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, 1996
-----------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission file number 1-9305
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STIFEL FINANCIAL CORP.
- --------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 43-1273600
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
500 N. Broadway
St. Louis, Missouri 63102-2188
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 314-342-2000
------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
- -------------------------------------- -----------------------
Common Stock, Par Value $.15 per share New York Stock Exchange
Chicago Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports 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. [X]
<PAGE> 2
Aggregate market value of voting stock held by non-affiliates of
the registrant at March 11, 1997 was $32,425,544.
Shares of Common Stock outstanding at March 11, 1997: 4,725,747
shares, par value $.15 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the year ended
December 31, 1996 are incorporated by reference to Part II
hereof. Portions of the Company's Proxy Statement filed with the
SEC in connection with the Company's Annual Meeting of
Stockholders to be held April 22, 1997 are incorporated by
reference to Part III hereof. Exhibit Index located on page 30.
<PAGE> 3
PART I
ITEM 1. BUSINESS
Stifel Financial Corp. ("Financial") was organized in fiscal year
1983 pursuant to a plan of reorganization whereby Stifel,
Nicolaus & Company, Incorporated ("Stifel, Nicolaus") became a
wholly-owned subsidiary of Financial. Stifel, Nicolaus is the
successor to a partnership founded in 1890. The term "Company"
as used herein means Financial and its subsidiaries.
The Company offers securities-related financial services through
its wholly-owned operating subsidiaries, Stifel, Nicolaus,
Century Securities Associates, Inc., Todd Investment Advisors,
Inc., and Pin Oak Capital, Ltd. These subsidiaries provide
brokerage, trading, investment banking, investment advisory, and
related financial services primarily to customers throughout the
United States from 43 locations. The Company's customers include
individuals, corporations, municipalities and institutions.
Although the Company has customers throughout the United States,
its major geographic area of concentration is in the Midwest. On
May 25, 1995, the Company sold the majority of the assets related
to its operations in Oklahoma, which consisted of 26 retail
securities offices and the municipal underwriting, trading, and
institutional sales operations located in Oklahoma, and three
retail offices in Texas. These operations comprised 14% of the
Company's total revenue for 1994. (See proforma financial
information in Note O of the Consolidated Financial Statements
incorporated by reference herein.)
Principal Sources of Revenue
The amounts of each of the principal sources of revenue of the
Company for the calendar years 1996, 1995 and 1994 is contained
in Item 6. Selected Financial Data, filed herein.
Commissions
During recent years, most of the Company's securities commissions
resulted from transactions with retail (individual) investor
accounts. Retail commissions are charged on both stock exchange
and over-the-counter transactions in accordance with the
Company's commission schedule. In certain cases (usually on
large trades or to active customers), discounts from that
schedule are granted.
The percentage of total commission revenue from institutional
customers was 5% in 1996. Prior to 1996 revenue generated from
institutional customers was not accounted for separately.
Institutional accounts are serviced mainly by the Company's
offices in St. Louis. Retail investment executives also receive
orders from institutional customers from time to time.
<PAGE> 4
Principal Transactions
The Company trades as principal in the over-the-counter market.
It acts as both principal and agent to facilitate the execution
of customers' orders. The Company "makes a market" in various
securities of interest to its customers through buying, selling
and maintaining an inventory of these securities. The Company
does not engage in a significant amount of trading for its own
account. The Company also buys corporate and municipal bonds for
its own account in the secondary market, maintains an inventory,
and resells from that inventory to other dealers and to
institutional and retail customers.
Investment Banking
The Company manages the underwriting of both corporate and
municipal securities and participates as an underwriter in
syndicates of issues managed by other firms. The corporate and
public finance departments are responsible for originating
underwritings, mergers and acquisitions, placements, valuations,
financial advisory work and other investment banking matters.
The Company acts as an underwriter and dealer in bonds issued by
states, cities and other political subdivisions and may act as
manager or participant in offerings managed by other firms. The
majority of the Company's municipal bond underwritings and
corporate underwritings are originated and sold through its
office in St. Louis. Prior to 1994, the majority of the
Company's investment banking related revenue was generated by its
Oklahoma City based public finance department. As a result of
the negative publicity surrounding the two year investigation and
civil injunctive action by the Securities and Exchange
Commission, which was settled in August of 1995, related to
certain municipal bond underwritings managed by the Oklahoma City
office, the Company's ability to generate municipal bond
underwritings in Oklahoma and elsewhere was adversely impacted
(see also Item 7 "Management's Financial Discussion" and Note H
of the Consolidated Financial Statements incorporated by
reference herein).
During 1995, the number of municipal bond offerings underwritten
by the St. Louis public finance department was not only affected
by the negative publicity as a result of the Securities and
Exchange Commission investigation and enforcement action but also
was effected by the downturn in the public finance market
experienced industry-wide. Interest rates had not fluctuated
downward as dramatically as several years ago, and consequently
the volume of refinancings by institutions and governmental
agencies has remained low.
During 1996, the St. Louis public finance department rebounded
somewhat as evidenced by the increase in the number of awards as
senior manager for new issue underwritings, which increased to 34
awards in 1996 from 24 awards in 1995.
<PAGE> 5
While several broker-dealers have ceased their public finance
operations resulting from the industry-wide slowdown, management
is uncertain at this time what effects, if any, this may have on
the department's future performance.
In calendar years 1996 and 1995, the majority of the Company's
investment banking revenues have been generated by the corporate
finance department. The growth in the revenue is due to the
department's focus on providing research, financial advisory
services, and consulting services for merger and acquisition and
serving as a manager or co-manager for underwriting issuances of
corporate debt or equity securities for financial institutions
and Real Estate Investment Trusts (REITs) located primarily in
the Midwest. Management expects the performance of the corporate
finance department to remain strong.
The management of and participation in public offerings involves
significant risks. An underwriter may incur losses if it is
unable to resell, at a profit, the securities it has purchased.
Under the Securities Act of 1933 and other statutes and court
decisions, an underwriter may be subject to substantial liability
for misstatements or omissions that are judged to be material in
prospectuses and other communications related to underwritings.
Underwriting commitments cause a charge against net capital (as
defined by Rule 15c3-1 administered by the Securities and
Exchange Commission -- see "Regulation"); and, consequently, the
aggregate amount of underwriting commitments at any one time may
be limited by the amount of available net capital of the Company.
Other Business
The Company has dealer-sales agreements with numerous
distributors of investment company shares. These agreements
provide generally for dealer discounts ranging up to 5.75 percent
of the purchase price, depending upon the size of the
transaction.
The Company acts as an agent for its customers' transactions in
put and call options traded on the Chicago Board Options
Exchange, Inc., American Stock Exchange, Inc., Philadelphia Stock
Exchange, Inc., and, to a much lesser extent, in the over-the-
counter market.
The Company has a wholly-owned subsidiary, Century Securities
Associates, Inc. ("CSA"), an introducing broker-dealer which
clears its transactions through Stifel, Nicolaus. CSA contracts
with independent licensed brokers to sell securities and other
investment products to retail (individual) investor accounts.
CSA is licensed in 50 states and has 93 registered
representatives. Management expects CSA to continue to grow in
significance in relation to the Company's operation as a whole.
<PAGE> 6
In 1993, the Company formed a wholly-owned subsidiary, Stifel
Asset Management Corp. ("SAM"), to act as a holding company for
two investment advisory firms, Pin Oak Capital, Ltd. ("Pin Oak"),
and Todd Investment Advisors, Inc. ("Todd"). Pin Oak, which
operated formerly as the investment advisory division of Stifel,
Nicolaus, was formed as an investment advisory firm and began
operations during the five-month transition period ended December
31, 1993. SAM purchased all of the outstanding stock of Todd, an
investment advisory firm located in Louisville, Kentucky, in
December 1993. Both Pin Oak and Todd provide investment advice
and services to individual, fiduciary and corporate clients.
Combined assets under management for the two firms at December
31, 1996 was approximately $2,575,649,000. Pin Oak holds
registrations as an investment advisor in six states. Todd is
registered as an investment advisor in fourteen states.
In late 1994, Stifel, Nicolaus established a program for managing
customers' investment portfolios. Fees are charged based upon a
percentage of total assets of the portfolio. At December 31,
1996, Stifel, Nicolaus had assets under management of
approximately $332,462,000 related to this program. The Company
intends to commit resources to grow this business.
Coincidental with the sale of the Oklahoma based operations, the
Company entered into a clearing agreement to clear the trades of
the purchasing firm's broker-dealer subsidiary and carry its
customer accounts on a fully-disclosed basis. The Company
charges for these services based upon the clearing agreement.
Various subsidiaries of the Company act as General Partners in
certain limited partnerships for which Stifel, Nicolaus has sold
limited partnership interests to the public. The subsidiaries
may receive distributions upon the dissolution of such
partnerships, but the amount and timing of receipts of such
distributions, if any, cannot be determined at this time and are
subject to the usual risks and liabilities associated with acting
as a general partner.
Customer Financing
Securities are purchased for customers on either a cash or margin
basis. The customer deposits less than the full cost of the
security when securities are purchased on a margin basis. The
Company makes a loan for the balance of the purchase price. Such
loans are collateralized by the securities purchased. The
amounts of the loans are subject to the margin requirements of
Regulation T of the Board of Governors of the Federal Reserve
System, New York Stock Exchange, Inc. ("NYSE") margin
requirements, and the Company's internal policies, which usually
are more restrictive than Regulation T or NYSE requirements. In
permitting customers to purchase securities on margin, the
Company is subject to the risk of a market decline which could
reduce the value of its collateral below the amount of the
customers' indebtedness.
<PAGE> 7
Research
The Company's research department provides retail and
institutional customers information and recommendations on the
securities of specific companies. These services are rendered
without charge. The Company also purchases research services
from other firms.
Competition
The Company competes with other securities firms, some of which
offer their customers a broader range of brokerage services, have
substantially greater resources, and may have greater operating
efficiencies. In addition, an increasing number of specialized
firms, as well as banks, savings and loans, and other financial
institutions, now offer discount brokerage services to individual
retail customers. These firms generally charge lower commission
rates to their customers without offering services such as
portfolio valuation, investment recommendations and research.
Competition from such discount brokerage services may adversely
affect revenues of the Company and other firms providing full
retail brokerage services. Banks also compete with brokerage
firms by offering certain investment banking and corporate
finance services.
Management relies on the expertise acquired in its market area
over its 106-year history, its personnel, and its equity capital
to operate in the competitive environment.
Regulation
The securities industry in the United States is subject to
extensive regulation under federal and state laws. The
Securities and Exchange Commission ("SEC") is the federal agency
charged with the administration of the federal securities laws.
Much of the regulation of broker-dealers, however, has been
delegated to self-regulatory organizations, principally the
National Association of Securities Dealers, Inc., the Municipal
Securities Rulemaking Board, and the national securities
exchanges, such as the NYSE. These self-regulatory organizations
adopt rules (which are subject to approval by the SEC) which
govern the industry and conduct periodic examinations of member
broker-dealers. Securities firms are also subject to regulation
by state securities commissions in the states in which they are
registered.
The regulations to which broker-dealers are subject cover all
aspects of the securities business, including sales practices,
trade practices among broker-dealers, capital structure of
securities firms, record keeping, and the conduct of directors,
officers and employees. Additional legislation, changes in rules
promulgated by the SEC and by self-regulatory organizations, and
changes in the interpretation or enforcement of existing laws and
rules often directly affect the method of operation and
profitability of broker-dealers. The SEC and the self-regulatory
organizations may conduct administrative proceedings which can
result in censures, fines, suspension or expulsion of a broker-
dealer, its officers or employees. The principal purpose of
<PAGE> 8
regulation and discipline of broker-dealers is the protection of
customers and the securities markets rather than the protection
of creditors and stockholders of broker-dealers.
As a broker-dealer and member of the NYSE, Stifel, Nicolaus is
subject to the Uniform Net Capital Rule (Rule 15c3-1) promulgated
by the SEC which provides that a broker-dealer doing business
with the public shall not permit its aggregate indebtedness (as
defined) to exceed 15 times its net capital (as defined) or,
alternatively, that its net capital shall not be less than 2
percent of aggregate debit balances (primarily receivables from
customers and broker-dealers) computed in accordance with the
SEC's Customer Protection Rule (Rule 15c3-3). The Uniform Net
Capital Rule is designed to measure the general financial
integrity and liquidity of a broker-dealer and the minimum net
capital deemed necessary to meet the broker-dealer's continuing
commitments to its customers and other broker/dealers. Both
methods allow broker-dealers to increase their commitments to
customers only to the extent their net capital is deemed adequate
to support an increase. Management believes that the alternative
method, which is utilized by most full-service securities firms,
is more directly related to the level of customer business.
Therefore, Stifel, Nicolaus computes its net capital under the
alternative method.
Under SEC rules, a broker-dealer may be required to reduce its
business and restrict withdrawal of subordinated capital if its
net capital is less than 4 percent of aggregate debit balances
and may be prohibited from expanding its business and declaring
cash dividends if its net capital is less than 5 percent of
aggregate debit balances. A broker-dealer that fails to comply
with the Uniform Net Capital Rule may be subject to disciplinary
actions by the SEC and self-regulatory agencies, such as the
NYSE, including censures, fines, suspension, or expulsion. In
computing net capital, various adjustments are made to net worth
to exclude assets which are not readily convertible into cash and
to state conservatively the other assets such as a firm's
position in securities. Compliance with the Uniform Net Capital
Rule may limit those operations of a firm such as Stifel,
Nicolaus which require the use of its capital for purposes of
maintaining the inventory required for a firm trading in
securities, underwriting securities, and financing customer
margin account balances. Stifel, Nicolaus had net capital of
approximately $24,182,000 at December 31, 1996, which was
approximately 9.7 percent of aggregate debit balances and
approximately $19,191,000 in excess of required net capital.
Employees
There were 733 individuals employed by the Company as of February
28, 1997. This includes both full and part-time personnel.
<PAGE> 9
ITEM 2. PROPERTIES
The headquarters and administrative offices of the Company,
Stifel, Nicolaus and CSA are located in downtown Saint Louis,
Missouri. Todd is located in Louisville, Kentucky. Pin Oak is
located in New York, New York. Stifel Nicolaus has a branch
office system located in 13 states, primarily in the Midwest.
The Company has a total of 43 locations in 14 states. All
offices of the Company are located in leased premises. The
Company's management believes that at the present time the
facilities are suitable and adequate to meet its needs and that
such facilities have sufficient productive capacity and are
appropriately utilized.
The Company also leases communication and other equipment.
Aggregate annual rental expense for the twelve month period ended
December 31, 1996, for office space and equipment, was
approximately $3,541,000. Further information about the lease
obligations of the Company is provided in Note D of the
Consolidated Financial Statements incorporated by reference
herein
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in several lawsuits and arbitrations
which arose from its usual business activities. Some of these
lawsuits and arbitrations claim substantial amounts, including
punitive damages. While results of litigation and arbitration
cannot be predicted with certainty, management, based on opinions
of outside counsel, has provided for actions most likely of
adverse disposition and believes that the effects of resolution
of such litigation and arbitration beyond the amounts provided
will not have a material adverse effect on the Company's
consolidated financial position. However, depending upon the
period of resolution, such effects could be material to the
financial results of an individual operating period. It is
reasonably possible that certain of these lawsuits and
arbitrations could be resolved in the next year and management
does not believe such resolutions will result in losses
materially in excess of the amounts previously provided.
During 1995, the SEC completed a formal investigation into
possible violations of the federal securities laws in connection
with certain municipal bond issues managed by the Company's
former Oklahoma City based public finance department where the
Company was the managing or co-managing underwriter. This
investigation resulted in the Company consenting to a permanent
injunction and ancillary relief whereby, the Company paid
approximately $1.1 million in disgorgement and prejudgement
interest, and $250,000 in fines.
Additionally, the Company is named in lawsuits filed by The
Oklahoma Turnpike Authority ("OTA") and The State of Oklahoma.
The OTA suit seeks $6.5 million in compensatory damages and an
unspecified amount of punitive damages. The State of Oklahoma
seeks $7.6 million in compensatory damages and that these damages
be trebled.
<PAGE> 10
The OTA suit alleges that an undisclosed fee paid to the Company
by a third party for the placement of a forward purchase contract
in an advance refunding escrow for the proceeds of the 1992 OTA
$660 million refinancing should have been paid to the OTA. The
State of Oklahoma suit alleges that the Company and two former
executives of the Company committed violations of the Racketeer
Influenced and Corrupt Organizations Act. This suit alleges
essentially the same facts as are alleged in the OTA suit and
were alleged by the SEC in its action against the Company which
was settled in August, 1995, by the Company without admitting or
denying the allegations. Management does not believe the
ultimate resolution of these matters will have a materially
adverse effect on the Company's financial position.
See Note H to the Company's Consolidated Financial Statements,
filed herein.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following information is furnished pursuant to General
Instruction G(3) of Form 10-K with respect to the executive
officers of Financial:
Positions or Offices Position with the
Name Age with the Company Company Since
- -------------------- --- ------------------------ -----------------
George H. Walker III 66 Chairman of the Board 1976
of Financial and Stifel,
Nicolaus
Gregory F. Taylor 47 President and Chief 1985
Executive Officer of
Financial and Stifel,
Nicolaus
Stephen J. Bushmann 39 Chief Financial Officer 1981
of Financial
Charles R. Hartman 53 General Counsel and 1994
Senior Vice President of
Stifel, Nicolaus
Michael A. Murphy 45 Senior Vice President - 1989
Director of Retail Group
of Stifel, Nicolaus
Rexford E. Riordan 63 Senior Vice President - 1979
Director of Investment
Services Group of Stifel,
Nicolaus
Lawrence E. Somraty 48 President of Century 1977
Securities Associates,
Inc.
The following are brief summaries of the business experience
during the past five years of each of the executive officers.
<PAGE> 11
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 Laclede Steel Company, Laidlaw Corp., and EAC
Corporation. He is active in various community activities and
currently is Chairman of the Missouri Historical Society. He is
Chairman of the Advisory Committee of Webster University Business
School and on the National Counsel of Washington University
Business School.
Gregory F. Taylor was branch manager of Stifel, Nicolaus'
Chicago branch from October, 1985 until July, 1988. He became
Executive Vice President and Director of National Sales and
Marketing of Stifel, Nicolaus in July, 1988, Chief Operating
Officer in November, 1991 and President and Chief Executive
Officer as of October 26, 1992. He was elected a Vice President
of Financial in October, 1991 and President and Chief Executive
Officer as of October 26, 1992.
Stephen J. Bushmann joined Stifel, Nicolaus in October of 1981.
He is Chief Financial Officer and Vice President of Financial and
Chief Financial Officer and Senior Vice President of Stifel,
Nicolaus. From 1994 - 1996, Mr. Bushmann served as Financial
Analyst and prior to that he was Assistant Controller.
Charles R. Hartman joined Stifel, Nicolaus in June of 1994. He
is the General Counsel, Senior Vice President and Secretary of
Stifel, Nicolaus. Prior to joining Stifel, Nicolaus, Mr. Hartman
was the Regional Counsel for the Securities and Exchange
Commission in Los Angeles, California and since April of 1982 a
Los Angeles partner in the law firm of Rogers & Wells.
Michael A. Murphy joined Stifel, Nicolaus in 1989. He is
Senior Vice President and Director of Retail Group of Stifel,
Nicolaus. From 1989 - 1994, Mr. Murphy served as First Vice
President and Director of Branch Administration.
Rexford E. Riordan joined Stifel, Nicolaus in 1979. He is
Senior Vice President and Director of Investment Services Group
of Stifel, Nicolaus. From 1979 - 1995, Mr. Riordan served in
various capacities in the firm including assisting in the
National Sales department, Manager of Mutual Funds and Unit
Investment Trusts departments, Director of Training, and served
as First Vice President.
Lawrence E. Somraty has been with Stifel, Nicolaus since 1977.
He served as Option Department Manager, Senior Registered Options
Principal, Investment Advisor and Branch Manager. He became the
President of Century Securities Associates, Inc. in January 1991.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
<PAGE> 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
------------------------------------------------
1996 1995
Quarter High - Low High - Low
------------------------------------------------
First $ 6 1/4 - 5 7/8 $ 6 1/4 - 5
Second 7 3/4 - 6 1/8 6 1/8 - 5 1/8
Third 7 3/4 - 6 1/4 6 1/2 - 5 1/2
Fourth 8 1/8 - 6 5/8 6 - 5 1/4
------------------------------------------------
b.) Holders
The approximate number of stockholders of record on March 11,
1997 was 3,000.
c.) Dividends
Dividends paid were as follows:
Record Payment Cash Stock
Date Date Dividend Dividend
- ------------------------------------------
02/10/95 02/24/95 $0.03 5%
05/09/95 05/23/95 $0.03 - -
08/08/95 08/22/95 $0.03 - -
11/07/95 11/21/95 $0.03 - -
02/06/96 02/20/96 $0.03 5%
05/07/96 05/21/96 $0.03 - -
11/05/96 11/19/96 $0.03 - -
A regular quarterly cash dividend of $0.025 per share was
established on February 9, 1993. On November 30, 1993 the
regular quarterly cash dividend was increased to $0.03 per share.
Note E of the Consolidated Financial Statements, incorporated by
reference herein, describes the restrictions of paying future
dividends.
On July 23, 1996, the Board of Directors of Financial approved
the redemption of certain stock rights under a former Shareholder
Rights Plan and the adoption of a new Shareholder Rights Plan.
Shareholders on record, as of August 12, 1996, received a payment
of $0.05 per share, representing the redemption price for the
former Rights. This payment was in lieu of the regular quarterly
cash dividend of $0.03 per share.
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
Stifel Financial Corp. and Subsidiaries
Financial Summary
<CAPTION>
Five
Months
Years Ended December 31, Ended Years Ended July
-------------------------------- --------------------
(In thousands, except per share 1996 1995 1994 Dec. 31, 1993 1993 1992
and percentages)
<S> <C> <C> <C> <C> <C> <C>
Revenues
Commissions $ 31,424 $ 28,292 $ 25,407 $ 11,949 $ 26,456 $ 25,204
Principal transactions 17,919 18,980 22,567 9,313 25,201 25,260
Investment banking 15,964 11,674 11,969 10,885 30,551 29,791
Interest 13,774 13,002 10,918 4,057 8,851 9,130
Sale of investment company shares 9,609 8,316 9,674 4,906 10,741 8,638
Sale of unit investment trusts 1,868 1,828 2,736 1,362 3,220 2,611
Sale of insurance products 2,867 2,109 2,207 1,263 1,614 1,676
Other 16,388 11,159 8,448 2,720 6,837 5,699
-------- -------- -------- -------- -------- --------
109,813 95,360 93,926 46,455 113,471 108,009
-------- -------- -------- -------- -------- --------
Expenses
Employee compensation and benefits 66,765 57,187 60,652 29,421 68,657 63,891
Commissions and floor brokerage 2,641 2,319 2,120 845 2,485 2,437
Communications and office supplies 6,794 7,651 8,045 3,090 6,836 6,168
Occupancy and equipment rental 7,255 7,884 9,397 3,333 7,648 7,401
Promotional 2,146 2,024 2,868 1,231 2,925 2,206
Interest 8,197 8,312 6,138 1,763 4,838 5,505
Litigation, settlements, and bad debts 3,292 1,610 2,467 473 1,237 3,745
Restructuring charge - - - - 2,672 - - - - - -
Other operating expenses 7,121 7,066 8,788 3,239 7,575 7,588
-------- -------- -------- -------- -------- --------
104,211 94,053 103,147 43,395 102,201 98,941
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes
and extraordinary credit 5,602 1,307 (9,221) 3,060 11,270 9,068
Provision (benefit) for income taxes 2,209 663 (3,718) 1,145 4,232 3,363
-------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary credit 3,393 644 (5,503) 1,915 7,038 5,705
Extraordinary Credit -- tax benefit
from utilization of net operating
loss carryforward - - - - - - - - - - 648
-------- -------- -------- -------- -------- --------
Net income (loss) $ 3,393 $ 644 $ (5,503) $ 1,915 $ 7,038 $ 6,353
======== ======== ======== ======== ======== ========
Per Share Data
Primary earnings (loss)(a) $ .71 $ .14 $ (1.17) $ .40 $ 1.52 $ 1.44
Fully Diluted earnings (loss)(a) $ .64 $ .14 $ (1.17) $ .36 $ 1.27 $ 1.21
Cash dividends $ .09 $ .12 $ .09 $ .055 $ .15 - -
<PAGE> 14
Other Data
Total assets $301,049 $226,775 $222,208 $288,203 $196,539 $191,059
Long-term obligations $ 10,000 $ 10,760 $ 11,520 $ 11,520 $ 10,000 $ 10,000
Stockholder's equity $ 37,752 $ 34,795 $ 34,226 $ 40,609 $ 38,995 $ 31,597
Net income as % average equity 9.35 % 1.87 % * N.M. 4.81 % 19.94 % 22.55 %
Net income as % revenues 3.09 % 0.68 % * N.M. 4.12 % 6.20 % 5.88 %
Average common shares and share
equivalents outstanding (a):
Primary 4,780 4,674 4,689 4,748 4,626 4,399
Fully diluted 6,281 6,105 6,107 6,165 6,106 5,817
</TABLE>
(a) Retroactively restated to reflect the 5 percent stock dividend declared
January 21, 1997.
* Not Meaningful
<PAGE> 15
The information called for in items 7 and 8 of Part II is set
forth on the pages listed below of the Company's 1996 Annual
Report to Stockholders and is incorporated herein by reference:
Pages In Annual Report
To Stockholders
(filed herewith in Exhibit 13)
ITEM 7. Management's Financial Discussion. 8 through 13
ITEM 8. Financial Statements and Supplementary Data. 14 through 36
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
The Company filed a report on Form 8-K dated October 29, 1996.
This report Form 8-K contained information under Item 4. "Changes
in registrant's certifying accountants". The Board of Directors
of Financial, upon the recommendation of its Audit Committee,
determined to replace Coopers & Lybrand L.L.P. as the Company's
independent auditors for the year ended December 31, 1996.
In addition, the Company filed a report on Form 8-K dated
December 9, 1996. This report Form 8-K contained information
under Item 4. "Changes in registrant's certifying accountants".
The Board of Directors of Financial, upon the recommendation of
its Audit Committee, determined to appoint Deloitte & Touche LLP
as the Company's newly engaged certifying accountants and
Deloitte & Touche LLP has accepted this appointment. During the
two years ended December 31, 1995 and through the date of their
appointment, Deloitte & Touche LLP has not provided any
consultations to the Company.
PART III
ITEMS 10 THROUGH 13
Financial intends to file with the Securities and Exchange
Commission a definitive proxy statement pursuant to Regulation
14A involving the election of directors not later than 120 days
after the end of its fiscal year ended December 31, 1996.
Accordingly, except to the extent included in Part I under the
caption "Executive Officers of the Registrant", the information
required by Part III (Items 10, 11, 12 and 13) is incorporated
herein by reference to such definitive proxy statement in
accordance with General Instruction G(3) to Form 10-K.
<PAGE> 16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) The following documents are filed as a part of
this report: Reference (page)
----------------
Annual Form 10-K
Report to Annual
Stockholders Report
------------ ---------
1. The following consolidated financial statements
of Stifel Financial Corp. and subsidiaries,
included on pages 7 through 37 in the 1996
Annual Report to Stockholders, are incorporated
by reference in Item 8
Independent Auditors' Report...........................14
Consolidated Statements of Financial Condition --
December 31, 1996 and December 31, 1995.............15 - 16
Consolidated Statements of Operations --
Years ended December 31, 1996, December 31, 1995
and December 31, 1994.................................17
Consolidated Statements of Stockholders' Equity --
Years ended December 31, 1996, December 31, 1995
and December 31, 1994.................................18
Consolidated Statements of Cash Flows --
Years ended December 31, 1996, December 31, 1995
and December 31, 1994...............................19 - 20
Notes to Consolidated Financial Statements...........21 - 35
2. The following consolidated financial statement
schedules of Stifel Financial Corp. and subsidiaries
are filed herewith pursuant to ITEM 14(d):
Independent Auditors' Report.........................................22
Report of Independent Accountants....................................23
Report of Independent Accountants....................................24
Schedule I - Condensed Financial Information of Registrant.........25 - 28
Schedule II - Valuation and Qualifying Accounts......................29
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.
<PAGE> 17
3. Exhibits
Exhibit No. (Referenced to Item 601(b) of Regulation S-K)
(a)(1) Restated Certificate of Incorporation of
Financial filed with the Secretary of State of
Delaware on June 1, 1983, incorporated herein by
reference to Exhibit 3.1 to Financial's Registration
Statement on Form S-1, as amended (Registration File
No. 2-84232) filed July 19, 1983.
(a)(2) Amendment to Restated Certificate of
Incorporation of Financial filed with the Secretary
of State of Delaware on May 11, 1987, incorporated
herein by reference to Exhibit (3)(a)(2) to
Financial's Report on Form 10-K for the year ended
July 31, 1987.
(a)(3) Certificate of Designation, Preferences,
and Rights of Series A Junior Participating Preferred
Stock of Financial filed with the Secretary of State
of Delaware on July 10, 1987, incorporated herein by
reference to Exhibit (3)(a)(3) to Financial's Report
on Form 10-K for the year ended July 31, 1987.
(a)(4) Amendment to Restated Certificate of
Incorporation of Financial filed with the Secretary
of State of Delaware on November 28, 1989,
incorporated herein by reference to Exhibit (3)(a)(4)
to Financial's Report on Form 10-K for the year ended
July 27, 1990.
(b) Amended and Restated By-Laws of Financial,
incorporated herein by reference to Exhibit 3(b)(1)
to Financial's Report on Form 10-K for fiscal year
ended July 30, 1993.
4. Note Agreement dated as of October 15, 1988, between
Financial and Bankers United Life Assurance Company and
Pacific Fidelity Life Insurance Company, incorporated
herein by reference to Exhibit 4 to Financial's Report on
Form 10-Q for the quarterly period ended April 28, 1989.
The Company hereby agrees to furnish the Securities and
Exchange Commission copies of such instruments upon
request.
10. (a)(1) Employment Agreement with George H. Walker
III dated August 21, 1987, incorporated herein by
reference to Exhibit 10(c) to Financial's Report on
Form 10-K for the fiscal year ended July 31, 1987.
(a)(2) First Amendment to Employment Agreement
with George H. Walker III, incorporated herein by
reference to Exhibit 10(a)(2) to Financial's Report
on Form 10-K for the fiscal year ended July 31, 1992.
<PAGE> 18
(b) Form of Indemnification Agreement with directors
dated as of June 30, 1987, incorporated herein by
reference to Exhibit 10.2 to Financial's Report on
Form 8-K (date of earliest event reported - June 22,
1987) filed July 14, 1987.
(c) 1983 Incentive Stock Option Plan of Financial,
incorporated herein by reference to Exhibit 4(a) to
Financial's Registration Statement on Form S-8
(Registration File No. 2-94326) filed November 14,
1984.
(d) 1985 Incentive Stock Option Plan of Financial,
incorporated herein by reference to Exhibit 28C to
Financial's Registration Statement on Form S-8, as
amended (Registration File No. 33-10030) filed
November 7, 1986.
(e) 1987 Non-qualified Stock Option Plan of
Financial , incorporated herein by reference to
Exhibit 10(h) to Financial's Report on Form 10-K for
the fiscal year ended July 31, 1987.
(f) Amendment to 1983 Incentive Stock Option Plan,
1985 Incentive Stock Option Plan and 1987 Non-
Qualified Stock Option Plan, incorporated herein by
reference to Exhibit 10(f) to Financial's Report on
Form 10-K for the fiscal year ended July 28, 1989.
(g)(1) 1993 Employee Stock Purchase Plan of
Financial, incorporated herein by reference to ANNEX
A of Financial's Definitive Proxy Statement
(Registration File No. 33-16150) filed October 28,
1992.
(g)(2) First Amendment to the 1993 Employee Stock
Plan of Financial, incorporated herein by reference to
Exhibit 4.5 to Financial's Registration Statement on
Form S-8 (Registration File No. 33-53097) filed April
11, 1994.
(h) Employment and Non-Competition Agreement with
Gregory F. Taylor dated July 26, 1993, incorporated
herein by reference to Exhibit 10(m) to Financial's
Report on Form 10-K for fiscal year ended July 30,
1993.
(i) 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.
(j) 1997 Incentive Stock Plan of Financial,
incorporated herein by reference to Appendix A of
Financial's Definitive Proxy Statement filed March
21, 1997.
<PAGE> 19
(k) 1998 Employee Stock Plan of Financial,
incorporated herein by reference to Appendix B of
Financial's Definitive Proxy Statement filed March
21, 1997.
11. Statement regarding computation of per share earnings,
filed herewith.
13. Annual Report to Stockholders for the year ended December
31, 1996. Except for those portions of pages expressly
incorporated by reference, the 1996 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. (a) Consent of Independent Auditors, filed herewith.
23. (a) Consent of Independent Accountants, filed herewith.
27. Financial Data Schedule BD, filed herewith.
(b) Reports on Form 8-K:
The Company filed a report on Form 8-K dated October 29,
1996. This report Form 8-K contained information under Item
4. "Changes in registrant's certifying accountants". The
Board of Directors of Financial, upon the recommendation of
its Audit Committee, determined to replace Coopers & Lybrand
L.L.P. as the Company's independent auditors for the year
ended December 31, 1996.
In addition, the Company filed a report on Form 8-K dated
December 9, 1996. This report Form 8-K contained information
under Item 4. "Changes in registrant's certifying
accountants". The Board of Directors of Financial, upon the
recommendation of its Audit Committee, determined to appoint
Deloitte & Touche LLP as the Company's newly engaged
certifying accountants and Deloitte & Touche LLP has accepted
this appointment. During the two years ended December 31,
1995 and through the date of their appointment, Deloitte &
Touche LLP has not provided any consultations to the Company.
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of St. Louis, State of
Missouri, on the 21st day of March, 1997.
STIFEL FINANCIAL CORP.
(Registrant)
By /s/ Gregory F. Taylor
Gregory F. Taylor
(Principal Executive Officer)
/s/ Stephen J. Bushmann
Stephen J. Bushmann
(Principal Financial and
Accounting Officer)
<PAGE> 21
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 21, 1997, in the capacities
indicated.
/s/ George H. Walker III Chairman of the Board
George H. Walker III
/s/ Gregory F. Taylor President, Chief Executive
Gregory F. Taylor Officer, and Director
/s/ Bruce A. Beda Director
Bruce A. Beda
/s/ Belle A. Cori Director
Belle A. Cori
/s/ Charles A. Dill Director
Charles A. Dill
/s/ Richard F. Ford Director
Richard F. Ford
/s/ John J. Goebel Director
John J. Goebel
/s/ Robert E. Lefton Director
Robert E. Lefton
/s/ James M. Oates Director
James M. Oates
<PAGE> 22
[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, 1996 and for
the year then ended, and have issued our report thereon dated
February 25, 1997; such consolidated financial statements and
report are included in your 1996 Annual Report to Stockholders
and are incorporated herein by reference. Our audit also
included the 1996 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 audit. In
our opinion, such 1996 consolidated financial statement
schedules, when considered in relation to the basic 1996
consolidated financial statements taken as a whole, present
fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
St. Louis, Missouri
February 25, 1997
<PAGE> 23
[Coopers & Lybrand L.L.P. letterhead]
Report of Independent Accountants
Stockholders and Board of Directors
Stifel Financial Corp.
St. Louis, Missouri
We have audited the accompanying consolidated statement of
financial condition of Stifel Financial Corp. and Subsidiaries as
of December 31, 1995 and the related consolidated statements of
operations, stockholders' equity, and cash flows for the years
ended December 31, 1995 and December 31, 1994. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Stifel Financial Corp. and Subsidiaries as
of December 31, 1995 and the consolidated results of their
operations and their cash flows for the years ended December 31,
1995 and December 31, 1994, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
St. Louis, Missouri
February 25, 1996
<PAGE> 24
[Coopers & Lybrand L.L.P. letterhead]
Report of Independent Accountants
Board of Directors
Stifel Financial Corp.
St. Louis, Missouri:
Our report on the consolidated financial statements of Stifel
Financial Corp. and Subsidiaries is included on page 23 of this
Form 10-K. In connection with our audits of such financial
statements, we have also audited the related financial statement
schedules for the years ended December 31, 1995 and December 31,
1994 listed in the index on page 12 of this Form 10-K.
In our opinion, the financial statement schedules referred to
above, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
/s/ Coopers & Lybrand L.L.P.
St. Louis, Missouri
February 25, 1996
<PAGE> 25
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
STIFEL FINANCIAL CORP.
Dec. 31, 1996 Dec. 31, 1995
------------- -------------
ASSETS
Cash $ 9,155 $ 9,155
Due from subsidiaries (a) 3,711,973 3,887,790
Investment in subsidiaries (a) 41,262,901 37,421,622
Office equipment and leasehold improvements, less
allowances for depreciation and amortization of
$9,705,941 and $12,107,975, respectively 2,182,025 2,972,388
Investments, at cost 815,764 736,549
Goodwill, net of amortization of $462,235 and
$396,480, respectively 1,906,907 1,189,430
Other assets 1,389,304 2,102,135
----------- -----------
TOTAL ASSETS $51,278,029 $48,319,069
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Due to subsidiaries (a) $ 1,739,432 $ 402,336
Obligation under capital lease 580,945 774,229
Long-term debt 10,000,000 10,760,000
Other liabilities 1,206,523 1,587,142
----------- -----------
TOTAL LIABILITIES 13,526,900 13,523,707
Stockholders' Equity:
Capital stock 715,158 681,134
Additional paid-in capital 21,402,971 19,622,646
Retained earnings 16,733,073 15,753,713
----------- -----------
38,851,202 36,057,493
Less cost of stock in treasury 892,892 1,162,376
Less unamortized stock awards 207,181 99,755
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 37,751,129 34,795,362
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $51,278,029 $48,319,069
=========== ===========
- --------------------
(a) Eliminated in consolidation.
See Notes to Consolidated Financial Statements (Item 8)
<PAGE> 26
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
CONDENSED STATEMENTS OF OPERATIONS
STIFEL FINANCIAL CORP.
Years Ended December 31,
-----------------------------------------
1996 1995 1994
---- ---- ----
Revenues:
Lease $ 1,406,556 $ 1,708,160 $ 2,162,292
Other (59,024) (162,347) (7,522)
----------- ----------- -----------
1,347,532 1,545,813 2,154,770
Expenses:
Depreciation and amortization 1,431,798 1,751,250 2,325,301
Professional fees 246,178 170,664 236,506
Provision for doubtful collection 300,000 - - - -
Miscellaneous 159,460 135,363 128,882
----------- ----------- -----------
2,137,436 2,057,277 2,690,689
----------- ----------- -----------
Loss before income taxes (789,904) (511,464) (535,919)
(Benefit) provision for income taxes (343,024) 52,100 26,246
----------- ----------- -----------
Loss before equity in net income
(loss) of subsidiaries (446,880) (563,564) (562,165)
Equity in net income (loss) of
subsidiaries 3,839,382 1,207,085 (4,941,170)
----------- ----------- -----------
NET INCOME (LOSS) $ 3,392,502 $ 643,521 $(5,503,335)
=========== =========== ===========
See Notes to Consolidated Financial Statements (Item 8)
<PAGE> 27
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
STIFEL FINANCIAL CORP.
<CAPTION>
Years Ended December 31,
------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,392,502 $ 643,521 $(5,503,335)
Non-cash items included in net income (loss):
Depreciation and amortization 1,431,798 1,751,250 2,325,301
Unrealized loss on investments 115,000 - - 321,300
Provision for doubtful collection 300,000 - - - -
Deferred tax (benefit) provision (234,353) 105,547 (27,160)
Undistributed (income) loss of subsidiaries (3,839,382) (1,207,085) 4,941,170
Amortization and forfeitures of restricted
stock awards and stock benefits 75,055 84,346 107,341
----------- ----------- -----------
1,240,620 1,377,579 2,164,617
Net change in due to/due from subsidiaries 1,512,913 730,442 (718,361)
Decrease (increase) in other assets 1,187,309 (1,162,037) 1,365,788
(Decrease) increase in other liabilities (379,298) 393,193 180,271
----------- ----------- -----------
CASH PROVIDED BY OPERATING ACTIVITIES 3,561,544 1,339,177 2,992,315
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Employee stock purchase plan 616,670 755,274 611,688
Exercised options 3,098 123,503 81,213
Dividend reinvestment plan 12,570 9,533 944
Payments for:
Retirement of long-term debt (760,000) (760,000) - -
Purchase of stock for treasury (520,321) (546,615) (1,416,932)
Principal payments under capital lease (433,284) (255,053) (710,089)
Cash dividend and rights redemption (625,128) (500,611) (354,368)
----------- ----------- -----------
CASH USED FOR FINANCING ACTIVITIES (1,706,395) (1,173,969) (1,787,544)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from:
Distributions/sales received on investments 36,360 94,893 25,000
Sales of office equipment and leasehold
improvements 23,405 909,762 24,235
Dissolution of subsidiaries - - - - 505,000
Payments for:
Acquisition of investments (1,513,232) - - (52,219)
Office equipment and leasehold improvements (401,682) (1,169,863) (1,706,787)
----------- ----------- -----------
CASH USED FOR INVESTING ACTIVITIES (1,855,149) (165,208) (1,204,771)
----------- ----------- -----------
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
=========== =========== ===========
<PAGE> 28
Supplemental Disclosures of Cash Flow Information
Schedule of Non-cash Investing and Financing
Activities
Fixed assets acquired under capital lease $ 240,000 - - $ 808,000
Restricted stock awards, net of forfeitures $ 181,000 $ 3,000 $ 146,000
Stock dividends distributed $ 1,788,000 $ 1,406,000 $ 1,287,000
</TABLE>
See Notes to Consolidated Financial Statements (Item 8)
<PAGE> 29
<TABLE>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
Balance at Additions Balance
Beginning Charged to Costs at End
Description of Period and Expenses Deductions of Period
----------- ---------- ---------------- ---------- ---------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996:
Deducted from asset account:
Allowances for doubtful accounts $ 804,916 $ 28,400 $ 251,370 <F1> $ 581,946
Deducted from asset account:
Allowances for doubtful notes
receivables 3,002,220 173,467 624,060 <F2> 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 638,362 115,000 8,000 <F3> 745,362
Deducted from asset account:
Reserves for securities owned 200,000 0 0 200,000
Year Ended December 31, 1995:
Deducted from asset account:
Allowances for doubtful accounts $1,070,985 $ 0 $ 266,069 <F1> $ 804,916
Deducted from asset account:
Allowances for doubtful notes
receivables 2,560,617 802,004 360,401 <F2> 3,002,220
Deducted from asset account:
Reserves for investments 972,795 88,500 422,933 <F3><F5> 638,362
Deducted from asset account:
Reserves for securities owned 0 0 (200,000)<F5> 200,000
Year Ended December 31, 1994:
Deducted from asset account:
Allowances for doubtful accounts $1,435,058 $ 0 $ 364,073 <F1> $1,070,985
Deducted from asset account:
Allowances for doubtful notes
receivables 0 3,040,969 480,352 <F2> 2,560,617
Deducted from asset account:
Reserves for investments 1,071,007 322,404 420,616 <F3> 972,795
Deducted from asset account:
Reserves for securities owned 450,000 0 450,000 <F4> 0
- ----------------
<FN>
<F1> Uncollected accounts written off and recoveries.
<F2> Uncollected notes written off and recoveries.
<F3> Investments disposed of.
<F4> Securities disposed of.
<F5> Reserve balance reclassified from Reserve for investments to conform to 1995 presentation.
</TABLE>
<PAGE> 30
EXHIBIT INDEX
Stifel Financial Corp. and Subsidiaries
Annual Report on Form 10-K
Year Ended December 31, 1996
Exhibit
Number Description
- ------- -----------
11. Statement regarding computation of per share earnings.
13. 1996 Annual Report to Stockholders.*
21. Subsidiaries of Stifel Financial Corp.
23.(a) Consent of Independent Auditors.
23.(b) Consent of Independent Accountants.
27. Financial Data Schedule BD.
* Certain portions of the Annual Report to Stockholders are incorporated
herein by reference; the Annual Report to Stockholders is not to be deemed
filed as a part of this Annual Report on Form 10-K.
EXHIBIT 11
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
<TABLE>
STATEMENT REGARDING COMPUTATION OF CONSOLIDATED
EARNINGS PER SHARE
<CAPTION>
Years Ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Primary
- -------
Net income (loss) $ 3,392,502 $ 643,521 $(5,503,335)
----------- ----------- -----------
Average number of common shares
outstanding during the period 4,671,863 4,606,775 4,572,498
Additional Shares assuming exercise
of stock options <F1> 108,125 67,109 116,656
----------- ----------- -----------
Common shares and equivalents used
to calculate earnings (loss) per share 4,779,988 4,673,884 4,689,154
----------- ----------- -----------
Primary earnings (loss) per share $ 0.71 $ 0.14 $ (1.17)
=========== =========== ===========
Fully Diluted
- -------------
Net income (loss) $ 3,392,502 $ 643,521 $(5,503,335)
After-tax interest savings assuming
conversion of Senior Convertible
Notes <F2> 600,961 553,902 684,075
----------- ----------- -----------
Net income (loss) $ 3,993,463 $ 1,197,423 $(4,819,260)
----------- ----------- -----------
Average number of common shares
outstanding during the period 4,671,863 4,606,775 4,572,498
Additional Shares assuming exercise
of stock options <F1> 191,639 80,742 116,656
Additional Shares assuming conversion
of Senior Convertible Notes <F3> 1,417,716 1,417,716 1,417,716
----------- ----------- -----------
Common shares and equivalents used
to calculate earnings (loss) per share 6,281,218 6,105,233 6,106,870
----------- ----------- -----------
Fully diluted earnings (loss) per share $ 0.64 $ 0.14<F4> $ (1.17)<F4>
=========== =========== ===========
<PAGE>
<FN>
<F1> Represents the number of shares of common stock issuable
on the exercise of dilutive employee stock options less the
number of shares of common stock which could have been
purchased with the proceeds from the exercise of such options.
For primary earnings per share computations, these purchases
were assumed to have been made at the average market price of
the common stock during the period or that part of the period
for which the option was outstanding. For fully diluted
earnings per share computations, these purchases were assumed
to have been made at the greater of the market price of the
common stock at the end of the period or average market price
of the common stock during the period or that part of the
period for which the option was outstanding.
<F2> Represents the after-tax interest savings resulting from
assumed conversion of $10,000,000 aggregate principal 11.25%
Senior Convertible Notes.
<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 $7.05 share.
<F4> Net fully diluted earnings (loss) per share computes to
$0.20 and ($0.79) for the years ended December 31, 1995 and
December 31, 1994, respectively. Since this is anti-dilutive,
fully diluted earnings (loss) per share is equivalent to
primary earnings (loss) per share.
</TABLE>
Management's Financial Discussion
Business Environment
Stifel Financial Corp. and Subsidiaries (the "Company"), through its principal
subsidiary, Stifel, Nicolaus & Company, Incorporated ("Stifel, Nicolaus"),
provides securities brokerage and investment management and advisory services
primarily to individuals, provides investment banking services to municipal
and corporate clients, and trades fixed income securities and over-the-counter
equity securities. Century Securities Associates, Inc. ("CSA"), a wholly
owned subsidiary of the Company, provides administration services to
independent registered investment executives. Additionally, Pin Oak Capital
Ltd. ("Pin Oak") and Todd Investment Advisors, Inc. ("Todd"), both wholly
owned subsidiaries of the Company, provide fee-based investment advisory
services to both individual and institutional clients.
Results of any individual period should not be considered representative of
future profitability. Many of the Company's activities are sensitive to a
variety of factors, including the securities trading volume, the volatility
and price level of securities markets, the demand for investment banking
services, the level and volatility of interest rates, and investor sentiment.
A portion of the Company's expenses are relatively fixed and do not vary with
market activity. Consequently, sustained periods of reduced transaction
activity or loss of clients may adversely affect profitability.
The Company faces increasing competition from other financial institutions
such as commercial banks, thrifts, and investment firms. Certain financial
services, traditionally provided only by securities firms, are increasingly
being provided by these other financial institutions.
The business environment for the securities industry during 1996 was one of
the most prosperous in recent years. New investors, larger holdings, and
increased activity fueled record market volume and prices. Individuals
continued to evolve from savers to investors as strong corporate earnings, low
interest rates, and low inflation boosted the equity markets.
Historically, a significant source of the Company's investment banking
revenues originated from Oklahoma municipal securities issuances. During the
last three years, the Company's municipal investment banking business has been
adversely impacted by general municipal finance industry conditions and the
negative publicity surrounding a formal investigation and subsequent
enforcement actions by the Securities and Exchange Commission relating to
certain municipal bond issues managed by the Company's Oklahoma municipal
finance department (see Note H of the Notes to Consolidated Financial
Statements filed herein). Additionally, during 1995, the Company sold its
Oklahoma operations (see Note O of the Notes to Consolidated Financial
Statements filed herein), enabling the Company to focus on its retail sales,
fee-based money management services, equity research, corporate finance, and
the St. Louis-based municipal finance department.
<PAGE>
Results of Operations
The following table summarizes amounts and percentages of changes in the major
categories of revenues and expenses for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31, December 31, December 31,
Increase (Decrease) 1996 vs. 1995 1995 vs . 1994
- ------------------------------------------------------------------------------------------------------
Amounts in thousands Amount Percentage Amount Percentage
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Commissions $ 5,184 13.4% $ 1,430 3.8%
Principal transactions (864) (4.2) (4,278) (17.4)
Investment banking 4,132 34.1 (513) (4.1)
Interest 772 5.9 2,084 19.1
Other 5,229 46.9 2,711 32.1
------- ------ ------- --------
$14,453 15.2% $ 1,434 1.5%
======= ====== ======= ========
Expenses:
Employee compensation and benefits $ 9,578 16.7% $(3,465) (5.7)%
Commissions and floor brokerage 322 13.9 199 9.4
Communications and office supplies (857) (11.2) (394) (4.9)
Occupancy and equipment rental (629) (8.0) (1,513) (16.1)
Interest (115) (1.4) 2,174 35.4
Litigation, settlements, and bad debts 1,682 104.5 (857) (34.7)
Restructure charge 0 0 (2,672) (100.0)
Other operating expenses 177 1.9 (2,566) (22.0)
------- ------ ------- --------
$10,158 10.8% $(9,094) (8.8)%
======= ====== ======= ========
</TABLE>
<PAGE>
1996 As Compared to 1995
The Company recorded $.71 earnings per primary share in 1996 compared to $.14
earnings per primary share in 1995. The increase in earnings per share was
attributed principally to the growth in revenues to $109.8 million in 1996
from $95.4 in 1995.
The Company experienced a $14.5 million (15.2%) growth in total revenues in
1996 over 1995 revenues, increasing to $109.8 million from $95.4 million.
Total revenues in 1996 were the second highest in the Company's history.
Average revenues per Investment Executive increased $43,000 (22.2%) to
$237,000 from $194,000 due to the addition of higher producing Investment
Executives in conjunction with industry-wide record performance and growth
which was attributed in part to increased corporate profits and continued low
interest rates.
Revenue from commissions, which includes sale of investment company shares and
sale of insurance products, increased $5.2 million (13.4%) to $43.9 million
from $38.7 million as a result of strong markets and increased production per
Investment Executive referred to above.
Principal transactions, which accounts for over-the-counter sales and trading
profits and losses on securities the Company held as principal to meet
investors' needs, decreased $900,000 (4.2%) to $19.5 million from $20.4
million primarily as a result of decreased trading in fixed income products --
municipal and corporate debt which decreased $3.0 million (22.5%) to $10.5
million from $13.5 million due to continued low interest rates which fueled
investors' demands for the higher returns generated by the equity products.
This decrease was offset by an increase in over-the-counter principal sales
credits and trading profits of $1.9 million (36.9%) to $7.4 million from $5.5
million. The increase was due to improved trading profits and continued
strong demand for the over-the-counter equity products.
Investment banking, which consists of revenue derived from underwriting
corporate and municipal securities and advisory fees, increased $4.1 million
(34.1%) to $16.2 million from $12.1 million largely as a result of an increase
in corporate finance revenues. Favorable market conditions fueled corporate
new issue underwritings. Revenue for new issue corporate underwritings and
financial advisory fees, primarily for regional financial institutions and
Real Estate Investment Trusts ("REITs"), increased $2.8 million (39.1%) to
$10.1 million from $7.3 million. Municipal investment banking revenues, which
includes fee income, increased $900,000 to $3.8 million from $2.9 million as
the number of awards as senior manager for underwritings increased to 34 in
1996 from 24 in 1995.
Interest income is derived principally from financing customers' margin
accounts. Interest income increased $772,000 (5.9%) to $13.7 million from
$13.0 million as a result of increased borrowing by customers to finance their
investments.
<PAGE>
Other income increased $5.2 million (46.9%) to $16.4 million from $11.2
million principally due to a one-time gain of $3.3 million on an investment
resulting 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. Additionally, managed account
fees, which are derived from management of customers' investment portfolios,
increased $1.4 million (137.0%) to $2.5 million from $1.1 million due
principally to the growth of the managed account program which was introduced
in November 1994.
Total expenses increased $10.2 million (10.8%) to $104.2 million from $94.0
million largely as a result of increased compensation and benefits, which
increased $9.6 million (16.7%) to $66.8 million from $57.2 million, and
litigation, settlements, and bad debts, which increased $1.7 million (104.5%)
to $3.3 million from $1.6 million.
The fixed portion of compensation and benefits, principally salaries, remained
virtually unchanged from 1995. The variable portion of total compensation and
benefits, principally Investment Executive compensation and incentive
compensation payments, increased coincidentally with increased production and
profitability.
Commission and floor brokerage increased $300,000 (13.9%) to $2.6 million from
$2.3 million coincidentally with increased commission revenue discussed in the
aforementioned increase in commission revenue.
Communications and office supplies and occupancy and equipment rental
decreased $900,000 (11.2%) to $6.8 million from $7.7 million and $600,000
(8.0%) to $7.3 million from $7.9 million, respectively, principally due to the
sale of the Oklahoma offices (see Note O of the Notes to Consolidated
Financial Statements filed herein).
Litigation, settlements, and bad debt increased $1.7 million (104.5%) to $3.3
million from $1.6 million due principally to settlements of claims against
Stifel, Nicolaus resulting from activities initiated in an office which was
closed in 1995.
1995 As Compared to 1994
For 1995, the Company had net income of $644,000, or $.14 per primary share,
on revenues of $95.4 million. During the year ended December 31, 1994, the
Company had a net loss of $5.5 million, or $1.17 per primary share, on
revenues of $93.9 million. The loss in 1994 included a one-time restructuring
charge of $2.7 million.
Revenues for 1995 increased in commissions, interest income, and other
revenue, but declined in principal transactions. Commission revenue increased
$1.4 million (3.8%) to $38.7 million in 1995 from $37.3 million in 1994
despite the reduction in the number of Investment Executives which resulted
from the sale of the Company's Oklahoma-based operations and the restructuring
plan of 1994. The number of Investment Executives decreased by 79 (21.8%) to
283 at December 31, 1995, from 362 at December 31, 1994. Despite this
decline, average production per Investment Executive increased $17,000 (9.6%)
to $194,000 from $177,000.
Principal transactions decreased $4.3 million (17.4%) to $20.3 million from
$24.6 million largely as a result of decreased fixed income trading activity.
<PAGE>
Investment banking decreased only slightly in 1995, $500,000 (4.1%) to $12.1
million from $12.6 million. Public finance-related fee income decreased
significantly, $2.4 million (58.8%) to $1.6 million from $4.0 million, due to
the negative publicity surrounding the SEC's investigation into certain
municipal finance underwritings by the Company's Oklahoma City public finance
department and the reduced number of transactions by municipalities
experienced industry-wide. These decreases were offset by an increase in
corporate finance-related investment banking revenue which increased $3.8
million (279.6%) to $5.2 million from $1.4 million largely as a result of
increased public offerings, particularly for financial institutions and real
estate investment trusts (REITs). In addition, underwriting and syndicate
participation fees and profits on trading new underwriting issues decreased
$1.8 million primarily as a result of the aforementioned decreased municipal
finance activity.
Interest income increased $2.1 million (19.1%) to $13.0 million from $10.9
million, and net interest (interest income less interest expense) decreased
$90,000. The revenue increase is primarily due to higher customer borrowings
which resulted from increased retail investor activity experienced industry-
wide. Because of the generally corresponding increase in borrowings by the
Company to finance the purchase of marketable securities and underwrite new
securities issues, the net interest retention percentage decreased from 43.8%
to 36.1%.
Other revenue increased $2.7 million (32.1%) to $11.1 million from $8.4
million primarily as a result of increases in managed account fees, money
market distribution fees, clearing revenues, and realized gains on sale of
investments, which increased approximately $1.0 million, $800,000, $500,000,
and $400,000, respectively. Managed account fees increased because of the
introduction of the managed account program in late 1994. Management expects
the managed account fees to continue to grow, which are generated by charging
a fixed rate for managing investment portfolios of customers. Realized gain
on sale of investments increased primarily due to sales of investments held by
the Company's venture capital subsidiary. Money market distribution fees
increased because of higher levels of customer funds invested in money market
funds and the Company's switch to omnibus processing of these funds. Clearing
revenues increased as a direct result of the clearing for Capital West
Securities, Inc., the broker-dealer subsidiary of Capital West, which began in
June 1995.
Total expenses decreased $9.0 million (8.8%) to $94.1 million from $103.1
million. With the exception of commissions and floor brokerage and interest
expense, all expense categories decreased for the year as a result of the sale
of the Oklahoma-based operations and the downsizing and restructuring plan
implemented in the fourth quarter of 1994. The Company charged $2.7 million
to operations related to this plan in the fourth quarter of 1994. There were
no expenses related to that plan charged to operations in 1995.
<PAGE>
Employee compensation and benefits decreased $3.5 million (5.7%) to $57.2
million from $60.7 million. Investment Executives' aggregate compensation
decreased $1.9 million, which was directly attributable to the decrease in
aggregate revenue production. Profitability and production-based incentive
compensation increased $2.1 million due to increased profitability and
achievement of production goals. Salaries and benefits decreased $4.6 million
(17.8%) to $21.2 million from $25.8 million. Total full-time and part-time
salaried employees decreased by 93 to 417 from 510. Commissions and floor
brokerage increased $199,000 (9.4%) to $2.3 million from $2.1 million as a
result of increased agency commissions. Communications and office supplies
and occupancy and equipment rental expenses decreased $394,000 (4.9%) to $7.7
million from $8.0 million and $1.5 million (16.1%) to $7.9 million from $9.4
million, respectively.
Interest expense increased $2.2 million (35.4%) to $8.3 million from $6.1
million due primarily to increased levels of short-term borrowings by the
Company and its customers and increased average borrowing rates. The average
level of short-term borrowings from banks for the year was $61.4 million as
compared to $59.0 million for 1994. The average interest rate charged for
these borrowings was 6.57% for 1995 as compared to 4.90% for 1994. The
Company's borrowings increased due to decreased available capital which
resulted primarily from the operating loss in 1994.
Other operating expenses decreased $2.6 million (22.0%) to $9.1 million from
$11.7 million. Included in the caption "Other operating expenses" are legal
fees which increased $600,000 due to continuing litigation surrounding certain
municipal bond issues and transactions completed by the Company's former
Oklahoma City-based public finance department. Management expects legal fees
to decrease in 1996.
Litigation, settlements, and bad debts decreased $857,000 (34.7%) to $1.6
million from $2.5 million in 1994. The charges in 1995 include an amount for
doubtful collection related to notes and advances receivable of former
employees and provision for settlements of Oklahoma suits. The 1994 charges
included doubtful collection of employee note receivables and advances of $2.0
million.
Liquidity and Capital Resources
The Company's assets are highly liquid, consisting mainly of cash or assets
readily convertible into cash. These assets are financed primarily by the
Company's equity capital, customer credit balances, short-term bank loans,
proceeds from securities lending, long-term notes payable, and other payables.
Changes in securities market volumes, related customer borrowing demands,
underwriting activity, and levels of securities inventory affect the amount of
the Company's financing requirements.
During the year ended December 31, 1996, cash and cash equivalents increased
$1.6 million. Cash used for operating activities totaled $44.1 million due
primarily to increases in operating receivables as a result of increased
borrowings by customers.
The decrease in cash used for operating activities was funded by short-term
borrowings which increased by $46.0 million.
<PAGE>
The Company has $2.6 million 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.
The first installment of the Company's long-term debt is due September 1,
1997, in the amount of $2.5 million. Management believes that funds from
operations and available informal short-term credit arrangements of $82.6
million at December 31, 1996, will provide sufficient resources to meet its
present and anticipated financing needs.
Stifel, Nicolaus & Company, Incorporated, the Company's principal broker-
dealer subsidiary, is subject to certain requirements of the Securities and
Exchange Commission with regard to liquidity and capital requirements. At
December 31, 1996, Stifel, Nicolaus had net capital of approximately $24.2
million, which exceeded the minimum net capital requirements by approximately
$19.2 million.
Inflation
The Company's assets are primarily monetary, consisting of cash, securities
inventory, and receivables. These monetary assets are generally liquid and
turn over rapidly and, consequently, are not significantly affected by
inflation. However, the rate of inflation affects various expenses of the
Company, such as employee compensation and benefits, communications, and
occupancy and equipment, which may not be readily recoverable in the price of
its services.
Recent Accounting Pronouncements
The Company deals in listed options and other products such as collateralized
mortgage obligations which derive their values from the price of some other
security or index. The Company does not deal in complex derivative financial
instruments, such as futures, forwards, and swaps, and therefore has no
disclosure requirements in accordance with the Financial Accounting Standard
Board's Statement 119, "Disclosure About Derivative Financial Instruments and
Fair Value of Financial Instruments."
The Company adopted Statements of Financial Accounting Standards (SFAS) 121,
"Accounting for the Impairment of Long-Lived Assets to Be Disposed of," and
SFAS 123, "Accounting for Stock-Based Compensation," during the year ended
December 31, 1996. The adoption of these new standards did not have a
material impact on the Company's consolidated financial statements.
The Financial Accounting Standards Board has also issued SFAS 125 "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." Management believes the adoption of this standard will not have
a material impact on the Company's consolidated financial statements.
<PAGE>
Independent Auditors' Report
To the Board of Directors and Stockholders of
Stifel Financial Corp.
St. Louis, Missouri
We have audited the accompanying consolidated statements of financial
condition of Stifel Financial Corp. and Subsidiaries (the "Company") as of
December 31, 1996, and the related consolidated statement of operations,
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements of the Company for the years ended
December 31, 1995 and 1994, were audited by other auditors whose report, dated
February 25, 1996, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such 1996 consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Stifel Financial
Corp. and Subsidiaries as of December 31, 1996, and the consolidated results
of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.
February 25, 1997
St. Louis, Missouri
<PAGE>
<TABLE>
Consolidated Statements Of Financial Condition
<CAPTION>
- --------------------------------------------------------------------------------------------
(In thousands) December 31, 1996 December 31, 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
- ------
Cash and cash equivalents $ 7,960 $ 6,344
-------- --------
Cash segregated for the exclusive benefit of customers 483 776
-------- --------
Receivable from brokers and dealers:
Securities failed to deliver 617 1,790
Deposits paid for securities borrowed 10,284 4,912
Settlement balances with clearing organizations 3,935 9,722
-------- --------
14,836 16,424
-------- --------
Receivable from customers, net of allowance for doubtful
accounts of $582 and $805, respectively 235,216 156,904
-------- --------
Securities owned, at fair value:
U.S. Government obligations 3,619 6,529
State and municipal obligations 9,506 7,111
Corporate obligations 3,502 2,394
Corporate stocks 2,286 3,487
-------- --------
18,913 19,521
-------- --------
Memberships in exchanges, at cost 513 513
Office equipment and leasehold improvements, at cost,
net of allowances for depreciation and amortization of
$10,125 and $12,517, respectively 2,233 3,015
Goodwill, net of accumulated amortization of $1,107
and $827, respectively 4,488 3,985
Notes receivable from and advances to officers and
employees, net of allowance for doubtful receivables of
$2,552 and $3,002, respectively 3,373 4,328
Refundable income taxes 358 254
Deferred tax asset 3,671 3,902
Other assets 9,005 10,809
-------- --------
TOTAL ASSETS $301,049 $226,775
======== ========
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements Of Financial Condition
<CAPTION>
- --------------------------------------------------------------------------------------------
(In thousands except per share amounts) December 31, 1996 December 31, 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
- ------------------------------------
Short-term borrowings from banks $132,400 $ 86,450
-------- --------
Payable to brokers and dealers:
Securities failed to receive 421 2,572
Deposits received from securities loaned 46,727 20,555
-------- --------
47,148 23,127
-------- --------
Payable to customers 32,095 31,806
Securities sold, but not yet purchased, at fair value 3,229 2,744
Drafts payable 15,287 17,867
Accrued employee compensation 14,756 9,526
Obligations under capital leases 581 774
Accounts payable and accrued expenses 7,801 8,876
Long-term debt 10,000 10,760
-------- --------
Total 263,297 191,930
-------- --------
Subordinated note - - 50
-------- --------
Stockholders' equity:
Preferred stock -- $1 par value; authorized
3,000,000 shares; none issued
Common stock -- $.15 par value; authorized 10,000,000
shares; issued 4,767,715 and 4,540,890 shares,
respectively; outstanding 4,632,260 and 4,357,665
shares, respectively 715 681
Additional paid-in capital 21,403 19,622
Retained earnings 16,733 15,754
-------- --------
38,851 36,057
-------- --------
Less:
Treasury stock, at cost 135,455 and 183,225
shares, respectively 892 1,162
Unamortized expense of restricted stock awards 207 100
-------- --------
Total Stockholders' Equity 37,752 34,795
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $301,049 $226,775
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
Consolidated Statements Of Operations
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended
(In thousands, except per share amounts) December 31, 1996 December 31, 1995 December 31, 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
- --------
Commissions $ 43,900 $ 38,716 $ 37,286
Principal transactions 19,498 20,362 24,640
Investment banking 16,253 12,121 12,634
Interest 13,774 13,002 10,918
Other 16,388 11,159 8,448
-------- -------- --------
109,813 95,360 93,926
-------- -------- --------
Expenses
- --------
Employee compensation and benefits 66,765 57,187 60,652
Commissions and floor brokerage 2,641 2,319 2,120
Communications and office supplies 6,794 7,651 8,045
Occupancy and equipment rental 7,255 7,884 9,397
Interest 8,197 8,312 6,138
Litigation, settlements, and bad debts 3,292 1,610 2,467
Restructuring charge - - - - 2,672
Other operating expenses 9,267 9,090 11,656
-------- -------- --------
104,211 94,053 103,147
-------- -------- --------
Income (loss) before income taxes 5,602 1,307 (9,221)
Provision (benefit) for income taxes 2,209 663 (3,718)
-------- -------- --------
Net income (loss) $ 3,393 $ 644 $ (5,503)
======== ======== ========
Earnings (Loss) Per Common Share
and Share Equivalents
- --------------------------------
Net income (loss) per share:
Primary earnings (loss) per share $ 0.71 $ 0.14 $ (1.17)
Fully diluted earnings (loss) per share $ 0.64 $ 0.14 $ (1.17)
</TABLE>
All earnings per share amounts have been adjusted to reflect the 5 percent stock
dividend declared January 21, 1997.
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
Consolidated Statements Of Stockholders' Equity
<CAPTION>
Unamortized
Additional Expense of
Common Stock Paid-In Retained Treasury Stock Restricted
(In thousands, except share amounts) Shares Amount Capital Earnings Shares Amount Stock Awards Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 4,119,239 $617 $17,269 $24,162 $(150,453) $(1,240) $(199) $40,609
--------- ---- ------- ------- --------- ------- ----- -------
Cash dividends --
common stock ($.09 per share) (356) (356)
Purchase of treasury shares (188,964) (1,417) (1,417)
Employee benefit plans 88 72,883 614 702
Stock options exercised (34) 13,884 115 81
Restricted stock awards granted (87) 24,500 194 (107) - -
Amortization of restricted stock awards 108 108
Stock benefits 60 1 1
Dividend reinvestment 151 1 1
Net loss for the year (5,503) (5,503)
5% stock dividend 205,712 32 1,255 (1,287) (11,397) - -
--------- ---- ------- ------- --------- ------- ----- -------
Balance at December 31, 1994 4,324,951 649 18,491 17,016 (239,336) (1,732) (198) 34,226
--------- ---- ------- ------- --------- ------- ----- -------
Cash dividends --
common stock ($.12 per share) (500) (500)
Purchase of treasury shares (88,656) (547) (547)
Employee benefit plans (195) 132,173 948 753
Stock options exercised (36) 22,425 159 123
Restricted stock awards granted (14) 13,000 96 (82) - -
Restricted stock awards forfeited 3 (16,125) (96) 79 (14)
Amortization of restricted stock awards 101 101
Dividend reinvestment (1) 2,019 10 9
Net income for the year 644 644
5% stock dividend 215,939 32 1,374 (1,406) (8,725) - -
--------- ---- ------- ------- --------- ------- ----- -------
Balance at December 31, 1995 4,540,890 681 19,622 15,754 (183,225) (1,162) (100) 34,795
--------- ---- ------- ------- --------- ------- ----- -------
Cash dividends --
common stock ($.09 per share) (405) (405)
Stock rights redemption --
common stock ($.05 per share) (223) (223)
Purchase of treasury shares (69,713) (520) (520)
Employee benefit plans (132) 118,953 753 621
Stock options exercised (1) 615 4 3
Restricted stock awards 162 3,000 20 (182) - -
Amortization of restricted stock awards 75 75
Dividend reinvestment 1,365 13 13
Net income for the year 3,393 3,393
5% stock dividend 226,825 34 1,752 (1,786) (6,450) - -
--------- ---- ------- ------- --------- ------- ----- -------
Balance at December 31, 1996 4,767,715 $715 $21,403 $16,733 (135,455) $(892) $(207) $37,752
========= ==== ======= ======= ========= ======= ===== =======
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
Consolidated Statements Of Cash Flows
<CAPTION>
Year Ended Year Ended Year Ended
(In thousands) December 31, 1996 December 31, 1995 December 31, 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $ 3,393 $ 644 $ (5,503)
-------- -------- --------
Noncash items included in earnings:
Depreciation and amortization 1,664 1,990 2,572
Provision for litigation and bad debts 905 1,610 2,467
Unrealized loss (gain) on investments 28 (57) (96)
Bonus notes amortization 1,213 1,033 1,134
Deferred compensation 571 468 538
Amortization of restricted stock awards
and stock benefits 75 84 107
Deferred tax provision (benefit) 231 736 (1,735)
Restructuring charge - - - - 2,672
-------- -------- --------
8,080 6,508 2,156
(Increase) decrease in operating receivables:
Customers (78,291) (17,005) 13,474
Brokers and dealers 1,588 5,409 (4,548)
Increase (decrease) in operating payables:
Customers 289 7,437 (11,955)
Brokers and dealers 24,020 (23,268) 21,873
Decrease (increase) in assets:
Cash and U.S. Government securities segregated
for the exclusive benefit of customers 293 540 (54)
Securities owned 608 3,798 63,191
Notes receivable from officers and employees (1,030) (1,190) (5,427)
Other assets (560) (2,125) (1,779)
Increase (decrease) in liabilities:
Securities sold, not yet purchased 485 (1,508) 345
Drafts payable, accounts payable and accrued
expenses, and accrued employee compensation 397 212 (1,919)
-------- -------- --------
Cash (Used For) Provided By Operating Activities (44,121) (21,192) 75,357
-------- -------- --------
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements Of Cash Flows
<CAPTION>
Year Ended Year Ended Year Ended
(In thousands) December 31, 1996 December 31, 1995 December 31, 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash (Used For) Provided By Operating --
Activities From Previous Page (44,121) (21,192) 75,357
-------- -------- --------
Cash Flows From Financing Activities
Net proceeds (payments) for short-term
borrowings from banks 45,950 20,800 (71,300)
Proceeds from:
Employee stock purchase plan 617 755 613
Exercised stock options 3 124 81
Subordinated borrowings - - - - 50
Dividend reinvestment plan 13 10 1
Payments for:
Settlement of long-term debt (760) (760) - -
Purchases of stock for treasury (520) (547) (1,417)
Principal payments under capital lease obligation (433) (256) (710)
Subordinated borrowings (50) - - - -
Cash dividends and rights redemption (626) (500) (356)
-------- -------- --------
Cash Provided By (Used For) Financing Activities 44,194 19,626 (73,038)
-------- -------- --------
Cash Flows From Investing Activities
Proceeds from:
Sale of office equipment and leasehold
improvements 28 910 24
Sale of investments 3,753 1,694 32
Payments for:
Acquisition of office equipment and leasehold
improvements (443) (1,179) (1,734)
Acquisition of investments (1,795) (440) (258)
-------- -------- --------
Cash Provided By (Used For) Investing Activities 1,543 985 (1,936)
-------- -------- --------
Increase (decrease) in cash and cash equivalents 1,616 (581) 383
Cash and cash equivalents -- beginning of year 6,344 6,925 6,542
-------- -------- --------
Cash and cash equivalents -- end of year $ 7,960 $ 6,344 $ 6,925
======== ======== ========
Supplemental disclosures of cash flow information:
Interest payments $ 8,264 $ 8,237 $ 5,897
Income tax payments $ 2,247 $ 372 $ 118
Schedule of Noncash Investing and Financing
Activities
Fixed assets acquired under capital lease $ 240 - - $ 808
Restricted stock awards, net of forfeitures $ 181 $ 3 $ 146
Stock dividends distributed $ 1,788 $ 1,406 $ 1,287
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Notes To Consolidated Financial Statements
(in thousands, except share and per share amounts)
Note A -- Accounting and Reporting Policies
Nature of Operations
Stifel Financial Corp. ("the Parent"), through its wholly owned subsidiaries,
principally Stifel, Nicolaus & Company, Incorporated ("Stifel, Nicolaus"),
collectively referred to as ("the Company"), is principally engaged in retail
brokerage, securities trading, investment banking, investment advisory, and
related financial services throughout the United States. Although the Company
has offices throughout the United States, its major geographic area of
concentration is in the Midwest. The Company's principal customers are
individual investors, with the remaining client base composed of corporations,
municipalities, and institutions.
Basis of Presentation
The consolidated financial statements include the accounts of the Parent and
its wholly owned subsidiaries, principally Stifel, Nicolaus. Stifel, Nicolaus
is a broker-dealer registered under the Securities Exchange Act of 1934. All
material intercompany balances and transactions are eliminated in
consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Where appropriate, prior years' financial information has been reclassified to
conform with the current year presentation.
For purposes of presenting the consolidated statements of cash flows, the
Company has defined cash equivalents as short-term, highly liquid investments
with original maturities of 90 days or less, other than those held for sale in
the ordinary course of business.
Security Transactions
Trading and investment securities owned and securities sold, but not yet
purchased are carried at fair value, and unrealized gains and losses are
reflected in the results of operations. Securities held for investment by the
Parent are included in other assets and are carried at the lower of historical
cost or fair value. Investment securities of the subsidiaries are carried at
fair value or amounts that approximate fair value as determined by management.
Securities failed to deliver and receive represent the contract value of
securities that have not been delivered or received by settlement date.
Receivable from customers includes amounts due on cash and margin
transactions. The value of securities owned by customers and held as
collateral for these receivables is not reflected in the consolidated
statements of financial condition.
<PAGE>
Customer security transactions are recorded on a settlement date basis with
related commission income and expense recorded on a trade date basis.
Principal securities transactions are recorded on a trade date basis.
Fair Value
The Company's financial instruments are carried at fair value or amounts that
approximate fair value. Securities owned and securities sold, but not yet
purchased are valued using quoted market or dealer prices, pricing models, or
management's estimates. Customer receivables, primarily consisting of
floating-rate loans collateralized by customer-owned securities, are charged
interest at rates similar to other such loans made throughout the industry.
The Company's remaining financial instruments are generally short-term in
nature, and their carrying values approximate fair value. The Company has
estimated the fair value of its long-term debt using the discounted cash flow
analysis of payments. At December 31, 1996, the estimated fair value of the
notes was $11,004.
Income Taxes
Deferred income taxes are recognized for the future tax consequences
attributable to differences between the financial reporting and income tax
bases of assets and liabilities.
Other
Investment banking revenue is recorded as follows: management fees on
effective date of the registration, selling concessions on trade date,
underwriting fees upon completion of the underwriting, and other investment
banking revenue upon the completion of the service.
Securities borrowed and securities loaned are recorded at the amount of cash
collateral advanced or received. Securities borrowed transactions require
Stifel, Nicolaus to deposit cash or other collateral with the lender. With
respect to securities loaned, Stifel, Nicolaus receives collateral in the form
of cash or other collateral in an amount generally in excess of the market
value of securities loaned. Stifel, Nicolaus monitors the market value of
securities borrowed and loaned on a daily basis, with additional collateral
obtained or refunded as necessary.
Amortization of assets under capital lease is computed on a straight-line
basis over the estimated useful life of the asset. Leasehold improvements are
amortized over the lesser of the economic useful life of the improvement or
the term of the lease. Depreciation of office equipment is computed on a
straight-line basis for equipment purchased prior to January 1, 1994, and an
accelerated method for equipment purchased thereafter.
Goodwill recognized in business combinations accounted for as purchases is
being amortized over 15 to 40 years on a straight-line basis.
Earnings (loss) per share of common stock is based upon the weighted average
number of common shares and share equivalents outstanding during the periods.
Common share equivalents include dilutive stock options under the treasury
stock method and dilutive shares from Senior Convertible Notes under the if
converted method.
<PAGE>
Note B -- Special Reserve Bank Account
At December 31, 1996, cash of $483 has been segregated in a special reserve
bank account for the exclusive benefit of customers pursuant to Rule 15c3-3
under the Securities Exchange Act of 1934.
Note C -- Short-Term Borrowings From Banks
In the normal course of business, Stifel, Nicolaus borrows from various banks
on a demand basis with company-owned and customer securities pledged as
collateral. Available credit arrangements with banks totaled $215,000 at
December 31, 1996, of which $82,600 was unused. There were no compensating
balance requirements under these arrangements. The Company's floating
interest rate short-term borrowings bore interest at a weighted average rate
of 6.07% and 6.63% at December 31, 1996 and 1995, respectively. Certain
short-term borrowings were collateralized by company-owned securities valued
at approximately $19,155 on a settlement date basis. Short-term borrowings
used to finance receivables from customers were collateralized by customer-
owned securities valued at approximately $192,378 at December 31, 1996. The
value of these customer-owned securities is not reflected in the consolidated
statement of financial condition.
Note D -- Commitments and Contingencies
In the normal course of business, Stifel, Nicolaus enters into underwriting
commitments. Settlement of transactions relating to such underwriting
commitments which were open December 31, 1996, had no material effect on the
consolidated financial statements.
In connection with margin deposit requirements of The Options Clearing
Corporation, Stifel, Nicolaus has pledged cash and customer-owned securities
valued at $16,566. At December 31, 1996, the amounts on deposit satisfied the
minimum margin deposit requirement of $12,954.
<PAGE>
The future minimum rental commitments at December 31, 1996, with initial or
remaining non-cancellable lease terms in excess of one year for office space
and equipment are as follows:
<TABLE>
<CAPTION>
Operating Leases
----------------------------------------------
Minimum Future
Lease Payments Under Minimum Rental
Year Ending December 31, Capital Leases Commitments Related Sublease Commitment
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997 $384 $ 3,427 $(350) $ 3,077
1998 238 2,852 (169) 2,683
1999 0 2,576 (96) 2,480
2000 0 2,450 (28) 2,422
2001 0 1,396 0 1,396
Thereafter 0 1,804 0 1,804
---- ------- ----- -------
Minimum Commitments $622 $14,505 $(643) $13,862
Less Interest 41 ======= ===== =======
----
Net Present Value of Capital
Lease Obligations $581
====
</TABLE>
Rental expense for the years ended 1996, 1995, and 1994 amounted to
approximately $3,541, $3,986, and $4,596, respectively.
Office equipment, under capital leases, with a recorded cost of approximately
$566 net of amortization of $953, collateralizes the above capital lease
obligations and is included in the consolidated statements of financial
condition in the caption of "Office equipment and leasehold improvements."
The Company purchased equipment, that was subject to a capital lease, for
approximately $440 in the first quarter of 1995. During the fourth quarter of
1995, management determined that certain of that equipment with a carrying
value of approximately $248, which was originally intended for use in
operations, was not immediately required and therefore recorded a $195 charge
to fourth quarter operations to write the equipment down to net recoverable
value based on outside dealer quotes.
Amortization and depreciation expense of assets under capital lease and owned
furniture and equipment for 1996, 1995, and 1994 was $1,384, $1,732, and
$2,192, respectively.
<PAGE>
Note E -- Net Capital Requirements and Dividend Restrictions
Stifel, Nicolaus is subject to the Uniform Net Capital Rule, Rule 15c3-1 under
the Securities Exchange Act of 1934 (the "rule"), which requires the
maintenance of minimum net capital, as defined. Stifel, Nicolaus has elected
to use the alternative method permitted by the rule which requires maintenance
of minimum net capital equal to the greater of $250 or 2 percent of aggregate
debit items arising from customer transactions, as defined. The rule also
provides that equity capital may not be withdrawn or cash dividends paid if
resulting net capital would be less than 5 percent of aggregate debit items.
At December 31, 1996, Stifel, Nicolaus had net capital of $24,182, which was
9.7 percent of aggregate debit items and $19,191 in excess of minimum required
net capital. At December 31, 1996, the net assets of Stifel, Nicolaus were
$39,351, of which $12,475 was restricted as to the payment of dividends. In
addition, there are restrictions in the Parent's long-term note agreement on
payment of dividends by the Parent to its stockholders based on the amount of
the Company's cumulative consolidated net income, as defined. At December 31,
1996, dividends of $2,032 had been paid against the cumulative available
amounts of $2,204 under such provision.
Note F -- Employee Benefit Plans
The Company has a profit sharing 401(k) plan (the "PSP") covering qualified
employees as defined in the plans. Contributions to the PSP were based upon a
company match of 50% of the employees' first $500 in annual contributions for
1996, 1995, and 1994. Additional contributions by the Company are
discretionary. The amounts charged to operations for the PSP were $146, $166,
and $185, for 1996, 1995, and 1994, respectively.
Stifel, Nicolaus also has a deferred compensation plan available to Investment
Executives whereby a certain percentage of their earnings is deferred as
defined in the plan and vests over a three to five year period. The
Investment Executives have the right to elect to invest their individual
deferred amounts into several investment options, including Company stock. The
amounts charged to operations related to this plan were $571, $468, and $539,
for 1996, 1995, and 1994, respectively.
<PAGE>
Note G -- Stock-Based Compensation Plans
At December 31, 1996, the Company had several stock-based compensation plans,
which are described below. The Company applies APB Opinion 25, "Accounting
for Stock Issued to Employees," and related Interpretations in accounting for
its plans. Had compensation cost for the Company's stock-based compensation
plans been determined based on the fair value at the grant dates for awards
under the Fixed Stock Option and the Employee Stock Purchase Plans consistent
with the method of FASB Statement 123, "Accounting for Stock-Based
Compensation," the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
- ------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------
Net income
As reported $3,393 $644
Pro forma $3,345 $621
- ------------------------------------------------------------------
Primary earnings per share
As reported $.71 $.14
Pro forma $.70 $.13
- ------------------------------------------------------------------
Fully diluted earnings per share
As reported $.64 $.14
Pro forma $.63 $.13
- ------------------------------------------------------------------
All option plans are administered by the Compensation Committee of the Board
of Directors of the Parent which has the authority to interpret the Plans,
determine to whom options may be granted under the Plans, determine the terms
of each option, and cancel, with the consent of an optionee, any option
previously granted to such optionee and to grant a new option in place
thereof. All shares issued for the various plans were satisfied with treasury
stock.
Fixed Stock Option Plans
The Company has four fixed option plans. Under the Company's 1983 and 1985
Incentive Stock Option Plans, the Company may grant options up to an aggregate
of 450,000 shares to key employees. Under the Company's 1987 non-qualified
stock option plan, the Company may grant options up to an aggregate of 100,000
shares. Options under these plans are generally granted at 100% of market
value at the date of the grant and expire 10 years from the date of grant.
The options vest at a rate of 25% each anniversary date or on a five-year
cliff vesting period. The Company has also granted stock options to external
board members under a non-qualified plan. These options are generally granted
at 100% of market value at the date of the grant and are exercisable one year
from date of grant and expire 10 years from date of grant.
Effective with options granted in 1995 and subsequently, the fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in 1996 and 1995, respectively: dividend yield of 1.88% for both
years; expected volatility of 26.7% and 22.2%; risk-free interest rates of
6.17% and 6.06%; and expected lives of 5.25 years for both years.
<PAGE>
Activity under all plans for the years ended 1996, 1995, and 1994,
respectively, is set forth on the following table. All amounts and prices
have been adjusted to reflect the 5 percent stock dividend declared
January 21, 1997.
The summary of the status of the Company's fixed stock option plans as of
December 31, 1996, 1995, and 1994, and changes during the years ending on
those dates is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------ ------------------------ ------------------------
Weighted-Average Weighted-Average Weighted-Average
Fixed Options Shares Exercise Price Shares Exercise Price Shares Exercise Price
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 348,938 $5.55 413,767 $5.69 415,660 $5.51
------- ----- ------- ----- ------- -----
Granted 111,077 5.98 33,352 5.75 47,065 6.23
Exercised (21,062) 5.02 (24,723) 5.00 (16,073) 5.05
Forfeited (5,523) 8.55 (68,993) 6.85 (32,885) 4.49
Expired - - - - (4,465) 4.60 - - - -
------- ----- ------- ----- ------- -----
Outstanding at end of year 433,430 $5.63 348,938 $5.55 413,767 $5.69
======= ===== ======= ===== ======= =====
Options exercisable at year-end 254,792 262,710 299,384
Weighted-average fair value of
options granted during the year $1.89 $1.53 - -
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- ---------------------------------
Number Weighted-Average Number
Range of Outstanding at Remaining Weighted-Average Exercisable at Weighted-Average
Exercise Prices 12/31/96 Contractual Life Exercise Price 12/31/96 Exercise Price
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$4.00 - $4.99 164,040 2.81 years $4.58 157,963 $4.59
$5.00 - $5.99 62,715 4.66 years 5.58 54,436 5.65
$6.00 - $6.99 182,315 8.12 years 6.20 35,014 6.61
$7.00 - $7.99 - - - - - - - - - -
$8.00 - $8.99 24,360 6.96 years 8.47 7,379 8.53
------- ---- ----- ------- -----
Total 433,430 254,792
======= =======
</TABLE>
<PAGE>
Employee Stock Purchase Plan
Under the 1993 Employee Stock Purchase Plan (the "ESPP"), the Company is
authorized to issue up to 125,000 shares of common stock to its full-time
employees, nearly all of whom are eligible to participate. Under the terms of
the ESPP, employees can choose each year to have a specified percentage of
their compensation withheld in 1% increments not to exceed 10%. The
participant may also specify a maximum dollar amount to be withheld. At the
beginning of every year, each participant will be granted an option to
purchase 1,000 shares of common stock at a price equal to the lower of 85% of
the beginning-of-year or end-of-year fair market value of the common stock.
Approximately 29% to 41% of eligible employees have participated in the ESPP
in the last three years. Under the ESPP, the Company sold 115,217 shares,
112,613 shares, and 124,663 shares to employees in 1996, 1995, and 1994,
respectively.
Effective with options granted in 1995, the fair value of each employee's
purchase rights is estimated using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for grants in 1996 and 1995,
respectively: dividend yield of 1.88% for both years; expected volatility of
26.7% and 22.2%; risk-free interest rates of 5.09% and 7.05%; and expected
lives of 1 year for both years. The weighted-average fair value of those
purchase rights granted in 1996 and 1995 was $1.30 and $1.07, respectively.
Restricted Stock Awards
Restricted stock awards are made, and shares issued, to certain key employees
without cash payment by the employee. Certain key employees were granted
3,000, 13,000, and 32,500 shares of restricted stock, with a fair value of
$18, $82, and $203, during 1996, 1995, and 1994, respectively. As of December
31, 1996, the restricted stock awards covering 14,334 shares were outstanding,
with the restrictions expiring at various dates through 2000. The shares are
restricted as to resale. Restrictions lapse ratably over three- and five-year
service periods. The deferred cost of the restricted stock awards is
amortized on a straight-line basis.
Employee Stock Ownership Plan
The Company has an employee stock ownership plan (the "ESOP") covering
qualified employees as defined in the plan. Employer contributions are made
to the ESOP as determined by the Compensation Committee of the Board of
Directors of the Parent on behalf of all eligible employees based upon the
relationship of individual compensation (up to a maximum of $150) to total
compensation. At December 31, 1996, the plan held and has allocated 240,926
shares of the Parent common stock valued at $2,108. The Company charged to
operations $280 for the ESOP contribution for 1996. There were no
contributions for the ESOP for 1995 and 1994.
<PAGE>
Note H -- Legal Proceedings
The Company is a defendant in several lawsuits and arbitrations which arose
from its usual business activities. Some of these lawsuits and arbitrations
claim substantial amounts, including punitive damage claims. While results of
litigation and arbitration cannot be predicted with certainty, management,
based on opinions of outside counsel, has provided for actions most likely of
adverse disposition and believes that the effects of resolution of such
litigation and arbitration beyond the amounts provided will not have a
material adverse effect on the Company's consolidated financial position.
However, depending upon the period of resolution, such effects could be
material to the financial results of an individual operating period. It is
reasonably possible that certain of these lawsuits and arbitrations could be
resolved in the next year, and management does not believe such resolutions
will result in losses materially in excess of the amounts previously provided.
During 1995, the Securities and Exchange Commission (the "SEC") completed a
formal investigation into possible violations of the federal securities laws
in connection with certain municipal bond issues managed by the Company's
former Oklahoma City-based public finance department where the Company was the
managing or co-managing underwriter. This investigation resulted in the
Company consenting to a final judgement of permanent injunction whereby, among
other things, the Company paid approximately $1,100 in disgorgement and
prejudgement interest, and $250 in fines.
Additionally, the Company is named in lawsuits filed by The Oklahoma Turnpike
Authority ("OTA") and The State of Oklahoma. The OTA suit seeks $6.5 million
in compensatory damages and an unspecified amount of punitive damages. The
State of Oklahoma seeks $7.6 million in compensatory damages and that these
damages be trebled. The OTA suit alleges that an undisclosed fee paid to the
Company by a third party for the placement of a forward purchase contract in
an advance refunding escrow for the proceeds of the 1992 OTA $660 million
refinancing should have been paid to the OTA. The State of Oklahoma suit
alleges that the Company and two former executives of the Company committed
violations of the Racketeer Influenced and Corrupt Organizations Act. This
suit alleges essentially the same facts as are alleged in the OTA suit and
were alleged by the SEC in its action against the Company which was settled in
August 1995 by the Company without admitting or denying the allegations.
Management does not believe the ultimate resolution of these matters will have
a materially adverse effect on the Company's financial statements.
Note I -- Financial Instruments With Off-Balance Sheet Credit Risk
In the normal course of business, the Company executes, settles, and finances
customer and proprietary securities transactions. These activities expose the
Company to off-balance sheet risk in the event that customers or other parties
fail to satisfy their obligations.
In accordance with industry practice, securities transactions are recorded on
settlement date, generally three business days after trade date. Should a
customer or broker fail to deliver cash or securities as agreed, the Company
may be required to purchase or sell securities at unfavorable market prices.
<PAGE>
The Company borrows and lends securities to finance transactions and
facilitate the settlement process, utilizing both firm proprietary positions
and customer margin securities held as collateral. The Company monitors the
adequacy of collateral levels on a daily basis. The Company periodically
borrows from banks on a collateralized basis utilizing firm and customer
margin securities in compliance with SEC rules. Should the counterparty fail
to return customer securities pledged, the Company is subject to the risk of
acquiring the securities at prevailing market prices in order to satisfy its
customer obligations. The Company sells securities it does not currently own,
and is obligated to subsequently purchase such securities at prevailing market
prices. The Company is exposed to risk of loss if securities prices increase
prior to closing the transactions. The Company controls its exposure to
credit risk by continually monitoring its counterparties' position, and where
deemed necessary, the Company may require a deposit of additional collateral
and/or a reduction or diversification of positions.
Concentrations of Credit Risk
The Company maintains margin and cash security accounts for its customers
located throughout the United States. The majority of the Company's customer
receivables are serviced by branch locations in Missouri and Illinois.
Note J -- Long-Term Debt
The Parent has outstanding $10,000 aggregate principal amount of its 11.25
percent Senior Convertible Notes due September 1, 1997, through September 1,
2000, in equal installments. The notes are convertible into shares of the
Company's $.15 par value common stock at any time prior to maturity, unless
previously redeemed, at a conversion price of $7.05 per share. Under certain
conditions, the notes are redeemable in whole or in part at the option of the
Parent by payment of the principal and the accrued interest on the notes to be
redeemed plus a premium of 4.1 percent. The premium decreases approximately
one percentage point each September 1 from 1997 through 1999. The Company is
required to maintain consolidated tangible net worth (as defined by the note
agreement) at an amount not less than $22,000 as long as any amount remains
unpaid.
At December 31, 1995, the Parent had outstanding $760 in promissory notes
issued for the purchase of Todd Investment Advisors, Inc. The principal of
the notes was paid on January 2, 1996, with interest at 3.83%. Interest
charged to operations for these notes was $29 and $58 for years 1995 and 1994,
respectively.
Note K -- Preferred Stock Purchase Rights
On June 30, 1987, the Company's Board of Directors declared a distribution of
one preferred stock purchase right for each share of the Company's common
stock. 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, received a payment of
$.05 per share, representing the redemption price for the existing rights.
This payment was in lieu of the regular quarterly dividend of $.03 per share.
<PAGE>
In addition, on July 23, 1996, the Company's Board of Directors authorized and
declared a dividend distribution of one preferred stock purchase right for
each outstanding share of the Company's common stock, par value $0.15 per
share. The dividend was 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 of 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.
Note L -- Income Taxes
The Company's provision (benefit) for income taxes consists of:
- ------------------------------------------------------------------------------
Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
- ------------------------------------------------------------------------------
Current:
Federal $1,597 $(59) $(1,601)
State 381 (14) (382)
- ------------------------------------------------------------------------------
$1,978 $(73) $(1,983)
Deferred:
Federal $ 187 $594 $(1,401)
State 44 142 (334)
- ------------------------------------------------------------------------------
$ 231 $736 $(1,735)
- ------------------------------------------------------------------------------
$2,209 $663 $(3,718)
==============================================================================
<PAGE>
The provision (benefit) for income taxes differs from the amount computed by
applying the statutory federal income tax rate to (loss) income before income
taxes for the following reasons:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal tax computed at statutory rates $1,904 $444 $(3,135)
State income taxes, net of federal
income tax benefit 281 84 (450)
Tax-exempt interest, net of
interest expense (59) (62) (143)
Goodwill amortization 80 80 80
Meals and entertainment 103 96 107
SEC fine - - 85 - -
Increase in cash surrender value of
life insurance (36) (27) 9
Other, net (64) (37) (186)
------ ---- -------
Provision (benefit) for income taxes $2,209 $663 $(3,718)
====== ==== =======
</TABLE>
The net deferred tax asset consists of the following temporary differences:
- -------------------------------------------------------------------------------
December 31, 1996 December 31, 1995
- -------------------------------------------------------------------------------
Deferred Tax Asset
Receivables from customers, principally
due to allowance for doubtful accounts $ 227 $ 314
Office equipment and leasehold improvements,
principally book over tax depreciation 856 777
Deferred compensation 810 693
Deferred revenue 195 171
Investments, principally due to valuation
allowance 25 155
Provision for litigation and settlements 401 644
Receivables from officers and employees,
principally due to allowance for doubtful
accounts 1,111 1,169
Accrued expenses 382 485
Other 15 8
- -------------------------------------------------------------------------------
Deferred Tax Asset 4,022 4,416
- -------------------------------------------------------------------------------
Deferred Tax Liability
Intangible assets, principally tax over
book amortization (211) (220)
Investment fee revenue installment
receivable (140) (294)
- -------------------------------------------------------------------------------
Total Gross Deferred Tax Liability (351) (514)
- -------------------------------------------------------------------------------
Net Deferred Tax Asset $3,671 $3,902
===============================================================================
<PAGE>
The Company believes that a valuation allowance with respect to the
realization of the total gross deferred tax asset is not necessary. Based on
the Company's historical earnings and taxes previously paid, future
expectations of taxable income, and the future reversals of gross deferred tax
liability, management believes it is more likely than not that the Company
will realize the gross deferred tax asset.
Note M -- Related Party Transactions
Four directors of the Parent are associated with firms which provide legal and
consulting services to the Company. The Company charged approximately $801,
$1,263, and $1,287 (primarily for legal fees) to operations for these services
for 1996, 1995, and 1994, respectively. Additionally, several employees of
Stifel, Nicolaus, through their individual ownership or interest in a
corporation or partnership, provide leasing services primarily for branch
office space. The Company charged to operations approximately $17, $20, and
$82 for 1996, 1995, and 1994, respectively, for these services.
A director of the Parent has a general partnership interest in an enterprise
in which the Company also holds general and limited partnership interests
carried at approximately $663 at December 31, 1996, and $623 at December 31,
1995.
The Company has receivables aggregating $1,976 at December 31, 1996, from two
former employees who were also directors and officers of the Company. These
receivables arose from employment contracts which called for the amounts
loaned or advanced to be earned or forgiven if performance criteria defined in
the contracts were met. The employees terminated employment with the Company
in 1994. The Company filed claims to recover the balance of the receivables.
In October 1996, an NASD Regulation, Inc. Office of Dispute Resolution
arbitration awarded the Company $1,260 in compensatory damages plus interest
from one of the two former employees. Additionally, the Company reached a
settlement agreement with the other former employee subsequent to December 31,
1996. The Company is vigorously pursuing collection.
<PAGE>
Note N -- Plan of Restructuring
During the fourth quarter of 1994, the Board of Directors of the Parent
approved a restructuring and downsizing plan for the Company to be implemented
beginning in December 1994, which involved the closing or downsizing of 31
office locations and termination of approximately 70 officers and employees.
The plan was completed during 1995. Following is a summary of activity in the
accounts related to the restructuring accrual:
<TABLE>
<CAPTION>
Severance Pay,
Extended Benefits,
Net Lease and Receivables
Commitments Written Off for Abandonment
for Closed Terminated Contractual of Leasehold
Offices Employees Commitments Improvements Total
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
January 1, 1995 Balance $1,400 $695 $191 $206 $2,492
------ ---- ---- ---- ------
Payments/charges 441 627 61 197 1,326
Adjustments through operations 64 1 130 - - 195
------ ---- ---- ---- ------
December 31, 1995 Balance 895 67 - - 9 971
------ ---- ---- ---- ------
Payments/charges 238 67 - - - - 305
Adjustments through operations - - - - - - 9 9
------ ---- ---- ---- ------
December 31, 1996 Balance $ 657 - - - - - - $ 657
====== ==== ==== ==== ======
</TABLE>
The balances at December 31, 1996, and December 31, 1995, are included in the
statement of financial condition under the caption "Accounts payable and
accrued expenses."
During 1995, the Parent Company's Board of Directors reversed its decision
regarding the payment of certain philanthropic commitments which had been
accrued in 1994 as part of the restructuring charge and included in
"Contractual commitments" above. As a result of this decision, $130 related
to accrued contractual commitments was reversed and credited to operations in
1995.
Note O -- 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>
The Company received secured and senior notes with a face amount of $1,850
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 cash flows rate of 17%. The Company has
deferred recognition of the gain on the sale in the amount of $570 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 $336 and deferred gain of $570 are included
in the statement of financial condition under the caption "Other assets" at
December 31, 1995.
Pro forma financial information assuming the transaction had taken place at
the beginning of the year is presented below:
- ------------------------------------------------------------------------
Year Ended
Unaudited Pro Forma Combined Results of Operations December 31, 1995
- ------------------------------------------------------------------------
Revenue $85,846
Net income $ 770
Net income per primary share $ .16
- ------------------------------------------------------------------------
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 P -- Subsequent Event
On January 2, 1997, Capital West was reorganized and a new company, Affinity
Holdings Corporation ("Affinity"), was formed. Affinity assumed the
outstanding debt of Capital West. As part of the reorganization, Affinity
exchanged the remaining balance of the $1,850 secured and senior notes issued
by Capital West for a secured note due December 31, 2001, with a face amount
of $305 bearing interest at a 10% annual rate; two hundred thousand shares of
10% cumulative non-voting preferred stock, par value $1.00; warrants to
purchase a minority interest in Affinity; and substantially all of the fixed
assets of Affinity with a fair value of approximately $300, which will be
leased back to Affinity. Principal and interest payments on the note and
dividend payments will be made monthly based upon the level of activity of
Affinity's broker-dealer subsidiary. The transaction had no material impact
on the results of operations for the Company for the year ended December 31,
1996.
On January 21, 1997, the Company's Board of Directors approved a 5 percent
stock dividend to be distributed and $.03 per share cash dividend to be paid
on February 18, 1997, to shareholders of record on February 4, 1997. All
shares issued and earnings per share amounts included in the consolidated
financial statements and notes thereto have been retroactively adjusted to
give effect to the 5 percent stock dividend.
Note Q -- Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued SFAS 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." Management believes the adoption of this standard will not have
a material impact on the Company's consolidated financial statements.
******
<PAGE>
Quarterly Results
(in thousands, except share and per share amounts)
<TABLE>
- ------------------------------------------------------------------------------------------
Quarterly Operating Results (Unaudited)
- ------------------------------------------------------------------------------------------
<CAPTION>
Earnings Primary Fully Diluted
(Loss) Net Earnings Earnings
Before Income (Loss) (Loss)
Revenue Income Taxes (Loss) Per Share Per Share
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year 1996 By Quarter
First $23,438 $ 258 $ 150 $ .03 $ .03
Second 30,707 2,241 1,361 .28 .25
Third 24,203 775 458 .10 .09
Fourth 31,465 2,328 1,424 .30 .25
Year 1995 By Quarter
First $21,895 $ (318) $ (183) $(.04) $(.04)
Second 25,748 593 348 .07 .07
Third 23,055 482 162 .03 .03
Fourth 24,662 550 317 .07 .07
</TABLE>
All earnings (loss) per share amounts have been adjusted to reflect the
5 percent stock dividend declared January 21, 1997.
EXHIBIT 21
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
SUBSIDIARIES OF STIFEL FINANCIAL CORP. (1)
STATE OF NAMES UNDER WHICH
NAME INCORPORATION SUBSIDIARY DOES BUSINESS
- ---- ------------- ------------------------
Stifel, Nicolaus & Missouri Stifel, Nicolaus & Company,
Company, Incorporated Incorporated
Alliance Realty Corp. Missouri Alliance Realty Corp.
Century Securities Missouri Century Securities
Associates, Inc. Associates, Inc.
Stifel, Nicolaus Insurance Arkansas Stifel, Nicolaus Insurance
Agency, Inc. (2) Agency, Inc.
S-N Capital Corp. (2) Missouri S-N Capital Corp.
Stifel Insurance Agency - Ohio Stifel Insurance Agency -
Ohio, Inc. (4) Ohio, Inc.
Stifel Venture Corp. Missouri Stifel Venture Corp.
Pin Oak Capital, Ltd. (3) Missouri Pin Oak Capital, Ltd.
Stifel Asset Management Corp. Missouri Stifel Asset Management
Corp.
Todd Investment Advisors, Inc. (3) Kentucky Todd Investment Advisors,
Inc.
- ------------------
(1) Does not include corporations in which registrant owns 50 percent or
less of the stock.
(2) Wholly owned subsidiary of Stifel, Nicolaus & Company, Incorporated.
(3) Wholly owned subsidiary of Stifel Asset Management Corp.
(4) Majority owned subsidiary of Stifel, Nicolaus & Company, Incorporated.
EXHIBIT 23 (a)
STIFEL FINANCIAL CORP.
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration
statements of Stifel Financial Corp. and Subsidiaries on Form S-8
(file numbers 2-94326, 33-10030, 33-16150, 33-20568 and 33-53097)
and on Form S-3 (file number 33-53699), of our report dated
February 25, 1997, incorporated by reference in the Annual Report
on Form 10-K of Stifel Financial Corp. for the year ended
December 31, 1996.
/s/ Deloitte & Touche LLP
February 25, 1997
EXHIBIT 23 (b)
STIFEL FINANCIAL CORP.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of Stifel Financial Corp. and Subsidiaries on Form S-8
(file numbers 2-94326, 33-10030, 33-16150, 33-20568 and 33-53097)
and on Form S-3 (file number 33-53699), of our report dated
February 25, 1996 on our audits of the consolidated financial
statements and financial statement schedules of Stifel Financial
Corp. and Subsidiaries as of December 31, 1995 and for the years
ended December 31, 1995 and December 31, 1994, which report is
incorporated by reference in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
St. Louis, Missouri
March 17, 1997
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted
from the consolidated statement of financial condition dated
December 31, 1996 and the statement of operations for the year
ended December 31, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,443
<RECEIVABLES> 243,141
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 10,284
<INSTRUMENTS-OWNED> 18,913
<PP&E> 2,233
<TOTAL-ASSETS> 301,049
<SHORT-TERM> 132,400
<PAYABLES> 70,942
<REPOS-SOLD> 0
<SECURITIES-LOANED> 46,727
<INSTRUMENTS-SOLD> 3,229
<LONG-TERM> 10,000
<COMMON> 715
0
0
<OTHER-SE> 37,036
<TOTAL-LIABILITY-AND-EQUITY> 301,049
<TRADING-REVENUE> 17,919
<INTEREST-DIVIDENDS> 13,774
<COMMISSIONS> 45,767
<INVESTMENT-BANKING-REVENUES> 15,964
<FEE-REVENUE> 2,650
<INTEREST-EXPENSE> 8,197
<COMPENSATION> 66,765
<INCOME-PRETAX> 5,602
<INCOME-PRE-EXTRAORDINARY> 5,602
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,393
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.64
</TABLE>
