 31, 1995 ----------------- Revenue $85,845,916 Net income $ 770,252 Net income per primary share $ 0.17 The above pro forma results do not purport to be indicative of results which actually would have occurred had the sale been made on January 1, 1995. Note R -- Subsequent Event On January 23, 1996, the Company's Board of Directors approved a 5 percent stock dividend to be distributed and $.03 per share cash dividend to be paid on February 20, 1996, to shareholders of record on February 6, 1996. All shares issued and earnings per share amounts included in the consolidated financial statements and notes thereto have been retroactively adjusted to give effect to the 5 percent stock dividend. Note S -- Recent Accounting Pronouncements The Financial Accounting Standards Board (FASB) has issued Statements of Financial Accounting Standards (SFAS) 121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed of," and SFAS 123, "Accounting for Stock-Based Compensation," both effective in fiscal years beginning after December 15, 1995. Management does not believe adoption of these standards will have a material impact on the Company's consolidated financial statements. (b) Supplementary Financial Information Quarterly Results Stifel Financial Corp. and Subsidiaries Quarterly Operating Results (Unaudited)
(Loss) Primary Fully Diluted Earnings Net (Loss) (Loss) Before (Loss) Earnings Earnings Revenue Income Taxes Income Per Share Per Share - --------------------------- ------------------ --------------- ---------------- ---------------- ------- Year 1995 By Quarter First $21,895,000 $ (318,000) $ (183,000) $ (.04) $(.04) Second 25,748,000 593,000 348,000 .08 .08 Third 23,055,000 482,000 162,000 .04 .04 Fourth 24,662,000 550,000 317,000 .07 .07 - --------------------------- ------------------ --------------- ---------------- ---------------- ------- Year 1994 By Quarter First $25,827,000 $289,000 $179,000 $ .04 $ .04 Second 22,746,000 (1,224,000) (731,000) (.16) (.16) Third 23,573,000 (681,000) (420,000) (.10) (.10) Fourth 21,780,000 (7,605,000) (4,531,000) (1.05) (1.05) - --------------------------- ------------------ --------------- ---------------- ---------------- ------- Transition Period 1993 First Quarter $28,916,000 $2,540,000 $1,603,000 $ .35 $ .30 November and December 17,539,000 520,000 312,000 .07 .07 - --------------------------- ------------------ --------------- ---------------- ---------------- -------
During 1995, the Company filed quarterly reports on Form 10-Q with the Securities and Exchange Commission and reported quarterly results to shareholders. The 1995 annual audit resulted in the Company recording several adjustments which affected the previously reported results of operations for each quarter. The quarterly results as adjusted are reflected in the preceding table. Following is a summary of the adjustments by quarter and their effect on previously reported net income and earnings per share data.
- ------------------------------------------------------------------------------------------------------------------------- Year Ended 1995 -- Increase/(Decrease) First Quarter Second Quarter Third Quarter Fourth Quarter - ------------------------------------------------------------------------------------------------------------------------- Net income as previously reported $ 68,000 $292,000 $241,000 $264,000 Adjustments: Accrued revenues - - - - - - 88,000 Employee compensation and benefits (58,000) 10,000 10,000 108,000 Valuation of investments (100,000) - - - - 25,000 Allowance for doubtful receivables (280,000) 100,000 - - - - Write-down of fixed assets - - - - - - (195,000) Other - - - - - - 87,000 Deferred tax provision - - - - (97,000) - - Tax effect of above 187,000 (54,000) 8,000 (60,000) ---------- -------- --------- --------- Net (loss) income as reported above $(183,000) $348,000 $162,000 $317,000 ========== ======== ========= ========= - --------------------------------------------------------- ---------------- ----------------- --------------- ---------- Primary earnings per share as previously reported $ .02 $ .07 $ .06 $ .06 Effect of adjustments (.06) .01 (.02) .01 -------- ------- ------- ------- Primary (loss) earnings per share as reported above $ (.04) $ .08 $ .04 $ .07 - --------------------------------------------------------- ---------------- ----------------- --------------- ---------- Fully diluted earnings per share as previously reported $ .02 $ .07 $ .06 $ .06 Effect of adjustments (.06) .01 (.02) .01 -------- ------- ------- ------- Fully diluted (loss) earnings per share as reported above $ (.04) $ .08 $ .04 $ .07 - --------------------------------------------------------- ---------------- ----------------- --------------- ----------
EX-21 5 EXHIBIT 21 - SUBSIDIARIES OF STIFEL FINANCIAL CORP EXHIBIT 21 STIFEL FINANCIAL CORP. AND SUBSIDIARIES SUBSIDIARIES OF STIFEL FINANCIAL CORP. (1) STATE OF NAMES UNDER WHICH NAME INCORPORATION SUBSIDIARY DOES BUSINESS - ---- ------------- ------------------------ Stifel, Nicolaus & Missouri Stifel, Nicolaus & Company, Company, Incorporated Incorporated Alliance Realty Corp. Missouri Alliance Realty Corp. Century Securities Missouri Century Securities Associates, Inc. Associates, Inc. Stifel, Nicolaus Arkansas Stifel, Nicolaus Insurance Insurance Agency, Inc. (2) Agency, Inc. S-N Capital Corp. (2) Missouri S-N Capital Corp. Stifel Insurance Agency - Ohio Stifel Insurance Agency - Ohio, Inc. Ohio, Inc. (4) Stifel Venture Corp. Missouri Stifel Venture Corp. Pin Oak Capital, Ltd. (3) Missouri Pin Oak Capital, Ltd. Stifel Asset Management Corp. Missouri Stifel Asset Management Corp. Todd Investment Advisors, Kentucky Todd Investment Advisors, Inc. Inc. (3) (1) Does not include corporations in which registrant owns 50 percent or less of the stock. (2) Wholly owned subsidiary of Stifel, Nicolaus & Company, Incorporated. (3) Wholly owned subsidiary of Stifel Asset Management Corp. (4) Majority owned subsidiary of Stifel, Nicolaus & Company, Incorporated. EX-23 6 EXHIBIT 23 - CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23 STIFEL FINANCIAL CORP. CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Stifel Financial Corp. and Subsidiaries on Form S-8 (file numbers 2-94326, 33-10030, 33-16150, 33-20568 and 33-53097) and on Form S-3 (file number 33-53699), of our report dated February 25, 1996 on our audits of the consolidated financial statements and financial statement schedules of Stifel Financial Corp. and Subsidiaries as of December 31, 1995 and December 31, 1994, and for the years ended December 31, 1995 and December 31, 1994, the five-month transition period ended December 31, 1993 and the fiscal year ended July 30, 1993, which report is incorporated by reference in this Annual Report on Form 10-K. /s/ Coopers & Lybrand L.L.P. St. Louis, Missouri February 25, 1996 EX-27 7 EXHIBIT 27 - FINANCIAL DATA SCHEDULES
BD This schedule contains summary financial information extracted from the consolidated statement of financial condition dated December 31, 1995 and the statement of operations for the year ended December 31, 1995 and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 7,120 172,998 0 4,912 19,521 3,014 227,288 86,450 71,934 0 20,555 2,744 10,760 681 0 0 34,114 227,288 18,980 13,002 40,545 11,674 2,617 8,312 57,187 1,307 1,307 0 0 644 0.14 0.14
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