<PAGE>1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-9305
STIFEL FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 43-1273600
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
500 N. Broadway, St. Louis, Missouri 63102-2188
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 314-342-2000
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No
Shares of common stock outstanding at March 31, 1998: 6,758,568, par value
$0.15.
Exhibit Index is on page 16.
<PAGE>2
Stifel Financial Corp. And Subsidiaries
Form 10-Q Index
March 31, 1998
PAGE
PART I. FINANCIAL CONDITION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition --
March 31, 1998 and December 31, 1997 4
Consolidated Statements of Operations --
Three Months Ended March 31, 1998 and March 27, 1997 5
Consolidated Statements of Cash Flows--
Three Months Ended March 31, 1998 and March 27, 1997 6-7
Notes to Consolidated Financial Statements 8-9
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 10-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibit(s) and Report(s) on Form 8-K 13
Signatures 14
<PAGE>3
PART I. FINANCIAL CONDITION
Item 1. Financial Statements (Unaudited)
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED) (In thousands, except par values and share amounts)
March 31, December 31,
1998 1997
------------ ------------
ASSETS
Cash and cash equivalents $ 9,537 $ 15,367
Cash segregated for the exclusive benefit
of customers 179 177
Receivable from brokers and dealers 25,509 35,223
Receivable from customers, net of
allowance for doubtful accounts of
$556 and $556, respectively 227,179 218,301
Securities owned, at fair value 25,315 19,212
Membership in exchanges, at cost 513 513
Office equipment and leasehold
improvements, at cost, net of
allowances for depreciation and
amortization of $11,178 and $10,890,
respectively 3,591 2,227
Goodwill, net of accumulated amortization
of $1,491 and $1,414, respectively 4,104 4,181
Notes receivable from and advances to
officers and employees, net of
allowance for doubtful receivables of
$1,093 and $2,376, respectively 5,075 4,249
Refundable income taxes 63 65
Deferred tax asset 4,002 4,577
Other assets 10,867 11,392
--------- ---------
$ 315,934 $ 315,484
========= =========
<PAGE>4
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (CONTINUED)
(UNAUDITED) (In thousands, except par values and share amounts)
March 31, December 31,
1998 1997
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term borrowings from banks $ 37,700 $ 89,150
Payable to brokers and dealers 126,295 73,708
Payable to customers 43,696 39,239
Securities sold, but not yet purchased, at
fair value 4,894 4,264
Drafts payable 15,364 13,966
Accrued employee compensation 11,832 19,247
Obligations under capital leases 434 522
Accounts payable and accrued expenses 12,854 15,707
Long-term debt 9,600 9,600
--------- ---------
Total Liabilities 262,669 265,403
Stockholders' Equity
Preferred stock -- $1 par value; authorized
3,000,000 shares; none issued
Common stock -- $0.15 par value; authorized
10,000,000 shares; issued 6,760,728
and 6,678,223 shares, respectively 1,014 1,002
Additional paid-in capital 37,370 37,006
Retained earnings 19,249 17,425
--------- ---------
57,633 55,433
Less:
Treasury stock, at cost, 2,160 and
168,648 shares, respectively 22 1,989
Unamortized expense of restricted
stock awards 1,168 185
Unearned employee stock ownership plan
shares, at cost, 236,250 shares 3,178 3,178
--------- ---------
Total Stockholders' Equity 53,265 50,081
--------- ---------
$ 315,934 $ 315,484
========= =========
See Notes to Consolidated Financial Statements.
<PAGE>5
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended
March 31, March 27,
1998 1997
----------- ----------
REVENUES
Commissions $ 13,609 $ 11,420
Principal transactions 9,363 5,266
Investment banking 3,553 7,696
Interest 4,755 4,045
Other 4,559 3,418
--------- ---------
35,839 31,845
EXPENSES
Employee compensation and benefits 22,644 20,215
Commissions and floor brokerage 649 695
Communications and office supplies 1,965 1,660
Occupancy and equipment rental 2,105 1,727
Interest 2,539 2,351
Other operating expenses 2,519 2,445
--------- ---------
32,421 29,093
--------- ---------
INCOME BEFORE INCOME TAXES 3,418 2,752
Provision for income taxes 1,365 1,105
--------- ---------
NET INCOME $ 2,053 $ 1,647
Net income per share:
Basic $ 0.32 $ 0.33
Diluted $ 0.30 $ 0.27
Dividends declared per share $ 0.03 $ 0.03
Average common equivalent shares
outstanding:
Basic 6,458 4,949
Diluted 6,788 6,588
See Notes to Consolidated Financial Statements.
<PAGE>6
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)(In thousands)
Three Months Ended
March 31, March 27,
1998 1997
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,053 $ 1,647
Noncash items included in
earnings:
Depreciation and amortization 365 383
Net gains on investments (234) (25)
Bonus notes amortization 431 330
Deferred compensation 248 175
Deferred tax provision 576 119
Restricted stock awards amortization 63 25
--------- ---------
3,502 2,654
Decrease (increase) in operating
receivables 836 (36,813)
Increase in operating payables 57,044 11,380
(Increase) decrease in assets:
Cash segregated for the exclusive
benefit of customers (1) 174
Securities owned (6,102) (8,551)
Notes receivable from officers and
employees (1,097) (263)
Other assets 572 1,519
Increase (decrease) in liabilities:
Securities sold, but not yet purchased 631 307
Drafts payable, accounts payable and
accrued expenses, and accrued
employee compensation (8,684) (5,134)
--------- ---------
Cash Provided By (Used For)
Operating Activities $ 46,701 $ (34,727)
========= =========
See Notes to Consolidated Financial Statements.
<PAGE> 7
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)(In thousands)
Three Months Ended
March 31, March 27,
1998 1997
------------ ------------
Cash Provided By (Used For) Operating
Activities - from previous page $ 46,701 $ (34,727)
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings, net (51,450) 33,975
Proceeds from:
Issuance of stock 908 744
Temporary subordinated debt - - 8,000
Payments for:
Repurchase of stock (78) (796)
Temporary subordinated debt - - (8,000)
Principal payments under capital
lease obligation (88) (103)
Cash dividends (199) (143)
--------- ---------
Cash (Used For) Provided By
Financing Activities (50,907) 33,677
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from:
Sale of office equipment - - 3
Sale of investments 28 - -
Payments for:
Acquisition of office equipment and
leasehold improvements (1,651) (161)
Acquisition of investments - - (626)
--------- ---------
Cash Used For Investing Activities (1,623) (784)
--------- ---------
Decrease in cash and cash equivalents (5,829) (1,834)
Cash and cash equivalents -
beginning of period 15,366 7,960
--------- ---------
Cash and Cash Equivalents - end of period $ 9,537 $ 6,126
========= =========
Supplemental disclosure of cash flow
information:
Income tax payments $ 1,124 $ 49
Interest payments $ 2,343 $ 2,449
Schedule of noncash investing and
financing activities:
Fixed assets acquired under
capital lease - - $ 292
Employee stock ownership plan - - $ 300
Restricted stock awards, net of
forfeitures $ 1,033 - -
Stock dividend distributable $ 30 - -
See Notes to Consolidated Financial Statements.
<PAGE>8
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
Stifel Financial Corp. and its subsidiaries (collectively
referred to as "the Company"). The accompanying unaudited
consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results
for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year
ending December 31, 1998. For further information, refer to the
financial statements and notes thereto included in the Company's
annual report on Form 10-K for the year ended December 31, 1997.
Where appropriate, prior years' financial information has been
reclassified to conform with the current year presentation.
NOTE B - NET CAPITAL REQUIREMENT
The Company's principal subsidiary, Stifel, Nicolaus &
Company, Incorporated ("SN & Co."), is subject to the Uniform Net
Capital Rule 15c3-1 under the Securities Exchange Act of 1934
(the "rule"), which requires the maintenance of minimum net
capital, as defined. SN & Co. has elected to use the alternative
method permitted by the rule which requires maintenance of
minimum net capital equal to the greater of $250,000 or 2 percent
of aggregate debit items arising from customer transactions, as
defined. The rule also provides that equity capital may not be
withdrawn or cash dividends paid if resulting net capital would
be less than 5 percent of aggregate debit items.
At March 31, 1998, SN & Co. had net capital of $32,028,000
which was 12.32% of its aggregate debit items and $26,829,000 in
excess of the minimum required net capital.
NOTE C - RECENT ACCOUNTING PRONOUNCEMENTS
As of January 1, 1997, the Company adopted SFAS No.125, which
was effective for transfers of financial assets made after
December 31, 1996, except for transfers of certain financial
assets for which the effective date has been delayed for one
year. SFAS No. 125 provides financial reporting standards for the
derecognition and recognition of financial assets, including the
distinction between transfers of financial assets which should be
recorded as sales and those which should be recorded as secured
borrowings. The adoption of the provisions of SFAS No. 125 had no
material effect on the Company's financial condition or results
of operations.
<PAGE>9
NOTE D - EARNINGS PER SHARE
During 1997, the Company adopted SFAS 128. The following table
reflects a reconciliation between Basic EPS and Diluted EPS.
<TABLE>
<CAPTION>
March 31, 1998 March 27, 1997
- -----------------------------------------------------------------------------------------------------------
(In thousands,except Income Shares Per Share Income Shares Per Share
per share amounts) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings Per Share
Income available to
shareholders $2,053 6,458 $0.32 $1,647 4,949 $0.33
- -----------------------------------------------------------------------------------------------------------
Diluted Earnings Per Share
Effect of Dilutive Securities:
Options, ESPP, and
deferred compensation - - 330 - - - - 150 - -
Convertible debt - - - - - - 129 1,489 - -
Income available to
common stockholders
and assumed conversions $2,053 6,788 $0.30 $1,776 6,588 $0.27
- -----------------------------------------------------------------------------------------------------------
</TABLE>
NOTE E - SUBSEQUENT EVENT
On April 28, 1998, the Company's Board of Directors declared a
regular quarterly cash dividend of $0.03 per share, payable on
May 28, 1998 to stockholders of record May 12, 1998.
******
<PAGE>10
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Results of Operations
Three months ended March 1998 and March 1997
The Company continued to benefit from strong market conditions
as revenues rose $4.0 million (13%) to $35.8 million for the
first quarter ended March 31, 1998, compared to total revenues of
$31.8 million for the same period one year earlier. Net income
for the period increased $406,000 (25%) to $2,053,000 compared to
$1,647,000 recorded in last year's first quarter. Net income per
diluted share was $0.30 compared to $0.27 in the 1997 first
quarter.
Revenue from commissions increased $2.2 million (19%) to $13.6
million, principally as a result of improved investment executive
production. Main components for the increase were from sales of
mutual funds - up $957,000 (35%); listed equity securities - up
$533,000 (19%); and over-the-counter equity securities - up
$416,000 (9%).
Principal transaction revenues are primarily derived from over-
the-counter and fixed income inventory activities. Inventories
of these securities are maintained to meet client needs.
Realized and unrealized gains and losses that result from holding
and trading these securities are included in principal
transactions. Revenues from principal transactions increased
$4.1 million (78%) to $9.4 million. The increase resulted
primarily from a unit investment trust ("Trust") underwritten by
SN & Co. The trust consisted of a portfolio of common stocks
issued by financial institutions having operations mainly in the
Midwest.
Investment banking revenue decreased $4.1 million (54%) to
$3.6 million for the quarter. The decrease resulted from fewer
underwritings of Trust Preferred and mortgage Real Estate
Investment Trust (REIT) transactions. Last year's first quarter
was especially strong as $6.4 million of revenue was generated
from these transactions. Revenues from investment banking
transactions, particularly underwritings, can fluctuate
significantly from quarter-to-quarter.
Interest revenue increased $710,000 (18%) to $4.8 million
principally as a result of interest earned from customer
borrowings on margin accounts.
Other revenues increased $1.1 million (33%) to $4.6 million.
Main components of the increase resulted from increases in fees
from investment advisory and management services - up $510,000
(36%) and customer service fees - up $316,000 (25%).
Total expenses increased $3.3 million (11%) to $32.4 million
from $29.1 million, principally as a result of increased
compensation and benefits.
<PAGE>11
Compensation and benefits, a significant portion of the
Company's total expense, rose $2.4 million (12%) in the first
quarter of 1998. A majority of the increase resulted from
compensation that is variable in nature and grew in conjunction
with the increases in revenues and profitability. This variable
component increased $1.7 million (11%) compared to last year's
first quarter. The fixed component of compensation, principally
salaries, increased $747,000 (16%) as a result of normal year-to-
year salary increases and the addition of approximately 50 non-
sales associates since March of 1997. Growth occurred in key
areas such as Equity Capital Markets and Investment Services,
foundations for the Company's overall growth plans.
Communications and Supplies increased $305,000 (18%) to $2.0
million, primarily as a result of costs associated with
improvements in communications technology and increased activity
in the printing of sales materials.
Occupancy and equipment rental increased $378,000 (22%) to
$2.1 million, primarily as a result of a one-time credit recorded
in 1997 related to the renegotiation of a long-term office space
lease which had been previously accrued. Without the effect of
the one-time credit, occupancy and equipment rental would have
increased $60,000 (3%).
Impact of Year 2000 Software Issues
Many of the world's computer systems currently record years
in a two-digit format. Such computer systems will be unable to
properly interpret dates beyond the year 1999, which could lead
to business disruptions. The potential costs and uncertainties
associated with this issue will depend on a number of factors
including software, hardware, and the nature of the industry in
which a company operates. Additionally, companies must coordinate
with other entities with which they electronically interact, such
as customers, vendors, and borrowers. This is a significant
undertaking for securities firms, as virtually every aspect of
the sale of securities and related processing of transactions
will be affected and the consequences for noncompliance will be
significant.
A significant portion of the Company's operations and
information systems are provided by third-party service
providers. The Company has developed a plan to analyze how the
Year 2000 will impact its operations, including monitoring the
status of its service providers and evaluating alternatives.
Given the Company's exposure to third-party service providers,
management does not believe the internal costs to address the
Year 2000 issue will have a material impact on future operations
other than the impact such event will have on the cost of
services provided by its vendors which is unknown at this time.
The interdependent nature of securities transactions and the
success of the Company's external counterparties and vendors in
dealing with this issue could significantly influence the
Company's estimate of the impact the Year 2000 will have on its
business.
<PAGE>12
Liquidity and Capital Resources
The Company's assets are highly liquid, consisting mainly of
cash or assets readily convertible into cash. These assets are
financed primarily by the Company's equity capital, customer
credit balances, short-term bank loans, proceeds from securities
lending, long term notes payable, and other payables. Changes in
securities market volumes, related customer borrowing demands,
underwriting activity, and levels of securities inventory affect
the amount of the Company's financing requirements.
Management believes the funds from operations, available
informal short-term credit arrangements, and long-term
borrowings, at March 31, 1998, will provide sufficient resources
to meet the present and anticipated financing needs.
Stifel, Nicolaus & Company, Incorporated, the Company's
principal broker-dealer subsidiary, is subject to certain
requirements of the Securities and Exchange Commission with
regard to liquidity and capital requirements. At March 31, 1998,
Stifel, Nicolaus had net capital of approximately $32.0 million
which exceeded the minimum net capital requirements by
approximately $26.8 million.
<PAGE>13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There were no other material changes in the other legal
proceedings previously reported in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997. Such
information is hereby incorporated by reference.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual meeting of Stockholders was held on April 28,
1998, for the election of three directors and for the
appointment of Deloitte & Touche LLP as the Company's
independent auditors for the year ending December 31, 1998.
(b) Proxies for the meeting were solicited pursuant to
Regulation 14 under the Act. There was no solicitation in
opposition to the Board of Directors' proposals as listed in
the Proxy Statement and all of the proposals were passed.
Item 6. Exhibit(s) and Report(s) on Form 8-K
(a) Exhibit No.
(Reference to Item 601(b)
of Regulation S-K) Description
- -----------------------------------------------------------------
27 Financial Data Schedule
(furnished to the Securities and Exchange
Commission for Electronic Data
Gathering, Analysis, and Retrieval
[EDGAR] purposes only)
(b) Report(s) on Form 8-K
The company filed a report on Form 8-K dated December
31,1997. This report Form 2-K contained information under Item
5. "Other Events". The Company announced that AEGON USA, Inc.
Insurance Group had sold 1,207,500 shares of the Registrant's
common stock. The Western and Southern Life Insurance Company
and Stifel, Nicolaus Stock Ownership Plan and Trust had
purchased 971,250 and 236,250 shares, respectively.
<PAGE>14
SIGNATURES
Pursuant to the requirement of Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
STIFEL FINANCIAL CORP.
(Registrant)
Date: May 14, 1998 By /s/ Ronald J. Kruszewski
Ronald J. Kruszewski
(President and
Chief Executive Officer)
Date: May 14, 1998 By /s/ Stephen J. Bushmann
Stephen J. Bushmann
(Principal Financial and
Accounting Officer)
<PAGE>15
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
EXHIBIT INDEX
March 31, 1998
Exhibit
Number Description
- ---------------------------------------------------------------
27 Financial Data Schedule
(furnished to the Securities and Exchange
Commission for Electronic Data
Gathering, Analysis, and Retrieval
[EDGAR] purposes only)
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION DATED MARCH 31, 1998 AND THE
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 9,716
<RECEIVABLES> 243,260
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 14,505
<INSTRUMENTS-OWNED> 25,315
<PP&E> 3,591
<TOTAL-ASSETS> 315,934
<SHORT-TERM> 37,700
<PAYABLES> 85,196
<REPOS-SOLD> 0
<SECURITIES-LOANED> 125,279
<INSTRUMENTS-SOLD> 4,894
<LONG-TERM> 9,600
<COMMON> 1,014
0
0
<OTHER-SE> 52,251
<TOTAL-LIABILITY-AND-EQUITY> 315,934
<TRADING-REVENUE> 9,363
<INTEREST-DIVIDENDS> 4,755
<COMMISSIONS> 13,609
<INVESTMENT-BANKING-REVENUES> 3,553
<FEE-REVENUE> 804
<INTEREST-EXPENSE> 2,539
<COMPENSATION> 22,644
<INCOME-PRETAX> 3,418
<INCOME-PRE-EXTRAORDINARY> 3,418
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,053
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.30
</TABLE>
