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, 1999
[ ] 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.
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(Exact name of registrant as specified in its charter)
DELAWARE 43-1273600
- - ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
501 N. Broadway
St. Louis, Missouri 63102-2102
- - ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,including area code 314-342-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
- - -------------------------------------- ----------------------------
Common Stock, Par Value $.15 per share New York Stock Exchange
Chicago Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such report) and (2) has been subject to such filing
requirements for the past 90 days.
Yes[x] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K, or any amendment to this
Form 10-K [x]
Aggregate market value of voting stock held by non-affiliates of
the registrant at March 8, 2000 was $74,709,865.
Shares of Common Stock outstanding at March 8, 2000: 7,254,247
shares, par value $.15 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the year ended
December 31, 1999 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 26, 2000 are incorporated by
reference in Part III hereof. Exhibit Index located on pages 22
and 23.
PART I
ITEM 1. BUSINESS
Stifel Financial Corp. ("Financial" or the "Company"), a Delaware
corporation and a holding company for Stifel Nicolaus & Company,
Incorporated ("Stifel Nicolaus") and other subsidiaries, was
organized in 1983. 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.
On January 12, 2000, the Company completed the merger of Hanifen,
Imhoff Inc. ("HII"), a Denver-based investment banking firm. The
transaction is being accounted for as a purchase and provides for
a tax-free exchange of approximately 517,000 shares of the
Company for all of the outstanding shares of HII. In connection
with the transaction, certain key associates of HII executed
employment agreements containing non-compete provisions and
restrictions on the sale of the stock received in the merger and
were awarded options in the Company. HII also has offices located
in Omaha, Nebraska and Winter Park, Florida. The merger added 59
investment bankers, research analysts, institutional sales
associates, and traders to the capital markets segment, as well
as 23 administrative and technical support associates.
The Company offers securities-related financial services through
its wholly-owned operating subsidiaries, Stifel Nicolaus, Century
Securities Associates, 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 63 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.
Financial Information
The amounts of each of the principal sources of revenue, the net
income and total assets of the Company for the years ended
December 31, 1999, 1998 and 1997 are contained in Item 6.
Selected Financial Data, herein. Financial Information for each
segment of the Company is contained in Note O of the Consolidated
Financial Statements incorporated by reference herein.
Narrative Description of Business
As of February 29, 2000, the Company employed 1,004 individuals.
Stifel Nicolaus employed 986 of which 335 were employed as
investment executives. In addition, 143 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 125,000 client accounts. No single client accounts
for a material percentage of the Company's total business.
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
and 1999 management made significant investments in personnel,
technology, and market data platforms to grow the private client
segment.
Stifel Nicolaus Private Client
Stifel Nicolaus has 59 private client branches located in 14
states, primarily in the Midwest. Its 335 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 143 independent contractors in 23
branch offices and 98 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
effected 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.
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 24
professionals, located in St. Louis, Cleveland, and Denver, 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 companies, located
primarily in the Midwest.
Research Department
The research department consists of 17 analysts located in St.
Louis and Denver who publish research on over 175 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 February
29, 2000, Stifel Nicolaus made a market in 213 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 and Denver. 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 February 29,
2000, the institutional equity sales department maintained
relationships with over 1,070 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 1,500 accounts at
February 29, 2000.
Investment Banking-Public Finance
Investment banking public finance consists of 25 professionals
with its principal offices in St. Louis and Denver. 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 St. Louis and Denver offices.
Other Segments
In addition to its private client segment and capital markets
segment, the Company has an investment advisory firm which
provides 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 five states and had assets under management
of approximately $176,442,000 at December 31, 1999.
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, the Company faces increasing
competition from other financial institutions, such as commercial
banks, online service providers, and other companies offering
financial services. The Financial Modernization Act, signed into
law in late 1999, lifts restrictions on banks and insurance
companies to provide financial services once dominated by
securities firms. In addition, recent consolidation in the
financial services industry may lead to increased competition
from larger, more diversified organizations. Some of these firms
generally charge lower commission rates to their customers
without offering services such as portfolio valuation, investment
recommendations and research. Trading on the Internet has
increased significantly. Online brokerage customers account for
more than one-third of trading in U.S. equities. The number of
online accounts doubled in 1999 and is expected to quadruple in
the next three years.
During 1999 the Company continued to invest in and provide
support for technologically advanced equipment and software for
the Private Client Group, including web-based access to customer
accounts and development of online trading to be launched in
early 2000.
Management relies on the expertise acquired in its market area
over its 109-year history, its personnel, and its equity capital
to operate in the competitive environment.
Regulation
The securities industry in the United States is subject to
extensive regulation under federal and state laws. The
Securities and Exchange Commission ("SEC") is the federal agency
charged with the administration of the federal securities laws.
Much of the regulation of broker-dealers, however, has been
delegated to self-regulatory organizations, principally the
National Association of Securities Dealers, Inc., the Municipal
Securities Rulemaking Board, and the national securities
exchanges, such as the NYSE. These self-regulatory organizations
adopt rules (which are subject to approval by the SEC) which
govern the industry and conduct periodic examinations of member
broker-dealers. Securities firms are also subject to regulation
by state securities commissions in the states in which they are
registered.
The regulations to which broker-dealers are subject cover all
aspects of the securities business, including sales practices,
trade practices among broker-dealers, capital structure of
securities firms, record keeping, and the conduct of directors,
officers and employees. Additional legislation, changes in rules
promulgated by the SEC and by self-regulatory organizations, and
changes in the interpretation or enforcement of existing laws and
rules often directly affect the method of operation and
profitability of broker-dealers. The SEC and the self-regulatory
organizations may conduct administrative proceedings, which can
result in censures, fines, suspension or expulsion of a broker-
dealer, its officers or employees. The principal purpose of
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.
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 $31.9
million at December 31, 1999, which was approximately 8.98
percent of aggregate debit balances and approximately $24.8
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. Pin Oak is located in New York, New York. Stifel
Nicolaus has a branch office system located in 14 states,
primarily in the Midwest. The Company has a total of 63
locations in 17 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, 1999 was approximately
$4,728,000. Further information about the lease obligations of
the Company is provided in Note D of the Notes To Consolidated
Financial Statements incorporated by reference herein.
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.
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
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George H. Walker III 69 Chairman of the Board of 1978
Financial and Stifel Nicolaus
Ronald J. Kruszewski 41 President and Chief Executive Officer 1997
of Financial and Stifel Nicolaus
James M. Zemlyak 40 Vice President, Treasurer and 1999
Chief Financial Officer of Financial
and Senior Vice President and Chief
Financial Officer of Stifel Nicolaus
Charles R. Hartman 56 Vice President and Secretary of 1996
Financial and General Counsel,
Senior Vice President and
Secretary of Stifel Nicolaus
Scott B. McCuaig 50 Vice President of Financial and 1998
Director of Retail Sales &
Marketing of Stifel Nicolaus
Walter F. Imhoff 68 Managing Director of Stifel Nicolaus 1998
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.
Ronald J. Kruszewski was appointed President and Chief
Executive Officer of the Company and Stifel Nicolaus in September
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.
James M. Zemlyak joined Stifel Nicolaus in February 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. Zemlyak served
as Managing Director and Chief Financial Officer of Baird
Financial Corporation from 1997 to 1999 and Senior Vice President
and Chief Financial Officer of Robert W. Baird & Co. Incorporated
from 1994 to 1997.
Charles R. Hartman joined Stifel Nicolaus in June 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
from April 1982 to June 1994.
Scott B. McCuaig joined Stifel Nicolaus in January 1998. He is
Vice President of Financial and the Director of Retail Sales &
Marketing of Stifel Nicolaus. Prior to joining Stifel Nicolaus,
Mr. McCuaig was a Managing Director, head of marketing and
regional sales manager of Robert W. Baird & Co. Incorporated.
Walter F. Imhoff joined Stifel Nicolaus in January 2000.
He is Managing Director of Stifel Nicolaus. Prior to joining
Stifel Nicolaus, Mr. Imhoff served as Chairman, President and
Chief Executive Officer of Hanifen, Imhoff, Inc., a regional
broker dealer, from 1979.
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
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1999 1998
Quarter High - Low High - Low
--------------------------------------------------------------
First $ 10 11/16 - 9 $ 16 3/16 - 12 1/16
Second 10 11/16 - 8 15/16 17 5/8 - 13 11/16
Third 9 3/4 - 8 15/16 15 11/16 - 9 1/8
Fourth 11 7/8 - 8 15/16 11 1/2 - 8 3/4
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The Company from time-to-time uses funds generated from
operations to purchase the Company's common stock throughout the
calendar year. The Company's Board of Directors authorized the
repurchase of up to 250,000 shares on July 28, 1999, and an
additional 600,000 common shares on December 10, 1999 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 8, 2000
was 3,000.
c.) Dividends
Dividends paid were as follows:
Record Payment Cash Stock
Date Date Dividend Dividend
- - ----------------------------------------------------
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 - -
02/11/99 02/25/99 $0.03 5%
05/11/99 05/27/99 $0.03 - -
08/11/99 08/25/99 $0.03 - -
11/10/99 11/24/99 $0.03 - -
A regular quarterly cash dividend of $0.03 per share was
established on November 30, 1993.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
Stifel Financial Corp. and Subsidiaries
Financial Summary
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------
(In thousands, except 1999 1998 1997 1996 1995
per share and percentages)
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues
Commissions $ 68,663 $ 56,729 $ 49,763 $ 43,900 $ 38,716
Principal transactions 24,654 26,465 20,463 19,498 20,362
Investment banking 11,507 15,763 28,476 16,253 12,121
Interest 20,525 18,889 21,397 13,774 13,002
Other 25,844 19,442 15,720 16,388 11,159
--------- --------- --------- --------- ----------
151,193 137,288 135,819 109,813 95,360
Expenses
Employee compensation and benefits 92,819 86,967 81,817 66,765 57,187
Commissions and floor brokerage 2,838 2,804 2,780 2,641 2,319
Communications and office supplies 8,911 8,389 6,914 6,797 7,651
Occupancy and equipment rental 11,819 9,549 8,109 7,958 8,512
Interest 10,097 9,798 12,991 8,197 8,312
Other operating expenses 13,736 11,192 13,787 11,853 10,072
--------- --------- --------- --------- ---------
140,220 128,699 126,398 104,211 94,053
--------- --------- --------- --------- ---------
Income before income taxes 10,973 8,589 9,421 5,602 1,307
Provision for income taxes 3,808 3,344 3,750 2,209 663
--------- --------- --------- --------- ---------
Net income $ 7,165 $ 5,245 $ 5,671 $ 3,393 $ 644
========= ========= ========= ========= =========
Per Share Data
Basic earnings $ 1.08 $ .77 $ 1.01 $ .66 $ .13
Diluted earnings $ 1.03 $ .73 $ .88 $ .59 $ .13
Cash dividends $ .12 $ .12 $ .12 $ .09 $ .12
Other Data
Total assets $ 453,110 $ 335,005 $ 315,484 $ 301,344 $ 226,775
Long-term obligations $ 34,968 $ 20,570 $ 9,600 $ 10,000 $ 10,760
Stockholders' equity $ 59,059 $ 54,977 $ 50,081 $ 37,752 $ 34,795
Net income as % average equity 12.55% 9.69 % 13.29% 9.35 % 1.87 %
Net income as % revenues 4.74% 3.82 % 4.17% 3.09 % 0.68 %
Average common shares
and share equivalents outstanding
Basic 6,655 6,850 5,591 5,150 5,079
Diluted 6,940 7,198 7,099 6,816 5,152
- - --------------------------------------------------------------------------------------
</TABLE>
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Management's Discussion and Analysis of Financial Condition and
Results of Operations, included on pages 16 through 21 of the
Annual Report of the Registrant to its Stockholders for the year
ended December 31, 1999, is incorporated herein by reference.
ITEM 7A. Quantitative and Qualitative Disclosures About Market
Risk.
Quantitative and Qualitative Disclosure About Market Risk,
included on page 21 of the Annual Report of the Registrant to its
Stockholders for the year ended December 31, 1999, is
incorporated herein by reference.
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, 1999, is incorporated herein by reference.
Statement Annual Report Reference
-----------------------------------------------------------------------------
Consolidated Statements of Financial Condition --
December 31, 1999 and December 31, 1998................. 22 - 23
Consolidated Statements of Operations --
Years ended December 31, 1999, December 31, 1998
and December 31, 1997................................... 24
Consolidated Statements of Stockholders' Equity --
Years ended December 31, 1999, December 31, 1998
and December 31, 1997.................................. 25
Consolidated Statements of Cash Flows --
Years ended December 31, 1999, December 31, 1998
and December 31, 1997.................................. 26 - 27
Notes to Consolidated Financial Statements.............. 28 - 40
Independent Auditors' Report..................... 41
Selected Quarterly Financial Data, included on page 42 of the
Annual Report of the Registrant to its Stockholders for the year
ended December 31, 1999, is incorporated herein by reference.
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 "Election of
Directors," included in the Registrant's Proxy Statement for the
2000 Annual Meeting of Stockholders, which information is
incorporated herein by reference.
Information regarding the executive officers, as of March 24,
2000, is contained in "Item 4a. Executive Officers of the
Registrant," hereof. There is no family relationship between any
of the directors or 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 2000 Annual
Meeting of Stockholders, which information is incorporated herein
by reference.
ITEM 11. Executive Compensation.
Information regarding executive compensation is contained in
"Executive Compensation," included in the Registrant's Proxy
Statement for the 2000 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 2000 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 2000 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:
Page
----
Independent Auditors' Report..................................16
Schedule I-Condensed Financial Information of Registrant.....17-19
Schedule II-Valuation and Qualifying Accounts.................20
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 22 and 23 hereof.
(b) Reports on Form 8-K:
There were no reports on Form 8-K during the fourth quarter
ended December 31, 1999.
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
24th day of March 2000.
STIFEL FINANCIAL CORP.
(Registrant)
By /s/ Ronald J. Kruszewski
-----------------------------
Ronald J. Kruszewski
(Principal Executive Officer)
/s/ James M. Zemlyak
-----------------------------
James M. Zemlyak
(Principal Financial and
Accounting Officer)
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 24, 2000, in the capacities
indicated.
/s/ George H. Walker III Chairman of the Board
- - ------------------------
George H. Walker III
/s/ Ronald J. Kruszewski President, Chief Executive
- - ------------------------ Officer, and Director
Ronald J. Kruszewski
/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
[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, 1999 and
December 31, 1998, and for each of the three years in the period
ended December 31, 1999, and have issued our report thereon dated
March 10, 2000; such consolidated financial statements and report
are included in your 1999 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 10, 2000
St. Louis, Missouri
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
STIFEL FINANCIAL CORP.
Dec. 31, Dec. 31,
1999 1998
----------- -----------
ASSETS
Cash $ 9,155 $ 9,155
Due from subsidiaries (a) 1,496,035 3,795,026
Investment in subsidiaries (a) 59,607,151 52,684,827
Office equipment and leasehold
improvements,less allowances for
depreciation and amortization of
$11,275,888 and $11,869,688,
respectively 7,537,667 5,195,917
Investments, at cost 2,055,045 1,462,239
Goodwill, net of amortization of
$737,815 and $645,955, respectively 1,631,327 1,723,187
Other assets 759,018 2,075,975
----------- -----------
TOTAL ASSETS $73,095,398 $66,946,326
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Due to subsidiaries (a) $ 1,667,781 $ 4,773,926
Obligation under capital lease 1,067,636 847,769
Long-term debt 10,370,000 5,370,000
Other liabilities 931,269 978,417
----------- -----------
TOTAL LIABILITIES 14,036,686 11,970,112
Stockholders' Equity:
Capital stock 1,106,633 1,082,521
Additional paid-in capital 43,573,499 41,867,576
Retained earnings 24,546,476 18,291,104
----------- -----------
69,226,608 61,241,201
Less treasury stock, at cost 6,984,167 2,161,886
Less unearned employee stock ownership
plan shares 2,813,483 3,021,862
Less unamortized expense of restricted
stock awards, at cost 370,246 1,081,239
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 59,058,712 54,976,214
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $73,095,398 $66,946,326
=========== ===========
(a) Eliminated in consolidation.
See Notes to Consolidated Financial Statements (Item 8)
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(continued)
CONDENSED STATEMENTS OF OPERATIONS
STIFEL FINANCIAL CORP.
Years Ended December 31,
1999 1998 1997
Revenues:
Lease $ 2,598,206 $ 1,762,434 $ 1,202,248
Other 923,039 523,138 95,015
----------- ----------- -----------
3,521,245 2,285,572 1,297,263
Expenses:
Depreciation and amortization 2,690,033 1,853,837 1,294,108
Professional fees 176,140 410,039 290,554
Miscellaneous 799,400 492,273 194,419
----------- ----------- -----------
3,665,573 2,756,149 1,779,081
----------- ----------- -----------
Loss before income taxes (144,328) (470,577) (481,818)
Benefit for income taxes (52,882) (226,522) (201,150)
Loss before equity in net
income of subsidiaries (91,446) (244,055) (280,668)
Equity in net income of subsidiaries 7,256,612 5,489,482 5,951,674
----------- ----------- -----------
NET INCOME $ 7,165,166 $ 5,245,427 $ 5,671,006
=========== =========== ===========
See Notes to Consolidated Financial Statements (Item 8)
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(continued)
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
STIFEL FINANCIAL CORP.
<CAPTION>
Years Ended December 31,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,165,166 $ 5,245,427 $ 5,671,006
Non-cash items included in net income:
Depreciation and amortization 2,690,033 1,853,837 1,294,108
Deferred items (592,807) 79,812 (251,492)
Undistributed income of subsidiaries (7,314,394) (5,489,482) (5,951,674)
Amortization and forfeitures of restricted
stock awards and stock benefits 853,387 594,800 172,357
----------- ----------- -----------
2,801,385 2,284,394 934,305
Net change in due to/due from subsidiaries (807,154) (179,370) 595,049
(Increase) decrease in other assets 1,832,200 197,542 (796,569)
Increase (decrease) in other liabilities 483,624 2,765,035 (169,235)
----------- ----------- -----------
CASH FROM OPERATING ACTIVITIES 4,310,055 5,067,601 563,550
=========== =========== ===========
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Shares issued 1,823,318 2,043,402 2,907,790
Long-term debt 5,000,000 370,000 5,000,000
Payments for:
Purchase of stock for treasury (5,437,233) (2,160,450) (2,926,452)
Purchase unearned ESOP shares - - - - (3,178,125)
Principal payments under capital lease (704,419) (597,930) (392,248)
Cash dividend and rights redemption (852,913) (829,046) (608,968)
----------- ----------- -----------
CASH FROM FINANCING ACTIVITIES (171,247) (1,174,024) 801,997
=========== =========== ===========
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from:
Distributions/sales received on investments - - 118,300 62,020
Sales of office equipment and leasehold
improvements 13,241 46,205 144,512
Payments for:
Acquisition of investments - - (119,999) (633,739)
Acquisition of Office equipment and
leasehold improvements (4,152,049) (3,938,083) (938,340)
----------- ----------- -----------
CASH FROM INVESTING ACTIVITIES (4,138,808) (3,893,577) (1,365,547)
=========== =========== ===========
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 $ 924,000 $ 923,000 $ 405,000
Restricted stock awards and units,
net of forfeitures $ 3,471,000 $ 1,263,000 $ 153,000
Employee stock ownership shares issued $ 152,000 $ 165,000 $ 300,000
Debt converted to stock $ - - $ - - $10,000,000
Stock dividends distributed $ 77,000 $ 3,551,000 $ 4,370,000
See Notes to Consolidated Financial Statements (Item 8)
</TABLE>
<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, 1999:
Deducted from asset
account: Allowances for
doubtful accounts $ 555,891 $ 5,309 $ 5,309 $ 555,891
Deducted from asset
account: Allowances
for doubtful notes
receivables 482,369 389,367 167,518(2) 704,218
Deducted from asset
account: Allowances
for doubtful collection
of other assets 3,586 0 3,586(5) 0
Deducted from asset
Account: Reserves for
investments 1,010,116 420,348 103,828 1,326,636
Deducted from asset
Account: Reserves for
Securities owned 200,000 0 0 200,000
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(2) 482,369
Deducted from asset
account: Allowances for
doubtful collection of
other assets 62,000 0 58,414(5) 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(1) 555,891
Deducted from asset
account: Allowances for
doubtful notes receivables 2,551,627 235,229 410,505(2) 2,376,351
Deducted from asset
account: Allowances for
doubtful collection of
other assets 300,000 62,000 300,000(4) 62,000
Deducted from asset
Account: Reserves for
Investments 735,362 175,154 230,670(3) 679,846
Deducted from asset
Account: Reserves for
Securities owned 200,000 0 0 200,000
(1) Uncollected accounts written off and recoveries.
(2) Uncollected notes written off and recoveries.
(3) Investments disposed of.
(4) Uncollected asset written off.
(5) Recovery of account.
</TABLE>
EXHIBIT INDEX
Stifel Financial Corp. and Subsidiaries
Annual Report on Form 10-K
Year Ended December 31, 1999
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) Preferred 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. *
(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) Amended and Restated 1997 Incentive Plan of
Financial, incorporated herein by reference to
Financial's Registration Statement on Form S-8
(Registration File No. 333-84717) filed on August 6,
1999.*
(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, incorporated herein by reference to
Exhibit 10(j) 2 to Financial's Annual Report on Form
10-K (File No. 1-9305) for the year ended December
31, 1998. *
(k) 1999 Executive Incentive Performance Plan
of Financial,incorporated herein by reference to Annex
B of Financial's Proxy Statement for the 1999 Annual
Meeting of Stockholders filed March 26, 1999. *
13. Annual Report to Stockholders for the year ended
December 31, 1999, filed herewith. Except for those
portions of pages expressly incorporated by reference, the
1999 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. 1999 Financial Data Schedule BD, filed herewith.
* Management contract or compensatory plan or arrangement.
