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, 1998
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from __________to __________
.
Commission file number 1-9305
STIFEL FINANCIAL CORP.
- -------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 43-1273600
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
501 N. Broadway
St. Louis, Missouri 63102-2102
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number,including area code 314-342-2000
------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
- -------------------------------------- ------------------------
Common Stock,Par Value $.15 per share New York Stock Exchange
Chicago Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such report) and (2) has been subject to such filing
requirements for the past 90 days.
Yes[x] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K, or any amendment to this
Form 10-K [ ]
<PAGE>2
Aggregate market value of voting stock held by non-affiliates of
the registrant at March 10, 1999 was $58,431,864.
Shares of Common Stock outstanding at March 10, 1999: 7,045,330
shares, par value $.15 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the year ended
December 31, 1998 are incorporated by reference in 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, 1999 are incorporated by
reference in Part III hereof. Exhibit Index located on page 25.
<PAGE>3
PART I
ITEM 1. BUSINESS
Stifel Financial Corp. ("Financial"), a Delaware corporation and
holding company, was organized in 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. Unless the context requires otherwise, 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 54 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.
Principal Sources of Revenue
The amounts of each of the principal sources of revenue of the
Company for the years ended December 31, 1998, 1997 and 1996 are
contained in Item 6. Selected Financial Data, herein.
Narrative Description of Business
As of February 28, 1999, the Company employed 851 individuals.
Stifel Nicolaus employed 821 of which 307 were employed as
investment executives. In addition, 144 investment executives
were affiliated with Century Securities Associates, Inc. ("CSA")
as independent contractors. Through its broker-dealer
subsidiaries, the Company provides securities services to
approximately 104,000 client accounts. No single client accounts
for a material percentage of the Company's total business. The
Company currently divides its business into three segments based
on the products and services offered. These segments are private
client, capital markets, and other. See Note N of the
Consolidated Financial Statements incorporated by reference
herein for a further discussion.
Private Client
The Company provides securities transaction and financial
planning services to its private clients through Stifel Nicolaus'
branch system and its independent contractor firm, CSA. In 1998
management made significant investments in personnel, technology,
and market data platforms to grow the private client segment.
<PAGE>4
Stifel Nicolaus Private Client
Stifel Nicolaus has 51 private client branches located in 12
states, primarily in the Midwest. Its 307 Investment Executives
provide a broad range of services and financial products to their
clients. In most cases Stifel Nicolaus charges commissions on
both stock exchange and over-the-counter transactions, in
accordance with Stifel Nicolaus' commission schedule. In certain
cases, varying discounts from the schedule are granted. In
addition, Stifel Nicolaus distributes both taxable and tax exempt
fixed-income products to its private clients, including
municipal, corporate, government agency and mortgage backed
bonds, preferred stock, and unit investment trusts. An
increasing number of clients are electing asset based fee
alternatives to the traditional commission schedule. In addition,
Stifel Nicolaus distributes insurance and annuity products, and
investment company shares. Stifel Nicolaus has dealer-sales
agreements with numerous distributors of investment company
shares. These agreements generally provide for dealer discounts
ranging up to 5.75 percent of the purchase price, depending upon
the size of the transaction.
Century Securities Associates Inc. Private Client
CSA has affiliations with 144 independent contractors in 29
branch offices and 67 satellite offices in 29 states. Under
their contractual arrangements, these independent contractors may
provide accounting services, real estate brokerage, insurance, or
other business activities for their own account. However, all
securities transactions must be transacted through CSA. CSA's
independent contractors provide the same types of financial
products and services to its private clients, as does Stifel
Nicolaus. Independent contractors are responsible for all of
their direct costs and are paid a larger percentage of
commissions to compensate them for their added expenses. CSA is
an introducing broker-dealer and as such clears its transactions
through Stifel Nicolaus.
Client transactions in securities for Stifel Nicolaus and CSA are
affected on either a cash basis or margin basis. The customer
deposits less than the full cost of the security when securities
are purchased on a margin basis. The Company makes a loan for
the balance of the purchase price. Such loans are collateralized
by the securities purchased. The amounts of the loans are
subject to the margin requirements of Regulation T of the Board
of Governors of the Federal Reserve System, New York Stock
Exchange, Inc. ("NYSE") margin requirements, and the Company's
internal policies, which usually are more restrictive than
Regulation T or NYSE requirements. In permitting customers to
purchase securities on margin, the Company is subject to the risk
of a market decline, which could reduce the value of its
collateral below the amount of the customers' indebtedness.
<PAGE>5
Capital Markets
Capital markets include investment banking, corporate finance and
public finance departments, research department, syndicate
department, over-the-counter equity trading, and institutional
sales and trading.
Investment Banking - Corporate Finance
The investment banking corporate finance group consists of ten
professionals, located in St. Louis, and is involved in public
and private equity and preferred underwritings for corporate
clients, merger and acquisition advisory services, fairness
opinions, and evaluations. Stifel Nicolaus focuses on small and
mid-cap financial institutions, located primarily in the Midwest,
and to a lesser extent mortgage and property real estate
investment trusts.
Research Department
The research department consists of seven analysts who publish
research on over 144 companies. Proprietary research reports are
provided to private and institutional clients at no charge and
are supplemented by research purchased from outside vendors.
Syndicate Department
The syndicate department coordinates the marketing, distribution,
pricing, and stabilization of the Company's lead- and co-managed
underwritings. In addition, the syndicate department coordinates
the firm's syndicate and selling group activities managed by
other investment banking firms.
Over-the-Counter Equity Trading
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. At December
31, 1998, Stifel Nicolaus made a market in 149 equity issues in
the over-the-counter market. The Company does not engage in a
significant amount of trading for its own account.
Institutional Sales
Institutional sales is comprised of institutional equity sales,
fixed income sales, and taxable and tax-exempt trading
departments located in St. Louis. The institutional equity sales
group provides equity products to its institutional accounts in
both the primary and secondary markets. Primary equity issues
are generally underwritten by Stifel Nicolaus' investment banking
corporate finance group. At December 31, 1998, the institutional
equity sales department maintained relationships with over 370
institutional accounts. Stifel Nicolaus buys fixed income
products, both tax-exempt and taxable products, primarily
municipal bonds, corporate, government agency, and mortgage back
bonds for its own account, maintains an inventory of these
products and resells from that inventory to its institutional
accounts. The institutional fixed income sales group maintained
relationships with over 530 accounts at December 31, 1998.
<PAGE>6
Investment Banking-Public Finance
Investment banking public finance consists of eight professionals
with its principal offices in St. Louis and Wichita. Stifel
Nicolaus 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 are
originated through its office in St. Louis.
Other Segments
In addition to its private client segment and capital markets
segment, the company has two investment advisory firms which
provide investment advisory services to individuals, fiduciary,
and corporate clients. Revenues are derived based upon assets
under management. Pin Oak Capital, Ltd. is registered as an
investment advisor in six states and had assets under management
of approximately $147,298,000 at December 31,1998.Todd Investment
Advisors,Inc.("Todd") holds registrations in sixteen states with
approximately $3,088,475,000 of assets under management at
December 31, 1998.
On January 28, 1999, the Board of Directors of the Company
announced the sale of all of the oustanding capital stock of Todd
to a subsidiary of Western and Southern Life Insurance Company, a
significant shareholder of the Company.
Stifel Nicolaus clears transactions for the Company's independent
contractor, CSA, and two other introducing broker-dealers.
Revenues and costs associated with clearing these transactions
are also included in "other segments."
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, on-line service
providers, 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 108-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 two
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 four percent of aggregate debit balances
and may be prohibited from expanding its business and declaring
cash dividends if its net capital is less than five 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 requires 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 $28.5
million at December 31, 1998, which was approximately 10.6
percent of aggregate debit balances and approximately $23.1
million in excess of required net capital.
ITEM 2. PROPERTIES
The headquarters and administrative offices of the Company,
Stifel Nicolaus and CSA are located in downtown Saint Louis,
Missouri. Todd is located in Louisville, Kentucky. Pin Oak is
located in New York, New York. Stifel Nicolaus has a branch
office system located in 12 states, primarily in the Midwest.
The Company has a total of 54 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 office space and equipment,
for the year ended December 31, 1998 was approximately
$4,031,000. 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
The Company is a defendant in several lawsuits relating
principally to its securities business. Some of these lawsuits
and arbitrations claim substantial amounts, including punitive
damages. One such claim involves a lawsuit filed on October 5,
1995 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. The OTA suit seeks $6.5 million in compensatory damages
and an unspecified amount of punitive damages. 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 municipal bond refinancing should have been paid to the
OTA. Although the ultimate outcome of this and other actions
cannot be ascertained at this time, 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.
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.
<PAGE>10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 4a. 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 68 Chairman of the Board of 1978
Financial and Stifel Nicolaus
Ronald J. Kruszewski 40 President and Chief Executive 1997
Officer of Financial and
Stifel Nicolaus
James M. Zemlyak 39 Vice President, Treasurer and 1999
Chief Financial Officer of
Financial and Senior Vice
President and Chief Financial
Officer of Stifel Nicolaus
Charles R. Hartman 55 Vice President and Secretary 1996
of Financial and General Counsel,
Senior Vice President and
Secretary of Stifel Nicolaus
Scott B. McCuaig 49 Vice President of Financial and 1998
Director of Retail Sales &
Marketing of Stifel Nicolaus
Lawrence E. Somraty 50 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 of
the Company.
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 Western and Southern Life Insurance Company,
Laclede Steel Company, Laidlaw Corp., Macroeconomics Advisers,
LLC, and EAC Corporation. He is active in various community
activities. 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. Mr. Kruszewski is a director of digital broadcast
network Corporation.
James M. Zemlyak joined Stifel Nicolaus in February of 1999.
He is Vice President, Treasurer, and Chief Financial Officer of
Financial and Senior Vice President and Chief Financial Officer
of Stifel Nicolaus and a member of the Board of Directors of
Stifel Nicolaus. Prior to joining the Company, Mr. Zymlyak served
as Chief Financial Officer of Baird Financial Corporation and
Managing Director, Chief Financial Officer and a member of the
Board of Directors of Robert W. Baird & Co. Incorporated.
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 from April 1982 to June of 1994, a Los Angeles partner in the
law firm of Rogers & Wells.
Scott B. McCuaig joined Stifel Nicolaus in January of 1998. He
is Vice President of Financial and the Director of Retail Sales &
Marketing, and a member of the Board of Directors of Stifel
Nicolaus. Prior to joining Stifel Nicolaus, Mr. McCuaig was a
Managing Director, head of marketing, regional sales manager, and
a member of the Board of Directors of Robert W. Baird & Co.
Incorporated.
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 of Stifel Nicolaus.
<PAGE>12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
a.) Market Information
The common stock of Financial is traded on the New York Stock
Exchange and Chicago Stock Exchange under the symbol "SF." The
high/low sales prices for Financial's Common Stock for each full
quarterly period for the two most recent calendar years are as
follows:
High and Low Stock Price By Quarter
--------------------------------------------------
1998 1997
Quarter High - Low High - Low
--------------------------------------------------
First $16 3/16 - 12 1/16 $ 8 3/16 - 6 11/16
Second 17 5/8 - 13 11/16 10 15/16- 6 13/16
Third 15 11/16- 9 1/8 11 7/8 - 8 5/16
Fourth 11 1/2 - 8 3/4 15 3/8 - 11 13/16
==================================================
The Company from time-to-time uses funds generated from
operations to purchase the Company's common stock throughout the
calendar year. On January 27, 1999, the Company's Board of
Directors authorized the purchase of an additional 500,000 shares
to be used to satisfy share obligations for employee benefit
plans and for general corporate purposes.
b.) Holders
The approximate number of stockholders of record on March 10,
1999 was 3,000.
c.) Dividends
Dividends paid were as follows:
Record Payment Cash Stock
Date Date Dividend Dividend
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 - -
02/12/98 02/26/98 $0.03 5%
05/12/98 05/28/98 $0.03 - -
08/06/98 08/20/98 $0.03 - -
11/05/98 11/19/98 $0.03 - -
A regular quarterly cash dividend of $0.03 per share was
established on November 30, 1993.
<PAGE>13
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
Stifel Financial Corp. and Subsidiaries
Financial Summary
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------
(In thousands, except 1998 1997 1996 1995 1994
per share and percentages) ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues
Commissions $ 56,729 $ 49,763 $ 43,900 $ 38,716 $ 37,287
Principal transactions 26,465 20,463 19,498 20,362 24,639
Investment banking 15,763 28,476 16,253 12,121 12,634
Interest 18,889 21,397 13,774 13,002 10,918
Other 19,442 15,997 16,388 11,159 8,448
--------- --------- --------- --------- ---------
137,288 136,096 109,813 95,360 93,926
--------- --------- --------- --------- ---------
Expenses
Employee compensation and benefits 86,967 82,094 66,765 57,187 61,527
Commissions and floor brokerage 2,804 2,780 2,641 2,319 2,120
Communications and office supplies 8,389 6,914 6,797 7,651 8,045
Occupancy and equipment 9,549 8,109 7,958 8,512 11,601
Interest 9,798 12,991 8,197 8,312 6,138
Litigation, settlements,and bad debts 830 3,726 3,292 1,610 2,467
Restructuring charge - - - - - - - - 2,672
Other operating expenses 10,362 10,061 8,561 8,462 8,577
--------- --------- --------- --------- ---------
128,699 126,675 104,211 94,053 103,147
--------- --------- --------- --------- ---------
Income (loss) before income taxes 8,589 9,421 5,602 1,307 (9,221)
Provision (benefit) for income taxes 3,344 3,750 2,209 663 (3,718)
--------- --------- --------- --------- ---------
Net income (loss) $ 5,245 $ 5,671 $ 3,393 $ 644 $ (5,503)
========= ========= ========= ========= =========
Per Share Data
Basic earnings (loss)(a) $ .77 $ 1.01 $ .66 $ .13 $ (1.09)
Diluted earnings (loss)(a) $ .73 $ .88 $ .59 $ .13 $ (1.09)
Cash dividends $ .12 $ .12 $ .09 $ .12 $ .09
Other Data
Total assets $ 335,005 $ 315,484 $ 301,344 $ 226,775 $ 222,208
Long-term obligations $ 20,570 9,600 10,000 10,760 11,520
Stockholders' equity $ 54,977 50,081 37,752 34,795 34,226
Net income as % averageity 9.69 % 13.29 % 9.35 % 1.87 % * N.M.
Net income as % revenues 3.82 % 4.17 % 3.09 % 0.68 % * N.M.
Average common shares and share
equivalents outstanding (a):
Basic 6,850 5,591 5,150 5,079 5,042
Diluted 7,198 7,099 6,816 5,152 5,042
- --------------------------------------------------------------------------------------------------
</TABLE>
(a) Retroactively restated to reflect the 5 percent stock dividend
declared January 27, 1999.
* Not Meaningful
<PAGE>14
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The Management's Financial Discussion, including the discussion
under "Year 2000," together with other sections of this Annual
Report, contains forward-looking statements within the meaning of
federal securities laws. Actual results are subject to risks and
uncertainties, including both those specific to the Company and
those specific to the industry which could cause results to
differ materially from those contemplated. The risks and
uncertainties include, but are not limited to, third-party or
Company failures to achieve timely, effective remediation of the
Year 2000 issues, general economic conditions, actions of
competitors, regulatory actions, changes in legislation and
technology changes. Undue reliance should not be placed on the
forward-looking statements, which speak only as of the date of
this Annual Report. The Company does not undertake any
obligation to publicly update any forward-looking statements.
Management's Discussion and Analysis of Financial Condition and
Results of Operations, included on pages 22 through 27 of the
Annual Report of the Registrant to its Stockholders, for the year
ended December 31, 1998, is incorporated herein by reference.
ITEM 7A. Quantitative and Qualitative Disclosures About Market
Risk.
Quantitative and Qualitative Disclosure About Market Risk,
included on page 27 of the Annual Report of the Registrant to its
Stockholders, for the year ended December 31, 1998, is
incorporated herein by reference.
<PAGE>15
ITEM 8. Financial Statements and Supplementary Data.
The following consolidated financial statements included in the
Annual Report of the Registrant to its Stockholders, for the year
ended December 31, 1998, is incorporated herein by reference.
Statement Annual Report Reference
--------- -----------------------
Consolidated Statements of Financial Condition --
December 31, 1998 and December 31, 1997 ................ 28 - 29
Consolidated Statements of Operations --
Years ended December 31, 1998, December 31, 1997
and December 31, 1996.................................. 30
Consolidated Statements of Stockholders' Equity --
Years ended December 31, 1998, December 31, 1997
and December 31, 1996.................................. 31
Consolidated Statements of Cash Flows --
Years ended December 31, 1998, December 31, 1997
and December 31, 1996.................................. 32 - 33
Notes to Consolidated Financial Statements............... 34 - 48
Independent Auditors' Report............................. 49
Selected Quarterly Financial Data, included on page 50 of the
Annual Report of the Registrant to its Stockholders, for the year
ended December 31, 1998, is incorporated herein by reference.
<PAGE>16
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
Information regarding directors is contained in "Voting
Securities and Principal Holders Thereof" and "Election of
Directors," included in the Registrant's Proxy Statement for the
1999 Annual Meeting of Stockholders, which information is
incorporated herein by reference.
Information regarding the executive officers, as of March 26,1999
is contained in "Item 4a Executive Officers of the Registrant,"
hereof. There is no family relationship between any of the named
executive officers.
Information regarding compliance with Section 16 of the
Securities Exchange Act of 1934, as amended, is contained in
"Section 16(a) Beneficial Ownership Reporting Compliance,"
included in the Registrant's Proxy Statement for the 1999 Annual
Meeting of Stockholders, which information is incorporated herein
by reference.
<PAGE>17
ITEM 11. Executive Compensation.
Information regarding executive compensation is contained in
"Executive Compensation," included in the Registrant's Proxy
Statement for the 1999 Annual Meeting of Stockholders, which
information is incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management.
Information regarding security ownership of certain beneficial
owners and management is contained in "Voting Securities and
Principal Holders Thereof," included in the Registrant's Proxy
Statement for the 1999 Annual Meeting of Stockholders, which
information is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions.
Information regarding certain relationships and related
transactions is contained in "Certain Relationships and Related
Transactions," included in the Registrant's Proxy Statement for
the 1999 Annual Meeting of Stockholders, which information is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)(1) Consolidated Financial Statements: Incorporated herein by reference,
are listed in item 8 hereof.
(2) Consolidated Financial Statement Schedules:
Independent Auditors' Report...................................20
Schedule I - Condensed Financial Information of Registrant....21-23
Schedule II- Valuation and Qualifying Accounts.................24
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.
(3) Exhibits: See Exhibit Index on pages 25 and 27 hereof.
(b) Reports on Form 8-K:
There were no reports on Form 8-K during the fourth quarter
ended December 31, 1998.
<PAGE>18
SIGNATURES
Pursuant to the requirements of Section 13 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 1999.
STIFEL FINANCIAL CORP.
(Registrant)
By /s/ Ronald J. Kruszewski
-----------------------------
Ronald J. Kruszewski
(Principal Executive Officer)
/s/ Bernard N. Burkemper
-----------------------------
Bernard N. Burkemper
(Principal Accounting Officer)
<PAGE>19
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 26, 1999, 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/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>20
[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, 1998 and
December 31, 1997, and for each of the three years in the period
ended December 31, 1998, and have issued our report thereon dated
March 5, 1999; such consolidated financial statements and report
are included in your 1998 Annual Report to Stockholders and are
incorporated herein by reference. Our audits also included the
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 consolidated
financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present
fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
March 5, 1999
St. Louis, Missouri
<PAGE>21
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
STIFEL FINANCIAL CORP.
Dec. 31, Dec. 31,
1998 1997
---------- ----------
ASSETS
Cash $ 9,155 $ 9,155
Due from subsidiaries (a) 3,795,026 3,615,656
Investment in subsidiaries (a) 52,684,827 47,214,774
Office equipment and leasehold
improvements,less allowances for
depreciation and amortization of
$11,869,688 and $10,449,850,
respectively 5,195,917 2,136,544
Investments, at cost 1,462,239 1,373,424
Goodwill, net of amortization of
$645,955 and $554,095, respectively 1,723,187 1,815,047
Other assets 2,075,975 2,427,287
----------- -----------
TOTAL ASSETS $66,946,326 $58,591,887
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Due to subsidiaries (a) $ 4,773,926 $ 2,238,164
Obligation under capital lease 847,769 522,498
Long-term debt 5,370,000 5,000,000
Other liabilities 978,417 749,881
----------- -----------
TOTAL LIABILITIES 11,970,112 8,510,543
Stockholders' Equity:
Capital stock 1,082,521 1,001,933
Additional paid-in capital 41,867,576 37,006,360
Retained earnings 18,291,104 17,425,321
----------- -----------
61,241,201 55,433,614
Less treasury stock, at cost 2,161,886 1,989,167
Less unearned employee stock
ownership plan shares 3,021,862 3,178,125
Less unamortized expense of
restricted stock awards, at cost 1,081,239 184,978
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 54,976,214 50,081,344
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS'EQUITY $66,946,326 $58,591,887
=========== ===========
(a) Eliminated in consolidation.
See Notes to Consolidated Financial Statements (Item 8)
<PAGE>22
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(continued)
CONDENSED STATEMENTS OF OPERATIONS
STIFEL FINANCIAL CORP.
Years Ended December 31,
---------------------------------------
1998 1997 1996
Revenues:
Lease $1,762,434 $1,202,248 $1,406,556
Other 523,138 95,015 (59,024)
---------- ---------- ----------
2,285,572 1,297,263 1,347,532
Expenses:
Depreciation and amortization 1,853,837 1,294,108 1,431,798
Professional fees 410,039 290,554 246,178
Provision for doubtful collection - - - - 300,000
Miscellaneous 492,273 194,419 159,460
---------- ---------- ----------
2,756,149 1,779,081 2,137,436
---------- ---------- ----------
Loss before income taxes (470,577) (481,818) (789,904)
Benefit for income taxes (226,522) (201,150) (343,024)
(Loss) before equity in net
Income of subsidiaries (244,055) (280,668) (446,880)
Equity in net income of subsidiaries 5,489,482 5,951,674 3,839,382
---------- ---------- ----------
NET INCOME $5,245,427 $5,671,006 $3,392,502
========== ========== ==========
See Notes to Consolidated Financial Statements (Item 8)
<PAGE>23
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(continued)
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
STIFEL FINANCIAL CORP.
<CAPTION>
Years Ended December 31,
--------------------------------------------
1998 1997 1996
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
<S> <C> <C> <C>
Net income $ 5,245,427 $ 5,671,006 $ 3,392,502
Non-cash items included in net income:
Depreciation and amortization 1,853,837 1,294,108 1,431,798
Deferred items 79,812 (251,492) (119,353)
Undistributed income of subsidiaries (5,489,482) (5,951,674) (3,839,382)
Amortization and forfeitures of restricted
Stock awards and stock benefits 594,800 172,357 75,055
----------- ----------- -----------
2,284,394 934,305 940,620
Net change in due to/due from subsidiaries (179,370) 595,049 1,512,913
(Increase) decrease in other assets 197,542 (796,569) 1,487,309
Increase (decrease) in other liabilities 2,765,035 (169,235) (379,298)
----------- ----------- -----------
CASH FROM OPERATING ACTIVITIES 5,067,601 563,550 3,561,544
=========== =========== ===========
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Shares issued 2,043,402 2,907,790 632,338
Long-term debt 370,000 5,000,000 - -
Payments for:
Settlement of long-term debt - - - - (760,000)
Purchase of stock for treasury (2,160,450) (2,926,452) (520,321)
Purchase unearned ESOP shares - - (3,178,125) - -
Principal payments under capital lease (597,930) (392,248) (433,284)
Cash dividend and rights redemption (829,046) (608,968) (625,128)
----------- ----------- -----------
CASH FROM FINANCING ACTIVITIES (1,174,024) 801,997 (1,706,395)
=========== =========== ===========
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from:
Distributions/sales received on investments 118,300 62,020 36,360
Sales of office equipment and leasehold
improvements 46,205 144,512 23,405
Payments for:
Acquisition of investments (119,999) (633,739) (1,513,232)
Acquisition of Office equipment and leasehold
improvements (3,938,083) (938,340) ( 401,682)
----------- ----------- -----------
CASH FROM INVESTING ACTIVITIES (3,893,577) (1,365,547) (1,855,149)
=========== =========== ===========
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
=========== =========== ===========
Supplemental Disclosures of Cash Flow Information
Schedule of Non-cash Investing and Financing Activities
Fixed assets acquired under capital lease $ 923,000 $ 405,000 $ 240,000
Restricted stock awards, net of forfeitures $ 1,263,000 $ 153,000 $ 182,000
Employee stock ownership shares issued $ 165,000 $ 300,000 $ 280,000
Debt converted to stock - - $10,000,000 - -
Stock dividends distributed $ 3,551,000 $ 4,370,000 $ 1,786,000
See Notes to Consolidated Financial Statements (Item 8)
</TABLE>
<PAGE>24
<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 Deduction of Period
----------- --------- ---------------- --------- ---------
<S> <C> <C> <C> <C>
Year Ended December 31, 1998:
Deducted from asset
account: Allowances
for doubtful accounts $ 555,891 $ 0 $ 0 $ 555,891
Deducted from asset
account: Allowances for
doubtful notes receivables 2,376,351 254,108 2,148,090 <F2> 482,369
Deducted from asset account:
Allowances for doubtful
collection of other assets 62,000 0 58,414 <F5> 3,586
Deducted from asset
Account: Reserves for
Investments 679,846 330,270 0 1,010,116
Deducted from asset
Account: Reserves for
Securities owned 200,000 0 0 200,000
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
<F1> Uncollected accounts written off and recoveries.
<F2> Uncollected notes written off and recoveries.
<F3> Investments disposed of.
<F4> Uncollected asset written off.
<F5> Recovery of account.
</TABLE>
<PAGE>25
EXHIBIT INDEX
Stifel Financial Corp. and Subsidiaries
Annual Report on Form 10-K
Year Ended December 31, 1998
Exhibit
Number Description
3. (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 Annual Report on Form
10-K (File No.1-9305) 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 Annual Report on Form
10-K (File No.1-9305) 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 Annual
Report on Form 10-K (File No.1-9305) 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
Annual Report on Form 10-K (File No. 1-9305) for fiscal
year ended July 30, 1993.
4. (a) Prefered Stock Purchase Rights of Financial,
incorporated herein by reference to Financial's
Registration Statement on Form 8-A (File No. 1- 9305)
filed July 30, 1996.
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 Annual Report on Form 10-K
(File No. 1-9305) 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 Annual Report on Form
10-K(File No.1-9305) for the fiscal year ended July 31,
1992. *
<PAGE>26
(b) Form of Indemnification Agreement with directors dated
as of June 30, 1987, incorporated herein by reference
to Exhibit 10.2 to Financial's Current 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 Annual Report on Form 10-K (File No. 1
-9305) 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 Annual Report on
Form 10-K (File No. 1-9305) for the fiscal year ended
July 28, 1989. *
(g) 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.
(h) 1997 Stock Incentive Plan of Financial, incorporated
herein by reference to Financial's Registration
Statement on Form S-8 (Registration File No. 333-37805)
filed October 14, 1998. *
(i) 1998 Employee Stock Purchase Plan of Financial,
incorporated herein by reference to Financial's
Registration Statement on Form S-8(Registration File No.
333-37807) filed October 14,1998. *
(j)(1) Employment Letter with Ronald J.Kruszewski, incorporated
herein by reference to Exhibit 10(l) to Financial's
Annual Report on Form 10-K (File No. 1-9305) for the
year ended December 31,1997. *
(j)(2) Stock Unit Agreement with Ronald J. Kruszewski, filed
herewith. *
13. Annual Report to Stockholders for the year ended
December 31, 1998, filed herewith. Except for those
portions of pages expressly incorporated by reference,
the 1998 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. Consent of Independent Auditors, filed herewith.
27. 1998 Financial Data Schedule BD, filed herewith.
* Management contract or compensatory plan or arrangement.
EXHIBIT 10. (j)(2)
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
Stock Unit Agreement with Ronald J. Kruszewski
STIFEL FINANCIAL CORP.
STOCK UNIT AGREEMENT
Stifel Financial Corp., a Delaware Corporation ("Company")
and Ronald J. Kruszewski ("Executive") hereby agree as follows:
WHEREAS, the Company established the Stifel Financial Corp.
1997 Incentive Stock Plan (the "Plan") pursuant to which options,
stock appreciation rights and restricted stock covering an
aggregate of 600,000 shares of the Stock of the Company may be
granted to key employees of the Company and its subsidiaries; and
WHEREAS, the Board of Directors of the Company has amended
the Plan to permit the grant of Stock Units; and
WHEREAS, Executive previously purchased 124,688 restricted
shares of Stock for a note to the Company, which the Board of
Directors of the Company agreed to forgive over a period of
approximately six years subject to the continued employment of
Executive; and
WHEREAS, Executive has agreed to surrender such 124,688
restricted shares of Stock in satisfaction of the remaining
balance due on such note, up to the fair market value of such
shares, contingent on the award of 124,688 Stock Units in
replacement of such restricted stock/note arrangement; and
WHEREAS, the Compensation Committee of the Board of
Directors of the Company, as Administrator of the Plan, wishes to
grant Executive 124,688 Stock Units to replace the shares of
Stock surrendered by Executive in partial satisfaction of such
note;
NOW, THEREFORE, in consideration of services rendered and
the mutual covenants herein contained, the parties agree as
follows:
<PAGE>
Section 1. Definitions
As used in this Agreement, the following terms shall
have the following meanings:
A. "Award" means the award provided for in Section 2.
B. "Board of Directors" means the Board of Directors
of the Company.
C. "Change in Control" means:
(i) The acquisition by any individual, entity or
group, or a Person (within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act) of ownership of 15% or more of
either (a) the then outstanding shares of Stock of the Company
(the "Outstanding Company Stock") or (b) the combined voting
power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, such
an acquisition of ownership of 15% or more but less than 25% of
Outstanding Corporation Common Stock or Outstanding Corporation
Voting Securities with the prior approval of the Board of
Directors of the Company shall not result in a Change in Control
within the meaning of this subparagraph; or
(ii) Individuals who, as the date hereof,
constitute the Board (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of
the Incumbent Board, but excluding, as a member of the Incumbent
Board, any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election
contest (as such terms are used in Rule l4a-11 of Regulation l4A
promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
<PAGE>
(iii) Approval by the stockholders of the Company
of a reorganization, merger or consolidation, in each case,
unless, following such reorganization, merger or consolidation,
(a) more than 50% of, respectively, the then outstanding shares
of Stock of the corporation resulting from such reorganization,
merger or consolidation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Stock and Outstanding
Company Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same
proportions as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding
Company Stock and Outstanding Company Voting Securities, as the
case may be, (b) no Person beneficially owns, directly or
indirectly, 15% or more of, respectively, the then outstanding
shares of Stock of the corporation resulting from such
reorganization, merger or consolidation or the combined voting
power of the then outstanding voting securities of such
corporation, entitled to vote generally in the election of
directors (provided, however, such 15% threshold may be increased
up to 25% by the Board of Directors of the Company prior to such
approval by the stockholders) and (c) at least a majority of the
members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of
the Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or
consolidation; or
(iv) Approval by the stockholders of the Company
of (a) a complete liquidation or dissolution of the Company or
(b) the sale or other disposition of all or substantially all of
the assets of the Company, other than to a corporation, with
respect to which following such sale or other disposition,
(1) more than 50% of, respectively, the then outstanding shares
of Stock of such corporation and the combined voting power of the
then outstanding voting securities of such corporation entitled
to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Stock
and Outstanding Company Voting Securities immediately prior to
such sale or other disposition in substantially the same
proportion as their ownership, immediately prior to such sale or
other disposition, of the Outstanding Company Stock and
Outstanding Company Voting Securities, as the case may be, (2) no
Person beneficially owns, directly or indirectly, 15% or more of,
respectively, the then outstanding shares of Stock of such
corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally
in the election of directors (provided, however, such 15%
threshold may be increased up to 25% by the Board of Directors of
the Company prior to such approval by the stockholders) and
(3) at least a majority of the members of the board of directors
of such corporation were members of the Incumbent Board at the
time of the execution of the initial agreement or action of the
Board providing for such sale or other disposition of assets of
the Company.
<PAGE>
D. "Date of Award" means December 21, 1998.
E. "Permanent Disability" means total inability of
Executive, because of bodily injury or disease, to carry out his
duties as an employee of the Company's Subsidiary, Stifel,
Nicolaus & Company, Incorporated, for a period of at least six
consecutive months.
F. "Retirement" means termination of employment with
the Company and its Subsidiaries after attaining the age of 65.
G. "Stock" means the common stock of the Company, par
value fifteen cents ($0.15) per share.
H. "Subsidiary" means any corporation, other than the
Company, in an unbroken chain of corporations beginning with the
Company if, at the relevant date, each of the corporations, other
than the last corporation in the unbroken chain, owns stock
possessing fifty percent or more of the total combined voting
power of all classes of stock in one of the other corporations in
such chain.
Section 2. Award
Subject to the terms of this Agreement, the Company hereby
awards to Executive 124,688 Stock Units, effective as of the Date
of Award. Each Stock Unit represents the obligation of the
Company to transfer one share of Stock to Executive at the time
provided in Section 5 of this Agreement, provided such Stock Unit
is vested at such time.
Section 3. Bookkeeping Account
The Company shall record the number of Stock Units granted
hereunder to a bookkeeping account for Executive (the "Stock Unit
Account"). Executive's Stock Unit Account shall be debited by
the number of Stock Units, if any, forfeited in accordance with
Section 4 and by the number of shares of Stock transferred to
Executive in accordance with Section 5 with respect to such Stock
Units. Executive's Stock Unit Account also shall be adjusted
from time to time for stock dividends, stock splits and other
such transactions in accordance with Section 10.
Section 4. Vesting
Subject to the accelerated vesting provisions provided
below, if Executive remains employed by the Company through the
applicable date, the Stock Units shall vest at the times provided
in the following schedule:
Stock Units Becoming Aggregated Stock
Vesting Date Vested on such Date Units Vested
January 1, 1999 26,250 26,250
January 1, 2000 26,250 52,500
January 1, 2001 26,250 78,750
January 1, 2002 26,250 105,000
January 1, 2003 19,688 124,688
<PAGE>
In the event Executive dies while employed, or terminates
employment on account of his Permanent Disability, before January
1, 2003, an additional number of Stock Units shall vest. The
additional number shall be the number of Stock Units that would
have vested had Executive remained employed by the Company as of
the January 1 next following the year in which such death or
disability occurred, multiplied by a fraction the numerator of
which is the number of days that have elapsed during the calendar
year in which such death or disability occurred and the
denominator of which is 365.
All of the Stock Units granted pursuant to Section 2 shall
be fully vested immediately upon a Change in Control.
In addition, all of the Stock Units granted pursuant to
Section 2 shall be fully vested (a) in the event of termination
of Executive's employment by the Company for a reason other than
a Good Cause Event (as defined below), or (b) Executive's
resignation for Good Reason (as defined below).
The term "Good Cause Event" shall mean (a) a good faith
determination by the Board of Directors, after notice to
Executive and opportunity by Executive to be heard, that
Executive committed a fraud, misappropriation, embezzlement or
theft against or from the Company or any of its subsidiaries, (b)
conviction of Executive of a felony or (c) a good faith
determination by the Board of Directors, after a ninety day
warning and the opportunity to cure and to be heard by the Board
of Directors, on substantial evidence that Executive was grossly
negligent in carrying out, or unreasonably refused to serve or
carry out, the duties and responsibilities of Executive's
employment with the Company.
The term "Good Reason" shall mean the occurrence of any of
the following without the Executive's consent: (a) the assignment
to the Executive of any duties inconsistent in any material
respect with his positions as President and Chief Executive
Officer of the Company (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as
of the commencement of Executive's employment with the Company,
or any action by the Company that results in material diminution
in such positions, authority, duties or responsibilities,
excluding, for this purpose, any isolated, insubstantial and
inadvertent action not taken in bad faith and that is remedied by
the Company promptly after receipt of written notice thereof
given by the Executive; or (b) any failure by the Company to
provide the compensation and benefits to which the Executive is
entitled under any agreement with the Company or any compensation
or benefit plan or practice generally applicable to senior
executives of the Company, other than any isolated, insubstantial
and inadvertent failure not occurring in bad faith and that is
remedied by the Company promptly after receipt of written notice
given by the Executive; or (c) the Company requiring Executive to
be based at a location that is more than fifty miles for St.
Louis, MO.
<PAGE>
In the event of the termination of employment of the
Executive with the Company for any other reason, all Stock Units
that are not vested at the time of such termination of employment
shall be forfeited.
Section 5. Distribution of Shares
Subject to the provisions below, so long as Executive shall
remain employed by the Company, the Company shall transfer shares
of Stock to Executive in annual installments over a period of
seven years beginning January 1, 2007. The number of shares of
Stock in each installment shall be determined under the declining
balance accounting method, based on the number of Stock Units
credited to Executive's Stock Unit Account as of the beginning of
each year in the installment payment period. For example, shares
of Stock equal to 1/7 of the Stock Units credited to Executive's
Stock Unit Account as of January 1, 2007 shall be transferred to
Executive as soon as administratively practical in 2007; 1/6 of
the Stock Units credited to Executive's Stock Unit Account as of
January 1, 2008 shall be transferred to Executive as soon as
administratively practical in 2008; and so on, with the balance
distributed in the seventh year of the payout period.
Executive may elect to defer the date of transfer of Stock
to a specified later date while Executive is still employed.
Such an election shall be delivered in writing to the Company at
least six months before the date of transfer specified above, and
shall be irrevocable after such election deadline.
In the event of the termination of the employment of
Executive with the Company before the payment dates as scheduled
above, the Company shall transfer, as soon as practical after
such a termination of employment, shares of Stock to Executive
equal in number to the Stock Units credited to Executive's Stock
Unit Account at the time of such termination of employment
(regardless of any election to defer the transfer).
Notwithstanding any other provision of this Agreement to the
contrary, no shares of Stock shall be transferred to Executive
prior to the earliest date on which the Company's federal income
tax deduction for such payment is not precluded by Section 162(m)
of the Internal Revenue Code. In the event any payment is
delayed solely as a result of the preceding restriction, such
payment shall be made as soon as administratively feasible
following the first date as of which Section 162(m) of the
Internal Revenue Code no longer precludes the deduction by the
Company of such payment.
Section 6. Shareholder Rights
Executive shall not have any of the rights of a shareholder
of the Company with respect to Stock Units, such as the right to
vote.
<PAGE>
Section 7. Dividend Equivalents
The Company shall pay Executive as soon as practical after
the Company pays a cash dividend to shareholders of Stock an
amount in cash equal to the amount per share of such cash
dividend multiplied by the number of Stock Units credited to the
Stock Unit Account of Executive as of the record date of such
dividend. The Company may withhold from such payment any
applicable federal, state or local income or payroll tax.
Section 8. Death Benefits
In the event of the death of Executive, as soon as
practical after the death of Executive, the Company shall
transfer shares equal in number to the vested Stock Units, if
any, credited to Executive's Stock Unit Account to Executive's
Beneficiary or Beneficiaries.
Executive may designate a Beneficiary or Beneficiaries
(contingently, consecutively, or successively) of such death
benefit and, from time to time, may change his or her designated
Beneficiary. A Beneficiary may be a trust. A beneficiary
designation shall be made in writing in a form prescribed by the
Company and delivered to the Company while the Participant is
alive. If there is no designated Beneficiary surviving at the
death of a Participant, payment of any death benefit of the
Participant shall be made to the persons and in the proportions
which any death benefit under the Stifle Financial Corp. Employee
Stock Ownership Plan is or would be payable.
Section 9. Units Non-Transferable
Stock Units awarded hereunder shall not be transferable by
Executive. Except as may be required by the federal income tax
withholding provisions of the Code or by the tax laws of any
State, the interests of Executive and his Beneficiaries under
this Agreement are not subject to the claims of their creditors
and may not be voluntarily or involuntarily sold, transferred,
alienated, assigned, pledged, anticipated, or encumbered. Any
attempt by Executive or a Beneficiary to sell, transfer,
alienate, assign, pledge, anticipate, encumber, charge or
otherwise dispose of any right to benefits payable hereunder
shall be void.
Section 10. Adjustment in Certain Events
If there is any change in the Stock by reason of stock
dividends, split-ups, mergers, consolidations, reorganizations,
combinations or exchanges of shares or the like, the number of
Stock Units credited to Executive's Stock Unit Account shall be
adjusted appropriately so that the number of Stock Units
credited to Executive's Stock Unit Account after such an event
shall equal the number of shares of Stock a shareholder would
own after such an event if the shareholder, at the time such an
event occurred, had owned shares of Stock equal to the number of
Stock Units credited to Executive's Stock Unit Account
immediately before such an event.
<PAGE>
Section 11. Tax Withholding
The Company shall not be obligated to transfer any shares
of Stock until Executive pays to the Company or a Subsidiary in
cash, or any other form of property, including Stock, acceptable
to the Company, the amount required to be withheld from the
wages of Executive with respect to such shares. Executive may
elect to have such withholding satisfied by a reduction of the
number of shares otherwise transferable under this Agreement at
such time, such reduction to be calculated based on the closing
market price of the Stock on the day Executive gives written
notice of such election to the Company.
Section 12. Source of Payment
Shares of Stock transferable to Executive, or his
Beneficiary, under this Agreement may be either Treasury shares,
authorized but unissued shares, or any combination of such stock.
The Company shall have no duties to segregate or set aside any
assets to secure Executive's right to receive shares of Stock
under this Agreement. Executive shall not have any rights with
respect to transfer of shares of Stock under this Agreement other
than the unsecured right to receive shares of Stock from the
Company.
Section 13. Amendment
This Agreement may be amended by mutual consent of the
parties hereto by written agreement.
Section 14. Governing Law
This Agreement shall be construed and administered in
accordance with the laws of the State of Missouri.
IN WITNESS WHEREOF, the Company and Executive have caused
this Agreement to be executed on this 21st day of
December 1998.
STIFEL FINANCIAL CORP.
By: /s/ Charles R. Hartman
----------------------
Title: Secretary
----------------------
By: /s/ Ronald J. Kruszewski
------------------------
Ronald J. Kruszewski
Executive
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,on-line service providers,
and other companies offering financial services. 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) 1998 vs. 1997 1997 vs. 1996
- --------------------------------------------------------------------------------
Dollars in thousands Amount Percentage Amount Percentage
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Commissions $ 6,966 14% $ 5,863 13%
Principal transactions 6,002 29 965 5
Investment banking (12,713) (45) 12,223 75
Interest (2,508) (12) 7,623 55
Other revenues 3,445 22 (391) (2)
- --------------------------------------------------------------------------------
$ 1,192 1% $26,283 24%
- --------------------------------------------------------------------------------
Expenses:
Compensation and benefits $ 4,873 6% $15,329 23%
Commissions and floor brokerage 24 1 139 5
Communication and office supplies 1,475 21 117 2
Occupancy and equipment rental 1,440 18 151 2
Interest (3,193) (25) 4,794 58
Litigation settlements and
bad debts (2,896) (78) 434 13
Other operating expenses 301 3 1,500 18
- --------------------------------------------------------------------------------
$ 2,024 2% $22,464 22%
- --------------------------------------------------------------------------------
</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>
1998 As Compared to 1997
The strong market conditions experienced in 1997 continued to
surge upward in 1998 as record volumes set in 1997 over 1996 fell
by the wayside. Continued low interest rates and low inflation
preserved investor confidence in the equity markets as evidenced
by record trading volumes on the three major U.S. markets (NYSE,
NASDAQ, and AMEX) which increased 25% over 1997's record volumes.
Additionally, industry-wide net new sales of mutual funds
experienced a record increase of 28% in 1998 over 1997's record
net new sales.
The Company's focus for 1998 was expansion of its Private Client
Group. In that vein, the Company invested in several key areas
to broaden its capabilities and capacity to support the Private
Client Group. Professional support associates were added to
improve financial and retirement planning, provide trust and
corporate executive services, and provide technical support for
improved technology. Additionally, the Company introduced new
client statements with cost-basis information and made
substantial investments in state-of-the-art desktop workstations
and market data platforms. As a result, the Company added 65 new
investment executives and opened 10 new offices. Short term,
margins have been negatively impacted.
Calendar 1998 was the Company's second successive year of record
revenues. Total revenues of $137.3 million represented a nominal
increase over the prior year's revenues of $136.1 million, but
was more notable considering the drop in new issue underwritings
experienced industry-wide. Net income declined to $5.2 million
in 1998 from $5.7 million in 1997, while net income per diluted
share declined to $0.73 from $0.88 one year earlier.
Revenues from commissions increased $7.0 million, principally as
a result of the strong equity markets and an increase in the
number of investment executives and independent contractors.
Main components of the increase were commissions on mutual funds,
listed equity securities, and insurance products, which increased
24%, 16%, and 29%, respectively.
Principal transaction revenues are primarily derived from over-
the-counter equity 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 revenues. Revenues from principal transactions
increased $6.0 million, resulting primarily from revenue
generated by the sales of unit investment trusts.
Investment banking revenues are derived from underwriting of
corporate and municipal securities and providing advisory
services to clients. These revenues decreased $12.7 million from
the record year of 1997, as new issue equity underwritings,
especially small and mid-cap offerings, slowed dramatically. The
Company's investment banking revenues declined principally from
fewer equity and preferred underwritings. The number of managed
and co-managed corporate underwritings and the dollar volume of
these transactions decreased from 24 new issues for $1.4 billion
in 1997 to 8 new issues for $442 million in 1998.
<PAGE>
Interest revenue decreased $2.5 million, resulting from a drop in
interest earned from customer borrowings on margin accounts.
This earnings decline was the result of both a reduction in
customer borrowings and a moderate decrease in rates charged to
customers.
Other revenues increased $3.4 million, principally from a 28%
growth in money market account fees and a 28% growth in managed
account service fees.
1998 As Compared to 1997 (continued)
Total expenses increased $2.0 million to $128.7 million,
principally as a result of increased compensation and benefits
along with rising operating costs associated with the growth of
the Company's Private Client Group, offset by a significant
decline in litigation expenses.
Compensation and benefits, the largest component of the Company's
total expenses, rose $4.9 million. A significant element of
compensation, sales commissions, increased $3.6 million. The
increased level of sales commissions was the result of increases
in hiring incentives paid to newly recruited investment
executives, increases in compensation as a result of higher
individual production, and increases in payments to independent
contractors. The Company's emphasis on expanding the Private
Client Group, broadening the depth of services provided to the
Private Client Group, enhancing information technology, and
opening 10 branch offices led to an increase in the number of
support associates, resulting in a $3.1 million increase in
salary expense over 1997 salary expense. The increase in sales
commission and salary expense was offset by the decline in
incentive compensation related to departmental and firm-wide
profitability.
Communications and office supplies rose $1.5 million. The
increases in communication costs resulted principally from the
expansion and improvement of the Company's communication
technology to enhance services provided for the Company's private
clients. Office supplies increased as a direct result of the
increase in branch office openings.
The opening of 10 new Private Client Group branch offices and the
upgrading of communications technology equipment led to a $1.4
million increase in occupancy and equipment rental expenses.
Decreased borrowings to finance customer margin accounts, and the
1997 conversion of $10.0 million of debt into shares of the
Company's common stock (see Note J) led to a $3.2 million decline
in interest expense.
Litigation, settlements, and bad debt expense decreased $2.9
million. The principal cause of the decrease is due to the
significant decline in litigation related to the Company's former
Oklahoma operations for which estimated losses were provided for
in prior years.
<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 increase
over 1996. Net income for 1997 reached $5.7 million, an increase
of $2.3 million over 1996. Net income per diluted share rose to
$0.88 from $0.59 in 1996.
Strong market conditions fueled an increase in revenue from
commissions of $5.9 million. The increase was mainly comprised
of commissions on mutual funds, over-the-counter equity
securities, listed equity securities, and insurance and annuity
products, which increased 21%, 8%, 13%, and 40%, respectively.
Revenues from principal transactions increased $965,000,
resulting 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 demand for equities and lower levels of
demand for municipal and corporate debt.
1997 As Compared to 1996 (continued)
Investment banking revenues increased $12.2 million, 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 24 managed or co-managed offerings,an
increase of 35% over 1996.
The majority of the increase in interest revenue of $7.6 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 $390,000. However, several components
within other revenues 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 to $126.7 million,
principally as a result of increased compensation and benefits
and interest expense.
Compensation and benefits, a significant portion of the Company's
total expenses, rose $15.3 million. 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.
<PAGE>
Interest expense increased $4.8 million 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 will focus on
expense items with significant changes.
Litigation, settlements, and bad debt expense increased $434,000
in 1997. The 1997 expenses include 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, primarily due to
increased travel and promotion cost from efforts to expand the
Company's private client and institutional businesses and fees
paid for legal services, consulting, and employment search firms.
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Impact of Year 2000
The Year 2000 issue is the result of computer programs currently
written in two-digit format, rather than four-digit, to define
the applicable year, which affects the ability of computer
systems to accurately process dates ending after December 31,
1999.
During 1998, the Company assessed its Year 2000 compliance for
all of its operating systems including outside vendors. The
Company's securities processing system, which provides all of the
record-keeping and transaction processing services for the
Company's customer accounts, has been identified as mission
critical. The Company utilizes a third-party service bureau for
this system. The service bureau designs and maintains the system
at its own location. The Company utilizes the system via direct
on-line computer access. This service bureau provides the same
customer record-keeping services to approximately 20 other
securities firms throughout the United States.
In January 1999, the service bureau reported they had completed
100% of the changes to program code required for the customer
record-keeping system and had placed these changes into live
production. In December 1998 and January 1999, the Company and
other user firms of this service bureau performed detail testing
on the system. This involved processing a wide variety of
transactions on the system in a Year 2000 environment. This
testing identified no significant problems.
The Company and the service bureau will participate in the
securities industry-wide test in March and April 1999. This test
will demonstrate the service bureau's ability to interface with
all of its critical third parties in the trading and settlement
process.
The Company's Year 2000 plan also addresses other systems,
including a variety of vendor-supplied software products and a
small number of internally created AS400 mainframe programs. The
Company has substantially completed implementation of all
remedies planned for mission critical systems as of January 1999.
The Company will test its internally created AS400 mainframe
programs by June 30, 1999. There are currently no plans for
specific testing of most vendor-supplied software for which
vendors have provided assurance of Year 2000 compliance.
The Company believes that the incremental costs associated with
modifications for internal software and systems will not be
material to the Company's financial statements. However, the
interdependent natureof securities transactions and the success
of the Company's external counterparties and vendors, including
the third-party service bureau mentioned above, in dealing with
this issue could significantly influence the Company's estimate
of the impact the Year 2000 will have on its business.
<PAGE>
Liquidity and Capital Resources
The Company's assets are highly liquid, consisting mainly of cash
or assets readily convertible into cash. These assets are
financed primarily by the Company's equity capital, customer
credit balances, short-term bank loans, proceeds from securities
lending, long-term notes payable, and other payables. Changes in
securities market volumes, related customer borrowing demands,
underwriting activity, and levels of securities inventory affect
the amount of the Company's financing requirements.
Management believes 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, 1998, Stifel Nicolaus
had net capital of approximately $28.5 million,which exceeded the
minimum net capital requirements by approximately $23.1 million.
Inflation
The Company's assets are primarily monetary, consisting of cash,
securities inventory, and receivables. These monetary assets are
generally liquid and turn over rapidly and, consequently, are not
significantly affected by inflation. However, the rate of
inflation affects various expenses of the Company, such as
employee compensation and benefits, communications, and occupancy
and equipment, which may not be readily recoverable in the price
of its services.
Market Risk
Market risk refers to the risk that a change in the level of one
or more market prices, interest rates, indices, volatilities,
correlations, or other market factors, such as liquidity, will
result in losses for a certain financial instrument or group of
financial instruments. The Company actively monitors its market
risk through a variety of control procedures involving senior
management and selected risk management committees.The Company's
existing and proposed underwritings, credit extended to customers
and counterparties, and inventory trading activities are reviewed
by business unit managers and senior management. Underwritings
are subject to due diligence reviews by senior management. Credit
risk is managed through the use of credit exposure information,
the monitoring of collateral values, and the establishment of
credit limits. Inventory positions are continually monitored by
management and subject to trading and position limits.
During 1998, the Company's securities trading inventory consisted
of fixed income debt and over-the-counter equity positions. The
fair value of these securities at December 31, 1998, was $34.3
million and $4.4 million, respectively, in long positions and
$461,000 and $537,000, respectively, in short positions.
Analysis was performed on these instruments that assessed the
related risk and materiality as required by the Securities and
Exchange Commission. Based on this analysis, in the opinion of
management, the market risk associated with the Company's
financial instruments at December 31, 1998, will not have a
material adverse effect on the Company's consolidated financial
position or results of operations.
<PAGE>
Recent Accounting Pronouncements
In 1998, the Company early adopted Statement of Position ("SOP")
98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SOP 98-1 provides guidelines for
capitalization of developmental costs of proprietary software and
purchased software for internal use. The adoption of this SOP
had no material effect on the statement of financial position or
results of operations.
In 1998, the Financial Accounting Standards Board "FASB" issued
Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities."
This standard requires that derivatives be recognized in the
balance sheet at fair value. Designation as hedges of specific
assets or liabilities is permitted only if certain conditions are
met. Effective in calendar year 2000, the Company will be
required to record and mark to market any derivative financial
instruments and related underlying assets, liabilities, and firm
commitments. Management has not determined what effect SFAS No.
133 will have on its financial statements.
<PAGE>
<TABLE>
Consolidated Statements Of Financial Condition
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
(In thousands) December 31, 1998 December 31, 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets Cash and cash equivalents $ 12,835 $ 15,366
--------------------------------------------------------------------------------------------------
Cash segregated for the exclusive benefit of customers 177 177
--------------------------------------------------------------------------------------------------
Receivable from brokers and dealers:
Securities failed to deliver 1,481 481
Deposits paid for securities borrowed 12,653 18,223
Settlement balances with clearing organizations 9,812 16,519
--------------------------------------------------------------------------------------------------
23,946 35,223
--------------------------------------------------------------------------------------------------
Receivable from customers, net of allowance for doubtful
accounts of $556 and $556, respectively 213,709 218,301
--------------------------------------------------------------------------------------------------
Securities owned, at fair value:
U.S. Government obligations 4,282 4,763
State and municipal obligations 27,946 6,471
Corporate obligations 2,025 2,153
Corporate stocks 4,379 5,825
--------------------------------------------------------------------------------------------------
38,632 19,212
--------------------------------------------------------------------------------------------------
Memberships in exchanges, at cost 513 513
Office equipment and leasehold improvements, at cost,
net of allowances for depreciation and amortization of
$12,361 and $10,890, respectively 5,315 2,227
Goodwill, net of accumulated amortization of $1,721
and $1,414, respectively 3,874 4,181
Notes receivable from and advances to officers and
employees, net of allowance for doubtful receivables
from former employees of $482 and $2,376, respectively 6,460 4,249
Deferred tax asset 3,213 4,577
Other assets 26,331 11,458
--------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 335,005 $ 315,484
--------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
Consolidated Statement of Financial Condition
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
(In thousands,except share amounts) December 31, 1998 December 31, 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Short-term borrowings from banks $ 62,890 $ 89,150
Stockholders' Payable to brokers and dealers:
Equity Securities failed to receive 1,545 1,242
Deposits received from securities loaned 103,224 72,466
---------------------------------------------------------------------------------------------
104,769 73,708
---------------------------------------------------------------------------------------------
Payable to customers 37,306 39,239
Securities sold,but not yet purchased,at fair value 998 4,264
Drafts payable 18,210 13,966
Accrued employee compensation 18,320 19,247
Obligations under capital leases 848 522
Accounts payable and accrued expenses 16,117 15,707
Long-term debt 20,570 9,600
---------------------------------------------------------------------------------------------
Total Liabilities 280,028 265,403
---------------------------------------------------------------------------------------------
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 7,219,335 and 6,678,223 shares,
respectively 1,084 1,002
Additional paid-in capital 41,867 37,006
Retained earnings 18,291 17,425
---------------------------------------------------------------------------------------------
61,242 55,433
---------------------------------------------------------------------------------------------
Less:
Treasury stock, at cost
222,743 and 168,648 shares, respectively 2,162 1,989
Unamortized expense of restricted stock awards 1,081 185
Unearned employee stock ownership plan shares,
at cost, 235,866 and 236,250 shares, respectively 3,022 3,178
---------------------------------------------------------------------------------------------
Total Stockholders' Equity 54,977 50,081
---------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $335,005 $315,484
---------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
Consolidated Statements Of Operations
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Years Ended December 31,
-----------------------------------------------------------------------------------------
(In thousands, except per share amounts) 1998 1997 1996
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues Commissions $ 56,729 $ 49,763 $ 43,900
Principal transactions 26,465 20,463 19,498
Investment banking 15,763 28,476 16,253
Interest 18,889 21,397 13,774
Other 19,442 15,997 16,388
-----------------------------------------------------------------------------------------
137,288 136,096 109,813
- ------------------------------------------------------------------------------------------------------------
Expenses Employee compensation and benefits 86,967 82,094 66,765
Commissions and floor brokerage 2,804 2,780 2,641
Communications and office supplies 8,389 6,914 6,797
Occupancy and equipment rental 9,549 8,109 7,958
Interest 9,798 12,991 8,197
Litigation, settlements, and bad debts 830 3,726 3,292
Other operating expenses 10,362 10,061 8,561
-----------------------------------------------------------------------------------------
128,699 126,675 104,211
- ------------------------------------------------------------------------------------------------------------
Income before income taxes 8,589 9,421 5,602
Provision for income taxes 3,344 3,750 2,209
-----------------------------------------------------------------------------------------
Net income $ 5,245 $ 5,671 $ 3,393
=========================================================================================
- ------------------------------------------------------------------------------------------------------------
Earnings Per Net income per share:
Common Share and Basic earnings per share $ 0.77 $ 1.01 $ 0.66
Share Equivalents Diluted earnings per share $ 0.73 $ 0.88 $ 0.59
-----------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
Consolidated Statements Of Stockholders' Equity
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Treasury Stock and Unamortized
Additional Unearned Employee Expense of
(In thousands, Common Stock Paid-In Retained Stock Ownership Plan Restricted
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, 1996 4,540,890 $ 681 $ 19,622 $15,754 (183,225) $(1,162) $( 100) $34,795
- -----------------------------------------------------------------------------------------------------------------------
Cash dividends -common
stock ($.09 per share) ( 405) ( 405)
Stock rights redemption -
common stock ($.05 per share) ( 223) ( 223)
Purchase of treasury shares ( 69,713) ( 520) ( 520)
Employee benefit plans ( 132) 118,953 753 621
Stock options exercised ( 1) 615 4 3
Restricted stock awards 162 3,000 20 ( 182) - -
Amortization of restricted stock
awards 75 75
Dividend reinvestment 1,365 13 13
Net income for the year 3,393 3,393
5% stock dividend 226,825 34 1,752 (1,786) ( 6,450) - -
- ------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 4,767,715 715 21,403 16,733 (135,455) ( 892) ( 207) 37,752
- ------------------------------------------------------------------------------------------------------------------------
Cash dividends -common
stock ($.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
- ------------------------------------------------------------------------------------------------------------------------
Cash dividends -common
stock ($.12 per share) ( 828) ( 828)
Purchase of treasury shares (211,717) (2,160) (2,160)
Employee benefit plans 20,903 3 ( 267) 173,351 2,082 1,818
Stock options exercised 94,676 14 367 7,099 63 444
Restricted stock awards 82,000 12 1,262 ( 1,576) ( 11) (1,263) - -
Amortization of restricted stock
awards 367 367
Dividend reinvestment 1 972 9 10
Net income for the year 5,245 5,245
5% stock dividend 343,533 53 3,498 (3,551) ( 21,840) - -
- ------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 7,219,335 $1,084 $41,867 $18,291 (458,609) $(5,184) $(1,081) $54,977
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.Consolidated
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Years Ended December 31,
-------------------------------------
(In thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows Net income $ 5,245 $ 5,671 $ 3,393
From Operating --------------------------------------------------------------------------------------
Activities Noncash items included in earnings:
Depreciation and amortization 2,133 1,519 1,664
Bonus notes amortization 1,717 1,178 1,213
Deferred compensation 575 920 571
Amortization of restricted stock awards
and stock benefits 595 172 75
Deferred tax provision (benefit) 1,363 ( 907) 231
- ------------------------------------------------------------------------------------------------------------
11,628 8,553 7,147
Decrease (increase) in operating receivables:
Customers 4,592 16,915 (78,291)
Brokers and dealers 11,277 (20,387) 1,588
(Decrease) increase in operating payables:
Customers ( 1,933) 7,144 289
Brokers and dealers 31,061 26,560 24,020
Decrease (increase) in assets:
Cash and U.S. Government securities
segregated for the exclusive benefit
of customers - - 305 293
Securities owned (19,420) ( 300) 608
Notes receivable from officers and employees ( 3,927) ( 2,409) ( 1,030)
Other assets ( 3,225) 1,633 ( 532)
(Decrease) increase in liabilities:
Securities sold, not yet purchased ( 3,266) 1,035 485
Drafts payable, accounts payable and
accrued expenses, and accrued employee
compensation 3,153 10,148 1,302
--------------------------------------------------------------------------------------
Cash From Operating Activities $ 29,940 $ 49,197 $(44,121)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
Consolidated Statement of Cash Flows (Continued)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Years Ended December 31,
-------------------------------------
(In thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash From Operating Activities -
From Previous Page $ 29,940 $ 49,197 $(44,121)
- ------------------------------------------------------------------------------------------------------------
Cash Flows Net (payments) proceeds for short-term
From Financing borrowings from banks (26,260) (43,250) 45,950
Activities Proceeds from:
Issuance of stock 2,043 2,907 633
Long-term debt 10,970 9,600 - -
Subordinated borrowings - - 8,000 - -
Payments for:
Settlement of long-term debt - - - - ( 760)
Purchases of stock for treasury ( 2,160) ( 2,926) ( 520)
Principal payments under
capital lease obligation ( 597) ( 392) ( 431)
Subordinated borrowings - - ( 8,000) ( 50)
Cash dividends and rights redemption ( 828) ( 609) ( 628)
Purchase of stock for employee stock
ownership plan - - ( 3,178) - -
------------------------------------------------------------------------------------------
Cash From Financing Activities (16,832) (37,848) 44,194
- ------------------------------------------------------------------------------------------------------------
Cash Flows Proceeds from:
From Investing Sale of office equipment and leasehold
improvements 46 145 28
Sale of investments 118 84 3,753
Payments for:
Acquisition of office equipment and
leasehold improvements ( 4,025) ( 999) ( 443)
Acquisition of investments (11,778) (3,173) ( 1,795)
------------------------------------------------------------------------------------------
Cash From Investing Activities (15,639) (3,943) 1,543
------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash
equivalents ( 2,531) 7,406 1,616
Cash and cash equivalents -
beginning of year 15,366 7,960 6,344
------------------------------------------------------------------------------------------
Cash and cash equivalents -
end of year $ 12,835 $ 15,366 $ 7,960
==========================================================================================
Supplemental disclosures of cash flow information:
Interest payments $ 10,082 $ 13,093 $ 8,264
Income tax payments $ 4,474 $ 3,418 $ 2,247
Schedule of Noncash Investing and Financing Activities
Fixed assets acquired under capital lease $ 923 $ 405 $ 240
Restricted stock awards, net of forfeitures $ 1,263 $ 153 $ 182
Employee stock ownership shares $ 165 $ 300 $ 280
Debt converted into stock - - $ 10,000 - -
Stock dividends distributed $ 3,551 $ 4,370 $ 1,786
------------------------------------------------------------------------------------------
</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
registered broker-dealer 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>
Note A -Summary of Significant Accounting and Reporting Policies
(continued)
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, 1998,
the estimated fair value of the notes was $13,858.
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.
Segment Reporting
During 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 131, "Disclosures About
Segments of Enterprise and Related Information." SFAS 131
supersedes SFAS 14, "Financial Reporting for Segments of a
Business Enterprise," replacing the "industry segment" approach
with the "management" approach. The management approach
designates the internal organization that is used by management
for making operating decisions and assessing performance as the
source of the Company's reportable segments. SFAS 131 also
requires disclosures about products and services, geographic
areas, and major customers. The adoption of SFAS 131 did not
affect the Company's financial position or results of operations
but did affect the disclosure of segment information (see Note
N).
Comprehensive Income
The Company adopted SFAS No. 130, "Reporting Comprehensive
Income," which requires entities to report changes in equity that
result from transactions and economic events other than those
with shareholders. The Company had no other comprehensive income
items; accordingly net income and other comprehensive income are
the same.
<PAGE>
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.
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.
Note B -Special Reserve Bank Account
At December 31, 1998, 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 $245,000 at December 31, 1998, of which
$182,110 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 5.65% and 6.87% at December 31, 1998 and 1997,
respectively. Short-term borrowings of $29,475 and $21,725 were
collateralized by company-owned securities valued at
approximately $38,301 and $28,452 on a settlement date basis at
December 31, 1998 and 1997, respectively. Short-term borrowings
of $33,415 and $67,425 used to finance receivables from
customers were collateralized by customer-owned securities valued
at approximately $60,846 and $108,821 at December 31, 1998 and
1997, respectively.
<PAGE>
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, 1998,
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 $62,768. At December 31,
1998, the amounts on deposit satisfied the minimum margin deposit
requirement of $58,031.
The future minimum rental commitments at December 31, 1998, with
initial or remaining non-cancellable lease terms in excess of one
year are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Operating Leases
---------------------------------------------
Minimum Future
Lease Payments Under Minimum Rental
Year Ending December 31, Capital Leases Commitments Related Sublease Commitment
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 $483 $ 4,063 $(115) $ 3,948
2000 362 4,129 (56) 4,073
2001 62 3,859 - - 3,859
2002 - - 3,304 - - 3,304
2003 - - 2,856 - - 2,856
Thereafter - - 14,084 - - 14,084
- ---------------------------------------------------------------------------------------
Minimum Commitments $907 $32,295 $(171) $32,124
======= ====== =======
Less Interest 59
----
Net Present Value of
Capital Lease Obligations $848
====
</TABLE>
Rental expense for the years ended 1998, 1997, and 1996
approximated $4,032, $2,899, and $3,541, respectively.
Office equipment, under capital leases, with a recorded cost of
approximately $828, net of amortization of $1,387, and $497, net
of amortization of $1,036, at December 31, 1998 and 1997,
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."
Amortization and depreciation expense of assets under capital
lease and owned furniture and equipment for 1998, 1997, and 1996
was $1,794, $1,224, and $1,384, respectively.
<PAGE>
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
minimumnet capital equal to the greater of $250 or 2 percent of
aggregate debit items arising from customer transactions, as
defined. The rule also provides that equity capital may not be
withdrawn or cash dividends paid if resulting net capital would
be less than 5 percent of aggregate debit items.
At December 31, 1998, Stifel Nicolaus had net capital of $28,509,
which was 10.6 percent of aggregate debit items and $23,106 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 1998,
1997, and 1996. Additional contributions by the Company are
discretionary. The amounts charged to operations for the PSP
were $158, $142, and $146, for 1998, 1997, and 1996,
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 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 $507, $920, and $571, for
1998, 1997, and 1996, respectively.
<PAGE>
Note G -Stock-Based Compensation Plans
The Company has 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:
- -----------------------------------------------------------------
Years Ended December 31,
--------------------------------------
1998 1997 1996
- -----------------------------------------------------------------
Net income
As reported $5,245 $5,671 $3,393
Pro forma $4,629 $5,283 $3,345
- -----------------------------------------------------------------
Basic earnings per share
As reported $ 0.77 $ 1.01 $ 0.66
Pro forma $ 0.68 $ 0.94 $ 0.65
- -----------------------------------------------------------------
Diluted earnings per share
As reported $ 0.73 $ 0.88 $ 0.59
Pro forma $ 0.64 $ 0.82 $ 0.58
- -----------------------------------------------------------------
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, and determine the terms of each option.
Fixed Stock Option Plans
The Company has four fixed stock 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, performance awards, and stock units 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 ratably over a
three- to five-year period 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.
<PAGE>
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 1998, 1997, and
1996, respectively: dividend yield of 1.15%, 1.50%, and 1.88%;
expected volatility of 41.9%, 42.7%, and 26.7%; risk-free
interest rates of 5.15%, 6.22%, and 6.17%; and expected lives of
5.25 years for all grants.
The summary of the status of the Company's fixed stock option
plans as of December 31, 1998, 1997, and 1996, and changes during
the years ending on those dates is presented below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
--------------------------- -------------------------- --------------------------
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 764,617 $ 7.49 477,857 $ 5.10 384,704 $ 5.04
- ------------------------------------------------------------------------------------------------------------------------
Granted 169,050 11.70 396,995 9.75 122,463 5.43
Exercised (123,069) 4.60 (44,427) 5.10 ( 712) 4.35
Forfeited ( 39,607) 9.42 (54,399) 4.83 ( 28,598) 5.23
Expired ( 1,907) 4.26 (11,409) 6.26 - - - -
- ------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 769,084 $ 8.78 764,617 $ 7.49 477,857 $ 5.10
========================================================================================================================
Options exercisable at year-end 384,475 360,180 280,909
Weighted-average fair value of
options granted during the year $4.78 $4.07 $1.80
</TABLE>
Notes To Consolidated Financial Statements
(in thousands, except share and per share amounts)
The following table summarizes information about fixed stock
options outstanding at December 31, 1998:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
------------------------------------------------------- ------------------------------------
Number Weighted-Average Number
Range of Outstanding at Remaining Weighted-Average Exercisable at Weighted Average
Exercise Prices 12/31/98 Contractual Life Exercise Price 12/31/98 Exercise Price
- -------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 3.73-$ 5.51 185,272 4.61 years $ 4.9167 156,614 $ 4.8173
5.58- 7.56 170,143 7.56 years 6.2306 117,444 6.0386
7.64- 10.48 83,248 8.81 years 9.4749 19,198 7.6560
10.83- 10.83 176,372 8.75 years 10.8276 80,824 10.8276
11.07- 15.31 154,049 9.23 years 13.5413 10,395 15.1215
- -------------------------------------------------------------------------------------------------------------------
$ 3.73-$ 15.31 769,084 7.59 years $ 8.7838 384,475 $ 6.8742
===================================================================================================================
</TABLE>
<PAGE>
Employee Stock Purchase Plan
Under the 1998 Employee Stock Purchase Plan (the "ESPP"), the
Company was authorized to issue up to 157,500 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 156,841
shares, 131,016 shares, and 120,978 shares, to employees in 1998,
1997, and 1996, 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 1998, 1997, and 1996,
respectively: dividend yield of 1.15%, 1.50%, and 1.88%;
expected volatility of 41.9%, 42.7%, and 26.7%; risk-free
interest rates of 5.05%, 5.61%, and 5.09%; and expected lives of
one year. The weighted-average fair value of those purchase
rights granted in 1998, 1997, and 1996 was $2.67, $2.06, and
$1.30, 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 98,275, 50,164, and 3,473 shares of
restricted stock, with a fair value of $1,276, $337, and $18,
during 1998, 1997, and 1996, respectively. At December 31, 1998,
restricted stock awards covering 117,854 shares were outstanding,
with the restrictions expiring at various dates through 2003.
The shares are restricted as to resale. Restrictions generally
lapse ratably over three-to five-year service periods. The
deferred cost of the restricted stock awards is amortized on a
straight-line basis. The Company charged to employee
compensation and benefits $367, $249, and $73 for the
amortization during 1998, 1997, and 1996, respectively.
Stock Units
During the year, the Board of Directors amended the 1997
Incentive Stock Plan to include stock units. A stock unit
represents the right to receive a share of Common Stock from the
Company at a designated time in the future without cash payment
by the employee and is issued in lieu of cash incentive. The
units vest over a three-to five-year period and are generally
distributable upon vesting or at future specified dates. The
Company granted 158,485 units and charged $210 to employee
compensation and benefits for
these units.
<PAGE>
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 248,063 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, 1998, the plan held 543,222
shares and has allocated 307,356 shares of common stock valued at
$5,400 and $3,055, respectively. The Company charged to employee
compensation and benefits $165, $300, and $280 for the ESOP
contributions for 1998, 1997, and 1996, respectively.
Note H -Legal Proceedings
The Company is a defendant in several lawsuits and arbitrations
relating principally to its securities business. Some of these
lawsuits and arbitrations claim substantial amounts, including
punitive damages. One such claim involves a lawsuit filed by The
Oklahoma Turnpike Authority ("OTA"). The OTA suit seeks $6.5
million in compensatory damages and an unspecified amount of
punitive damages. 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 municipal bond refinancing
should have been paid to the OTA. Although the ultimate outcome
of this and other actions cannot be ascertained at this time,
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. 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.
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 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.
The Company sells securities it does not currently own (short
sales), 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 price risk
for short sales through daily review and setting position and
trading limits.
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 1997, the notes were converted into 1,563,021
shares of the Company's $.15 par value common stock at a
conversion price of $6.40 per share. Interest charged to
operations for these notes was $886 and $1,125 for 1997 and 1996,
respectively.
The Company has outstanding $5,000 principal amount of notes due
on June 30, 2004. Interest is payable monthly at the monthly
libor rate plus 1% (6.06% at December 31, 1998) through July 1,
1999, at which time the note will bear interest at the rate of 8%
per annum.
<PAGE>
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 $10,600 non-interest bearing
notes due February 15, 2009, which are included in the Company's
consolidated statement of financial condition under the caption
"long-term debt." Proceeds from the notes are invested in zero
coupon U.S. Government securities in an amount sufficient to
accrete to the repayment of the notes and are placed in an
irrevocable trust. The securities, valued at approximately
$8,440 and $2,507 at December 31, 1998 and 1997, respectively,
are held to maturity and are included under the caption "other
assets."
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.
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>
Note L -Income Taxes
The Company's provision (benefit) for income taxes consists of:
--------------------------------
Years Ended December 31,
--------------------------------
1998 1997 1996
- ------------------------------------------------------------------------
Current:
Federal $ 1,600 $ 3,760 $ 1,597
State 381 897 381
- ------------------------------------------------------------------------
1,981 4,657 1,978
- ------------------------------------------------------------------------
Deferred:
Federal 1,100 ( 732) 187
State 263 ( 175) 44
- ------------------------------------------------------------------------
1,363 ( 907) 231
- ------------------------------------------------------------------------
$ 3,344 $ 3,750 $ 2,209
========================================================================
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:
- ------------------------------------------------------------------------
Years Ended December 31,
--------------------------------
1998 199 1996
- ------------------------------------------------------------------------
Federal tax computed at statutory rates $ 2,921 $ 3,203 $ 1,904
State income taxes, net of federal
income tax benefit 441 476 281
Other, net ( 18) 71 24
- -------------------------------------------------------------------------
Provision for income taxes $ 3,344 $ 3,750 $ 2,209
=========================================================================
The net deferred tax asset consists of the following temporary
differences:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
December 31, 1998 December 31, 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred Tax Receivables from customers, principally due to
Asset allowance for doubtful accounts $ - - $ 217
Office equipment and leasehold improvements,
principally book over tax depreciation 859 1,037
Deferred compensation 1,400 1,135
Deferred revenue 974 229
Investments, principally due to valuation allowance 92 26
Receivables from officers and employees, principally
due to allowance for doubtful accounts 189 950
Accruals not currently deductible 1,212 1,277
Other 101 78
-------------------------------------------------------------------------------------------
Deferred Tax Asset 4,827 4,949
-------------------------------------------------------------------------------------------
Deferred Tax Customer and employee receivable (1,304) - -
Liability Intangible assets, principally tax over book amortization ( 195) (203)
Investment fee revenue installment receivable ( 115) (169)
-------------------------------------------------------------------------------------------
Total Gross Deferred Tax Liability (1,614) (372)
-------------------------------------------------------------------------------------------
Net Deferred Tax Asset $ 3,213 $ 4,577
===========================================================================================
</TABLE>
<PAGE>
The Company believes that a valuation allowance with respect to
the realization of the total gross deferred tax asset is not
necessary. Based on the Company's historical earnings and taxes
previously paid, future expectations of taxable income, and the
future reversals of gross deferred tax liability, management
believes it is more likely than not that the Company will realize
the gross deferred tax asset.
Note M -Related Party Transactions
Four directors of the Parent are associated with firms which
provide legal and consulting services to the Company. The
Company charged approximately $761, $1,586, and $801 (primarily
for legal fees) to operations for these services for 1998, 1997,
and 1996, 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, $46, and $17 for 1998, 1997, and
1996, respectively, for these services.
A director of the Parent has a general partnership interest in an
enterprise in which the Company also holds general and limited
partnership interests carried at approximately $628 at December
31, 1998, and $507 at December 31, 1997.
Note N -Segment Reporting
The Company's reportable segments include private client, capital
markets, and other. The private client segment includes 146
branch offices of the Company's broker-dealer subsidiaries
located throughout the U.S., primarily in the Midwest. These
branches provide securities brokerage services, including the
sale of equities, mutual funds, fixed income products, and
insurance, to their private clients. The capital markets segment
includes management and participation in underwritings (exclusive
of sales credits, which are included in the private client
segment), mergers and acquisitions, public finance, trading,
research, and market making. Investment advisory fees and
clearing income is included in other.
Intersegment revenues and charges are eliminated between
segments. The Company evaluates the performance of its segments
and allocates resources to them based on various factors,
including prospects for growth, return on investment, and return
on revenues.
The Company has not disclosed asset information by segment, as
the information is not produced internally and its preparation is
impracticable.
<PAGE>
Information concerning operations in these segments of business
is as follows:
- ----------------------------------------------------------------
Years Ended December 31,
-------------------------------
1998 1997 1996
- -----------------------------------------------------------------
Revenues
Private Client $112,050 $107,537 $ 85,726
Capital Markets 19,517 23,517 19,583
Other 5,721 5,042 4,504
- -----------------------------------------------------------------
Total Revenues $137,288 $136,096 $109,813
=================================================================
Operating Contribution
Private Client $ 17,619 $ 14,108 $ 10,439
Capital Markets 1,286 6,293 4,690
Other 1,326 821 ( 421)
- -----------------------------------------------------------------
Total Operating Contribution 20,231 21,222 14,708
Unallocated Overhead (11,642) (11,801) ( 9,106)
- -----------------------------------------------------------------
Pre-Tax Income $ 8,589 $ 9,421 $ 5,602
=================================================================
Note O -Earnings Per Share
The following table reflects a reconciliation between Basic EPS
and Diluted EPS.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
--------------------------------------------------------------------------------------------------
1998 1997 1996
------------------------------- --------------------------------- --------------------------------
Income Shares PerShare 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 $5,245 6,849,998 $0.77 $5,671 5,590,919 $1.01 $3,393 5,150,498 $0.66
Effect of Dilutive Securities
Employee benefits plans - - 347,988 - - - - 292,328 - - - - 102,532 - -
Convertible debt - - - - - - 541 1,215,692 - - 601 1,563,032 - -
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversions $5,245 7,197,986 $0.73 $6,212 7,098,939 $0.88 $3,994 6,816,062 $0.59
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Note P -Subsequent Event
On January 27, 1999, 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 25, 1999, to shareholders of
record on February 11, 1999.
On January 27, 1999, the Company's Board of Directors announced
the agreement to sell Todd Investment Advisors' common stock to a
subsidiary of Western & Southern Life Insurance Company, a
significant shareholder of the Company. The sale is scheduled to
close during the second quarter of 1999 and is expected to result
in an after-tax gain of approximately $1.3 million.
Note Q -Recent Accounting Pronouncements
In 1998, the Company early adopted Statement of Position ("SOP")
98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SOP 98-1 provides guidelines for
capitalization of developmental costs of proprietary software and
purchased software for internal use. The adoption of this SOP
had no material effect on the statement of financial position or
results of operations.
Also in 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This standard
requires that derivatives be recognized in the balance sheet at
fair value. Designation as hedges of specific assets or
liabilities is permitted only if certain conditions are met.
Effective in calendar year 2000, the Company will be required to
record and mark to market any derivative financial instruments
and related underlying assets, liabilities, and firm commitments.
Management has not determined what effect SFAS No. 133 will have
on its financial statements.
******
<PAGE>
Independent Auditor's ReportIndependent 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, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended
December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Stifel Financial Corp. and Subsidiaries at December 31, 1998 and
1997, and the results of their operations and their cash flows
for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting
principles.
St. Louis, Missouri
March 5, 1999
<PAGE>
Quarterly Results
(in thousands, except share and per share amounts)
<TABLE>
- ------------------------------------------------------------------------------------------------
Quarterly Operating Results (Unaudited)
- ------------------------------------------------------------------------------------------------
<CAPTION>
Earnings Basic Diluted
Before Net Earnings Earnings
Revenue Income Taxes Income Per Share Per Share
- ------------------------------------------------------------------------------------------------
Year 1998 By Quarter
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First $35,839 $3,418 $2,053 $.30 $ .29
Second 34,072 2,100 1,224 .18 .17
Third 34,259 1,561 967 .14 .13
Fourth 33,118 1,510 1,001 .15 .14
- ------------------------------------------------------------------------------------------------
Year 1997 By Quarter
- ------------------------------------------------------------------------------------------------
First $31,845 $2,752 $1,647 $.31 $ .26
Second 30,660 1,564 921 .18 .15
Third 36,645 3,364 2,012 .38 .30
Fourth 36,946 1,741 1,091 .17 .15
- ------------------------------------------------------------------------------------------------
</TABLE>
All earnings per share amounts have been adjusted to reflect the
5 percent stock dividend declared January 27, 1999.
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 Advisors, Inc.
Inc. (3)
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
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, 33-20568, 333-37805, and 333-
37807,)and on Form S-3(file number 33-53699), of our report dated
March 5, 1999, incorporated by reference in the Annual Report
on Form 10-K of Stifel Financial Corp. for the year ended
December 31, 1998.
/s/ Deloitte & Touche LLP
March 5, 1999
St. Louis, Missouri
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted
from the consolidated statement of financial condition dated
December 31, 1998 and the statement of operations for the year
ended December 31, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 13,012
<RECEIVABLES> 231,462
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 12,653
<INSTRUMENTS-OWNED> 38,632
<PP&E> 5,315
<TOTAL-ASSETS> 335,005
<SHORT-TERM> 62,890
<PAYABLES> 92,346
<REPOS-SOLD> 0
<SECURITIES-LOANED> 103,224
<INSTRUMENTS-SOLD> 998
<LONG-TERM> 20,570
<COMMON> 1,084
0
0
<OTHER-SE> 53,893
<TOTAL-LIABILITY-AND-EQUITY> 335,005
<TRADING-REVENUE> 21,994
<INTEREST-DIVIDENDS> 18,889
<COMMISSIONS> 56,729
<INVESTMENT-BANKING-REVENUES> 20,234
<FEE-REVENUE> 3,338
<INTEREST-EXPENSE> 9,798
<COMPENSATION> 86,967
<INCOME-PRETAX> 8,589
<INCOME-PRE-EXTRAORDINARY> 8,589
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,245
<EPS-PRIMARY> .77
<EPS-DILUTED> .73
</TABLE>
