<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 June 28, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-9305
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 June 28, 1996: 4,463,647
par value $.15.
Exhibit Index is on page 19.
<PAGE> 2
Stifel Financial Corp. And Subsidiaries
Form 10-Q Index
June 28, 1996
PAGE
PART I. FINANCIAL CONDITION ----
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition --
June 28, 1996 and December 31, 1995 3-4
Consolidated Statements of Operations --
Three Months Ended June 28, 1996 and June 30, 1995 5
Consolidated Statements of Operations --
Six Months Ended June 28, 1996 and June 30, 1995 6
Consolidated Statements of Cash Flows--
Six Months Ended June 28, 1996 and June 30, 1995 7-8
Notes to Consolidated Financial Statements 9-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
<PAGE> 3
PART I. FINANCIAL CONDITION
Item 1. Financial Statements (Unaudited)
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 28, December 31,
1996 1995
(Unaudited) (Note)
ASSETS ------------ ------------
Cash and cash equivalents $ 8,694,361 $ 6,344,042
Cash segregated for the exclusive
benefit of customers 480,704 776,286
Receivable from brokers and dealers 7,441,081 16,423,620
Receivable from customers, less
allowance for doubtful accounts of
$812,570 and $804,916, respectively 162,761,966 156,903,772
Securities owned, at market value 24,721,326 19,520,771
Membership in exchanges, at cost
(approximate market value: $2,408,000
and $1,904,000, respectively) 513,015 513,015
Office equipment and leasehold improvements,
at cost, less allowances for depreciation
and amortization of $10,280,235 and
$12,517,487, respectively 2,716,536 3,014,464
Goodwill, net of accumulated amortization
of $953,964 and $826,608, respectively 3,857,896 3,985,252
Notes and non-securities receivable from
employees, net of allowance for
doubtful receivables of $2,915,984 and
$3,002,220, respectively 4,196,739 4,328,431
Deferred tax asset 4,190,167 3,901,939
Miscellaneous other assets 9,738,931 11,063,079
------------ ------------
$229,312,722 $226,774,671
============ ============
NOTE: The Consolidated Statement of Financial Condition at
December 31, 1995 has been derived from the audited
financial statements at that date.
See Notes to Consolidated Financial Statements.
<PAGE> 4
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (CONTINUED)
June 28, December 31,
1996 1995
(Unaudited) (Note)
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term borrowings from banks $ 65,225,000 $ 86,450,000
Payable to brokers and dealers 62,596,945 23,127,421
Payable to customers, including free
credit balances of $13,529,711 and
$21,078,544, respectively 21,133,538 31,806,213
Market value of securities sold, but
not yet purchased 2,271,208 2,744,276
Drafts payable 12,118,389 17,866,638
Accrued employee compensation 10,128,516 9,525,863
Accounts payable and accrued expenses 9,045,312 9,648,898
Long-term debt 10,150,000 10,760,000
------------ ------------
Total Liabilities 192,668,908 191,929,309
Subordinated note 50,000 50,000
Stockholders' equity
Common stock 681,134 681,134
Additional paid-in capital 19,490,314 19,622,646
Retained earnings 16,996,086 15,753,713
------------ ------------
37,167,534 36,057,493
Less cost of stock in treasury 497,611 1,162,376
Less unamortized expense of restricted
stock awards 76,109 99,755
------------ ------------
Total Stockholders' Equity 36,593,814 34,795,362
------------ ------------
$229,312,722 $226,774,671
============ ============
NOTE: The Consolidated Statement of Financial Condition at
December 31, 1995 has been derived from the audited
financial statements at that date.
See Notes to Consolidated Financial Statements.
<PAGE> 5
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
June 28, 1996 June 30, 1995
------------- -------------
REVENUES
Commissions $ 8,339,185 $ 7,339,724
Principal transactions 4,858,796 5,258,027
Investment banking 3,772,992 4,379,242
Interest 3,368,995 3,084,843
Sale of investment company shares 2,455,085 2,066,331
Sale of insurance products 717,267 559,912
Sale of unit investment trusts 418,626 472,314
Other 6,776,020 2,587,730
----------- -----------
30,706,966 25,748,123
EXPENSES
Employee compensation & benefits 18,192,058 15,369,093
Commissions & floor brokerage 618,310 620,733
Communication & office supplies 1,707,851 1,967,431
Occupancy & equipment rental 1,791,558 2,060,807
Promotional 450,235 488,147
Interest 2,065,253 1,995,378
Other operating expenses 3,640,665 2,653,558
----------- -----------
28,465,930 25,155,147
----------- -----------
INCOME BEFORE INCOME TAXES 2,241,036 592,976
Provision for income taxes 880,000 244,762
----------- -----------
NET INCOME $ 1,361,036 $ 348,214
=========== ===========
Net income per share:
Primary $ 0.30 $ 0.08
Fully diluted $ 0.26 $ 0.08
Dividends declared per share $ 0.03 $ 0.03
Average common equivalent shares
outstanding:
Primary 4,551,991 4,462,280
Fully Diluted 5,923,074 5,834,672
See Notes to Consolidated Financial Statements.
<PAGE> 6
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended
June 28, 1996 June 30, 1995
------------- -------------
REVENUES
Commissions $16,315,236 $14,228,389
Principal transactions 9,159,596 10,614,116
Investment banking 4,917,867 5,126,995
Interest 6,558,853 6,282,533
Sale of investment company shares 4,919,062 4,137,745
Sale of insurance products 1,299,267 1,108,126
Sale of unit investment trusts 994,216 899,126
Other 9,980,307 5,245,629
----------- -----------
54,144,404 47,642,659
EXPENSES
Employee compensation & benefits 32,717,797 28,942,245
Commissions & floor brokerage 1,220,372 1,194,770
Communication & office supplies 3,466,885 4,122,670
Occupancy & equipment rental 3,612,496 4,031,375
Promotional 933,906 1,011,684
Interest 4,007,559 4,082,673
Other operating expenses 5,686,492 3,983,140
----------- -----------
51,645,507 47,368,557
----------- -----------
INCOME BEFORE INCOME TAXES 2,498,897 274,102
Provision for income taxes 988,000 109,849
----------- -----------
NET INCOME $ 1,510,897 $ 164,253
=========== ===========
Net income per share:
Primary $ 0.33 $ 0.04
Fully diluted $ 0.31 $ 0.04
Dividends declared per share $ 0.06 $ 0.06
Average common equivalent shares
outstanding:
Primary 4,523,298 4,450,246
Fully Diluted 5,908,634 5,820,319
See Notes to Consolidated Financial Statements.
<PAGE> 7
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 28, 1996 June 30, 1995
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,510,897 $ 164,253
Non-cash items included in earnings:
Depreciation and amortization 787,996 1,018,879
Bonus notes amortization 499,880 464,444
Deferred compensation 292,652 476,678
Deferred tax benefit (288,228) (16,613)
Provision for litigation and bad debt 1,561,589 400,000
Unrealized gains on investments (13,387) (130,255)
Amortization of restricted stock awards 27,144 61,670
------------ ------------
4,378,543 2,439,056
(Increase) decrease in operating
receivables:
Customers (5,865,848) 4,915,488
Brokers and dealers 8,982,539 6,052,172
(Decrease) increase in operating payables:
Customers (10,672,675) (2,873,539)
Brokers and dealers 39,469,524 (7,218,852)
Decrease (increase) in assets:
Cash segregated for the exclusive
benefit of customers 295,582 (4,079)
Securities owned (5,200,555) 27,876
Notes receivable from officers
and employees (878,352) (774,949)
Miscellaneous other assets (1,005,154) (168,620)
(Decrease) increase in liabilities:
Securities sold, not yet purchased (473,068) 3,372,336
Drafts payable, accounts payable and
accrued expenses, and accrued employee
compensation (7,390,291) (4,516,068)
------------ ------------
Cash Provided By
Operating Activities $ 21,640,245 $ 1,250,821
------------ ------------
See Notes to Consolidated Financial Statements.
<PAGE> 8
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
Six Months Ended
June 28, 1996 June 30, 1995
------------- -------------
Cash Provided By Operating Activities
- from previous page $ 21,640,245 $ 1,250,821
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net payments for short-term borrowings
from banks (21,225,000) (3,845,000)
Proceeds from:
Subordinated borrowings - - 4,000,000
Employee stock purchase plan 616,669 755,274
Exercised stock options - - 123,507
Dividend reinvestment plan 6,802 5,544
Payments for:
Settlement of long-term debt (760,000) (760,000)
Purchases of stock for treasury (94,536) (342,757)
Principal payments under capital
leases (154,160) (126,789)
Cash dividends (268,524) (250,876)
------------ ------------
Cash Used For Financing Activities (21,878,749) (441,097)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from:
Sale of office equipment and
leasehold improvements 7,612 499,149
Sale of investments 3,509,914 1,139,091
Payments for:
Acquisition of office equipment
and leasehold improvements (178,001) (1,022,883)
Acquisition of investments (750,702) (142,411)
------------ ------------
Cash Provided By Investing Activities 2,588,823 472,946
------------ ------------
Increase in cash and cash equivalents 2,350,319 1,282,670
Cash and cash equivalents -
beginning of period 6,344,042 6,925,192
------------ ------------
Cash and Cash Equivalents - end of period $ 8,694,361 $ 8,207,862
============ ============
Supplemental disclosure of cash flow
information:
Income tax payments $ 884,396 $ 341,777
Interest payments $ 4,084,126 $ 4,115,303
Schedule of noncash investing and
financing activities:
Fixed assets acquired under
capital lease $ 240,000 $ - -
Assumption of debt for investment $ 150,000 $ - -
See Notes to Consolidated Financial Statements.
<PAGE> 9
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 and six months ended June 28, 1996 are not
necessarily indicative of the results that may be expected for
the year ending December 31, 1996. 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, 1995.
During the six-month period ended June 28, 1996, the Company
wrote off $2,838,292 which represented fully amortized capital
leases.
NOTE B - NET CAPITAL REQUIREMENT
As a registered broker-dealer and member of the New York Stock
Exchange, the Company's principal subsidiary, Stifel, Nicolaus &
Company, Incorporated (SN & Co.), is subject to the Securities
and Exchange Commission's (SEC) uniform net capital rules. SN &
Co. 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 June 28, 1996, SN & Co. had net
capital of $20,882,857 which was 12% of its aggregate debit
balances and $17,378,893 in excess of the 2% net capital
requirement.
<PAGE> 10
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 six months related to the
restructuring accruals recorded at December 31, 1994 are as
follows:
Balance at Balance at
December Payments June
31, 1995 /Charges 28, 1996
---------- -------- ----------
Net lease commitments for
closed offices $895,460 $102,212 $793,248
Severance pay, extended benefits
and receivables written off
for terminated employees 66,515 - - 66,515
Abandonment of leasehold
improvements 8,729 8,729 - -
-------- -------- --------
Total $970,704 $110,941 $859,763
======== ======== ========
Such amounts are included in the consolidated statement of
financial condition under the caption of Accounts payable and
accrued expenses at June 28, 1996 and December 31, 1995.
NOTE D - SALE OF OKLAHOMA-BASED ASSETS
On May 25, 1995, the Company sold the majority of the assets
of its Oklahoma-based operations to Capital West Financial
Corporation ("Capital West"). Capital West is primarily owned by
former employees of the Company. Included in the sale were the
majority of the assets related to the Company's retail offices in
Oklahoma, several retail offices in Texas, and the Oklahoma-based
public finance, institutional trading, and sales departments. The
Company received cash, secured and senior notes, and warrants to
purchase a minority interest in Capital West. In addition,
Capital West assumed or subleased certain office and equipment
lease obligations of the Company. The sale resulted in the
reduction of approximately 70 investment executives and
approximately 50 support staff located in 26 branch offices.
<PAGE> 11
The Company received secured and senior notes with a face
amount of $1,850,000 bearing interest at a 10% annual rate with
the final payments due May 24, 2000, in connection with the sale
of its Oklahoma-based assets. The notes were recorded at a
discounted rate of 17%. The Company has deferred recognition of
the gain on the sale in the amount of $570,120 and has deferred
recognition of any interest income related to the notes until
such time that Capital West has demonstrated the ability to
generate earnings and cash flow to fund interest and principal
payments when scheduled. The notes receivable net of the
discount of $335,617 and deferred gain of $570,120 are included
in the statement of financial condition under the caption
"Miscellaneous other assets" at June 28, 1996 and December 31,
1995.
Pro forma financial information assuming the transaction had
taken place on January 1, 1995 is presented below:
Six Months Ended
June 30, 1995
Pro Forma Combined Results of Operations ----------------
Revenue $44,190,439
Net Income $ 606,600
Earnings per primary share $ 0.14
The above pro forma results do not purport to be indicative of
results which actually would have occurred had the sale been made
on January 1, 1995.
NOTE E - SUBSEQUENT EVENT
On June 30, 1987, the Company's Board of Directors declared a
distribution of one preferred stock purchase right for each share
of the Company's common stock. On July 23, 1996, the Company's
Board of Directors approved the redemption of these shareholder
rights and the adoption of a new Shareholder Rights Plan.
Shareholders of record on August 12, 1996 will receive a payment
of $0.05 per share, representing the redemption price for the
existing rights. Payable date is August 22, 1996. This payment
will be in lieu of the regular quarterly dividend of $0.03 per
share.
<PAGE> 12
In addition, on July 23, 1996, the Company's Board of
Directors authorized and declared a dividend distribution of one
right for each outstanding share of common stock, par value $0.15
per share. The dividend will be distributed to stockholders of
record on August 12, 1996. Each right will entitle the
registered holder to purchase one one-hundredth of a share of a
Series A Junior Participating Preferred Stock, par value $1.00
per share, at an exercise price of $35 per right. The rights
become exercisable on the tenth day after public announcement
that a person or group has acquired 15 percent or more of the
Company's common stock or upon commencement or announcement of
intent to make a tender offer for 15 percent or more of the
outstanding shares of common stock without prior written consent
of the Company. If the Company is acquired by any person after
the rights become exercisable, each right will entitle its holder
to purchase shares of common stock at one-half the then current
market price, and in the event of a subsequent merger or other
acquisition of the Company, to buy shares of common stock of the
acquiring entity at one-half of the market price of those shares.
The rights may be redeemed by the Company prior to becoming
exercisable by action of the Board of Directors at a redemption
price of $.01 per right. These rights will expire, if not
previously exercised, on August 12, 2006.
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Three months ended June 1996 and June 1995
The Company recorded a net income of $1,361,000 for the
quarter ended June 28, 1996 compared to a net income of $348,000
for the same period one year earlier for an increase of
$1,013,000 (291.1%). The primary earnings per share was $0.30
compared to the previous year's primary earnings per share of
$0.08. The increases in revenues and net income were primarily
attributable to increased commissions resulting from a robust
retail market, continued improvement in retail productivity,
realized gains on sales of investments and a reduction in
administrative costs.
Total revenues increased $4,959,000 (19.3%) to $30,707,000
from $25,748,000 as all categories of revenue increased with the
exception of principal transactions, investment banking income,
and sale of unit investment trusts.
Commissions, sale of investment company shares, and sale of
insurance products increased $999,000 (13.6%) to $8,339,000 from
$7,340,000, $389,000 (18.8%) to $2,455,000 from $2,066,000, and
$157,000 (28.0%) to $717,000 from $560,000, respectively, due to
a very strong retail market as aforementioned.
Other revenues increased $4,188,000 (161.8%) to $6,776,000
from $2,588,000 as a result of increased gains on investments,
managed account fees, investment advisory fees, clearing income,
money market distribution fees, and wire service income which
increased $3,297,000, $381,000, $51,000, $117,000, $126,000, and
$65,000, respectively. Gains on investments primarily resulted
from the exercise of warrants generated by the corporate finance
department related to an underwriting and the ultimate sale of
the shares received for the exercise of those warrants. Managed
account fees increased because of the growth of the managed
account program which was introduced in November, 1994.
Investment advisory fees increased due to increases in portfolio
values. Clearing income increased as a direct result of clearing
for Capital West Securities, Inc. which began in June, 1995.
Money market distribution fees increased due to the increase in
money market fund balances. Wire service income increased due to
increased volume.
Principal transactions decreased $399,000 (7.6%) to $4,859,000
from $5,258,000 due primarily to decreased sales of fixed income
products and inventory trading losses incurred from those same
fixed income products. Investment Banking decreased $606,000
(13.8%) to $3,773,000 from $4,379,000 due largely to reduced
corporate and public offerings and fewer significant merger
and acquisition transactions. Sale of unit investment trusts
decreased $53,000 (11.2%) to $419,000 from $472,000, principally
due to lower quantities of product available.
<PAGE> 14
Total expenses increased $3,311,000 (13.2%) to $28,466,000
from $25,155,000 primarily as a result of increased employee
compensation and benefits. Employee compensation and benefits
increased $2,823,000 (18.4%) to $18,192,000 from $15,369,000
primarily as a result of increased variable compensation,
which increased $3,266,000 coincidentally with increased
production and profitability. The increase in variable compensa-
tion was offset by a decrease in fixed salaries and benefits
which decreased $443,000 as a result of the downsizing and
restructuring plan implemented in the fourth quarter of 1994
and the sale of the Oklahoma division to Capital West Financial
Corp. (see Notes C and D to the unaudited Consolidated Financial
Statements).
Gross interest revenues increased $284,000 (9.2%) due mostly
to higher margin receivable balances. The gross interest
revenues were partially offset by an increase in interest
expenses of $70,000 (3.5%) because of slightly higher average
short-term borrowings from banks. Net interest retention in-
creased $214,000 (19.6%) to $1,304,000 from $1,090,000.
The aforementioned downsizing and restructuring plan and the
sale of the Oklahoma division to Capital West Financial Corp.
reduced the number of retail office locations. The reduction of
office locations contributed to the reduction in occupancy and
equipment, communication and office supplies and promotional
expenses which decreased $269,000 (13.1%), $259,000 (13.2%) and
$38,000 (7.8%), respectively.
Other expense increased $987,000 (37.2%) to $3,641,000 from
$2,654,000 primarily as a result of increased settlements and bad
debt expense which increased $1,179,000. Settlements increased
due to a sizable litigation settlement reached in the second
quarter of 1996. This increase was offset by a decrease in
professional fees and insurance of $150,000 and $49,000,
respectively.
Six months ended June 1996 and June 1995
The Company recorded a net income of $1,511,000 for the six
months ended June 28, 1996, compared to a net income of $164,000
for the same period one year earlier for an increase of
$1,347,000 (821.3%). The primary earnings per share was $0.33
compared to the previous year's $0.04 per share. The increases
were primarily attributable to the same reasons as previously
indicated in the three months ended discussion.
Total revenues increased $6,501,000 (13.6%) to $54,144,000
from $47,643,000 as all categories of revenue increased with the
exception of principal transactions and investment banking
revenues.
<PAGE> 15
Commissions, sale of investment company shares, sale of
insurance products, and sale of unit investment trusts increased
$2,087,000 (14.7%) to $16,315,000 from $14,228,000, $781,000
(18.9%) to $4,919,000 from $4,138,000, $191,000 (17.2%) to
$1,299,000 from $1,108,000, and $95,000 (10.6%) to $994,000 from
$899,000, respectively, due to a very strong retail market as
aforementioned.
Other revenues increased $4,734,000 (90.2%) to $9,980,000 from
$5,246,000 as a result of increased gains on investments, managed
account fees, exchange membership execution fees, investment
advisory fees, clearing income, wire service income, and money
market distribution fees which increased $2,781,000, $775,000,
$379,000, $153,000, $307,000, $51,000, and $274,000, respectively.
These increases are due to the same reasons as noted in the three
month's comments.
Principal transactions decreased $1,454,000 (13.7%) to
$9,160,000 from $10,614,000 due primarily to decreased sales of
fixed income products and inventory trading losses incurred from
those same fixed income products. Investment banking revenues
declined due to less corporate finance activity.
Total expenses increased $4,277,000 (9.0%) to $51,646,000 from
$47,369,000 primarily as a result of increased employee
compensation and benefits. Employee compensation and benefits
increased $3,776,000 (13.0%) to $32,718,000 from $28,942,000
primarily as a result of increased variable compensation,
which increased $4,784,000 (27.3%) to $22,309,000 from
$17,525,000 concurrently with increased production and profit-
ability. The increase in variable compensation was offset by a
decrease in fixed salaries and benefits which decreased
$1,009,000 (8.8%) to $10,409,000 from $11,418,000 as a result of
the downsizing and restructuring plan implemented in the fourth
quarter of 1994 and the sale of the Oklahoma division to Capital
West Financial Corp. (see Notes C and D to the unaudited Consoli-
dated Financial Statements).
Gross interest revenues increased $276,000 (4.4%) due to
higher margin receivable balances. Interest expenses decreased
$75,000 (1.8%) due mainly to less interest paid to customers.
Net interest retention increased $351,000 (16.0%) to $2,551,000
from $2,200,000.
The reduction of office locations aforementioned in the three
month discussion contributed to the reduction of communication
and office supplies, occupancy and equipment and promotional
expenses which decreased $656,000 (15.9%), $419,000 (10.4%) and
$78,000 (7.7%), respectively.
<PAGE> 16
Other expense increased $1,703,000 (42.8%) to $5,686,000 from
$3,983,000 as a result of increased settlements and bad debt
expense, charitable contributions, and professional fees, which
increased $1,528,000, $143,000, and $127,000, respectively.
Settlements and bad debt expense increased due to litigation
settlements and increased activity. Charitable contributions
increased primarily due to a credit to expense for a write-off of
certain philanthropic commitments in the first half of 1995 which
had previously been accrued. Professional fees increased
primarily as a result of audit fees related to the 1995 annual
audit.
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, 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. Because of the nature of the Company's business,
the changes in operating assets and liability account balances
relative to net income for any particular accounting period can
be quite large and somewhat arbitrary and therefore are not very
useful indicators of long-term trends in the Company's cash flow
from operations.
In the six months ended June 28, 1996, cash and cash
equivalents increased $2,350,000 (37.0%) to $8,694,000 from
$6,344,000 at December 31, 1995. The increase in cash was
substantially a result of cash provided from investing activity
of $2,589,000. The cash provided from investing activity
primarily consisted of proceeds for the sales of investments of
$3,510,000 and partially offset by payments for investments and
fixed assets of $751,000 and $178,000, respectively. Cash
provided by operating activities was primarily used for payment
of short-term borrowings from banks. The cash provided by
operating activities was principally attributed to net income
adjusted for non-cash charges of $4,167,000, a decrease in
operating receivables of $3,117,000, and an increase in operating
payables of $28,797,000. The cash provided was partly offset by
cash used for increases in securities owned, notes receivable
from officers and employees, and other assets of $5,201,000,
$878,000, and $794,000, respectively, and decreases of drafts
payable, accounts payable and accrued expenses, and accrued
employee compensation and market value of securities sold, not
yet purchased of $7,390,000 and $473,000, respectively.
SN & Co. 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 June 28, 1996, SN & Co. had net
capital of approximately $20,883,000 which exceeded the minimum
net capital requirements by approximately $17,379,000.
<PAGE> 17
During 1994, SN & Co. obtained a revolving subordinated note
in the amount of $5,500,000. The subordinated note was intended
to be used to finance underwritings and was available for
additional advances until January 31, 1996. At June 28, 1996, SN
& Co. had an advance of $50,000 against this revolving
subordinated note which is due January 31, 1997.
Management believes that funds from operations and available
unused informal and formal short-term credit arrangements of
$139,775,000 at June 28, 1996, will provide sufficient resources
to meet the present and anticipated financial needs.
The Company has $2,916,000 in receivables from Investment
Executives and other employees who terminated employment with the
Company. The Company intends to vigorously pursue collection of
these receivables and does not anticipate that the outcome of
these activities will adversely affect liquidity or capital
resources.
<PAGE> 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There were no material changes, during the six months ended
June 28, 1996, in the legal proceedings previously reported in
the Company's Annual Report on Form 10-K for the year ended
December 31, 1995. Such information is hereby incorporated by
reference.
<PAGE> 19
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
There were no reports on Form 8-K filed during the quarter
ended June 28, 1996.
The Company filed a report on Form 8-K dated July 23, 1996.
This report Form 8-K contained information under Item 5. Other
Events. On July 23, 1996, the Board of Directors of Stifel
Financial Corp. approved the redemption of certain rights
under an existing Shareholder Rights Plan and the adoption of
a new Shareholder Rights Plan. Shareholders of record on
August 12, 1996 will receive a payment of $0.05 per share,
representing the redemption price for the existing rights.
Payable date is August 22, 1996. This payment will be in lieu
of the regular quarterly dividend of $0.03 per share. Under
the new Shareholder Rights Plan, there will be a dividend
distribution of one right for each outstanding share of common
stock, par value $0.15 per share. The dividend will be
distributed to stockholders of record on August 12, 1996.
Each right will entitle the registered holder to purchase one
one-hundredth of a share of a Series A Junior Participating
Preferred Stock, par value $1.00 per share, at an exercise
price of $35 per right. The rights become exercisable on the
tenth day after public announcement that a person or group has
acquired 15 percent or more of the Company's common stock or
upon commencement or announcement of intent to make a tender
offer for 15 percent or more of the outstanding shares of
common stock without prior written consent of the Company. If
the Company is acquired by any person after the rights become
exercisable, each right will entitle its holder to purchase
shares of common stock at a one-half the then current market
price, and in the event of a subsequent merger or other
acquisition of the Company, to buy shares of common stock of
the acquiring entity at one-half of the market price of those
shares. The rights may be redeemed by the Company prior to
becoming exercisable by action of the Board of Directors at a
redemption price of $.01 per right. These rights will expire,
if not previously exercised, on August 12, 2006.
<PAGE> 20
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: August 9, 1996 By /s/ Gregory F. Taylor
Gregory F. Taylor
(Chief Executive Officer)
Date: August 9, 1996 By /s/ Stephen J. Bushmann
Stephen J. Bushmann
(Principal Financial and
Accounting Officer)
<PAGE> 21
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
EXHIBIT INDEX
June 28, 1996
Exhibit
Number 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)
EXHIBIT 11
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In Thousands, Except Per Share Amounts)
(UNAUDITED)
Three Months Ended
June 28, 1996 June 30, 1995
Fully Fully
Primary Diluted Primary Diluted
Net income $1,361 $1,361 $ 348 $ 348
After-tax interest savings assuming
Conversion of Senior Convertible
Notes (1) - - 172 - - 170
------ ------ ------ ------
Net income adjusted for after-tax
interest savings $1,361 $1,533 $ 348 $ 518
====== ====== ====== ======
Average number of common shares
outstanding during the period 4,470 4,470 4,410 4,410
Additional shares assuming exercise of
stock options (2) 82 103 52 75
Additional Shares assuming conversion of
Senior Convertible Notes (3) - - 1,350 - - 1,350
----- ----- ----- -----
Average number of common shares used to
calculate earnings per share 4,552 5,923 4,462 5,835
===== ===== ===== =====
Net earnings per share $0.30 $0.26 $0.08 $0.08(4)
===== ===== ===== =====
Six Months Ended
June 28, 1996 June 30, 1995
Fully Fully
Primary Diluted Primary Diluted
Net income $1,511 $1,511 $ 164 $ 164
After-tax interest savings assuming
conversion of Senior Convertible
Notes (1) - - 343 - - 337
------ ------ ------ ------
Net income adjusted for after-tax
interest savings $1,511 $1,854 $ 164 $ 501
====== ====== ====== ======
Average number of common shares
outstanding during the period 4,456 4,456 4,396 4,396
Additional shares assuming exercise of
stock options (2) 67 103 54 74
Additional Shares assuming conversion of
Senior Convertible Notes (3) - - 1,350 - - 1,350
----- ----- ----- -----
Average number of common shares
used to calculate earnings per share 4,523 5,909 4,450 5,820
===== ===== ===== =====
Net earnings per share $0.33 $0.31 $0.04 $0.04(4)
===== ===== ===== =====
<PAGE>
(1) Represents the after-tax interest savings resulting from
assumed conversion of $10,000,000 aggregate principal 11.25%
Senior Convertible Notes.
(2) 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.
(3) 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 $7.4059 per
share.
(4)Net fully diluted earnings per share computes to $0.09 and
$0.09 for three months and six months ended June 30, 1995,
respectively. Since these are anti-dilutive, fully diluted
earnings per share is equivalent to primary earnings per
share.
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED STATEMENT OF FINANCIAL CONDITION DATED
JUNE 28, 1996 AND THE STATEMENT OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-28-1996
<CASH> 9,175,065
<RECEIVABLES> 168,741,386
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 5,558,400
<INSTRUMENTS-OWNED> 24,721,326
<PP&E> 2,716,536
<TOTAL-ASSETS> 229,312,722
<SHORT-TERM> 65,225,000
<PAYABLES> 54,254,841
<REPOS-SOLD> 0
<SECURITIES-LOANED> 60,767,859
<INSTRUMENTS-SOLD> 2,271,208
<LONG-TERM> 10,150,000
<COMMON> 681,134
0
0
<OTHER-SE> 35,912,680
<TOTAL-LIABILITY-AND-EQUITY> 229,312,722
<TRADING-REVENUE> 9,159,596
<INTEREST-DIVIDENDS> 6,558,853
<COMMISSIONS> 23,527,781
<INVESTMENT-BANKING-REVENUES> 4,917,867
<FEE-REVENUE> 1,374,957
<INTEREST-EXPENSE> 4,007,559
<COMPENSATION> 32,717,797
<INCOME-PRETAX> 2,498,897
<INCOME-PRE-EXTRAORDINARY> 2,498,897
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,510,897
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.31
</TABLE>