Back to GetFilings.com
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
For the fiscal year ended December 31, 1998
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from __________to __________
.
Commission file number 1-9305
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)
501 N. Broadway
St. Louis, Missouri 63102-2102
- --------------------------------------- ----------
(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 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 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 statements incorporated by
reference in Part III of this Form 10-K, or any amendment to this
Form 10-K [ ]
2
Aggregate market value of voting stock held by non-affiliates of
the registrant at March 10, 1999 was $58,431,864.
Shares of Common Stock outstanding at March 10, 1999: 7,045,330
shares, par value $.15 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the year ended
December 31, 1998 are incorporated by reference in 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 28, 1999 are incorporated by
reference in Part III hereof. Exhibit Index located on page 25.
3
PART I
ITEM 1. BUSINESS
Stifel Financial Corp. ("Financial"), a Delaware corporation and
holding company, was organized in 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. Unless the context requires otherwise, 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 54 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.
Principal Sources of Revenue
The amounts of each of the principal sources of revenue of the
Company for the years ended December 31, 1998, 1997 and 1996 are
contained in Item 6. Selected Financial Data, herein.
Narrative Description of Business
As of February 28, 1999, the Company employed 851 individuals.
Stifel Nicolaus employed 821 of which 307 were employed as
investment executives. In addition, 144 investment executives
were affiliated with Century Securities Associates, Inc. ("CSA")
as independent contractors. Through its broker-dealer
subsidiaries, the Company provides securities services to
approximately 104,000 client accounts. No single client accounts
for a material percentage of the Company's total business. The
Company currently divides its business into three segments based
on the products and services offered. These segments are private
client, capital markets, and other. See Note N of the
Consolidated Financial Statements incorporated by reference
herein for a further discussion.
Private Client
The Company provides securities transaction and financial
planning services to its private clients through Stifel Nicolaus'
branch system and its independent contractor firm, CSA. In 1998
management made significant investments in personnel, technology,
and market data platforms to grow the private client segment.
4
Stifel Nicolaus Private Client
Stifel Nicolaus has 51 private client branches located in 12
states, primarily in the Midwest. Its 307 Investment Executives
provide a broad range of services and financial products to their
clients. In most cases Stifel Nicolaus charges commissions on
both stock exchange and over-the-counter transactions, in
accordance with Stifel Nicolaus' commission schedule. In certain
cases, varying discounts from the schedule are granted. In
addition, Stifel Nicolaus distributes both taxable and tax exempt
fixed-income products to its private clients, including
municipal, corporate, government agency and mortgage backed
bonds, preferred stock, and unit investment trusts. An
increasing number of clients are electing asset based fee
alternatives to the traditional commission schedule. In addition,
Stifel Nicolaus distributes insurance and annuity products, and
investment company shares. Stifel Nicolaus has dealer-sales
agreements with numerous distributors of investment company
shares. These agreements generally provide for dealer discounts
ranging up to 5.75 percent of the purchase price, depending upon
the size of the transaction.
Century Securities Associates Inc. Private Client
CSA has affiliations with 144 independent contractors in 29
branch offices and 67 satellite offices in 29 states. Under
their contractual arrangements, these independent contractors may
provide accounting services, real estate brokerage, insurance, or
other business activities for their own account. However, all
securities transactions must be transacted through CSA. CSA's
independent contractors provide the same types of financial
products and services to its private clients, as does Stifel
Nicolaus. Independent contractors are responsible for all of
their direct costs and are paid a larger percentage of
commissions to compensate them for their added expenses. CSA is
an introducing broker-dealer and as such clears its transactions
through Stifel Nicolaus.
Client transactions in securities for Stifel Nicolaus and CSA are
affected on either a cash basis 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.
5
Capital Markets
Capital markets include investment banking, corporate finance and
public finance departments, research department, syndicate
department, over-the-counter equity trading, and institutional
sales and trading.
Investment Banking - Corporate Finance
The investment banking corporate finance group consists of ten
professionals, located in St. Louis, and is involved in public
and private equity and preferred underwritings for corporate
clients, merger and acquisition advisory services, fairness
opinions, and evaluations. Stifel Nicolaus focuses on small and
mid-cap financial institutions, located primarily in the Midwest,
and to a lesser extent mortgage and property real estate
investment trusts.
Research Department
The research department consists of seven analysts who publish
research on over 144 companies. Proprietary research reports are
provided to private and institutional clients at no charge and
are supplemented by research purchased from outside vendors.
Syndicate Department
The syndicate department coordinates the marketing, distribution,
pricing, and stabilization of the Company's lead- and co-managed
underwritings. In addition, the syndicate department coordinates
the firm's syndicate and selling group activities managed by
other investment banking firms.
Over-the-Counter Equity Trading
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. At December
31, 1998, Stifel Nicolaus made a market in 149 equity issues in
the over-the-counter market. The Company does not engage in a
significant amount of trading for its own account.
Institutional Sales
Institutional sales is comprised of institutional equity sales,
fixed income sales, and taxable and tax-exempt trading
departments located in St. Louis. The institutional equity sales
group provides equity products to its institutional accounts in
both the primary and secondary markets. Primary equity issues
are generally underwritten by Stifel Nicolaus' investment banking
corporate finance group. At December 31, 1998, the institutional
equity sales department maintained relationships with over 370
institutional accounts. Stifel Nicolaus buys fixed income
products, both tax-exempt and taxable products, primarily
municipal bonds, corporate, government agency, and mortgage back
bonds for its own account, maintains an inventory of these
products and resells from that inventory to its institutional
accounts. The institutional fixed income sales group maintained
relationships with over 530 accounts at December 31, 1998.
6
Investment Banking-Public Finance
Investment banking public finance consists of eight professionals
with its principal offices in St. Louis and Wichita. Stifel
Nicolaus 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 are
originated through its office in St. Louis.
Other Segments
In addition to its private client segment and capital markets
segment, the company has two investment advisory firms which
provide investment advisory services to individuals, fiduciary,
and corporate clients. Revenues are derived based upon assets
under management. Pin Oak Capital, Ltd. is registered as an
investment advisor in six states and had assets under management
of approximately $147,298,000 at December 31,1998.Todd Investment
Advisors,Inc.("Todd") holds registrations in sixteen states with
approximately $3,088,475,000 of assets under management at
December 31, 1998.
On January 28, 1999, the Board of Directors of the Company
announced the sale of all of the oustanding capital stock of Todd
to a subsidiary of Western and Southern Life Insurance Company, a
significant shareholder of the Company.
Stifel Nicolaus clears transactions for the Company's independent
contractor, CSA, and two other introducing broker-dealers.
Revenues and costs associated with clearing these transactions
are also included in "other segments."
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, on-line service
providers, and other financial institutions, now offer discount
brokerage services to individual 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 full service brokerage firms. 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 108-year history, its personnel, and its equity capital
to operate in the competitive environment.
7
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 two
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.
8
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 four percent of aggregate debit balances
and may be prohibited from expanding its business and declaring
cash dividends if its net capital is less than five 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 requires 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 $28.5
million at December 31, 1998, which was approximately 10.6
percent of aggregate debit balances and approximately $23.1
million in excess of required net capital.
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 12 states, primarily in the Midwest.
The Company has a total of 54 locations in 13 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 office space and equipment,
for the year ended December 31, 1998 was approximately
$4,031,000. Further information about the lease obligations of
the Company is provided in Note D of the Consolidated Financial
Statements incorporated by reference herein.
9
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in several lawsuits relating
principally to its securities business. Some of these lawsuits
and arbitrations claim substantial amounts, including punitive
damages. One such claim involves a lawsuit filed on October 5,
1995 by The Oklahoma Turnpike Authority ("OTA") in the District
Court of Oklahoma County, State of Oklahoma, along with DeWayne
VonFeldt and Robert Cochran, two former employees of the Company;
Sakura Global Capital and Steven Strauss; Pacific Matrix and Jeff
Feld. The OTA suit seeks $6.5 million in compensatory damages
and an unspecified amount of punitive damages. 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 $608
million municipal bond refinancing should have been paid to the
OTA. Although the ultimate outcome of this and other actions
cannot be ascertained at this time, management, based on its
understanding of the facts and after consultation with outside
counsel, does not believe the ultimate resolution of these
matters will have a materially adverse effect on the Company's
consolidated financial condition and results of operations.
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.
10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 4a. 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:
Year First Appointed as
Positions or Offices Executive Officer
Name Age with the Company of the Company
George H. Walker III 68 Chairman of the Board of 1978
Financial and Stifel Nicolaus
Ronald J. Kruszewski 40 President and Chief Executive 1997
Officer of Financial and
Stifel Nicolaus
James M. Zemlyak 39 Vice President, Treasurer and 1999
Chief Financial Officer of
Financial and Senior Vice
President and Chief Financial
Officer of Stifel Nicolaus
Charles R. Hartman 55 Vice President and Secretary 1996
of Financial and General Counsel,
Senior Vice President and
Secretary of Stifel Nicolaus
Scott B. McCuaig 49 Vice President of Financial and 1998
Director of Retail Sales &
Marketing of Stifel Nicolaus
Lawrence E. Somraty 50 Vice President of Financial and 1996
President of Century Securities
Associates, Inc.
The following are brief summaries of the business experience
during the past five years of each of the executive officers of
the Company.
George H. Walker III joined Stifel Nicolaus in 1976, became
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, 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 Western and Southern Life Insurance Company,
Laclede Steel Company, Laidlaw Corp., Macroeconomics Advisers,
LLC, and EAC Corporation. He is active in various community
activities. He is Chairman of the Advisory Committee of Webster
University Business School and on the National Counsel of
Washington University Business School.
11
Ronald J. Kruszewski was appointed President and Chief
Executive Officer of the Company and Stifel Nicolaus on September
25, 1997. Prior to joining the Company, Mr. Kruszewski served as
Managing Director and Chief Financial Officer of Baird Financial
Corporation and Managing Director of Robert W. Baird & Co.
Incorporated. Mr. Kruszewski is a director of digital broadcast
network Corporation.
James M. Zemlyak joined Stifel Nicolaus in February of 1999.
He is Vice President, Treasurer, and Chief Financial Officer of
Financial and Senior Vice President and Chief Financial Officer
of Stifel Nicolaus and a member of the Board of Directors of
Stifel Nicolaus. Prior to joining the Company, Mr. Zymlyak served
as Chief Financial Officer of Baird Financial Corporation and
Managing Director, Chief Financial Officer and a member of the
Board of Directors of Robert W. Baird & Co. Incorporated.
Charles R. Hartman joined Stifel Nicolaus in June of 1994. He
is Vice President and Secretary of Financial and 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 from April 1982 to June of 1994, a Los Angeles partner in the
law firm of Rogers & Wells.
Scott B. McCuaig joined Stifel Nicolaus in January of 1998. He
is Vice President of Financial and the Director of Retail Sales &
Marketing, and a member of the Board of Directors of Stifel
Nicolaus. Prior to joining Stifel Nicolaus, Mr. McCuaig was a
Managing Director, head of marketing, regional sales manager, and
a member of the Board of Directors of Robert W. Baird & Co.
Incorporated.
Lawrence E. Somraty has been with Stifel Nicolaus since 1977.
He is Vice President of Financial and became the President of
Century Securities Associates, Inc. in January 1991. Prior
thereto, he served as Option Department Manager, Senior
Registered Options Principal, Investment Advisor and Branch
Manager of Stifel Nicolaus.
12
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 are as
follows:
High and Low Stock Price By Quarter
--------------------------------------------------
1998 1997
Quarter High - Low High - Low
--------------------------------------------------
First $16 3/16 - 12 1/16 $ 8 3/16 - 6 11/16
Second 17 5/8 - 13 11/16 10 15/16- 6 13/16
Third 15 11/16- 9 1/8 11 7/8 - 8 5/16
Fourth 11 1/2 - 8 3/4 15 3/8 - 11 13/16
==================================================
The Company from time-to-time uses funds generated from
operations to purchase the Company's common stock throughout the
calendar year. On January 27, 1999, the Company's Board of
Directors authorized the purchase of an additional 500,000 shares
to be used to satisfy share obligations for employee benefit
plans and for general corporate purposes.
b.) Holders
The approximate number of stockholders of record on March 10,
1999 was 3,000.
c.) Dividends
Dividends paid were as follows:
Record Payment Cash Stock
Date Date Dividend Dividend
02/4/97 02/18/97 $0.03 5%
05/6/97 05/20/97 $0.03 - -
08/5/97 08/19/97 $0.03 - -
11/11/97 11/25/97 $0.03 - -
02/12/98 02/26/98 $0.03 5%
05/12/98 05/28/98 $0.03 - -
08/06/98 08/20/98 $0.03 - -
11/05/98 11/19/98 $0.03 - -
A regular quarterly cash dividend of $0.03 per share was
established on November 30, 1993.
13
ITEM 6. SELECTED FINANCIAL DATA
Stifel Financial Corp. and Subsidiaries
Financial Summary
Years Ended December 31,
-----------------------------------------------------------------
(In thousands, except 1998 1997 1996 1995 1994
per share and percentages) ---- ---- ---- ---- ----
Revenues
Commissions $ 56,729 $ 49,763 $ 43,900 $ 38,716 $ 37,287
Principal transactions 26,465 20,463 19,498 20,362 24,639
Investment banking 15,763 28,476 16,253 12,121 12,634
Interest 18,889 21,397 13,774 13,002 10,918
Other 19,442 15,997 16,388 11,159 8,448
--------- --------- --------- --------- ---------
137,288 136,096 109,813 95,360 93,926
--------- --------- --------- --------- ---------
Expenses
Employee compensation and benefits 86,967 82,094 66,765 57,187 61,527
Commissions and floor brokerage 2,804 2,780 2,641 2,319 2,120
Communications and office supplies 8,389 6,914 6,797 7,651 8,045
Occupancy and equipment 9,549 8,109 7,958 8,512 11,601
Interest 9,798 12,991 8,197 8,312 6,138
Litigation, settlements,and bad debts 830 3,726 3,292 1,610 2,467
Restructuring charge - - - - - - - - 2,672
Other operating expenses 10,362 10,061 8,561 8,462 8,577
--------- --------- --------- --------- ---------
128,699 126,675 104,211 94,053 103,147
--------- --------- --------- --------- ---------
Income (loss) before income taxes 8,589 9,421 5,602 1,307 (9,221)
Provision (benefit) for income taxes 3,344 3,750 2,209 663 (3,718)
--------- --------- --------- --------- ---------
Net income (loss) $ 5,245 $ 5,671 $ 3,393 $ 644 $ (5,503)
========= ========= ========= ========= =========
Per Share Data
Basic earnings (loss)(a) $ .77 $ 1.01 $ .66 $ .13 $ (1.09)
Diluted earnings (loss)(a) $ .73 $ .88 $ .59 $ .13 $ (1.09)
Cash dividends $ .12 $ .12 $ .09 $ .12 $ .09
Other Data
Total assets $ 335,005 $ 315,484 $ 301,344 $ 226,775 $ 222,208
Long-term obligations $ 20,570 9,600 10,000 10,760 11,520
Stockholders' equity $ 54,977 50,081 37,752 34,795 34,226
Net income as % averageity 9.69 % 13.29 % 9.35 % 1.87 % * N.M.
Net income as % revenues 3.82 % 4.17 % 3.09 % 0.68 % * N.M.
Average common shares and share
equivalents outstanding (a):
Basic 6,850 5,591 5,150 5,079 5,042
Diluted 7,198 7,099 6,816 5,152 5,042
- --------------------------------------------------------------------------------------------------
(a) Retroactively restated to reflect the 5 percent stock dividend
declared January 27, 1999.
* Not Meaningful
14
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The Management's Financial Discussion, including the discussion
under "Year 2000," together with other sections of this Annual
Report, contains forward-looking statements within the meaning of
federal securities laws. Actual results are subject to risks and
uncertainties, including both those specific to the Company and
those specific to the industry which could cause results to
differ materially from those contemplated. The risks and
uncertainties include, but are not limited to, third-party or
Company failures to achieve timely, effective remediation of the
Year 2000 issues, general economic conditions, actions of
competitors, regulatory actions, changes in legislation and
technology changes. Undue reliance should not be placed on the
forward-looking statements, which speak only as of the date of
this Annual Report. The Company does not undertake any
obligation to publicly update any forward-looking statements.
Management's Discussion and Analysis of Financial Condition and
Results of Operations, included on pages 22 through 27 of the
Annual Report of the Registrant to its Stockholders, for the year
ended December 31, 1998, is incorporated herein by reference.
ITEM 7A. Quantitative and Qualitative Disclosures About Market
Risk.
Quantitative and Qualitative Disclosure About Market Risk,
included on page 27 of the Annual Report of the Registrant to its
Stockholders, for the year ended December 31, 1998, is
incorporated herein by reference.
15
ITEM 8. Financial Statements and Supplementary Data.
The following consolidated financial statements included in the
Annual Report of the Registrant to its Stockholders, for the year
ended December 31, 1998, is incorporated herein by reference.
Statement Annual Report Reference
--------- -----------------------
Consolidated Statements of Financial Condition --
December 31, 1998 and December 31, 1997 ................ 28 - 29
Consolidated Statements of Operations --
Years ended December 31, 1998, December 31, 1997
and December 31, 1996.................................. 30
Consolidated Statements of Stockholders' Equity --
Years ended December 31, 1998, December 31, 1997
and December 31, 1996.................................. 31
Consolidated Statements of Cash Flows --
Years ended December 31, 1998, December 31, 1997
and December 31, 1996.................................. 32 - 33
Notes to Consolidated Financial Statements............... 34 - 48
Independent Auditors' Report............................. 49
Selected Quarterly Financial Data, included on page 50 of the
Annual Report of the Registrant to its Stockholders, for the year
ended December 31, 1998, is incorporated herein by reference.
16
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
Information regarding directors is contained in "Voting
Securities and Principal Holders Thereof" and "Election of
Directors," included in the Registrant's Proxy Statement for the
1999 Annual Meeting of Stockholders, which information is
incorporated herein by reference.
Information regarding the executive officers, as of March 26,1999
is contained in "Item 4a Executive Officers of the Registrant,"
hereof. There is no family relationship between any of the named
executive officers.
Information regarding compliance with Section 16 of the
Securities Exchange Act of 1934, as amended, is contained in
"Section 16(a) Beneficial Ownership Reporting Compliance,"
included in the Registrant's Proxy Statement for the 1999 Annual
Meeting of Stockholders, which information is incorporated herein
by reference.
17
ITEM 11. Executive Compensation.
Information regarding executive compensation is contained in
"Executive Compensation," included in the Registrant's Proxy
Statement for the 1999 Annual Meeting of Stockholders, which
information is incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management.
Information regarding security ownership of certain beneficial
owners and management is contained in "Voting Securities and
Principal Holders Thereof," included in the Registrant's Proxy
Statement for the 1999 Annual Meeting of Stockholders, which
information is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions.
Information regarding certain relationships and related
transactions is contained in "Certain Relationships and Related
Transactions," included in the Registrant's Proxy Statement for
the 1999 Annual Meeting of Stockholders, which information is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)(1) Consolidated Financial Statements: Incorporated herein by reference,
are listed in item 8 hereof.
(2) Consolidated Financial Statement Schedules:
Independent Auditors' Report...................................20
Schedule I - Condensed Financial Information of Registrant....21-23
Schedule II- Valuation and Qualifying Accounts.................24
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: See Exhibit Index on pages 25 and 27 hereof.
(b) Reports on Form 8-K:
There were no reports on Form 8-K during the fourth quarter
ended December 31, 1998.
18
SIGNATURES
Pursuant to the requirements of Section 13 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
26th day of March 1999.
STIFEL FINANCIAL CORP.
(Registrant)
By /s/ Ronald J. Kruszewski
-----------------------------
Ronald J. Kruszewski
(Principal Executive Officer)
/s/ Bernard N. Burkemper
-----------------------------
Bernard N. Burkemper
(Principal Accounting Officer)
19
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 26, 1999, in the capacities
indicated.
/s/George H. Walker III Chairman of the Board
George H. Walker III
/s/Ronald J. Kruszewski President, Chief Executive
Ronald J. Kruszewski Officer, and Director
/s/Bruce A. Beda Director
Bruce A. Beda
/s/Charles A. Dill Director
Charles A. Dill
/s/Richard F. Ford Director
Richard F. Ford
/s/John J. Goebel Director
John J. Goebel
/s/Stuart I. Greenbaum Director
Stuart I. Greenbaum
/s/Robert E. Lefton Director
Robert E. Lefton
/s/James M. Oates Director
James M. Oates
20
[Deloitte & Touche LLP letterhead]
Independent Auditors' Report
To the Board of Directors and Stockholders of
Stifel Financial Corp.
St. Louis, Missouri:
We have audited the consolidated financial statements of Stifel
Financial Corp. and Subsidiaries as of December 31, 1998 and
December 31, 1997, and for each of the three years in the period
ended December 31, 1998, and have issued our report thereon dated
March 5, 1999; such consolidated financial statements and report
are included in your 1998 Annual Report to Stockholders and are
incorporated herein by reference. Our audits also included the
consolidated financial statement schedules of Stifel Financial
Corp. and Subsidiaries, listed in Item 14. These consolidated
financial statement schedules are the responsibility of the
Corporation's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such consolidated
financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present
fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
March 5, 1999
St. Louis, Missouri
21
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
STIFEL FINANCIAL CORP.
Dec. 31, Dec. 31,
1998 1997
---------- ----------
ASSETS
Cash $ 9,155 $ 9,155
Due from subsidiaries (a) 3,795,026 3,615,656
Investment in subsidiaries (a) 52,684,827 47,214,774
Office equipment and leasehold
improvements,less allowances for
depreciation and amortization of
$11,869,688 and $10,449,850,
respectively 5,195,917 2,136,544
Investments, at cost 1,462,239 1,373,424
Goodwill, net of amortization of
$645,955 and $554,095, respectively 1,723,187 1,815,047
Other assets 2,075,975 2,427,287
----------- -----------
TOTAL ASSETS $66,946,326 $58,591,887
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Due to subsidiaries (a) $ 4,773,926 $ 2,238,164
Obligation under capital lease 847,769 522,498
Long-term debt 5,370,000 5,000,000
Other liabilities 978,417 749,881
----------- -----------
TOTAL LIABILITIES 11,970,112 8,510,543
Stockholders' Equity:
Capital stock 1,082,521 1,001,933
Additional paid-in capital 41,867,576 37,006,360
Retained earnings 18,291,104 17,425,321
----------- -----------
61,241,201 55,433,614
Less treasury stock, at cost 2,161,886 1,989,167
Less unearned employee stock
ownership plan shares 3,021,862 3,178,125
Less unamortized expense of
restricted stock awards, at cost 1,081,239 184,978
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 54,976,214 50,081,344
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS'EQUITY $66,946,326 $58,591,887
=========== ===========
(a) Eliminated in consolidation.
See Notes to Consolidated Financial Statements (Item 8)
22
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(continued)
CONDENSED STATEMENTS OF OPERATIONS
STIFEL FINANCIAL CORP.
Years Ended December 31,
---------------------------------------
1998 1997 1996
Revenues:
Lease $1,762,434 $1,202,248 $1,406,556
Other 523,138 95,015 (59,024)
---------- ---------- ----------
2,285,572 1,297,263 1,347,532
Expenses:
Depreciation and amortization 1,853,837 1,294,108 1,431,798
Professional fees 410,039 290,554 246,178
Provision for doubtful collection - - - - 300,000
Miscellaneous 492,273 194,419 159,460
---------- ---------- ----------
2,756,149 1,779,081 2,137,436
---------- ---------- ----------
Loss before income taxes (470,577) (481,818) (789,904)
Benefit for income taxes (226,522) (201,150) (343,024)
(Loss) before equity in net
Income of subsidiaries (244,055) (280,668) (446,880)
Equity in net income of subsidiaries 5,489,482 5,951,674 3,839,382
---------- ---------- ----------
NET INCOME $5,245,427 $5,671,006 $3,392,502
========== ========== ==========
See Notes to Consolidated Financial Statements (Item 8)
23
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(continued)
CONDENSED STATEMENTS OF CASH FLOWS
STIFEL FINANCIAL CORP.
Years Ended December 31,
--------------------------------------------
1998 1997 1996
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net income $ 5,245,427 $ 5,671,006 $ 3,392,502
Non-cash items included in net income:
Depreciation and amortization 1,853,837 1,294,108 1,431,798
Deferred items 79,812 (251,492) (119,353)
Undistributed income of subsidiaries (5,489,482) (5,951,674) (3,839,382)
Amortization and forfeitures of restricted
Stock awards and stock benefits 594,800 172,357 75,055
----------- ----------- -----------
2,284,394 934,305 940,620
Net change in due to/due from subsidiaries (179,370) 595,049 1,512,913
(Increase) decrease in other assets 197,542 (796,569) 1,487,309
Increase (decrease) in other liabilities 2,765,035 (169,235) (379,298)
----------- ----------- -----------
CASH FROM OPERATING ACTIVITIES 5,067,601 563,550 3,561,544
=========== =========== ===========
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Shares issued 2,043,402 2,907,790 632,338
Long-term debt 370,000 5,000,000 - -
Payments for:
Settlement of long-term debt - - - - (760,000)
Purchase of stock for treasury (2,160,450) (2,926,452) (520,321)
Purchase unearned ESOP shares - - (3,178,125) - -
Principal payments under capital lease (597,930) (392,248) (433,284)
Cash dividend and rights redemption (829,046) (608,968) (625,128)
----------- ----------- -----------
CASH FROM FINANCING ACTIVITIES (1,174,024) 801,997 (1,706,395)
=========== =========== ===========
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from:
Distributions/sales received on investments 118,300 62,020 36,360
Sales of office equipment and leasehold
improvements 46,205 144,512 23,405
Payments for:
Acquisition of investments (119,999) (633,739) (1,513,232)
Acquisition of Office equipment and leasehold
improvements (3,938,083) (938,340) ( 401,682)
----------- ----------- -----------
CASH FROM INVESTING ACTIVITIES (3,893,577) (1,365,547) (1,855,149)
=========== =========== ===========
Increase in cash 0 0 0
Cash (beginning of period) 9,155 9,155 9,155
----------- ----------- -----------
Cash (end of period) $ 9,155 $ 9,155 $ 9,155
=========== =========== ===========
Supplemental Disclosures of Cash Flow Information
Schedule of Non-cash Investing and Financing Activities
Fixed assets acquired under capital lease $ 923,000 $ 405,000 $ 240,000
Restricted stock awards, net of forfeitures $ 1,263,000 $ 153,000 $ 182,000
Employee stock ownership shares issued $ 165,000 $ 300,000 $ 280,000
Debt converted to stock - - $10,000,000 - -
Stock dividends distributed $ 3,551,000 $ 4,370,000 $ 1,786,000
See Notes to Consolidated Financial Statements (Item 8)
24
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 Deduction of Period
----------- --------- ---------------- --------- ---------
Year Ended December 31, 1998:
Deducted from asset
account: Allowances
for doubtful accounts $ 555,891 $ 0 $ 0 $ 555,891
Deducted from asset
account: Allowances for
doubtful notes receivables 2,376,351 254,108 2,148,090 482,369
Deducted from asset account:
Allowances for doubtful
collection of other assets 62,000 0 58,414 3,586
Deducted from asset
Account: Reserves for
Investments 679,846 330,270 0 1,010,116
Deducted from asset
Account: Reserves for
Securities owned 200,000 0 0 200,000
Year Ended December 31, 1997:
Deducted from asset
account: Allowances
for doubtful accounts $ 581,946 $ 2,038 $ 28,093 $ 555,891
Deducted from asset
account: Allowances for
doubtful notes receivables 2,551,627 235,229 410,505 2,376,351
Deducted from asset account:
Allowances for doubtful
collection of other assets 300,000 62,000 300,000 62,000
Deducted from asset
Account: Reserves for
Investments 735,362 175,154 230,670 679,846
Deducted from asset
Account: Reserves for
Securities owned 200,000 0 0 200,000
Year Ended December 31, 1996:
Deducted from asset
account: Allowances
for doubtful accounts $ 804,916 $ 28,400 $ 251,370 $ 581,946
Deducted from asset
account: Allowances for
doubtful notes receivables 3,002,220 173,467 624,060 2,551,627
Deducted from asset account:
Allowances for doubtful
collection of other assets 0 300,000 0 300,000
Deducted from asset
Account: Reserves for
Investments 628,362 115,000 8,000 735,362
Deducted from asset
Account: Reserves for
Securities owned 200,000 0 0 200,000
Uncollected accounts written off and recoveries.
Uncollected notes written off and recoveries.
Investments disposed of.
Uncollected asset written off.
Recovery of account.
25
EXHIBIT INDEX
Stifel Financial Corp. and Subsidiaries
Annual Report on Form 10-K
Year Ended December 31, 1998
Exhibit
Number Description
3. (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 Annual Report on Form
10-K (File No.1-9305) 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 Annual Report on Form
10-K (File No.1-9305) 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 Annual
Report on Form 10-K (File No.1-9305) 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
Annual Report on Form 10-K (File No. 1-9305) for fiscal
year ended July 30, 1993.
4. (a) Prefered Stock Purchase Rights of Financial,
incorporated herein by reference to Financial's
Registration Statement on Form 8-A (File No. 1- 9305)
filed July 30, 1996.
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 Annual Report on Form 10-K
(File No. 1-9305) 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 Annual Report on Form
10-K(File No.1-9305) for the fiscal year ended July 31,
1992. *
26
(b) Form of Indemnification Agreement with directors dated
as of June 30, 1987, incorporated herein by reference
to Exhibit 10.2 to Financial's Current 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 Annual Report on Form 10-K (File No. 1
-9305) 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 Annual Report on
Form 10-K (File No. 1-9305) for the fiscal year ended
July 28, 1989. *
(g) 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.
(h) 1997 Stock Incentive Plan of Financial, incorporated
herein by reference to Financial's Registration
Statement on Form S-8 (Registration File No. 333-37805)
filed October 14, 1998. *
(i) 1998 Employee Stock Purchase Plan of Financial,
incorporated herein by reference to Financial's
Registration Statement on Form S-8(Registration File No.
333-37807) filed October 14,1998. *
(j)(1) Employment Letter with Ronald J.Kruszewski, incorporated
herein by reference to Exhibit 10(l) to Financial's
Annual Report on Form 10-K (File No. 1-9305) for the
year ended December 31,1997. *
(j)(2) Stock Unit Agreement with Ronald J. Kruszewski, filed
herewith. *
13. Annual Report to Stockholders for the year ended
December 31, 1998, filed herewith. Except for those
portions of pages expressly incorporated by reference,
the 1998 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 Auditors, filed herewith.
27. 1998 Financial Data Schedule BD, filed herewith.
* Management contract or compensatory plan or arrangement.