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. 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.
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. 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. 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 $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.
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. ITEM 3.
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.
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. 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.
PART II
ITEM 5.
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.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
(a) Retroactively restated to reflect the 5 percent stock dividend declared January 27, 1999. * Not Meaningful
ITEM 7.
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.
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.
ITEM 8.
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. ITEM 9.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None
PART III
ITEM 10.
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. ITEM 11.
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.
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.
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.
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. 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)
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
[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
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)
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)
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
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. * (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.