<PAGE> 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 September 29, 1995
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 September 29, 1995:
4,167,797 par value $.15.
Exhibit Index is on page 19
<PAGE> 2
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
INDEX
September 29, 1995
PAGE
PART I. FINANCIAL CONDITION ----
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition --
September 29, 1995 and December 31, 1994 3-4
Consolidated Statements of Operations --
Three Months Ended September 29, 1995 and September 30, 1994 5
Consolidated Statements of Operations --
Nine Months Ended September 29, 1995 and September 30, 1994 6
Consolidated Statements of Cash Flows--
Nine Months Ended September 29, 1995 and September 30, 1994 7-8
Notes to Consolidated Financial Statements 9-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
<PAGE> 3
<TABLE>
PART I. FINANCIAL CONDITION
Item 1. Financial Statements (Unaudited)
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
September 29, December 31,
1995 1994
(Unaudited) (Note)
------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 8,477,462 $ 6,925,192
Cash segregated for the exclusive
benefit of customers 1,323,477 1,316,419
Receivable from brokers and dealers 11,769,558 21,832,542
Receivable from customers, less
allowance for doubtful accounts of
$804,916 and $1,070,984, respectively 146,383,776 139,898,597
Securities owned, at market value 24,582,762 23,318,907
Membership in exchanges, at cost
(approximate market value: $1,840,000
and $1,655,000, respectively) 513,015 513,015
Office equipment, leasehold improvements,
and building, at cost, less allowances
for depreciation and amortization of
$12,106,348 and $13,518,137, respectively 3,530,467 4,778,649
Goodwill, net of accumulated amortization
of $762,930 and $573,600, repectively 4,048,930 4,290,479
Notes and non-securities receivable from
employees, net of allowance for doubtful
receivables of $2,118,807 and $2,560,617,
respectively 5,397,467 5,620,239
Current income tax receivable 687,078 1,514,734
Deferred tax asset 3,633,580 4,638,900
Miscellaneous other assets 7,447,761 7,560,116
------------ ------------
$217,795,333 $222,207,789
============ ============
</TABLE>
NOTE: The Consolidated Statement of Financial Condition at
December 31, 1994 has been derived from the audited
financial statements at that date.
See Notes to Unaudited Consolidated Financial Statements.
<PAGE> 4
<TABLE>
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (CONTINUED)
<CAPTION>
September 29, December 31,
1995 1994
(Unaudited) (Note)
------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term borrowings from banks $ 79,550,000 $ 65,650,000
Payable to brokers and dealers 38,574,379 46,395,629
Payable to customers, including free
credit balances of $16,930,086 and
$15,600,835, respectively 22,975,142 24,368,715
Market value of securities sold, but
not yet purchased 3,633,182 4,252,110
Drafts payable 11,292,461 14,576,317
Accrued employee compensation 8,526,472 9,109,502
Obligation under capital lease 835,475 1,029,282
Accounts payable and accrued expenses 6,690,204 11,029,823
Long-term debt 10,760,000 11,520,000
Subordinated note 50,000 50,000
------------ ------------
Total Liabilities 182,887,315 187,981,378
Stockholders' equity
Common stock 648,743 648,743
Additional paid-in capital 18,251,484 18,491,086
Retained earnings 17,241,857 17,016,335
------------ ------------
36,142,084 36,156,164
Less cost of stock in treasury 1,049,393 1,731,974
Less unamortized expense of restricted
stock awards 184,673 197,779
------------ ------------
Total Stockholders' Equity 34,908,018 34,226,411
------------ ------------
$217,795,333 $222,207,789
============ ============
</TABLE>
NOTE: The Consolidated Statement of Financial Condition at
December 31, 1994 has been derived from the audited
financial statements at that date.
See Notes to Unaudited Consolidated Financial Statements.
<PAGE> 5
<TABLE>
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended
September 29, September 30,
1995 1994
------------- -------------
<S> <C> <C>
REVENUES
Commissions $ 7,112,756 $ 6,096,264
Principal transactions 4,244,225 6,748,741
Investment banking 2,643,439 2,782,011
Interest 3,161,972 2,810,076
Sale of investment company shares 2,125,729 2,230,935
Sale of insurance products 446,909 560,755
Sale of unit investment trusts 509,303 450,264
Other 2,810,797 1,893,953
----------- -----------
23,055,130 23,572,999
EXPENSES
Employee compensation & benefits 13,765,214 14,657,910
Commissions & floor brokerage 556,680 524,253
Communication & office supplies 1,636,007 2,106,994
Occupancy & equipment rental 1,905,107 2,293,566
Promotional 400,412 677,559
Interest 1,926,141 1,533,933
Other operating expenses 2,393,248 2,459,381
----------- -----------
22,582,809 24,253,596
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 472,321 (680,597)
Provision (benefit) for income taxes 231,439 (260,281)
----------- -----------
NET INCOME (LOSS) $ 240,882 $ (420,316)
=========== ===========
Net income (loss) per share:
Primary $ 0.06 $ (0.10)
Fully diluted $ 0.06 $ (0.10)
Dividends declared per share $ 0.03 $ 0.03
Average common equivalent shares
outstanding:
Primary 4,251,530 4,204,768
Fully Diluted 5,537,588 5,490,826
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
<PAGE> 6
<TABLE>
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Nine Months Ended
September 29, September 30,
1995 1994
------------- -------------
<S> <C> <C>
REVENUES
Commissions $21,341,145 $19,664,799
Principal transactions 14,858,341 17,079,261
Investment banking 7,770,434 9,972,321
Interest 9,444,505 7,939,749
Sale of investment company shares 6,263,474 7,992,100
Sale of insurance products 1,555,035 1,761,289
Sale of unit investment trusts 1,408,429 1,834,658
Other 8,156,426 5,901,561
----------- -----------
70,797,789 72,145,738
EXPENSES
Employee compensation & benefits 42,659,694 46,087,537
Commissions & floor brokerage 1,751,450 1,550,351
Communication & office supplies 5,758,677 5,784,508
Occupancy & equipment rental 5,936,482 6,663,790
Promotional 1,412,096 2,208,903
Interest 6,008,814 4,312,391
Other operating expenses 6,196,388 7,153,911
----------- -----------
69,723,601 73,761,391
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 1,074,188 (1,615,653)
Provision (benefit) for income taxes 472,643 (643,638)
----------- -----------
NET INCOME (LOSS) $ 601,545 $ (972,015)
=========== ===========
Net income (loss) per share:
Primary $ 0.14 $ (0.23)
Fully diluted $ 0.14 $ (0.23)
Dividends declared per share $ 0.09 $ 0.06
Average common equivalent shares
outstanding:
Primary 4,244,719 4,302,365
Fully Diluted 5,530,777 5,588,423
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
<PAGE> 7
<TABLE>
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Nine Months Ended
September 29, September 30,
1995 1994
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 601,545 $ (972,015)
Non-cash items included in earnings:
Depreciation and amortization 1,508,262 1,872,214
Bonus notes amortization 682,352 567,158
Deferred compensation 396,154 353,656
Deferred tax benefit 1,005,320 - -
Provision for litigation and bad debts 1,039,742 839,597
Unrealized gains on investments (230,255) (403,317)
Amortization of restricted stock awards 80,356 89,853
------------ ------------
5,083,476 2,347,146
(Increase) decrease in operating
receivables:
Customers (6,485,179) 17,601,168
Brokers and dealers 10,062,984 (18,363,370)
(Decrease) increase in operating
payables:
Customers (1,393,573) (8,988,483)
Brokers and dealers (7,821,250) 19,922,170
(Increase) decrease in assets:
Cash segregated for the exclusive
benefit of customers (7,058) 96,847
Securities owned (1,263,855) 67,471,113
Notes receivable from officers and
employees (947,949) (2,635,462)
Miscellaneous other assets (188,844) 834,543
(Decrease) increase in liabilities:
Securities sold, not yet purchased (618,928) 3,456,828
Drafts payable, accounts payable and
accrued expenses, and accrued employee
compensation (9,134,659) (7,827,181)
------------ ------------
Cash (Used For) Provided By
Operating Activities $(12,714,835) $ 73,915,319
------------ ------------
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
<PAGE> 8
<TABLE>
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<CAPTION>
Nine Months Ended
September 29, September 30,
1995 1994
------------- -------------
<S> <C> <C>
Cash (Used For) Provided By Operating
Activities - from previous page $(12,714,835) $ 73,915,319
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds (payments) for short-term
borrowings from banks 13,900,000 (72,350,000)
Proceeds from:
Employee stock purchase plan 755,274 611,688
Exercised stock options 123,503 58,424
Dividend reinvestment plan 8,786 423
Payments for:
Retirement of long-term debt (760,000) - -
Purchases of stock for treasury (511,834) (1,252,807)
Principal payments under capital leases (193,807) (508,003)
Cash dividends (376,023) (239,104)
------------ ------------
Cash Provided By (Used For)
Financing Activities 12,945,899 (73,679,379)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from:
Sale of office equipment, leasehold
improvements and building 915,090 5,411
Sale of investments 1,578,086 7,048
Payments for:
Acquisition of office equipment and
leasehold improvements (1,081,689) (1,355,459)
Acquisition of investments (90,281) (84,888)
------------ ------------
Cash Provided By (Used For)
Investing Activities 1,321,206 (1,427,888)
------------ ------------
Increase (decrease) in cash and
cash equivalents 1,552,270 (1,191,948)
Cash and cash equivalents -
beginning of period 6,925,192 6,542,052
------------ ------------
Cash and Cash Equivalents - end of period $ 8,477,462 $ 5,350,104
============ ============
Supplemental disclosure of cash
flow information:
Income tax payments $ 343,900 $ 118,396
Interest payments $ 6,283,217 $ 4,566,281
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
<PAGE> 9
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 and nine months ended September 29, 1995 are not
necessarily indicative of the results that may be expected for
the year ending December 31, 1995. 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, 1994.
NOTE B - NET CAPITAL REQUIREMENT
As a registered broker-dealer and member of the New York Stock
Exchange, the Company's principal wholly-owned subsidiary,
Stifel, Nicolaus & Company, Incorporated (SN), is subject to the
Securities and Exchange Commission's (SEC) uniform net capital
rules. SN has elected to operate under the alternative method of
the rule, which prohibits a broker-dealer from engaging in any
securities transactions when its net capital is less than 2% of
its aggregate debit balances, as defined, arising from customer
transactions. The SEC may also require a member firm to reduce
its business and restrict withdrawal of subordinated capital if
its net capital is less than 4% of aggregate debit balances, and
may prohibit a member firm from expanding its business and
declaring cash dividends if its net capital is less than 5% of
aggregate debit balances. At September 29, 1995, SN had net
capital of $18,397,817 which was 11% of its aggregate debit
balances and $15,152,332 in excess of the 2% net capital
requirement.
NOTE C - PLAN OF RESTRUCTURING
During the fourth quarter of 1994, the Board of Directors of
the Company approved a restructuring and downsizing plan for the
Company which was implemented beginning in December 1994, and
involved the closing or downsizing of 31 office locations and
termination of approximately 70 officers and employees. Detail
of the activity during the first nine months related to the
accruals follows:
<PAGE> 10
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
NOTE C - PLAN OF RESTRUCTURING (continued)
<CAPTION>
Balance at Charged Balance at
December During September
31, 1994 First Nine 29, 1995
Months
<S> <C> <C> <C>
Net Lease commitments for
closed offices $1,400,000 $ 491,792 $ 908,208
Severance pay, extended benefits
and receivables written off
for terminated employees 875,000 658,517 216,483
Abandonment of leasehold
improvements 206,000 197,271 8,729
Contractual commitments 191,000 161,000 30,000
---------- ---------- ----------
Total $2,672,000 $1,508,580 $1,163,420
========== ========== ==========
</TABLE>
Such amounts are included in the consolidated statement of
financial condition under the caption of Accounts payable and
accrued expenses at September 29, 1995 and December 31, 1994.
NOTE D - SALE OF OKLAHOMA-BASED OPERATIONS
On May 25, 1995, the Company sold the assets of its Oklahoma-
based operations to Capital West Financial Corporation. Included
are 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
Financial Corporation. In addition, Capital West Financial
Corporation 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.
Pro forma financial information assuming the transaction had
taken place at the beginning of the year is presented below:
Pro Forma Combined Results of Operations
Revenue $67,345,569
Net Income $ 1,086,403
Earnings per primary share $ 0.26
The above pro forma financial information do not purport to be
indicative of results which actually would have occurred had the
sale been made on January 1, 1995.
<PAGE> 11
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE E - MISCELLANEOUS OTHER ASSETS
SN 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 (see Note D). The notes were recorded at a
discounted rate of 17%. SN has deferred recognition of the gain
on the sale in the amount of $539,872 and has deferred
recognition of any interest income related to the notes until
such time that Capital West Financial Corporation 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
$539,872 are included in the caption Miscellaneous other assets
at September 29, 1995.
NOTE F - DIVIDEND
On October 24, 1995, the board of directors declared a regular
quarterly dividend of $0.03 per share, payable on November 21,
1995 to stockholders of record November 7, 1995.
NOTE G - LEGAL PROCEEDINGS
SN was named in suits filed by The Oklahoma Turnpike Authority
(OTA) and The State of Oklahoma (Report filed on Form 8-K dated
May 25, 1995 and Report filed on Form 8-K dated October 5, 1995,
respectively). The OTA suit seeks $6.5 million compensatory
damages and an unspecified amount of punitive damages. The State
of Oklahoma seeks $7.6 million compensatory damages and treble
punitive damages.
The OTA suit alleges that an undisclosed fee paid to SN 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
Oklahoma suit alleges that SN and two former SN executives
committed violations of the Racketeer Influenced and Corrupt
Organizations ("RICO"). This suit alleges the same facts as the
Securities and Exchange Commission in its action against SN in
August, 1995, which was settled by SN without admitting or
denying the allegations. This settlement was reported in the
Company's Form 10-Q filed August 14, 1995.
While results of litigation cannot be predicted with certainty,
at this time management believes that the effects of resolution
of these suits will not have a material effect on the Company's
financial position.
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Three months ended September 1995 and September 1994
The Company recorded net income of $241,000 for the three
months ended September 29, 1995, compared to a net loss of
$420,000 in the year earlier three month period. Primary
earnings per share were $0.06 for the three months compared to a
$0.10 loss per share in the year earlier three month period. The
improvement was attributable to reduced operating expenses
resulting form the sale of the Oklahoma division to Capital West
Financial Corp., the downsizing and restructuring plan
implemented in the last quarter of 1994, and the resurgence of
the market which contributed to the increase in commissionable
revenue.
Total revenues for the three months decreased $518,000 (2.2%)
to $23,055,000 from $23,573,000 primarily as a result of
decreased principal transactions, municipal finance fees and
underwriting fee income, some of which were the result of the
sale of the Oklahoma-based operations to Capital West Financial
Corp.
Principal transactions decreased $2,505,000 (37.1%) to
$4,244,000 from $6,749,000 as a result of decreased trading
activity. Investment banking revenues decreased $139,000 (5.0%)
to $2,643,000 from $2,782,000 due to the reduced number of
refinancings by municipalities experienced industry wide and as a
result of the negative publicity associated with the SEC
investigation into certain municipal finance transactions by the
former Oklahoma City public finance department. The decrease in
municipal finance fee income was offset by the increase in
corporate finance fee income which increased $891,000 (1291.3%)
to $960,000 from $69,000 largely as a result of increased numbers
of public offerings, particularly for financial institutions and
Real Estate Investment Trust's (REIT's).
Commissionable revenues (commissions, sale of investment
company shares, sale of insurance products, and sale of unit
investment trusts), increased $857,000 (9.2%) to $10,195,000 from
$9,338,000 primarily as a result of increased agency commissions.
The increase resulted from retail investors' more active
participation in the market.
<PAGE> 13
Other revenues increased $917,000 (48.4%) to $2,811,000 from
$1,894,000 as a result of increases in managed account fees,
money market distribution fees, and clearing revenues which
increased $307,000, $284,000 and $209,000, respectively. Managed
account fees increased because of the introduction of the managed
account program in November, 1994. Money market distribution
fees increased because of higher levels of customer funds
invested in money market funds and SN's switch to omnibus
processing of these funds. Clearing revenues increased as a
direct result of the clearing for Capital West Securities, Inc.
which began in June, 1995.
Net interest decreased $40,000 (3.1%) largely as a result of
an increase in interest expense which increased $392,000 (25.6%)
to $1,926,000 from $1,534,000 due to increased borrowings from
banks coupled with increased interest rates. The increase in
interest expense was partially offset by an increase in interest
revenues which increased $352,000 (12.5%) to $3,162,000 from
$2,810,000, largely as a result of increased margin interest
earned on higher average margin debit balances.
Total expenses decreased $1,670,000 (6.9%) to $22,583,000 from
$24,253,000, primarily due to reductions achieved as a result of
the implementation of the plan of restructuring and downsizing
which began in the fourth quarter of 1994 and the sale of the
Oklahoma division to Capital West Financial Corp.
Total employee compensation and benefits decreased $893,000
(6.1%) to $13,765,000 from $14,658,000. The variable portion of
compensation increased $297,000 (3.5%) to $8,863,000 from
$8,566,000, largely as a result of increased bonus expense which
correlates to increased profitability and pay for performance
incentives. Fixed compensation decreased $1,189,000 (19.5%) to
$4,902,000 from $6,091,000, largely due to the sale of the
Oklahoma division to Capital West Financial Corp. and the
downsizing and restructuring plan aforementioned.
The downsizing and restructuring plan and the sale of the
Oklahoma division to Capital West Financial Corp., reduced the
number of retail office locations by 38 (47.5%) to 42 from 80.
The reduction in office locations contributed to the reduction in
occupancy and equipment, communication and office supplies and
promotional expenses which decreased $389,000 (17.0%), $471,000
(22.4%) and $276,000 (40.8%), respectively.
Other expense decreased $66,000 (2.7%) to $2,393,000 from
$2,459,000, as a result of decreased professional fees, primarily
employment fees and consulting fees and decreased provision for
accounts of doubtful collection, all of which were affected by
the downsizing. These decreases were offset by an increase in
legal fees resulting from matters surrounding the SEC
investigation and related matters (see Note G of the Notes to
Unaudited Consolidated Financial Statements).
<PAGE> 14
Nine months ended September 1995 and September 1994
The Company recorded net income of $602,000 for the nine-month
period ended September 29, 1995, compared to a net loss of
$972,000 in the first nine months of last year, an improvement of
$1,574,000. Primary earnings per share were $0.14, an increase of
$0.37 per share compared to the previous year's $0.23 loss per
primary share. The improved results are primarily attributable
to decreased operating expenses, most significant of which was
employee compensation and benefits.
Total revenues decreased $1,348,000 (1.9%) to $70,798,000 from
$72,146,000. Investment banking revenue decreased $2,201,000
(22.1%), principal transactions decreased $2,221,000 (13.0%), and
commissionable revenues (commissions, sale of investment company
shares, sale of insurance, and sale of unit investment trusts)
decreased $685,000 (2.2%). These decreases, which were in large
part due to the sale of the Oklahoma-based operations in May of
1995, were partially offset by an increase in other revenues of
$2,254,000 (38.2%) to $8,156,000 from $5,902,000, which consists
of managed account fees, money market distribution fees, and
brokerage and clearing revenues which increased $631,000,
$674,000, and $321,000 for the same reasons as explained in the
management's discussion and analysis of results of operations for
the three months ended September 29, 1995 In addition, a gain on
sale of investments of $403,000 was recorded by Stifel Venture
Corp. (the Company's wholly-owned venture capital subsidiary)
during the period.
As discussed in the three months ended September 29, 1995
management's discussion and analysis, corporate finance fees
increased significantly, $2,736,000 (308.1%) to $3,624,000 from
$888,000, partially offsetting the decreases in other investment
banking activities of municipal finance fees and underwriting
participation fees which decreased $2,204,000 (64.0%) and
$1,347,000 (64.2%), respectively.
Reductions in sale of investment company shares of $1,728,000
(21.6%), sale of insurance products of $206,000 (11.7%) and sale
of unit investment trusts of $427,000 (23.3%) were offset by an
increase in agency commissions of $1,676,000 (8.5%) as retail
investors returned to the market to purchase individual equity
issues.
Municipal interest income decreased $700,000 (61.1%)
offsetting increases in margin balance interest income of
$1,981,000 (31.5%) and corporate interest income of $224,000
(44.8%). Despite these increases, net interest income decreased
$192,000 (5.3%) to $3,436,000 from $3,628,000 which resulted from
increased interest expense of $1,697,000 (39.4%) due to increased
borrowing rates coupled with increased borrowings.
<PAGE> 15
For the nine month period ended September 29, 1995 total
expenses decreased $4,039,000 (5.5%) to $69,723,000 from
$73,762,000. Except for professional fees and commissions and
floor brokerage, all major categories of expenses decreased as a
result of the downsizing and sale of the Oklahoma operations to
Capital West Financial Corp. as noted in the management's
discussion and analysis of results of operations for the three
months ended September 29, 1995.
Employee compensation and benefits, communication and
supplies, occupancy and equipment rental, promotional, and other
operating expenses decreased $3,428,000 (7.4%), $26,000 (0.4%),
$728,000 (10.9%), $797,000 (36.1%), and $958,000 (13.4%),
respectively.
Professional fees increased $416,000 (13.8%), primarily as a
result of the litigation resulting from the SEC investigation
previously discussed.
Commission and floor brokerage increased $201,000 (13.0%)
correlating to the increased agency commission revenue.
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 senior convertible notes, subordinated note,
and other payables. Changes in securities market volumes,
related customer borrowing demands, and levels of securities
inventory affect the amount of the Company's financing
requirements. Because of the nature of the Company's business,
the changes in operating asset and liability account balances
relative to net income for any particular accounting period can
be quite large and therefore are not very useful indicators of
long-term trends in the Company's cash flow from operations.
For the nine months ended September 29, 1995, cash and cash
equivalents increased $1,552,000 to $8,477,000 from $6,925,000 at
December 31, 1994. Cash used for operating activities of
$12,715,000 was attributed to a decrease in operating payables
and liabilities of $18,235,000 offset by a decrease in operating
receivables of $3,578,000 and cash provided by net income and non-
cash items included in net income of $5,083,000, and increases in
other assets of $2,408,000 primarily from Securities owned and
Notes receivable from officers and employees. The cash used by
operating activities was funded primarily by increasing short-
term borrowings from banks by $13,900,000.
SN is subject to requirements of the Securities and Exchange
Commission with regard to liquidity and capital requirements (see
Note B of the Notes to Unaudited Consolidated Financial
Statements). At September 29, 1995, SN had net capital of
approximately $18,398,000 which exceeded the minimum net capital
requirements by approximately $15,152,000.
<PAGE> 16
During 1994, SN obtained a revolving subordinated note in the
amount of $5,500,000. At September 29, 1995, SN had available
but unused informal and formal short-term credit arrangements of
$126,450,000 and available but unused subordinated note of
$5,450,000. Management believes that funds from operations,
available unused informal and formal short-term credit
arrangements and the available but unused subordinated note will
provide sufficient resources to meet the present and anticipated
financial needs.
The sale of assets of the Oklahoma-based operations along with
the plan of restructuring will not have a negative impact on the
Company's liquidity or capital resources (see Notes C and D of
the Notes to Unaudited Consolidated Financial Statements).
As discussed in Note G of the Notes to Unaudited Consolidated
Financial Statements, the settlement of the suits will not have a
significant impact on the liquidity and capital resources of the
firm.
<PAGE> 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The information required by this Item is contained in Note G
of the Notes to Unaudited Consolidated Financial Statements
included in this report and the legal proceedings previously
reported in the Company's Annual Report on Form 10-K for the
year ended December 31, 1994. Such information is hereby
incorporated by reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No.
(Reference to Item 601(b)
of Regulation S-K) Description
------------------------- -----------
11 Computation of
Earnings Per Share
27 Financial Data Schedule
(furnished to the Securities and Exchange
Commission for Electronic Data
Gathering, Analysis, and Retrieval
[EDGAR] purposes only)
(b) Reports on Form 8-K
The Company filed a report on Form 8-K (and amendment) dated
May 25, 1995. This Form 8-K contained information under Item
2. Acquisition or Disposition of Assets, Item 5. Other Events
and Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits. Item 2 described the sale of the
Oklahoma division (including three Texas offices). Item 5
reported that the Oklahoma Turnpike Authority filed an action
against SN and two former officers. Item 7 provided the pro
forma financial information and exhibits. The exhibits filed
were an Amended and Restated Purchase Agreement by and among
SN and Capital West Financial Corporation and a press release
dated May 25, 1995 announcing the sale of assets of the
Oklahoma division and three Texas offices of SN (a wholly-
owned subsidiary of Stifel Financial Corp.) to Capital West
Financial Corporation, an Oklahoma corporation.
The Company filed a report on Form 8-K dated October 5,
1995. This Form 8-K contained information under Item 5. Item
5 reported that the Attorney General of Oklahoma filed an
action against SN, the registrant's subsidiary, and Robert
Cochran, a former officer of the subsidiary.
<PAGE> 18
SIGNATURES
Pursuant to the requirements 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.
STIFEL FINANCIAL CORP.
(Registrant)
Date: November 10, 1995 By /s/ Gregory F. Taylor
Gregory F. Taylor
(Chief Executive Officer)
Date: November 10, 1995 By /s/ Mark D. Knott
Mark D. Knott
(Principal Financial Officer)
<PAGE> 19
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
EXHIBIT INDEX
September 29, 1995
Exhibit
Number Description
------- -----------
11 Computation of Earnings (Loss) Per Share
27 Financial Data Schedule
(furnished to the Securities and Exchange
Commission for Electronic Data
Gathering, Analysis, and Retrieval
[EDGAR] purposes only)
<TABLE>
EXHIBIT 11
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(In Thousands, Except Per Share Amounts)
(UNAUDITED)
<CAPTION>
Three Months Ended
September 29, September 30,
1995 1994
Fully Fully
Primary Diluted Primary Diluted
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) $ 241 $ 241 $ (420) $ (420)
After-tax interest savings assuming conversion
of Senior Convertible Notes <F1> _ _ 157 _ _ 173
-------- -------- -------- --------
Net income (loss) adjusted for after-tax
interest savings $ 241 $ 398 $ (420) $ (247)
======== ======== ======== ========
Average number of common shares outstanding
during the period 4,180 4,180 4,125 4,125
Additional shares assuming exercise of stock
options <F2> 72 72 80 80
Additional Shares assuming conversion of Senior
Convertible Notes <F3> _ _ 1,286 _ _ 1,286
-------- -------- -------- --------
Average number of common shares used to calculate
earnings (loss) per share 4,252 5,538 4,205 5,491
======== ======== ======== ========
Net earnings (loss) per share $ 0.06 $ 0.06<F4> $ (0.10) $ (0.10)<F4>
======= ======= ======== ========
Nine Months Ended
Fully Fully
Primary Diluted Primary Diluted
-------- -------- -------- --------
Net income (loss) $ 602 $ 602 $ (972) $ (972)
After-tax interest savings assuming conversion
of Senior Convertible Notes <F1> _ _ 472 _ _ 508
-------- -------- -------- --------
Net income (loss) adjusted for after-tax
interest savings $ 602 $ 1,074 $ (972) $ (464)
======== ======== ======== ========
Average number of common shares outstanding
during the period 4,183 4,183 4,168 4,168
Additional shares assuming exercise of stock
options <F2> 62 62 134 134
Additional Shares assuming conversion of Senior
Convertible Notes <F3> _ _ 1,286 _ _ 1,286
-------- -------- -------- --------
Average number of common shares used to calculate
earnings (loss) per share 4,245 5,531 4,302 5,588
======== ======== ======== ========
Net earnings (loss) per share $ 0.14 $ 0.14<F4> $ (0.23) $ (0.23)<F4>
======= ======= ======== ========
<FN>
<F1>Represents the after-tax interest savings resulting from assumed conversion of $10,000,000 aggregate principal
11.25% Senior Convertible Notes.
<F2>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 and assumed purchases of stock from the Employee Stock Purchase Plan (ESPP). 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 or shares assumed purchased
through the ESPP. 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 or shares
assumed purchased through the ESPP.
<F3>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 $7.7757 per share.
<F4>Net fully diluted earnings per share computes to $0.07 and $0.19 for three months and nine months ended
September 29, 1995, respectively. Net fully diluted loss per share computes to $0.04 and $0.08 for three months
and nine months ended September 30, 1994, respectively. Since these are anti-dilutive, fully diluted earnings
(loss) per share is equivalent to primary earnings (loss) per share.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
EXHIBIT 27
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
FINANCIAL DATA SCHEDULE
(UNAUDITED)
ARTICLE BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED STATEMENT OF FINANCIAL CONDITION DATED
SEPTEMBER 29, 1995 AND THE STATEMENT OF OPERATIONS FOR THE NINE
MONTHS ENDED SEPTEMBER 29, 1995 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-29-1995
<CASH> 9,800,939
<RECEIVABLES> 158,515,579
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 5,722,300
<INSTRUMENTS-OWNED> 24,582,762
<PP&E> 3,530,467
<TOTAL-ASSETS> 217,795,333
<SHORT-TERM> 79,550,000
<PAYABLES> 50,861,049
<REPOS-SOLD> 0
<SECURITIES-LOANED> 38,033,084
<INSTRUMENTS-SOLD> 3,633,182
<LONG-TERM> 10,760,000
<COMMON> 648,743
0
0
<OTHER-SE> 34,259,275
<TOTAL-LIABILITY-AND-EQUITY> 217,795,333
<TRADING-REVENUE> 14,858,341
<INTEREST-DIVIDENDS> 9,444,505
<COMMISSIONS> 30,568,083
<INVESTMENT-BANKING-REVENUES> 7,770,434
<FEE-REVENUE> 1,869,710
<INTEREST-EXPENSE> 6,008,814
<COMPENSATION> 42,659,694
<INCOME-PRETAX> 1,074,188
<INCOME-PRE-EXTRAORDINARY> 1,074,188
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 601,545
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
