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, 1997
-----------------
[ ] 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.
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(Exact name of registrant as specified in its charter)
DELAWARE 43-1273600
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
500 N. Broadway
St. Louis, Missouri 63102-2188
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 314-342-2000
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
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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 10, 1998 was $84,016,545.
Shares of Common Stock outstanding at March 10, 1998: 6,677,432
shares, par value $.15 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the year ended
December 31, 1997 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 28, 1998 are incorporated by
reference to Part III hereof. Exhibit Index located on page 29.
<PAGE> 3
PART I
ITEM 1. BUSINESS
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Stifel Financial Corp. ("Financial"), a Delaware corporation and
holding company, 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 42 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 securities
sales offices and the municipal underwriting, trading, and
institutional sales operations located in Oklahoma, and three
securities sales 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 1997, 1996 and 1995 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 individual investor accounts.
Commissions are charged on both stock exchange and over-the-
counter transactions in accordance with the Company's commission
schedule. In certain cases, discounts from that schedule are
granted.
The percentage of total commission revenue from institutional
customers was 6% and 5% in 1997 and 1996, respectively. 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. Investment
executives also receive orders from institutional customers from
time to time which are not included in the percentages mentioned
above.
<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 individual 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 through its office in St.
Louis.
In calendar years 1995-1997, the majority of the Company's
investment banking revenues have been generated by the corporate
finance department. The department continues to focus on
providing research, financial advisory services, merger and
acquisition advisory services and serving as a manager or co-
manager for underwriting issuances of corporate debt or equity
securities primarily for financial institutions located primarily
in the Midwest and Real Estate Investment Trusts (REITs) located
throughout the country.
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 of fact that are judged to be
material in prospectuses and other communications related to
underwritings. Underwriting commitments may reduce the Company's
regulatory net capital position (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
generally provide for dealer discounts ranging up to 4.25 percent
of the purchase price, depending upon the size of the
transaction.
<PAGE> 5
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 individual investor accounts. CSA is
licensed in 50 states.
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, 1997 was approximately $2,860,111,000. Pin Oak holds
registrations as an investment advisor in six states. Todd is
registered as an investment advisor in sixteen 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,
1997, Stifel, Nicolaus had assets under management of
approximately $497,000,000 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.
<PAGE> 6
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.
Research
The Company's research department provides individual 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
customers. These firms generally charge lower commission rates
to their customers without offering services such as portfolio
valuation, investment recommendations and research. Competition
from such discount brokerage services may adversely affect
revenues of the Company and other full service brokerage firms.
Banks also compete with brokerage firms by offering certain
investment banking and corporate finance services.
Management relies on the expertise acquired in its market area
over its 107-year history, its personnel, and its equity capital
to operate in the competitive environment.
<PAGE> 7
Regulation
The securities industry in the United States is subject to
extensive regulation under federal and state laws. The
Securities and Exchange Commission ("SEC") is the federal agency
charged with the administration of the federal securities laws.
Much of the regulation of broker-dealers, however, has been
delegated to self-regulatory organizations, principally the
National Association of Securities Dealers, Inc., the Municipal
Securities Rulemaking Board, and the national securities
exchanges, such as the NYSE. These self-regulatory organizations
adopt rules (which are subject to approval by the SEC) which
govern the industry and conduct periodic examinations of member
broker-dealers. Securities firms are also subject to regulation
by state securities commissions in the states in which they are
registered.
The regulations to which broker-dealers are subject cover all
aspects of the securities business, including sales practices,
trade practices among broker-dealers, capital structure of
securities firms, record keeping, and the conduct of directors,
officers and employees. Additional legislation, changes in rules
promulgated by the SEC and by self-regulatory organizations, and
changes in the interpretation or enforcement of existing laws and
rules often directly affect the method of operation and
profitability of broker-dealers. The SEC and the self-regulatory
organizations may conduct administrative proceedings which can
result in censures, fines, suspension or expulsion of a broker-
dealer, its officers or employees. The principal purpose of
regulation and discipline of broker-dealers is the protection of
customers and the securities markets rather than the protection
of creditors and stockholders of broker-dealers.
As a broker-dealer and member of the NYSE, Stifel, Nicolaus is
subject to the Uniform Net Capital Rule (Rule 15c3-1) promulgated
by the SEC which provides that a broker-dealer doing business
with the public shall not permit its aggregate indebtedness (as
defined) to exceed 15 times its net capital (as defined) or,
alternatively, that its net capital shall not be less than 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.
<PAGE> 8
Under SEC rules, a broker-dealer may be required to reduce its
business and restrict withdrawal of subordinated capital if its
net capital is less than 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 $28,227,000 at December 31, 1997, which was
approximately 11.7 percent of aggregate debit balances and
approximately $23,396,000 in excess of required net capital.
Employees
There were 756 individuals employed by the Company as of February
28, 1998 and 109 independent licensed brokers contracted through
CSA.
ITEM 2. PROPERTIES
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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 42 locations in 13 states. All
offices of the Company are located in leased premises. The
Company's management believes that at the present time the
facilities are suitable and adequate to meet its needs and that
such facilities have sufficient productive capacity and are
appropriately utilized.
The Company also leases communication and other equipment.
Aggregate annual rental expense for the twelve month period ended
December 31, 1997, for office space and equipment, was
approximately $2,899,000. Further information about the lease
obligations of the Company is provided in Note D of the
Consolidated Financial Statements incorporated by reference
herein.
<PAGE> 9
ITEM 3. LEGAL PROCEEDINGS
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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 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 condition and results of operations.
However, depending upon the period of resolution, such effects
could be material to the financial results of an individual
operating period. It is reasonably possible that certain of
these lawsuits and arbitrations could be resolved in the next
year, and management does not believe such resolutions will
result in losses materially in excess of the amounts previously
provided.
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 $1.1 million
in disgorgement and prejudgement interest, and $250,000 in fines.
On October 5, 1995 the Company was named in a lawsuit filed by
The Oklahoma Turnpike Authority ("OTA") in the District Court of
Oklahoma County, State of Oklahoma, along with DeWayne VonFeldt
and Robert Cochran, two former employees of the Company; Sakura
Global Capital and Steven Strauss; Pacific Matrix and Jeff Feld.
Additionally, the Company was named in a lawsuit filed by the
State of Oklahoma in the United States District Court for the
Western District of Oklahoma on February 24, 1995 along with
Robert Cochran. 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 $608 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. The
State of Oklahoma suit was dismissed by the United States
District Court for the Western District of Oklahoma and is
currently on appeal in the United States Tenth Circuit Court of
Appeals. Although the ultimate outcome of these actions cannot
be ascertained at this time, and the results of legal proceedings
cannot be predicted with certainty, management, based on its
<PAGE> 10
understanding of the facts and after consultation with outside
counsel, does not believe the ultimate resolution of these
matters will have a materially adverse effect on the Company's
consolidated financial condition and results of operations.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following information is furnished pursuant to General
Instruction G(3) of Form 10-K with respect to the executive
officers of Financial:
Year First Appointed as
Positions or Offices Executive Officer
Name Age with the Company of the Company
---- --- -------------------- ------------------------
George H. Walker III 67 Chairman of the 1978
Board of Financial
and Stifel, Nicolaus
Ronald J. Kruszewski 39 President and Chief 1997
Executive Officer
of Financial and Stifel,
Nicolaus
Stephen J. Bushmann 40 Vice President, Treasurer and 1996
Chief Financial Officer of
Financial and Chief Financial
Officer and Senior Vice
President of Stifel, Nicolaus
Charles R. Hartman 54 Vice President and Secretary of 1996
Financial and General Counsel,
Senior Vice President and
Secretary of Stifel, Nicolaus
Michael A. Murphy 46 Vice President of Financial and 1996
Senior Vice President - Director
of Private Client Group of
Stifel, Nicolaus
Lawrence E. Somraty 49 Vice President of Financial and 1996
President of Century Securities
Associates, Inc.
The following are brief summaries of the business experience
during the past five years of each of the executive officers.
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.,
Macroeconomics Advisers, LLC, 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.
<PAGE> 11
Ronald J. Kruszewski was appointed President and Chief
Executive Officer of the Company and Stifel, Nicolaus on
September 25, 1997. Prior to joining the Company, Mr. Kruszewski
served as Managing Director and Chief Financial Officer of Baird
Financial Corporation and Managing Director of Robert W. Baird &
Co., Incorporated.
Stephen J. Bushmann joined Stifel, Nicolaus in October of 1981.
He is Vice President, Treasurer and Chief Financial Officer 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 Vice President and Secretary of Financial and General Counsel,
Senior Vice President and Secretary of Stifel, Nicolaus. Prior
to joining Stifel, Nicolaus, Mr. Hartman was the Regional Counsel
for the Securities and Exchange Commission in Los Angeles,
California and since April of 1982 a Los Angeles partner in the
law firm of Rogers & Wells.
Michael A. Murphy joined Stifel, Nicolaus in 1989. He was Vice
President of Financial and Senior Vice President and Director of
Private Client Group of Stifel, Nicolaus. From 1989 - 1994, Mr.
Murphy served as First Vice President and Director of Branch
Administration of Stifel, Nicolaus.
Lawrence E. Somraty has been with Stifel, Nicolaus since 1977.
He is Vice President of Financial and became the President of
Century Securities Associates, Inc. in January 1991. Prior
thereto, he served as Option Department Manager, Senior
Registered Options Principal, Investment Advisor and Branch
Manager.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None
<PAGE> 12
PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
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STOCKHOLDER MATTERS
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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
------------------------------------------
1997 1996
Quarter High - Low High - Low
------------------------------------------
First 8 5/8 - 7 $ 6 - 5 1/2
Second 11 1/2 - 7 1/8 7 3/8 - 5 3/4
Third 11 1/2 - 8 3/4 7 3/8 - 5 7/8
Fourth 16 1/8 - 11 3/8 7 7/8 - 6 3/8
------------------------------------------
The Company from time-to-time uses funds generated from
operations to purchase the Company's common stock throughout the
calendar year. On October 29, 1997, the Company's Board of
Directors authorized the purchase of an additional 262,500 shares
to be used to satisfy share obligations for employee benefit
plans.
b.) Holders
The approximate number of stockholders of record on March 10,
1998 was 3,000.
c.) Dividends
Dividends paid were as follows:
Record Payment Cash Stock
Date Date Dividend Dividend
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 - -
02/4/97 02/18/97 $0.03 5%
05/6/97 05/20/97 $0.03 - -
08/5/97 08/19/97 $0.03 - -
11/11/97 11/25/97 $0.03 - -
A regular quarterly cash dividend of $0.03 per share was
established on November 30, 1993.
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
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<TABLE>
Stifel Financial Corp. and Subsidiaries
Financial Summary
<CAPTION>
Five Year
Months ended
Years Ended December 31, Ended July 30,
--------------------------------------------
(In thousands, except per 1997 1996 1995 1994 Dec. 31, 1993 1993
share and percentages)
<S> <C> <C> <C> <C> <C> <C>
Revenues
Commissions $ 49,763 $ 43,900 $ 38,716 $ 37,287 $ 18,119 $ 38,812
Principal transactions 20,202 19,498 20,362 24,639 10,287 27,503
Investment banking 28,476 16,253 12,121 12,634 11,272 31,468
Interest 21,397 13,774 13,002 10,918 4,057 8,851
Other 16,258 16,388 11,159 8,448 2,720 6,837
-------- -------- -------- -------- -------- --------
136,096 109,813 95,360 93,926 46,455 113,471
-------- -------- -------- -------- -------- --------
Expenses
Employee compensation and benefits 82,094 66,765 57,187 61,527 29,433 68,678
Commissions and floor brokerage 2,780 2,641 2,319 2,120 845 2,485
Communications and office supplies 6,914 6,797 7,651 8,045 3,090 6,836
Occupancy and equipment rental 8,109 7,958 8,512 11,601 3,618 8,405
Interest 12,991 8,197 8,312 6,138 1,763 4,838
Litigation, settlements, and bad debts 3,726 3,292 1,610 2,467 473 1,237
Restructuring charge - - - - - - 2,672 - - - -
Other operating expenses 10,061 8,561 8,462 8,577 4,173 9,722
-------- -------- -------- -------- -------- --------
126,675 104,211 94,053 103,147 43,395 102,201
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes 9,421 5,602 1,307 (9,221) 3,060 11,270
Provision (benefit) for income taxes 3,750 2,209 663 (3,718) 1,145 4,232
-------- -------- -------- -------- -------- --------
Net income (loss) $ 5,671 $ 3,393 $ 644 $ (5,503) $ 1,915 $ 7,038
======== ======== ======== ======== ======== ========
Per Share Data
Basic earnings (loss) <FA> $ 1.06 $ .69 $ .13 $ (1.15) $ .40 $ 1.49
Diluted earnings (loss) <FA> $ .92 $ .62 $ .13 $ (1.15) $ .34 $ 1.22
Cash dividends $ .12 $ .09 $ .12 $ .09 $ .055 $ .15
Other Data
Total assets $315,484 $301,344 $226,775 $222,208 $288,203 $196,539
Long-term obligations $ 9,600 $ 10,000 $ 10,760 $ 11,520 $ 11,520 $ 10,000
Stockholders' equity $ 50,081 $ 37,752 $ 34,795 $ 34,226 $ 40,609 $ 38,995
Net income as % average equity 13.29% 9.35% 1.87% * N.M. 4.81% 19.94%
Net income as % revenues 4.17% 3.09% 0.68% * N.M. 4.12% 6.20%
Average common shares and
share equivalents outstanding <FA>:
Basic 5,325 4,905 4,837 4,802 4,835 4,729
Diluted 6,755 6,491 4,907 4,802 6,477 6,351
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<FA> Retroactively restated to reflect the 5 percent stock dividend
declared January 20, 1998.
* Not Meaningful
<PAGE> 14
The information called for in items 7 and 8 of Part II is set
forth on the pages listed below of the Company's 1997 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 Discussion and Analysis
of Financial Condition and Results of
Operations. 16 through 21
ITEM 8. Financial Statements and Supplementary Data. 22 through 43
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 had 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, 1997.
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> 15
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
Report to
Stockholders
------------
1. The following consolidated financial statements
of Stifel Financial Corp. and subsidiaries,
included on pages 22 through 43 in the 1997
Annual Report to Stockholders, are incorporated
by reference in Item 8
Consolidated Statements of Financial Condition --
December 31, 1997 and December 31, 1996............... 22 - 23
Consolidated Statements of Operations --
Years ended December 31, 1997, December 31, 1996
and December 31, 1995................................. 24
Consolidated Statements of Stockholders' Equity --
Years ended December 31, 1997, December 31, 1996
and December 31, 1995................................. 25
Consolidated Statements of Cash Flows --
Years ended December 31, 1997, December 31, 1996
and December 31, 1995................................. 26 - 27
Notes to Consolidated Financial Statements............. 28 - 42
Independent Auditors' Report........................... 43
2. The following consolidated financial statement
schedules of Stifel Financial Corp. and subsidiaries
are filed herewith pursuant to ITEM 14(d):
Independent Auditors' Report
Report of Independent Accountants
Report of Independent Accountants
Schedule I - Condensed Financial Information of Registrant
Schedule II- Valuation and Qualifying Accounts
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> 16
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> 17
(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 Financial's
Registration Statement on Form S-8 (Registration File
No. 333-37805) filed October 14, 1997.
<PAGE> 18
(k) 1998 Employee Stock Plan of Financial,
incorporated herein by reference to Financial's
Registration Statement on Form S-8 (Registration File
No. 333-37807) filed October 14, 1997.
(l) Employment Letter with Ronald J. Kruszewski,
filed herewith.
13. Annual Report to Stockholders for the year ended December
31, 1997. Except for those portions of pages expressly
incorporated by reference, the 1997 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. (b) Consent of Independent Accountants, filed herewith.
27. (a) 1997 Financial Data Schedule BD, filed herewith.
27. (b) 1995 and 1996 Restated Financial Data Schedule BD,
filed herewith.
27. (c) 1997 Restated Financial Data Schedule BD, filed herewith.
(b) Reports on Form 8-K:
The Company filed a report on Form 8-K dated December 31,
1997. This report Form 8-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> 19
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 26th day of March, 1998.
STIFEL FINANCIAL CORP.
(Registrant)
By /s/ Ronald J. Kruszewski
-----------------------------
Ronald J. Kruszewski
(Principal Executive Officer)
/s/ Stephen J. Bushmann
-----------------------------
Stephen J. Bushmann
(Principal Financial and
Accounting Officer)
<PAGE> 20
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 20, 1998, in the capacities
indicated.
/s/George H. Walker III Chairman of the Board
George H. Walker III
/s/Ronald J. Kruszewski President, Chief Executive
Ronald J. Kruszewski Officer, and Director
/s/Bruce A. Beda Director
Bruce A. Beda
/s/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/Stuart I. Greenbaum Director
Stuart I. Greenbaum
/s/Robert E. Lefton Director
Robert E. Lefton
/s/James M. Oates Director
James M. Oates
<PAGE> 21
[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, 1997 and
December 31, 1996, and for the years then ended, and have issued
our report thereon dated February 20, 1998; such consolidated
financial statements and report are included in your 1997 Annual
Report to Stockholders and are incorporated herein by reference.
Our audits also included the 1997 and 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 audits.
In our opinion, such 1997 and 1996 consolidated financial
statement schedules, when considered in relation to the basic
1997 and 1996 consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
February 20, 1998
St. Louis, Missouri
<PAGE> 22
[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 consolidated statements of operations,
stockholders' equity, and cash flows of Stifel Financial Corp.
and Subsidiaries for the year ended December 31, 1995. 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.
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, the financial statements of Stifel Financial
Corp. and Subsidiaries referred to above present fairly, in all
material respects, the consolidated results of their operations
and their cash flows for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
St. Louis, Missouri
February 25, 1996
<PAGE> 23
[Coopers & Lybrand L.L.P. letterhead]
Report of Independent Accountants
Board of Directors
Stifel Financial Corp.
St. Louis, Missouri:
Our report on the consolidated statements of operations,
stockholders' equity and cash flows of Stifel Financial Corp. and
Subsidiaries is included on page 18 of this Form 10-K. In
connection with our audit of such financial statements, we have
also audited the related financial statement schedules for the
year ended December 31, 1995 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> 24
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
STIFEL FINANCIAL CORP.
Dec. 31, 1997 Dec. 31, 1996
------------- -------------
ASSETS
Cash $ 9,155 $ 9,155
Due from subsidiaries (a) 3,615,656 3,711,973
Investment in subsidiaries (a) 47,214,574 41,262,901
Office equipment and leasehold improvements,
less allowances for depreciation and
amortization of $10,449,850 and $9,705,941,
respectively 2,136,544 2,182,025
Investments, at cost 1,373,424 815,764
Goodwill, net of amortization of $554,095
and $462,235, respectively 1,815,047 1,906,907
Other assets 2,427,287 1,389,304
----------- -----------
TOTAL ASSETS $58,591,687 $51,278,029
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Due to subsidiaries (a) $ 2,238,164 $ 1,739,432
Obligation under capital lease 522,498 580,945
Long-term debt 5,000,000 10,000,000
Other liabilities 749,881 1,206,523
----------- -----------
TOTAL LIABILITIES 8,510,543 13,526,900
Stockholders' Equity:
Capital stock 1,001,733 715,158
Additional paid-in capital 37,006,108 21,402,971
Retained earnings 17,425,321 16,733,073
----------- -----------
55,433,162 38,851,202
Less treasury stock, at cost 1,988,915 892,892
Less unearned employee stock ownership
plan shares 3,179,125 --
Less unamortized expense of restricted
stock awards, at cost 184,978 207,181
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 50,081,144 37,751,129
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $58,591,687 $51,278,029
=========== ===========
(a) Eliminated in consolidation.
See Notes to Consolidated Financial Statements (Item 8)
<PAGE> 25
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(continued)
CONDENSED STATEMENTS OF OPERATIONS
STIFEL FINANCIAL CORP.
Years Ended December 31,
---------------------------------------
1997 1996 1995
---- ---- ----
Revenues:
Lease $1,202,248 $1,406,556 $1,708,160
Other 95,015 (59,024) (162,347)
---------- ---------- ----------
1,297,263 1,347,532 1,545,813
Expenses:
Depreciation and amortization 1,294,108 1,431,798 1,751,250
Professional fees 290,554 246,178 170,664
Provision for doubtful collection -- 300,000 --
Miscellaneous 194,419 159,460 135,363
---------- ---------- ----------
1,779,081 2,137,436 2,057,277
---------- ---------- ----------
Loss before income taxes (481,818) (789,904) (511,464)
(Benefit) provision for income taxes (201,150) (343,024) 52,100
Loss before equity in net
income of subsidiaries (280,668) (446,880) (563,564)
Equity in net income of subsidiaries 5,951,674 3,839,382 1,207,085
---------- ---------- ----------
NET INCOME $5,671,006 $3,392,502 $ 643,521
========== ========== ==========
See Notes to Consolidated Financial Statements (Item 8)
<PAGE> 26
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(continued)
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
STIFEL FINANCIAL CORP.
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,671,006 $ 3,392,502 $ 643,521
Non-cash items included in net income:
Depreciation and amortization 1,294,108 1,431,798 1,751,250
Unrealized (gain) loss on investment (127,590) 115,000 --
Deferred tax (benefit) provision (123,902) (234,353) 105,547
Undistributed (income) of subsidiaries (5,951,674) (3,839,382) (1,207,085)
Amortization and forfeitures of restricted
stock awards and stock benefits 172,357 75,055 84,346
----------- ----------- -----------
934,305 940,620 1,377,579
Net change in due to/due from subsidiaries 595,049 1,512,913 730,442
(Increase) decrease in other assets (796,569) 1,487,309 (1,162,037)
(Decrease) increase in other liabilities (169,235) (379,298) 393,193
----------- ----------- -----------
CASH PROVIDED BY OPERATING ACTIVITIES 563,550 3,561,544 1,339,177
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Shares issued 2,071,564 -- --
Long-term debt 5,000,000 -- --
Employee stock purchase plan 727,208 616,670 755,274
Exercised options 101,082 3,098 123,503
Dividend reinvestment plan 7,936 12,570 9,533
Payments for:
Retirement of long-term debt - - (760,000) (760,000)
Purchase of stock for treasury (2,926,452) (520,321) (546,615)
Purchase unearned ESOP shares (3,178,125) -- --
Principal payments under capital lease (392,248) (433,284) (255,053)
Cash dividend and rights redemption (608,968) (625,128) (500,611)
----------- ----------- -----------
CASH USED FOR FINANCING ACTIVITIES 801,997 (1,706,395) (1,173,969)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from:
Distributions/sales received on investments 62,020 36,360 94,893
Sales of office equipment and leasehold
Improvements 144,512 23,405 909,762
Payments for:
Acquisition of investments (633,739) (1,513,232) --
Office equipment and leasehold improvements (938,340) (401,682) (1,169,863)
----------- ----------- -----------
CASH USED FOR INVESTING ACTIVITIES (1,365,547) (1,855,149) (165,208)
----------- ----------- -----------
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> 27
Supplemental Disclosures of Cash Flow Information
Schedule of Non-cash Investing and Financing Activities
Fixed assets acquired under capital lease $ 405,000 $ 240,000 --
Restricted stock awards, net of forfeitures $ 153,000 $ 182,000 $ 3,000
Employee stock ownership shares issued $ 300,000 $ 280,000 --
Debt converted to stock $10,000,000 -- --
Stock dividends distributed $ 4,370,000 $ 1,786,000 $ 1,406,000
</TABLE>
See Notes to Consolidated Financial Statements (Item 8)
<PAGE> 28
<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, 1997:
Deducted from asset
account: Allowances
for doubtful accounts $581,946 $2,038 $28,093 <F1> $555,891
Deducted from asset
account: Allowances
for doubtful notes receivables 2,551,627 235,229 410,505 <F2> 2,376,351
Deducted from asset
account: Allowances for doubtful
collection of other assets 300,000 62,000 300,000 <F4> 62,000
Deducted from asset
account: Reserves for investments 735,362 175,154 230,670 <F3> 679,846
Deducted from asset
account: Reserves for securities owned 200,000 0 0 200,000
Year Ended December 31, 1996:
Deducted from asset
account: Allowances for
doubtful accounts $804,916 $28,400 $251,370 <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 628,362 115,000 8,000 <F3> 735,362
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 962,795 88,500 422,933 <F3><F5> 628,362
Deducted from asset
account: Reserves for securities owned 0 0 (200,000) <F5> 200,000
- ---------------------------
<FN>
<F1> Uncollected accounts written off and recoveries.
<F2> Uncollected notes written off and recoveries.
<F3> Investments disposed of.
<F4> Uncollected asset written off.
<F5> Reserve balance reclassified from Reserve for investments to conform to 1995 presentation.
</TABLE>
<PAGE> 29
EXHIBIT INDEX
Stifel Financial Corp. and Subsidiaries
Annual Report on Form 10-K
Year Ended December 31, 1997
Exhibit
Number Description
- ------- -----------
10. (l) Employment Letter with Ronald J. Kruszewski, filed herewith.
13. 1997 Annual Report to Stockholders.*
21. Subsidiaries of Stifel Financial Corp.
23. (a) Consent of Independent Auditors.
23. (b) Consent of Independent Accountants.
27. (a) 1997 Financial Data Schedule BD.
27. (b) 1995 and 1996 Restated Financial Data Schedule BD.
27. (c) 1997 Restated 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 10. (l)
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
Employment Letter with Ronald J. Kruszewski
Stifel Financial Corp.
500 North Broadway
St. Louis, Missouri 63102
September 25, 1997
Mr. Ronald J. Kruszewski
10800 Haddonstone Place
Mequon, Wisconsin 53092
Dear Ron:
I am pleased to confirm that you have been elected President
and Chief Executive Officer of Stifel Financial Corp. ("Company")
and President and Chief Executive Officer of the Company's
principal subsidiary. Your employment hereunder will be in
accordance with the following provisions.
1. Term. The term of your employment will commence
effective as of September 25, 1997, and will continue
until terminated by either party upon thirty (30) days'
advance notice to the other, or such shorter period as
may be mutually agreed upon.
2. Duties. You will perform the duties normally associated
with the office of President and Chief Executive
Officer and such other appropriate duties as may be
assigned by the Board of Directors of the Company.
3. Salary. You will be paid an annual salary of not less
than two hundred thousand dollars ($200,000) during the
term of your employment, such salary to be reviewed
annually in connection with the salaries of other
senior executives of the Company.
4. Bonus. You will be eligible to participate in the
Company's senior executive bonus plan with performance
goals being determined by the Compensation Committee on
the basis of performance criteria disclosed to, and
submitted for the approval of shareholders.
5. Restricted Stock. Pursuant to the Stifel Financial
Corp. 1997 Incentive Stock Plan (the "Incentive Stock
Plan"), you have been awarded one hundred seventy-five
thousand (175,000) shares of Restricted Stock in
accordance with the terms of the Restricted Stock
Agreement attached hereto.
6. Stock Options.
a. Under the Incentive Stock Plan. Pursuant to the
Incentive Stock Plan, you have been granted
incentive stock options to purchase fifty
<PAGE>
Mr. Ronald J. Kruszewski
September 25, 1997
Page 2
thousand (50,000) shares of stock in accordance
with the terms of the Incentive Stock Option
Agreement attached hereto.
b. Outside of the Incentive Stock Plan. You have been
granted nonqualified stock options to purchase
seventy five thousand (75,000) shares of stock in
accordance with the Nonqualified Stock Option
Agreement attached hereto.
7. Loan. The Company will loan you one million four
hundred seventy-nine thousand six hundred eighty-seven
dollars and fifty cents ($1,479,687.50) in accordance
with the Promissory Note attached hereto.
8. Life Insurance. During the term of your employment the
Company will reimburse you for the premiums you pay on
the two million dollar ($2,000,000) term life insurance
policy you have with the Northwestern Mutual Life
Company and on the additional one million dollar
($1,000,000) life insurance policy you plan to purchase
from Northwestern Mutual Life.
9. Reimbursement of Moving Expenses. The Company will
supplement its regular relocation guidelines by
reimbursing you for (a) reasonable expenses incurred by
you in moving your family and household effects to the
St. Louis area, (b) the full brokerage commission you
will incur in the sale of your current home, and (c)
travel and temporary housing costs you incur during a
reasonable transition period until your relocation is
completed.
10. Country Club. The Company will pay the initiation fees
for your membership in a country club mutually
agreeable to the Company and you.
11. Continued Employment Not Guaranteed. None of the
benefits provided herein will be construed as a
guarantee of your continued employment nor shall they
limit the ability of the Board of Directors of the
Company to terminate the employment relationship at any
time, with or without cause. None of the benefits
provided herein shall be construed as a guarantee on
your part that you will continue to perform services
for the Company nor shall they limit you ability to
resign at the time.
12. Governing Law. The terms of your employment will be
governed in accordance with the laws of the State of
Missouri.
<PAGE>
Mr. Ronald J. Kruszewski
September 25, 1997
Page 2
If the foregoing provisions are acceptable to you please
sign and return to me one copy of this letter. We look forward to
a long and mutually beneficial relationship.
Sincerely,
/s/ George H. Walker III
George H. Walker III
Chairman
Agreed to and accepted.
/s/ Ronald J. Kruszewski
Ronald J. Kruszewski
EXIBIT 13
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
1997 ANNUAL REPORT TO STOCKHOLDERS
Management's Discussion and Analysis
of Financial Condition and Results of Operations*
Business Environment
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.
Many factors affect the Company's results of operations, including changes in
economic conditions, inflation, volatility of securities prices and interest
rates, trading volume of securities, demand for investment banking services,
political events, and competition from other financial institutions. As these
factors are outside the control of the Company, and a significant portion of
the Company's expenses are relatively fixed, results of operations can vary
significantly from period to period.
The Company faces increasing competition from other financial institutions
such as commercial banks, thrifts, and other investment firms. As a result of
recent and pending regulatory initiatives to relieve certain restrictions on
commercial banks, competition to provide financial services, once dominated by
securities firms, has increased and may continue to increase. In addition,
recent consolidation in the financial services industry may lead to increased
competition from larger diversified organizations. At present, the Company is
unable to predict the extent of these changes and the impact on the Company's
results of operations.
<PAGE>
The following summarizes the changes in the major categories of revenues and
expenses for the respective periods.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31, December 31, December 31,
Increase (Decrease) 1997 vs. 1996 1996 vs. 1995
- ----------------------------------------------------------------------------------------------------------
Dollars in thousands Amount Percentage Amount Percentage
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Commissions $ 5,863 13 % $ 5,184 13 %
Principal transactions 704 4 ( 864) ( 4)
Investment banking 12,223 75 4,132 34
Interest 7,623 55 772 6
Other revenues ( 130) ( 1) 5,229 47
$ 26,283 24 % $ 14,453 15 %
Expenses:
Compensation and benefits $ 15,329 23 % $ 9,578 17 %
Commissions and floor brokerage 139 5 322 14
Communication and office supplies 117 2 ( 854) ( 11)
Occupancy and equipment rental 151 2 ( 554) ( 7)
Interest 4,794 58 ( 115) ( 1)
Litigation, settlements, and bad debts 434 13 1,682 105
Other operating expenses 1,500 18 99 1
$ 22,464 22 % $ 10,158 11 %
</TABLE>
*This Management's Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements, as well as a discussion of
some of the risks and uncertainties involved in the Company's businesses that
could affect the matters referred to in such statements.
<PAGE>
1997 As Compared to 1996
The Company benefited from strong market conditions driven by continued low
interest rates, low inflation, and strong equity markets experienced industry-
wide. Trading volume on the three major U.S. markets (NYSE, NASDAQ, and AMEX)
and net sales of mutual funds reached new highs. Trading volume on the major
U.S. markets increased 22%, along with industry-wide net sales of mutual funds
increasing 10% compared to 1996. The Company recorded revenues of $136.1
million, a $26.3 million (24%) increase over 1996. Net income for 1997
reached $5.7 million, an increase of $2.3 million (67%) over 1996. Net income
per diluted share rose 48% to $0.92 from $0.62 in 1996.
Revenue from commissions increased $5.9 million (13%) to $49.8 million in
1997. The increase was mainly comprised from sales of mutual funds - up $2.0
million (21%); over-the-counter equity securities - up $1.5 million (8%);
listed equity securities - up $1.3 million (13%); and insurance and annuity
products - up $1.1 million (40%).
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 transaction revenue. Revenues from principal transactions increased
$700,000 (4%) from 1996 to 1997. The increase resulted from a rise in sales
of over-the-counter equities which was partially offset by a decrease in fixed
income transactions. Low interest rates, low inflation, and a rising stock
market fueled greater investor demands for equities and lower levels of demand
for municipal and corporate debt.
Investment banking revenue is derived from underwriting of corporate and
municipal securities and providing advisory services to clients. These
revenues increased $12.2 million (75%), to $28.5 million in 1997 from $16.3
million in 1996, as favorable market conditions continued to support these
activities. Underwriting and advisory services for the Company's corporate
clients comprised the majority of the increase. During the year, the Company
completed 25 managed or co-managed offerings, an increase of 35% over 1996,
principally for underwriting Trust Preferred securities and mortgage REIT
transactions.
Interest revenue increased $7.6 million, or 55%, in 1997 compared with the
prior year. The majority of the increase ($7.4 million) resulted from
interest earned from customer borrowings on margin accounts. Average margin
account balances increased 60% principally as a result of significant customer
borrowings during the first nine months of the year.
Other revenues decreased $130,000 (1%) from 1996 to 1997. Certain components
within other revenues, however, fluctuated significantly. Increased fees from
investment management services and other advisory and asset management
programs were offset by the absence of a significant investment gain recorded
in 1996. This $3.3 million investment gain was the result of an exercise of
warrants relating to an underwriting and the subsequent sale of the equity
securities.
Total expenses increased $22.5 million (22%) to $126.7 million from $104.2
million principally as a result of increased compensation and benefits and
interest expense.
<PAGE>
Compensation and benefits, a significant portion of the Company's total
expenses, rose $15.3 million (23%) in 1997. A majority of the increase
resulted from compensation that is variable in nature and was commensurate
with commissionable revenues and departmental, subsidiary, and firm-wide
profitability.
Interest expense increased $4.8 million (58%) as a result of increased levels
of short-term borrowings by the Company. These borrowings were necessary to
finance the increased activity in customer margin accounts.
Several of the remaining expense categories were relatively unchanged during
1997. The following discussion focuses on expense items with significant
changes.
Litigation, settlements, and bad debt expense increased $400,000 in 1997. The
1997 expense includes a $2.5 million provision for estimated costs to address
various litigation matters related primarily to the Company's former Oklahoma
operations.
Other operating expenses increased $1.5 million, or 18%, during 1997 primarily
due to increased travel and promotion cost from efforts to expand the
Company's private client and institutional businesses and fees paid for
professional services and employment search firms.
1996 As Compared to 1995
The Company recorded $0.62 earnings per dilutive share in 1996 compared to
$0.13 earnings per dilutive 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%) growth in total revenues in 1996
over 1995 revenues, increasing to $109.8 million from $95.4 million. Average
revenues per Investment Executive increased $43,000 (22%) 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%) 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%) 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 (23%) 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 (37%) 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.
<PAGE>
Investment banking, which consists of revenue derived from underwriting
corporate and municipal securities and advisory fees, increased $4.2 million
(34%) to $16.3 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%) 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 (6%) to $13.7 million from $13.0
million as a result of increased borrowing by customers to finance their
investments.
Other income increased $5.2 million (47%) to $16.4 million from $11.2 million
principally due to a 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%)
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 (11%) to $104.2 million from $94.0
million largely as a result of increased compensation and benefits, which
increased $9.6 million (17%) to $66.8 million from $57.2 million, and
litigation, settlements, and bad debts, which increased $1.7 million (105%) 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 (14%) 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%) to $6.8 million from $7.7 million and $600,000 (7%)
to $7.9 million from $8.5 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 (105%) 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.
<PAGE>
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.
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.
In 1997, the Company issued $5 million principal amount of notes due on
June 30, 1999, with interest payable monthly at the monthly LIBOR rate plus 1%
(6.53% at December 31, 1997) beginning February 1, 1998.
Management believes that funds from operations, available informal short-term
credit arrangements, and long-term borrowings 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, 1997, Stifel, Nicolaus had net capital of approximately $28.2
million, which exceeded the minimum net capital requirements by approximately
$23.4 million.
<PAGE>
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
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 enacted provisions of SFAS No. 125 had no material effect on the
Company's financial condition or results of operations. With respect to the
provisions of SFAS No. 125 which become effective in 1998, the Company does
not expect the impact of the adoption of the deferred provisions to be
material to the Company's financial condition or results of operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information." These statements, which are effective for fiscal years
beginning after December 15, 1997, establish standards for the reporting and
display of comprehensive income and the disclosure requirements related to
segments.
<PAGE>
<TABLE>
Consolidated Statements Of Financial Condition
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
(In thousands) December 31, 1997 December 31, 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets Cash and cash equivalents $ 15,366 $ 7,960
--------------------------------------------------------------------------------------------------
Cash segregated for the exclusive benefit of customers 177 483
--------------------------------------------------------------------------------------------------
Receivable from brokers and dealers:
Securities failed to deliver 481 617
Deposits paid for securities borrowed 18,223 10,284
Settlement balances with clearing organizations 16,519 3,935
--------------------------------------------------------------------------------------------------
35,223 14,836
--------------------------------------------------------------------------------------------------
Receivable from customers, net of allowance for doubtful
accounts of $556 and $582, respectively 218,301 235,216
--------------------------------------------------------------------------------------------------
Securities owned, at fair value:
U.S. Government obligations 4,763 3,619
State and municipal obligations 6,471 9,506
Corporate obligations 2,153 3,502
Corporate stocks 5,825 2,286
--------------------------------------------------------------------------------------------------
19,212 18,913
--------------------------------------------------------------------------------------------------
Memberships in exchanges, at cost 513 513
Office equipment and leasehold improvements, at cost,
net of allowances for depreciation and amortization of
$10,890 and $10,125, respectively 2,227 2,233
Goodwill, net of accumulated amortization of $1,414
and $1,107, respectively 4,181 4,488
Notes receivable from and advances to officers and
employees, net of allowance for doubtful receivables of
$2,376 and $2,552, respectively 4,249 3,373
Refundable income taxes 65 358
Deferred tax asset 4,577 3,671
Other assets 11,393 9,300
--------------------------------------------------------------------------------------------------
TOTAL ASSETS $315,484 $301,344
==================================================================================================
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements Of Financial Condition
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
(In thousands, except share amounts) December 31, 1997 December 31, 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Short-term borrowings from banks $ 89,150 $132,400
Stockholders' --------------------------------------------------------------------------------------------------
Equity Payable to brokers and dealers:
Securities failed to receive 1,242 421
Deposits received from securities loaned 72,466 46,727
--------------------------------------------------------------------------------------------------
73,708 47,148
--------------------------------------------------------------------------------------------------
Payable to customers 39,239 32,095
Securities sold, but not yet purchased, at fair value 4,264 3,229
Drafts payable 13,966 15,287
Accrued employee compensation 19,247 14,756
Obligations under capital leases 522 581
Accounts payable and accrued expenses 15,707 8,096
Long-term debt 9,600 10,000
--------------------------------------------------------------------------------------------------
Total 265,403 263,592
--------------------------------------------------------------------------------------------------
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 6,678,223 and 4,767,715 shares,
respectively 1,002 715
Additional paid-in capital 37,006 21,403
Retained earnings 17,425 16,733
--------------------------------------------------------------------------------------------------
55,433 38,851
--------------------------------------------------------------------------------------------------
Less:
Treasury stock, at cost
168,648 and 135,455 shares, respectively 1,989 892
Unamortized expense of restricted stock awards 185 207
Unearned employee stock ownership plan shares,
at cost, 236,250 and 0 shares, respectively 3,178 - -
--------------------------------------------------------------------------------------------------
Total Stockholders' Equity 50,081 37,752
--------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $315,484 $301,344
==================================================================================================
</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, 1997 December 31, 1996 December 31, 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues Commissions $ 49,763 $ 43,900 $ 38,716
Principal transactions 20,202 19,498 20,362
Investment banking 28,476 16,253 12,121
Interest 21,397 13,774 13,002
Other 16,258 16,388 11,159
------------------------------------------------------------------------------------------------
136,096 109,813 95,360
- ----------------------------------------------------------------------------------------------------------------------
Expenses Employee compensation and benefits 82,094 66,765 57,187
Commissions and floor brokerage 2,780 2,641 2,319
Communications and office supplies 6,914 6,797 7,651
Occupancy and equipment rental 8,109 7,958 8,512
Interest 12,991 8,197 8,312
Litigation, settlements, and bad debts 3,726 3,292 1,610
Other operating expenses 10,061 8,561 8,462
------------------------------------------------------------------------------------------------
126,675 104,211 94,053
- ----------------------------------------------------------------------------------------------------------------------
Income before income taxes 9,421 5,602 1,307
Provision for income taxes 3,750 2,209 663
------------------------------------------------------------------------------------------------
Net income $ 5,671 $ 3,393 $ 644
================================================================================================
- ----------------------------------------------------------------------------------------------------------------------
Earnings Per Common Net income per share:
Share and Share Basic earnings per share $ 1.06 $ 0.69 $ 0.13
Equivalents Diluted earnings per share $ 0.92 $ 0.62 $ 0.13
------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
Consolidated Statements Of Stockholders' Equity
<CAPTION>
Treasury Stock and Unamortized
Additional Unearned Employee Expense of
Common Stock Paid-In Retained Stock Ownership Plan 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, 1995 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 ($.05 per share) ( 223) ( 223)
Purchase of treasury shares ( 69,713) ( 520) ( 520)
Employee benefit plans ( 132) 118,953 753 621
Stock options exercised ( 1) 615 4 3
Restricted stock awards granted 162 3,000 20 (182) - -
Amortization of restricted stock
awards 75 75
Dividend reinvestment 1,365 13 13
Net income for the year 3,393 3,393
5% stock dividend 226,825 34 1,752 ( 1,786) ( 6,450) - -
- ------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 4,767,715 715 21,403 16,733 (135,455) ( 892) (207) 37,752
- ------------------------------------------------------------------------------------------------------------------------
Cash dividends - common
stock ($.12 per share) ( 609) ( 609)
Purchase of treasury shares (276,331) (2,926) ( 2,926)
Employee benefit plans ( 82) 158,740 1,098 1,016
Stock options exercised ( 274) 49,467 375 101
Restricted stock awards ( 196) 42,168 349 (153) - -
Amortization of restricted stock
awards 175 175
Shares issued 1,592,707 239 11,832 12,071
Dividend reinvestment 1 794 7 8
Net income for the year 5,671 5,671
5% stock dividend 317,801 48 4,322 ( 4,370) ( 8,031) - -
Employee stock ownership plan (236,250) (3,178) ( 3,178)
- ------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 6,678,223 $1,002 $ 37,006 $ 17,425 (404,898) $(5,167) $(185) $ 50,081
- ------------------------------------------------------------------------------------------------------------------------
</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, 1997 December 31, 1996 December 31, 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows Net income $ 5,671 $ 3,393 $ 644
From Operating -------------------------------------------------------------------------------------------------------
Activities Noncash items included in earnings:
Depreciation and amortization 1,519 1,664 1,990
Unrealized (gain) loss on investments ( 197) 28 ( 57)
Bonus notes amortization 1,178 1,213 1,033
Deferred compensation 920 571 468
Amortization of restricted stock awards
and stock benefits 172 75 84
Deferred taxes ( 907) 231 736
-------------------------------------------------------------------------------------------------------
8,356 7,175 4,898
Decrease (increase) in operating receivables:
Customers 16,915 (78,291) (17,005)
Brokers and dealers (20,387) 1,588 5,409
Increase (decrease) in operating payables:
Customers 7,144 289 7,437
Brokers and dealers 26,560 24,020 (23,268)
Decrease (increase) in assets:
Cash and U.S. Government securities
segregated for the exclusive benefit
of customers 305 293 540
Securities owned ( 300) 608 3,798
Notes receivable from officers and employees ( 2,409) ( 1,030) ( 1,190)
Other assets 1,830 ( 560) ( 2,125)
Increase (decrease) in liabilities:
Securities sold, not yet purchased 1,035 485 ( 1,508)
Drafts payable, accounts payable and
accrued expenses, and accrued employee
compensation 10,148 1,302 1,822
-------------------------------------------------------------------------------------------------------
Cash Provided By (Used For)
Operating Activities 49,197 (44,121) ( 21,192)
-------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
Consolidated Statement Of Cash Flows
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended
(In thousands) December 31, 1997 December 31, 1996 December 31, 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Provided By (Used For) Operating--
Activities From Previous Page $ 49,197 $ (44,121) $( 21,192)
- -------------------------------------------------------------------------------------------------------------------------
Cash Flows Net (payments) proceeds for short-term
From Financing borrowings from banks (43,250) 45,950 20,800
Activities Proceeds from:
Issuance of stock 2,071 - - - -
Long-term debt 9,600 - - - -
Employee stock purchase plan 727 617 755
Exercised stock options 101 3 124
Subordinated borrowings 8,000 - - - -
Dividend reinvestment plan 8 13 10
Payments for:
Settlement of long-term debt - - ( 760) ( 760)
Purchases of stock for treasury ( 2,926) ( 520) ( 547)
Principal payments under
capital lease obligation ( 392) ( 431) ( 256)
Subordinated borrowings ( 8,000) ( 50) - -
Cash dividends and rights redemption ( 609) ( 628) ( 500)
Purchase of stock for employee stock
ownership plan ( 3,178) - - - -
-------------------------------------------------------------------------------------------------------
Cash (Used For) Provided By
Financing Activities (37,848) 44,194 19,626
- -------------------------------------------------------------------------------------------------------------------------
Cash Flows Proceeds from:
From Investing Sale of office equipment and leasehold
Activities improvements 145 28 910
Sale of investments 84 3,753 1,694
Payments for:
Acquisition of office equipment and
leasehold improvements ( 999) ( 443) ( 1,179)
Acquisition of investments ( 3,173) ( 1,795) ( 440)
-------------------------------------------------------------------------------------------------------
Cash (Used For) Provided By Investing Activities ( 3,943) 1,543 985
-------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents 7,406 1,616 ( 581)
Cash and cash equivalents -
beginning of year 7,960 6,344 6,925
-------------------------------------------------------------------------------------------------------
Cash and cash equivalents -
end of year $ 15,366 $ 7,960 $ 6,344
=======================================================================================================
Supplemental disclosures of cash flow information:
Interest payments $ 13,093 $ 8,264 $ 8,237
Income tax payments $ 3,418 $ 2,247 $ 372
Schedule of Noncash Investing and Financing Activities
Fixed assets acquired under capital lease $ 405 $ 240 - -
Restricted stock awards, net of forfeitures $ 153 $ 182 $ 3
Employee stock ownership shares issued $ 300 $ 280 - -
Debt converted into stock $ 10,000 - - - -
Stock dividends distributed $ 4,370 $ 1,786 $ 1,406
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Notes To Consolidated Financial Statements
(in thousands, except share and per share amounts)
Note A - Summary of Significant 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.
The Company defines 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 and certain subsidiaries are included in other assets and are carried
at the lower of historical cost or fair value. Investment securities of other
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 revenue 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, 1997, the estimated fair value of the
notes was $7,517.
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
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 remaining 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.
During the year, the Company implemented The Financial Accounting Standard
Board's (FASB) SFAS 128 "Earnings Per Share." This statement simplifies the
computation of earnings per share (EPS) by replacing the primary EPS
requirements with a "basic" EPS computation. Basic earnings per share of
common stock is computed by dividing income available to shareholders by the
weighted average number of common shares outstanding during the periods.
Diluted earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. Diluted earnings include dilutive
stock options under the treasury stock method and dilutive shares from Senior
Convertible Notes under the if converted method. All prior year EPS
computations have been recalculated in accordance with the provisions of SFAS
128.
<PAGE>
Note B - Special Reserve Bank Account
At December 31, 1997, cash of $177 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 $260,000 at
December 31, 1997, of which $170,850 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 6.87% and 6.07% at December 31, 1997 and 1996, respectively. Certain
short-term borrowings were collateralized by company-owned securities valued
at approximately $28,452 on a settlement date basis. Short-term borrowings
used to finance receivables from customers were collateralized by customer-
owned securities valued at approximately $108,821 at December 31, 1997. 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, 1997, 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 $37,705, representing the minimum margin deposit requirement at
December 31, 1997.
<PAGE>
The future minimum rental commitments at December 31, 1997, 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 Commitments
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 $ 382 $ 3,538 $(169) $ 3,369
1999 144 3,225 ( 96) 3,129
2000 23 3,086 ( 28) 3,058
2001 0 1,971 0 1,971
2002 0 1,035 0 1,035
Thereafter 0 1,104 0 1,104
- ----------------------------------------------------------------------------------------------------------
Minimum Commitments $ 549 $ 13,959 $(293) $13,666
Less Interest 27 ========= ====== =======
------
Net Present Value of Capital
Lease Obligations $ 522
======
</TABLE>
Rental expense for the years ended 1997, 1996, and 1995 approximated $2,899,
$3,541, and $3,986, respectively.
Office equipment under capital leases, with a recorded cost of approximately
$497 net of amortization of $1,036, and $566 net of amortization of $953 at
December 31, 1997 and 1996, respectively, 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 1997, 1996, and 1995 was $1,224, $1,384, and
$1,732, respectively.
Note E - Net Capital Requirements
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.
<PAGE>
At December 31, 1997, Stifel, Nicolaus had net capital of $28,227, which was
11.7 percent of aggregate debit items and $23,396 in excess of minimum
required net capital.
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 five hundred dollars in annual
contributions for 1997, 1996, and 1995. Additional contributions by the
Company are discretionary. The amounts charged to operations for the PSP were
$142, $146, and $166, for 1997, 1996, and 1995, 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 $920, $571, and
$468, for 1997, 1996, and 1995, respectively.
Note G - Stock-Based Compensation Plans
At December 31, 1997, 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:
- ----------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------
Net income
As reported $5,671 $3,393 $644
Pro forma $5,283 $3,345 $621
- ----------------------------------------------------------------------------
Basic earnings per share
As reported $ 1.06 $ .69 $ .13
Pro forma $ .99 $ .68 $ .13
- ----------------------------------------------------------------------------
Diluted earnings per share
As reported $ .92 $ .62 $ .13
Pro forma $ .86 $ .61 $ .13
- ----------------------------------------------------------------------------
<PAGE>
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 and an incentive stock award plan.
Under the Company's 1983 and 1985 Incentive Stock Option Plans, the Company
granted options up to an aggregate of 450,000 shares to key employees. Under
the Company's 1987 non-qualified stock option plan, the Company granted
options up to an aggregate of 100,000 shares. Under the Company's 1997
"Incentive Stock Plan," the Company may grant incentive stock options, stock
appreciation rights, restricted stock, and performance awards up to an
aggregate of 600,000 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 six months to 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 1997, 1996, and 1995, respectively: dividend yield of 1.50%, 1.88%,
and 1.88%, expected volatility of 42.7%, 26.7%, and 22.2%; risk-free interest
rates of 6.22%, 6.17%, and 6.06%, and expected lives of 5.25 years for all
years.
<PAGE>
The summary of the status of the Company's fixed stock option plans as of
December 31, 1997, 1996, and 1995, and changes during the years ending on
those dates as adjusted for the 5% stock divided declared on January 20, 1998,
is presented below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------- ------------------------- -------------------------
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 455,102 $ 5.36 366,385 $ 5.29 434,455 $5.42
- ------------------------------------------------------------------------------------------------------------------------
Granted 378,090 10.24 116,631 35,020 5.48
Exercised ( 42,311) 5.36 ( 678) 4.57 ( 25,959) 4.76
Forfeited ( 6,059) 4.99 ( 27,236) 5.49 ( 72,443) 6.52
Expired ( 56,615) 5.82 - - - - ( 4,688) 4.38
- ------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 728,207 $ 7.86 455,102 $ 5.36 366,385 $5.29
========================================================================================================================
Options exercisable at year-end 343,029 267,532 275,846
Weighted-average fair value of
options granted during the year $4.27 $1.89 $1.53
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
----------------------------------------------------- ---------------------------------
Number Weighted-Average Number
Range of Outstanding at Remaining Weighted-Average Exercisable at Weighted-Average
Exercise Prices 12/31/97 Contractual Life Exercise Price 12/31/97 Exercise Price
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3.92 - $ 4.57 149,026 1.94 years $ 4.3396 149,026 $ 4.3396
4.83 - 5.86 151,205 6.37 years 5.6023 93,768 5.5305
5.89 - 8.12 189,101 8.48 years 6.7765 73,985 6.6549
11.37 - 11.37 189,000 6.43 years 11.3690 26,250 11.3690
16.07 - 16.07 49,875 10.00 years 16.0714 0 0.0000
- -------------------------------------------------------------------------------------------------------------------
$ 3.92 - $16.07 728,207 6.27 years $ 7.8625 343,029 $ 5.7024
===================================================================================================================
</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 37% of eligible employees have participated in the ESPP
in the last three years. Under the ESPP, the Company sold 124,777 shares,
115,217 shares, and 112,613 shares, to employees in 1997, 1996, and 1995,
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 1997, 1996, and
1995, respectively: dividend yield of 1.50%, 1.88%, and 1.88%; expected
volatility of 42.7%, 26.7%, and 22.2%; risk-free interest rates of 5.61%,
5.09%, and 7.05%; and expected lives of one year for the three years. The
weighted-average fair value of those purchase rights granted in 1997, 1996,
and 1995 was $2.06, $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
45,501, 3,000, and 13,000 shares of restricted stock, with a fair value of
$153, $182, and $82, during 1997, 1996, and 1995, respectively. As of
December 31, 1997, restricted stock awards covering 38,283 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 $160) to total
compensation. In 1997, the Company purchased 236,250 shares for $3,178 and
contributed these shares to the ESOP. The unallocated shares will be released
for allocation to the participants based upon employer contributions to fund
an internal loan between the Parent and the ESOP. At December 31, 1997, the
plan held 523,382 shares and has allocated 287,132 shares of the Parents'
common stock valued at $8,411 and $4,615, respectively. The Company charged
to operations $300 and $280 for the ESOP contribution for 1997 and 1996,
respectively. There were no contributions for the ESOP for 1995.
<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 condition and
results of operations. However, depending upon the period of resolution, such
effects could be material to the financial results of an individual operating
period. It is reasonably possible that certain of these lawsuits and
arbitrations could be resolved in the next year, and management does not
believe such resolutions will result in losses materially in excess of the
amounts previously provided.
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 by
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 $608 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. The State of Oklahoma
suit was dismissed by the United States District Court for the Western District
of Oklahoma and is currently on appeal in the United States Tenth Circuit Court
of Appeals. Although the ultimate outcome of these actions cannot be
ascertained at this time and the results of legal proceedings cannot be
predicted with certainty, management, based on its understanding of the facts
and after consultation with outside counsel, does not believe the ultimate
resolution of these matters will have a materially adverse effect on the
Company's consolidated financial condition and results of operations.
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.
Derivatives
The Company deals, on an agency basis, 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.
Note J - Long-Term Debt
At December 31, 1996, the Parent had outstanding $10,000 aggregate principal
amount of its 11.25 percent senior convertible notes due September 1, 1997,
through September 1, 2000. During the year, the notes were converted into
1,488,592 shares of the Company's $0.15 par value common stock at a conversion
price of $6.72 per share. Interest charged to operations for these notes was
$886, $1,125, and $1,125 for years 1997, 1996, and 1995, respectively.
At December 31, 1997, the Company had outstanding with a stockholder $5,000
principal amount of notes due on June 30, 1999. Interest payments are due
monthly commencing February 1, 1998, at the monthly LIBOR rate plus 1% (6.53%
at December 31, 1997).
In 1997, the Company formed a Limited Liability Corporation ("LLC") to be a
certified capital company under the statutes of the state of Missouri. The
LLC issued $4,600 non-interest bearing notes due May 15, 2008, and is included
in the Company's consolidated statement of financial condition under the
caption "long-term debt." Under the provisions of the statutes for certified
capital companies, U.S. Treasury Notes of $2,507 have been placed in escrow to
provide for repayment of the notes.
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.
<PAGE>
<TABLE>
Note L - Income Taxes
The Company's provision for income taxes consists of:
<CAPTION>
- -------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended
December 31, 1997 December 31, 1996 December 31, 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 3,760 $1,597 $( 59)
State 897 381 ( 14)
- -------------------------------------------------------------------------------------------
$ 4,657 $1,978 $( 73)
Deferred:
Federal $( 732) $ 187 $ 594
State $( 175) 44 142
- -------------------------------------------------------------------------------------------
$( 907) $ 231 $ 736
- -------------------------------------------------------------------------------------------
$ 3,750 $2,209 $ 663
===========================================================================================
</TABLE>
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to income before income taxes for the
following reasons:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended
December 31, 1997 December 31, 1996 December 31, 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal tax computed at statutory rates $ 3,203 $ 1,904 $ 444
State income taxes, net of federal
income tax benefit 476 281 84
Tax-exempt interest, net of related
interest expense ( 70) ( 59) (62)
Goodwill amortization 80 80 80
Meals and entertainment 104 103 96
SEC fine - - - - 85
Increase in cash surrender value of
life insurance ( 63) ( 36) ( 27)
Other, net 20 ( 64) ( 37)
- -----------------------------------------------------------------------------------------------------------
Provision for income taxes $ 3,750 $ 2,209 $ 663
===========================================================================================================
</TABLE>
<PAGE>
The net deferred tax asset consists of the following temporary differences:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
December 31, 1997 December 31, 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred Tax Receivables from customers, principally due to
Asset allowance for doubtful accounts $ 217 $ 227
Office equipment and leasehold improvements,
principally book over tax depreciation 1,037 856
Deferred compensation 1,135 810
Deferred revenue 229 195
Investments, principally due to valuation allowance 26 25
Receivables from officers and employees, principally
due to allowance for doubtful accounts 950 1,111
Accruals not currently deductible 1,277 783
Other 78 15
--------------------------------------------------------------------------------------------------------
Deferred Tax Asset 4,949 4,022
--------------------------------------------------------------------------------------------------------
Deferred Tax Intangible assets, principally tax over book amortization ( 203) ( 211)
Liability Investment fee revenue installment receivable ( 169) ( 140)
--------------------------------------------------------------------------------------------------------
Total Gross Deferred Tax Liability ( 372) ( 351)
--------------------------------------------------------------------------------------------------------
Net Deferred Tax Asset $ 4,577 $ 3,671
========================================================================================================
</TABLE>
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 $1,540,
$801, and $1,263 (primarily for legal fees) to operations for these services
for 1997, 1996, and 1995, 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 $46, $17, and
$20, for 1997, 1996, and 1995, respectively, for these services.
Certain directors of the Parent have a general partnership interest in an
enterprise in which the Company also holds general and limited partnership
interests carried at approximately $507 at December 31, 1997, and $663 at
December 31, 1996.
<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
- ----------------------------------------------------------------------------------------------------------------
Payments/charges 177 - - - - - - 177
Adjustments through operations 318 - - - - - - 318
- ----------------------------------------------------------------------------------------------------------------
December 31, 1997 Balance $ 162 - - - - - - $ 162
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The balances at December 31, 1997, and December 31, 1996, 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"). 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%.
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
Basic income per 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.
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 is being
leased back to Affinity. Principal and interest payments on the note and
dividend payments are made monthly based upon the level of activity of
Affinity's broker-dealer subsidiary.
<PAGE>
Note P - Earnings Per Share
During the year, the Company adopted SFAS 128. The following table reflects a
reconciliation between Basic EPS and Diluted EPS.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
December 31, 1997 December 31, 1996 December 31, 1995
---------------------------------- ---------------------------------- --------------------------------
Income Shares Per Share Income Shares Per Share Income Shares Per Share
Net Income (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic Earnings Per Share
Income available to
shareholders $5,671 5,324,895 $1.06 $3,393 4,905,236 $0.69 $644 4,836,894 $ 0.13
Effect of Dilutive Securities
Options, ESPP, and deferred
compensation - - 271,960 - - - - 97,650 - - - - 70,464 --
Convertible debt 541 1,157,802 - - 601 1,488,602 - - N/A* N/A* --
Diluted Earnings Per Share
Income available to common
stockholders and assumed
conversions $6,212 6,754,657 $0.92 $3,994 6,491,488 $0.62 $644 4,907,358 $ 0.13
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Anti-dilutive
<PAGE>
Note Q - Subsequent Event
On January 20, 1998, the Company's Board of Directors approved a 5 percent
stock dividend to be distributed and a $.03 per share cash dividend to be paid
on February 26, 1998, to shareholders of record on February 12, 1998. All
share and per share data have been adjusted to reflect the stock dividend.
Note R - 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 enacted provisions of SFAS No. 125 had no material effect on the
Company's financial condition of results of operations. With respect to the
provisions of SFAS No. 125 which become effective in 1998, the Company does
not expect the impact of the adoption of the deferred provisions to be
material to the Company's financial condition or results of operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information." These statements, which are effective for fiscal years
beginning after December 15, 1997, establish standards for the reporting and
display of comprehensive income and the disclosure requirements related to
segments.
<PAGE>
Independent Auditor's Report
Independent Auditor's 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, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the years 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 audits. The financial statements of the Company for the year
ended December 31, 1995, were audited by other auditors whose report, dated
February 25, 1996, expressed an unqualified opinion on those statements.
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, such 1997 and 1996 consolidated financial statements present
fairly, in all material respects, the consolidated financial position of
Stifel Financial Corp. and Subsidiaries as of December 31, 1997 and 1996, and
the consolidated results of their operations and their cash flows for the
years then ended, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
February 20, 1998
St. Louis, Missouri
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,
Associates, Inc. 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,
Ohio, Inc. (4) 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, Kentucky Todd Investment
Inc. (3) Advisors, Inc.
Stifel CAPCO, L.L.C. Missouri Stifel CAPCO, L.L.C.
(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.
[Deloitte & Touche LLP letterhead]
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, 33-53097,
333-37805, and 333-37807), on Form S-3 (file number 33-53699),
and on Form S-2 (file number 333-28871) of our report dated
February 20, 1998, incorporated by reference in the Annual Report
on Form 10-K of Stifel Financial Corp. for the year ended
December 31, 1997.
/s/ Deloitte & Touche LLP
February 20, 1998
St. Louis, Missouri
[Coopers & Lybrand L.L.P. letterhead]
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, 33-53097,
333-37805, and 333-37807), on Form S-3 (file number 33-53699),
and on Form S-2 (file number 333-28871) of our report dated
February 25, 1996 on our audit of the consolidated statements of
operations, stockholders' equity and cash flows and financial
statement schedules of Stifel Financial Corp. and Subsidiaries
for the year ended December 31, 1995, which report is
incorporated by reference in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
St. Louis, Missouri
March 25, 1998
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted
from the consolidated statement of financial condition dated
December 31, 1997 and the statement of operations for the year
ended December 31, 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 15,544
<RECEIVABLES> 239,550
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 18,223
<INSTRUMENTS-OWNED> 19,212
<PP&E> 2,227
<TOTAL-ASSETS> 315,484
<SHORT-TERM> 89,150
<PAYABLES> 89,923
<REPOS-SOLD> 0
<SECURITIES-LOANED> 72,466
<INSTRUMENTS-SOLD> 4,264
<LONG-TERM> 9,600
<COMMON> 1,002
0
0
<OTHER-SE> 49,079
<TOTAL-LIABILITY-AND-EQUITY> 315,484
<TRADING-REVENUE> 20,202
<INTEREST-DIVIDENDS> 21,397
<COMMISSIONS> 49,763
<INVESTMENT-BANKING-REVENUES> 28,476
<FEE-REVENUE> 2,950
<INTEREST-EXPENSE> 12,991
<COMPENSATION> 82,094
<INCOME-PRETAX> 9,421
<INCOME-PRE-EXTRAORDINARY> 9,421
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,671
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 0.92
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted
from the consolidated statements of financial condition and the
statements of operations and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996 SEP-27-1996 JUN-28-1996 MAR-29-1996
<CASH> 7,120 8,443 7,723 9,175 5,967
<RECEIVABLES> 172,998 243,141 166,304 168,741 148,085
<SECURITIES-RESALE> 0 0 0 0 0
<SECURITIES-BORROWED> 4,912 10,284 16,943 5,558 11,044
<INSTRUMENTS-OWNED> 19,521 18,913 19,124 24,721 23,117
<PP&E> 3,014 2,233 2,559 2,717 2,770
<TOTAL-ASSETS> 227,288 301,344 231,589 229,313 206,673
<SHORT-TERM> 86,450 132,400 50,225 65,225 74,750
<PAYABLES> 71,934 71,237 49,511 54,255 44,897
<REPOS-SOLD> 0 0 0 0 0
<SECURITIES-LOANED> 20,555 46,727 81,458 60,768 40,276
<INSTRUMENTS-SOLD> 2,744 3,229 3,494 2,271 1,273
<LONG-TERM> 10,760 10,000 10,000 10,000 10,000
<COMMON> 681 715 681 681 681
0 0 0 0 0
0 0 0 0 0
<OTHER-SE> 34,114 37,036 36,070 35,913 34,746
<TOTAL-LIABILITY-AND-EQUITY> 227,288 301,344 231,589 229,313 206,673
<TRADING-REVENUE> 20,362 19,498 14,668 10,017 4,788
<INTEREST-DIVIDENDS> 13,002 13,774 10,069 6,559 3,190
<COMMISSIONS> 38,716 43,900 32,454 22,538 11,042
<INVESTMENT-BANKING-REVENUES> 12,121 16,253 8,034 5,050 1,214
<FEE-REVENUE> 2,617 2,650 2,003 1,375 706
<INTEREST-EXPENSE> 8,312 8,197 6,100 4,008 1,942
<COMPENSATION> 57,187 66,765 47,155 32,718 14,526
<INCOME-PRETAX> 1,307 5,602 3,274 2,499 258
<INCOME-PRE-EXTRAORDINARY> 1,307 5,602 3,274 2,499 258
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 644 3,393 1,969 1,511 150
<EPS-PRIMARY> 0.13 0.69 0.40 0.31 0.03
<EPS-DILUTED> 0.13 0.62 0.38 0.29 0.03
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted
from the consolidated statements of financial condition and the
statements of operations and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> SEP-26-1997 JUN-27-1997 MAR-27-1997
<CASH> 6,392 7,113 6,435
<RECEIVABLES> 226,409 319,037 270,639
<SECURITIES-RESALE> 0 0 0
<SECURITIES-BORROWED> 10,740 12,549 19,569
<INSTRUMENTS-OWNED> 17,234 20,055 27,464
<PP&E> 2,380 2,407 2,312
<TOTAL-ASSETS> 281,496 378,216 343,577
<SHORT-TERM> 61,675 180,575 166,375
<PAYABLES> 65,566 54,968 63,258
<REPOS-SOLD> 0 0 0
<SECURITIES-LOANED> 98,662 89,113 60,893
<INSTRUMENTS-SOLD> 3,337 3,507 3,536
<LONG-TERM> 7,500 10,000 10,000
<COMMON> 795 715 715
0 0 0
0 0 0
<OTHER-SE> 43,961 39,338 38,801
<TOTAL-LIABILITY-AND-EQUITY> 281,496 378,216 343,577
<TRADING-REVENUE> 14,681 10,117 5,266
<INTEREST-DIVIDENDS> 16,004 10,047 4,045
<COMMISSIONS> 36,804 23,299 11,420
<INVESTMENT-BANKING-REVENUES> 20,130 11,723 7,696
<FEE-REVENUE> 2,146 1,346 633
<INTEREST-EXPENSE> 10,414 6,483 2,351
<COMPENSATION> 59,625 37,595 20,215
<INCOME-PRETAX> 7,680 4,316 2,752
<INCOME-PRE-EXTRAORDINARY> 7,680 4,316 2,752
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 4,580 2,568 1,647
<EPS-PRIMARY> 0.92 0.52 0.33
<EPS-DILUTED> 0.73 0.43 0.27
</TABLE>
