-----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, GB191qKyK132YQIR4za/UjlWhgFqCS0/V0QuAfMyFOJcKb+UkXFxOwqWTERI/Lo7 fGQILSvlXVw+WFB8qe3kqQ== 0000720672-98-000010.txt : 19980518 0000720672-98-000010.hdr.sgml : 19980518 ACCESSION NUMBER: 0000720672-98-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 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-Q SEC ACT: SEC FILE NUMBER: 001-09305 FILM NUMBER: 98624068 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-Q 1 FORM 10-Q; DATED MARCH 31, 1998 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-9305 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 (Former name, former address, and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No Shares of common stock outstanding at March 31, 1998: 6,758,568, par value $0.15. Exhibit Index is on page 16. 2 Stifel Financial Corp. And Subsidiaries Form 10-Q Index March 31, 1998 PAGE PART I. FINANCIAL CONDITION Item 1. Financial Statements (Unaudited) Consolidated Statements of Financial Condition -- March 31, 1998 and December 31, 1997 4 Consolidated Statements of Operations -- Three Months Ended March 31, 1998 and March 27, 1997 5 Consolidated Statements of Cash Flows-- Three Months Ended March 31, 1998 and March 27, 1997 6-7 Notes to Consolidated Financial Statements 8-9 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 10-12 PART II. OTHER INFORMATION Item 1. Legal Proceedings 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 6. Exhibit(s) and Report(s) on Form 8-K 13 Signatures 14 3 PART I. FINANCIAL CONDITION Item 1. Financial Statements (Unaudited) STIFEL FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) (In thousands, except par values and share amounts) March 31, December 31, 1998 1997 ------------ ------------ ASSETS Cash and cash equivalents $ 9,537 $ 15,367 Cash segregated for the exclusive benefit of customers 179 177 Receivable from brokers and dealers 25,509 35,223 Receivable from customers, net of allowance for doubtful accounts of $556 and $556, respectively 227,179 218,301 Securities owned, at fair value 25,315 19,212 Membership in exchanges, at cost 513 513 Office equipment and leasehold improvements, at cost, net of allowances for depreciation and amortization of $11,178 and $10,890, respectively 3,591 2,227 Goodwill, net of accumulated amortization of $1,491 and $1,414, respectively 4,104 4,181 Notes receivable from and advances to officers and employees, net of allowance for doubtful receivables of $1,093 and $2,376, respectively 5,075 4,249 Refundable income taxes 63 65 Deferred tax asset 4,002 4,577 Other assets 10,867 11,392 --------- --------- $ 315,934 $ 315,484 ========= ========= 4 STIFEL FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (CONTINUED) (UNAUDITED) (In thousands, except par values and share amounts) March 31, December 31, 1998 1997 ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Short-term borrowings from banks $ 37,700 $ 89,150 Payable to brokers and dealers 126,295 73,708 Payable to customers 43,696 39,239 Securities sold, but not yet purchased, at fair value 4,894 4,264 Drafts payable 15,364 13,966 Accrued employee compensation 11,832 19,247 Obligations under capital leases 434 522 Accounts payable and accrued expenses 12,854 15,707 Long-term debt 9,600 9,600 --------- --------- Total Liabilities 262,669 265,403 Stockholders' Equity Preferred stock -- $1 par value; authorized 3,000,000 shares; none issued Common stock -- $0.15 par value; authorized 10,000,000 shares; issued 6,760,728 and 6,678,223 shares, respectively 1,014 1,002 Additional paid-in capital 37,370 37,006 Retained earnings 19,249 17,425 --------- --------- 57,633 55,433 Less: Treasury stock, at cost, 2,160 and 168,648 shares, respectively 22 1,989 Unamortized expense of restricted stock awards 1,168 185 Unearned employee stock ownership plan shares, at cost, 236,250 shares 3,178 3,178 --------- --------- Total Stockholders' Equity 53,265 50,081 --------- --------- $ 315,934 $ 315,484 ========= ========= See Notes to Consolidated Financial Statements. 5 STIFEL FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands, except per share amounts) Three Months Ended March 31, March 27, 1998 1997 ----------- ---------- REVENUES Commissions $ 13,609 $ 11,420 Principal transactions 9,363 5,266 Investment banking 3,553 7,696 Interest 4,755 4,045 Other 4,559 3,418 --------- --------- 35,839 31,845 EXPENSES Employee compensation and benefits 22,644 20,215 Commissions and floor brokerage 649 695 Communications and office supplies 1,965 1,660 Occupancy and equipment rental 2,105 1,727 Interest 2,539 2,351 Other operating expenses 2,519 2,445 --------- --------- 32,421 29,093 --------- --------- INCOME BEFORE INCOME TAXES 3,418 2,752 Provision for income taxes 1,365 1,105 --------- --------- NET INCOME $ 2,053 $ 1,647 Net income per share: Basic $ 0.32 $ 0.33 Diluted $ 0.30 $ 0.27 Dividends declared per share $ 0.03 $ 0.03 Average common equivalent shares outstanding: Basic 6,458 4,949 Diluted 6,788 6,588 See Notes to Consolidated Financial Statements. 6 STIFEL FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)(In thousands) Three Months Ended March 31, March 27, 1998 1997 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2,053 $ 1,647 Noncash items included in earnings: Depreciation and amortization 365 383 Net gains on investments (234) (25) Bonus notes amortization 431 330 Deferred compensation 248 175 Deferred tax provision 576 119 Restricted stock awards amortization 63 25 --------- --------- 3,502 2,654 Decrease (increase) in operating receivables 836 (36,813) Increase in operating payables 57,044 11,380 (Increase) decrease in assets: Cash segregated for the exclusive benefit of customers (1) 174 Securities owned (6,102) (8,551) Notes receivable from officers and employees (1,097) (263) Other assets 572 1,519 Increase (decrease) in liabilities: Securities sold, but not yet purchased 631 307 Drafts payable, accounts payable and accrued expenses, and accrued employee compensation (8,684) (5,134) --------- --------- Cash Provided By (Used For) Operating Activities $ 46,701 $ (34,727) ========= ========= See Notes to Consolidated Financial Statements. 7 STIFEL FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED)(In thousands) Three Months Ended March 31, March 27, 1998 1997 ------------ ------------ Cash Provided By (Used For) Operating Activities - from previous page $ 46,701 $ (34,727) CASH FLOWS FROM FINANCING ACTIVITIES Short-term borrowings, net (51,450) 33,975 Proceeds from: Issuance of stock 908 744 Temporary subordinated debt - - 8,000 Payments for: Repurchase of stock (78) (796) Temporary subordinated debt - - (8,000) Principal payments under capital lease obligation (88) (103) Cash dividends (199) (143) --------- --------- Cash (Used For) Provided By Financing Activities (50,907) 33,677 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from: Sale of office equipment - - 3 Sale of investments 28 - - Payments for: Acquisition of office equipment and leasehold improvements (1,651) (161) Acquisition of investments - - (626) --------- --------- Cash Used For Investing Activities (1,623) (784) --------- --------- Decrease in cash and cash equivalents (5,829) (1,834) Cash and cash equivalents - beginning of period 15,366 7,960 --------- --------- Cash and Cash Equivalents - end of period $ 9,537 $ 6,126 ========= ========= Supplemental disclosure of cash flow information: Income tax payments $ 1,124 $ 49 Interest payments $ 2,343 $ 2,449 Schedule of noncash investing and financing activities: Fixed assets acquired under capital lease - - $ 292 Employee stock ownership plan - - $ 300 Restricted stock awards, net of forfeitures $ 1,033 - - Stock dividend distributable $ 30 - - See Notes to Consolidated Financial Statements. 8 STIFEL FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE A - BASIS OF PRESENTATION The consolidated financial statements include the accounts of Stifel Financial Corp. and its subsidiaries (collectively referred to as "the Company"). The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. For further information, refer to the financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1997. Where appropriate, prior years' financial information has been reclassified to conform with the current year presentation. NOTE B - NET CAPITAL REQUIREMENT The Company's principal subsidiary, Stifel, Nicolaus & Company, Incorporated ("SN & Co."), is subject to the Uniform Net Capital Rule 15c3-1 under the Securities Exchange Act of 1934 (the "rule"), which requires the maintenance of minimum net capital, as defined. SN & Co. 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 items 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 debit items. At March 31, 1998, SN & Co. had net capital of $32,028,000 which was 12.32% of its aggregate debit items and $26,829,000 in excess of the minimum required net capital. NOTE C - RECENT ACCOUNTING PRONOUNCEMENTS As of January 1, 1997, the Company adopted SFAS No.125, which was effective for transfers of financial assets made after December 31, 1996, except for transfers of certain financial assets for which the effective date has been delayed for one year. SFAS No. 125 provides financial reporting standards for the derecognition and recognition of financial assets, including the distinction between transfers of financial assets which should be recorded as sales and those which should be recorded as secured borrowings. The adoption of the provisions of SFAS No. 125 had no material effect on the Company's financial condition or results of operations. 9 NOTE D - EARNINGS PER SHARE During 1997, the Company adopted SFAS 128. The following table reflects a reconciliation between Basic EPS and Diluted EPS.
March 31, 1998 March 27, 1997 - ----------------------------------------------------------------------------------------------------------- (In thousands,except Income Shares Per Share Income Shares Per Share per share amounts) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount Basic Earnings Per Share Income available to shareholders $2,053 6,458 $0.32 $1,647 4,949 $0.33 - ----------------------------------------------------------------------------------------------------------- Diluted Earnings Per Share Effect of Dilutive Securities: Options, ESPP, and deferred compensation - - 330 - - - - 150 - - Convertible debt - - - - - - 129 1,489 - - Income available to common stockholders and assumed conversions $2,053 6,788 $0.30 $1,776 6,588 $0.27 - -----------------------------------------------------------------------------------------------------------
NOTE E - SUBSEQUENT EVENT On April 28, 1998, the Company's Board of Directors declared a regular quarterly cash dividend of $0.03 per share, payable on May 28, 1998 to stockholders of record May 12, 1998. ****** 10 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Results of Operations Three months ended March 1998 and March 1997 The Company continued to benefit from strong market conditions as revenues rose $4.0 million (13%) to $35.8 million for the first quarter ended March 31, 1998, compared to total revenues of $31.8 million for the same period one year earlier. Net income for the period increased $406,000 (25%) to $2,053,000 compared to $1,647,000 recorded in last year's first quarter. Net income per diluted share was $0.30 compared to $0.27 in the 1997 first quarter. Revenue from commissions increased $2.2 million (19%) to $13.6 million, principally as a result of improved investment executive production. Main components for the increase were from sales of mutual funds - up $957,000 (35%); listed equity securities - up $533,000 (19%); and over-the-counter equity securities - up $416,000 (9%). Principal transaction revenues are primarily derived from over- the-counter and fixed income inventory activities. Inventories of these securities are maintained to meet client needs. Realized and unrealized gains and losses that result from holding and trading these securities are included in principal transactions. Revenues from principal transactions increased $4.1 million (78%) to $9.4 million. The increase resulted primarily from a unit investment trust ("Trust") underwritten by SN & Co. The trust consisted of a portfolio of common stocks issued by financial institutions having operations mainly in the Midwest. Investment banking revenue decreased $4.1 million (54%) to $3.6 million for the quarter. The decrease resulted from fewer underwritings of Trust Preferred and mortgage Real Estate Investment Trust (REIT) transactions. Last year's first quarter was especially strong as $6.4 million of revenue was generated from these transactions. Revenues from investment banking transactions, particularly underwritings, can fluctuate significantly from quarter-to-quarter. Interest revenue increased $710,000 (18%) to $4.8 million principally as a result of interest earned from customer borrowings on margin accounts. Other revenues increased $1.1 million (33%) to $4.6 million. Main components of the increase resulted from increases in fees from investment advisory and management services - up $510,000 (36%) and customer service fees - up $316,000 (25%). Total expenses increased $3.3 million (11%) to $32.4 million from $29.1 million, principally as a result of increased compensation and benefits. 11 Compensation and benefits, a significant portion of the Company's total expense, rose $2.4 million (12%) in the first quarter of 1998. A majority of the increase resulted from compensation that is variable in nature and grew in conjunction with the increases in revenues and profitability. This variable component increased $1.7 million (11%) compared to last year's first quarter. The fixed component of compensation, principally salaries, increased $747,000 (16%) as a result of normal year-to- year salary increases and the addition of approximately 50 non- sales associates since March of 1997. Growth occurred in key areas such as Equity Capital Markets and Investment Services, foundations for the Company's overall growth plans. Communications and Supplies increased $305,000 (18%) to $2.0 million, primarily as a result of costs associated with improvements in communications technology and increased activity in the printing of sales materials. Occupancy and equipment rental increased $378,000 (22%) to $2.1 million, primarily as a result of a one-time credit recorded in 1997 related to the renegotiation of a long-term office space lease which had been previously accrued. Without the effect of the one-time credit, occupancy and equipment rental would have increased $60,000 (3%). Impact of Year 2000 Software Issues Many of the world's computer systems currently record years in a two-digit format. Such computer systems will be unable to properly interpret dates beyond the year 1999, which could lead to business disruptions. The potential costs and uncertainties associated with this issue will depend on a number of factors including software, hardware, and the nature of the industry in which a company operates. Additionally, companies must coordinate with other entities with which they electronically interact, such as customers, vendors, and borrowers. This is a significant undertaking for securities firms, as virtually every aspect of the sale of securities and related processing of transactions will be affected and the consequences for noncompliance will be significant. A significant portion of the Company's operations and information systems are provided by third-party service providers. The Company has developed a plan to analyze how the Year 2000 will impact its operations, including monitoring the status of its service providers and evaluating alternatives. Given the Company's exposure to third-party service providers, management does not believe the internal costs to address the Year 2000 issue will have a material impact on future operations other than the impact such event will have on the cost of services provided by its vendors which is unknown at this time. The interdependent nature of securities transactions and the success of the Company's external counterparties and vendors in dealing with this issue could significantly influence the Company's estimate of the impact the Year 2000 will have on its business. 12 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. Management believes the funds from operations, available informal short-term credit arrangements, and long-term borrowings, at March 31, 1998, will provide sufficient resources to meet the 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. At March 31, 1998, Stifel, Nicolaus had net capital of approximately $32.0 million which exceeded the minimum net capital requirements by approximately $26.8 million. 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings There were no other material changes in the other legal proceedings previously reported in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Such information is hereby incorporated by reference. Item 4. Submission of Matters to a Vote of Security Holders (a) The Annual meeting of Stockholders was held on April 28, 1998, for the election of three directors and for the appointment of Deloitte & Touche LLP as the Company's independent auditors for the year ending December 31, 1998. (b) Proxies for the meeting were solicited pursuant to Regulation 14 under the Act. There was no solicitation in opposition to the Board of Directors' proposals as listed in the Proxy Statement and all of the proposals were passed. Item 6. Exhibit(s) and Report(s) on Form 8-K (a) Exhibit No. (Reference to Item 601(b) of Regulation S-K) Description - ----------------------------------------------------------------- 27 Financial Data Schedule (furnished to the Securities and Exchange Commission for Electronic Data Gathering, Analysis, and Retrieval [EDGAR] purposes only) (b) Report(s) on Form 8-K The company filed a report on Form 8-K dated December 31,1997. This report Form 2-K contained information under Item 5. "Other Events". The Company announced that AEGON USA, Inc. Insurance Group had sold 1,207,500 shares of the Registrant's common stock. The Western and Southern Life Insurance Company and Stifel, Nicolaus Stock Ownership Plan and Trust had purchased 971,250 and 236,250 shares, respectively. 14 SIGNATURES Pursuant to the requirement of Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STIFEL FINANCIAL CORP. (Registrant) Date: May 14, 1998 By /s/ Ronald J. Kruszewski Ronald J. Kruszewski (President and Chief Executive Officer) Date: May 14, 1998 By /s/ Stephen J. Bushmann Stephen J. Bushmann (Principal Financial and Accounting Officer) 15 STIFEL FINANCIAL CORP. AND SUBSIDIARIES EXHIBIT INDEX March 31, 1998 Exhibit Number Description - --------------------------------------------------------------- 27 Financial Data Schedule (furnished to the Securities and Exchange Commission for Electronic Data Gathering, Analysis, and Retrieval [EDGAR] purposes only) EX-27 2 EXHIBIT 27 - FINANCIAL DATA SCHEDULE - ARTICLE BD
BD THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF FINANCIAL CONDITION DATED MARCH 31, 1998 AND THE STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 9,716 243,260 0 14,505 25,315 3,591 315,934 37,700 85,196 0 125,279 4,894 9,600 1,014 0 0 52,251 315,934 9,363 4,755 13,609 3,553 804 2,539 22,644 3,418 3,418 0 0 2,053 0.32 0.30
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