SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1997 ----------------- [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to ----------------- ---------------- Commission file number 1-9305 ------ STIFEL FINANCIAL CORP. - ---------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 43-1273600 - ------------------------------- ---------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 500 N. Broadway St. Louis, Missouri 63102-2188 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 314-342-2000 ------------ 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]
2 Aggregate market value of voting stock held by non-affiliates of the registrant at March 10, 1998 was $84,016,545. Shares of Common Stock outstanding at March 10, 1998: 6,677,432 shares, par value $.15 per share. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Stockholders for the year ended December 31, 1997 are incorporated by reference to Part II hereof. Portions of the Company's Proxy Statement filed with the SEC in connection with the Company's Annual Meeting of Stockholders to be held April 28, 1998 are incorporated by reference to Part III hereof. Exhibit Index located on page 29.
3 PART I ITEM 1. BUSINESS - ---------------- Stifel Financial Corp. ("Financial"), a Delaware corporation and holding company, was organized in fiscal year 1983 pursuant to a plan of reorganization whereby Stifel, Nicolaus & Company, Incorporated ("Stifel, Nicolaus") became a wholly-owned subsidiary of Financial. Stifel, Nicolaus is the successor to a partnership founded in 1890. The term "Company" as used herein means Financial and its subsidiaries. The Company offers securities-related financial services through its wholly-owned operating subsidiaries, Stifel, Nicolaus, Century Securities Associates, Inc., Todd Investment Advisors, Inc., and Pin Oak Capital, Ltd. These subsidiaries provide brokerage, trading, investment banking, investment advisory, and related financial services primarily to customers throughout the United States from 42 locations. The Company's customers include individuals, corporations, municipalities and institutions. Although the Company has customers throughout the United States, its major geographic area of concentration is in the Midwest. On May 25, 1995, the Company sold the majority of the assets related to its operations in Oklahoma, which consisted of 26 securities sales offices and the municipal underwriting, trading, and institutional sales operations located in Oklahoma, and three securities sales offices in Texas. These operations comprised 14% of the Company's total revenue for 1994. (See proforma financial information in Note O of the Consolidated Financial Statements incorporated by reference herein.) Principal Sources of Revenue The amounts of each of the principal sources of revenue of the Company for the calendar years 1997, 1996 and 1995 is contained in Item 6. Selected Financial Data, filed herein. Commissions During recent years, most of the Company's securities commissions resulted from transactions with individual investor accounts. Commissions are charged on both stock exchange and over-the- counter transactions in accordance with the Company's commission schedule. In certain cases, discounts from that schedule are granted. The percentage of total commission revenue from institutional customers was 6% and 5% in 1997 and 1996, respectively. Prior to 1996 revenue generated from institutional customers was not accounted for separately. Institutional accounts are serviced mainly by the Company's offices in St. Louis. Investment executives also receive orders from institutional customers from time to time which are not included in the percentages mentioned above.
4 Principal Transactions The Company trades as principal in the over-the-counter market. It acts as both principal and agent to facilitate the execution of customers' orders. The Company makes a market in various securities of interest to its customers through buying, selling and maintaining an inventory of these securities. The Company does not engage in a significant amount of trading for its own account. The Company also buys corporate and municipal bonds for its own account in the secondary market, maintains an inventory, and resells from that inventory to other dealers and to institutional and individual customers. Investment Banking The Company manages the underwriting of both corporate and municipal securities and participates as an underwriter in syndicates of issues managed by other firms. The corporate and public finance departments are responsible for originating underwritings, mergers and acquisitions, placements, valuations, financial advisory work and other investment banking matters. The Company acts as an underwriter and dealer in bonds issued by states, cities and other political subdivisions and may act as manager or participant in offerings managed by other firms. The majority of the Company's municipal bond underwritings and corporate underwritings are originated through its office in St. Louis. In calendar years 1995-1997, the majority of the Company's investment banking revenues have been generated by the corporate finance department. The department continues to focus on providing research, financial advisory services, merger and acquisition advisory services and serving as a manager or co- manager for underwriting issuances of corporate debt or equity securities primarily for financial institutions located primarily in the Midwest and Real Estate Investment Trusts (REITs) located throughout the country. The management of and participation in public offerings involves significant risks. An underwriter may incur losses if it is unable to resell, at a profit, the securities it has purchased. Under the Securities Act of 1933 and other statutes and court decisions, an underwriter may be subject to substantial liability for misstatements or omissions of fact that are judged to be material in prospectuses and other communications related to underwritings. Underwriting commitments may reduce the Company's regulatory net capital position (as defined by Rule 15c3-1 administered by the Securities and Exchange Commission -- see "Regulation"); and, consequently, the aggregate amount of underwriting commitments at any one time may be limited by the amount of available net capital of the Company. Other Business The Company has dealer-sales agreements with numerous distributors of investment company shares. These agreements generally provide for dealer discounts ranging up to 4.25 percent of the purchase price, depending upon the size of the transaction.
5 The Company acts as an agent for its customers' transactions in put and call options traded on the Chicago Board Options Exchange, Inc., American Stock Exchange, Inc., Philadelphia Stock Exchange, Inc., and, to a much lesser extent, in the over-the- counter market. The Company has a wholly-owned subsidiary, Century Securities Associates, Inc. ("CSA"), an introducing broker-dealer which clears its transactions through Stifel, Nicolaus. CSA contracts with independent licensed brokers to sell securities and other investment products to individual investor accounts. CSA is licensed in 50 states. In 1993, the Company formed a wholly-owned subsidiary, Stifel Asset Management Corp. ("SAM"), to act as a holding company for two investment advisory firms, Pin Oak Capital, Ltd. ("Pin Oak"), and Todd Investment Advisors, Inc. ("Todd"). Pin Oak, which operated formerly as the investment advisory division of Stifel, Nicolaus, was formed as an investment advisory firm and began operations during the five-month transition period ended December 31, 1993. SAM purchased all of the outstanding stock of Todd, an investment advisory firm located in Louisville, Kentucky, in December 1993. Both Pin Oak and Todd provide investment advice and services to individual, fiduciary and corporate clients. Combined assets under management for the two firms at December 31, 1997 was approximately $2,860,111,000. Pin Oak holds registrations as an investment advisor in six states. Todd is registered as an investment advisor in sixteen states. In late 1994, Stifel, Nicolaus established a program for managing customers' investment portfolios. Fees are charged based upon a percentage of total assets of the portfolio. At December 31, 1997, Stifel, Nicolaus had assets under management of approximately $497,000,000 related to this program. The Company intends to commit resources to grow this business. Coincidental with the sale of the Oklahoma based operations, the Company entered into a clearing agreement to clear the trades of the purchasing firm's broker-dealer subsidiary and carry its customer accounts on a fully-disclosed basis. The Company charges for these services based upon the clearing agreement. Various subsidiaries of the Company act as General Partners in certain limited partnerships for which Stifel, Nicolaus has sold limited partnership interests to the public. The subsidiaries may receive distributions upon the dissolution of such partnerships, but the amount and timing of receipts of such distributions, if any, cannot be determined at this time and are subject to the usual risks and liabilities associated with acting as a general partner.
6 Customer Financing Securities are purchased for customers on either a cash or margin basis. The customer deposits less than the full cost of the security when securities are purchased on a margin basis. The Company makes a loan for the balance of the purchase price. Such loans are collateralized by the securities purchased. The amounts of the loans are subject to the margin requirements of Regulation T of the Board of Governors of the Federal Reserve System, New York Stock Exchange, Inc. ("NYSE") margin requirements, and the Company's internal policies, which usually are more restrictive than Regulation T or NYSE requirements. In permitting customers to purchase securities on margin, the Company is subject to the risk of a market decline which could reduce the value of its collateral below the amount of the customers' indebtedness. Research The Company's research department provides individual and institutional customers information and recommendations on the securities of specific companies. These services are rendered without charge. The Company also purchases research services from other firms. Competition The Company competes with other securities firms, some of which offer their customers a broader range of brokerage services, have substantially greater resources, and may have greater operating efficiencies. In addition, an increasing number of specialized firms, as well as banks, savings and loans, and other financial institutions, now offer discount brokerage services to individual customers. These firms generally charge lower commission rates to their customers without offering services such as portfolio valuation, investment recommendations and research. Competition from such discount brokerage services may adversely affect revenues of the Company and other full service brokerage firms. Banks also compete with brokerage firms by offering certain investment banking and corporate finance services. Management relies on the expertise acquired in its market area over its 107-year history, its personnel, and its equity capital to operate in the competitive environment.
7 Regulation The securities industry in the United States is subject to extensive regulation under federal and state laws. The Securities and Exchange Commission ("SEC") is the federal agency charged with the administration of the federal securities laws. Much of the regulation of broker-dealers, however, has been delegated to self-regulatory organizations, principally the National Association of Securities Dealers, Inc., the Municipal Securities Rulemaking Board, and the national securities exchanges, such as the NYSE. These self-regulatory organizations adopt rules (which are subject to approval by the SEC) which govern the industry and conduct periodic examinations of member broker-dealers. Securities firms are also subject to regulation by state securities commissions in the states in which they are registered. The regulations to which broker-dealers are subject cover all aspects of the securities business, including sales practices, trade practices among broker-dealers, capital structure of securities firms, record keeping, and the conduct of directors, officers and employees. Additional legislation, changes in rules promulgated by the SEC and by self-regulatory organizations, and changes in the interpretation or enforcement of existing laws and rules often directly affect the method of operation and profitability of broker-dealers. The SEC and the self-regulatory organizations may conduct administrative proceedings which can result in censures, fines, suspension or expulsion of a broker- dealer, its officers or employees. The principal purpose of regulation and discipline of broker-dealers is the protection of customers and the securities markets rather than the protection of creditors and stockholders of broker-dealers. As a broker-dealer and member of the NYSE, Stifel, Nicolaus is subject to the Uniform Net Capital Rule (Rule 15c3-1) promulgated by the SEC which provides that a broker-dealer doing business with the public shall not permit its aggregate indebtedness (as defined) to exceed 15 times its net capital (as defined) or, alternatively, that its net capital shall not be less than 2 percent of aggregate debit balances (primarily receivables from customers and broker-dealers) computed in accordance with the SEC's Customer Protection Rule (Rule 15c3-3). The Uniform Net Capital Rule is designed to measure the general financial integrity and liquidity of a broker-dealer and the minimum net capital deemed necessary to meet the broker-dealer's continuing commitments to its customers and other broker/dealers. Both methods allow broker-dealers to increase their commitments to customers only to the extent their net capital is deemed adequate to support an increase. Management believes that the alternative method, which is utilized by most full-service securities firms, is more directly related to the level of customer business. Therefore, Stifel, Nicolaus computes its net capital under the alternative method.
8 Under SEC rules, a broker-dealer may be required to reduce its business and restrict withdrawal of subordinated capital if its net capital is less than 4 percent of aggregate debit balances and may be prohibited from expanding its business and declaring cash dividends if its net capital is less than 5 percent of aggregate debit balances. A broker-dealer that fails to comply with the Uniform Net Capital Rule may be subject to disciplinary actions by the SEC and self-regulatory agencies, such as the NYSE, including censures, fines, suspension, or expulsion. In computing net capital, various adjustments are made to net worth to exclude assets which are not readily convertible into cash and to state conservatively the other assets such as a firm's position in securities. Compliance with the Uniform Net Capital Rule may limit those operations of a firm such as Stifel, Nicolaus which require the use of its capital for purposes of maintaining the inventory required for a firm trading in securities, underwriting securities, and financing customer margin account balances. Stifel, Nicolaus had net capital of approximately $28,227,000 at December 31, 1997, which was approximately 11.7 percent of aggregate debit balances and approximately $23,396,000 in excess of required net capital. Employees There were 756 individuals employed by the Company as of February 28, 1998 and 109 independent licensed brokers contracted through CSA. ITEM 2. PROPERTIES - ------------------- The headquarters and administrative offices of the Company, Stifel, Nicolaus and CSA are located in downtown Saint Louis, Missouri. Todd is located in Louisville, Kentucky. Pin Oak is located in New York, New York. Stifel Nicolaus has a branch office system located in 13 states, primarily in the Midwest. The Company has a total of 42 locations in 13 states. All offices of the Company are located in leased premises. The Company's management believes that at the present time the facilities are suitable and adequate to meet its needs and that such facilities have sufficient productive capacity and are appropriately utilized. The Company also leases communication and other equipment. Aggregate annual rental expense for the twelve month period ended December 31, 1997, for office space and equipment, was approximately $2,899,000. Further information about the lease obligations of the Company is provided in Note D of the Consolidated Financial Statements incorporated by reference herein.
9 ITEM 3. LEGAL PROCEEDINGS - ------------------------- The Company is a defendant in several lawsuits and arbitrations which arose from its usual business activities. Some of these lawsuits and arbitrations claim substantial amounts, including punitive claims. While results of litigation and arbitration cannot be predicted with certainty, management, based on opinions of outside counsel, has provided for actions most likely of adverse disposition and believes that the effects of resolution of such litigation and arbitration beyond the amounts provided will not have a material adverse effect on the Company's consolidated financial condition and results of operations. However, depending upon the period of resolution, such effects could be material to the financial results of an individual operating period. It is reasonably possible that certain of these lawsuits and arbitrations could be resolved in the next year, and management does not believe such resolutions will result in losses materially in excess of the amounts previously provided. During 1995, the Securities and Exchange Commission (the "SEC") completed a formal investigation into possible violations of the federal securities laws in connection with certain municipal bond issues managed by the Company's former Oklahoma City-based public finance department where the Company was the managing or co- managing underwriter. This investigation resulted in the Company consenting to a final judgement of permanent injunction whereby, among other things, the Company paid approximately $1.1 million in disgorgement and prejudgement interest, and $250,000 in fines. On October 5, 1995 the Company was named in a lawsuit filed by The Oklahoma Turnpike Authority ("OTA") in the District Court of Oklahoma County, State of Oklahoma, along with DeWayne VonFeldt and Robert Cochran, two former employees of the Company; Sakura Global Capital and Steven Strauss; Pacific Matrix and Jeff Feld. Additionally, the Company was named in a lawsuit filed by the State of Oklahoma in the United States District Court for the Western District of Oklahoma on February 24, 1995 along with Robert Cochran. The OTA suit seeks $6.5 million in compensatory damages and an unspecified amount of punitive damages. The State of Oklahoma seeks $7.6 million in compensatory damages and that these damages be trebled. The OTA suit alleges that an undisclosed fee paid to the Company by a third party for the placement of a forward purchase contract in an advance refunding escrow for the proceeds of the 1992 OTA $608 million refinancing should have been paid to the OTA. The State of Oklahoma suit alleges that the Company and two former executives of the Company committed violations of the Racketeer Influenced and Corrupt Organizations Act. This suit alleges essentially the same facts as are alleged in the OTA suit and were alleged by the SEC in its action against the Company which was settled in August 1995 by the Company without admitting or denying the allegations. The State of Oklahoma suit was dismissed by the United States District Court for the Western District of Oklahoma and is currently on appeal in the United States Tenth Circuit Court of Appeals. Although the ultimate outcome of these actions cannot be ascertained at this time, and the results of legal proceedings cannot be predicted with certainty, management, based on its
10 understanding of the facts and after consultation with outside counsel, does not believe the ultimate resolution of these matters will have a materially adverse effect on the Company's consolidated financial condition and results of operations. EXECUTIVE OFFICERS OF THE REGISTRANT The following information is furnished pursuant to General Instruction G(3) of Form 10-K with respect to the executive officers of Financial: Year First Appointed as Positions or Offices Executive Officer Name Age with the Company of the Company ---- --- -------------------- ------------------------ George H. Walker III 67 Chairman of the 1978 Board of Financial and Stifel, Nicolaus Ronald J. Kruszewski 39 President and Chief 1997 Executive Officer of Financial and Stifel, Nicolaus Stephen J. Bushmann 40 Vice President, Treasurer and 1996 Chief Financial Officer of Financial and Chief Financial Officer and Senior Vice President of Stifel, Nicolaus Charles R. Hartman 54 Vice President and Secretary of 1996 Financial and General Counsel, Senior Vice President and Secretary of Stifel, Nicolaus Michael A. Murphy 46 Vice President of Financial and 1996 Senior Vice President - Director of Private Client Group of Stifel, Nicolaus Lawrence E. Somraty 49 Vice President of Financial and 1996 President of Century Securities Associates, Inc. The following are brief summaries of the business experience during the past five years of each of the executive officers. George H. Walker III joined Stifel, Nicolaus in 1976, became Chief Executive Officer of Stifel, Nicolaus in December, 1978, and became Chairman of Stifel, Nicolaus in July, 1982. From the time of the organization of Financial, Mr. Walker has served as its Chairman of the Board and, until October 26, 1992, Mr. Walker served as its President and Chief Executive Officer. Mr. Walker is a director of Laclede Steel Company, Laidlaw Corp., Macroeconomics Advisers, LLC, and EAC Corporation. He is active in various community activities and currently is Chairman of the Missouri Historical Society. He is Chairman of the Advisory Committee of Webster University Business School and on the National Counsel of Washington University Business School.
11 Ronald J. Kruszewski was appointed President and Chief Executive Officer of the Company and Stifel, Nicolaus on September 25, 1997. Prior to joining the Company, Mr. Kruszewski served as Managing Director and Chief Financial Officer of Baird Financial Corporation and Managing Director of Robert W. Baird & Co., Incorporated. Stephen J. Bushmann joined Stifel, Nicolaus in October of 1981. He is Vice President, Treasurer and Chief Financial Officer of Financial and Chief Financial Officer and Senior Vice President of Stifel, Nicolaus. From 1994 - 1996, Mr. Bushmann served as Financial Analyst and prior to that he was Assistant Controller. Charles R. Hartman joined Stifel, Nicolaus in June of 1994. He is Vice President and Secretary of Financial and General Counsel, Senior Vice President and Secretary of Stifel, Nicolaus. Prior to joining Stifel, Nicolaus, Mr. Hartman was the Regional Counsel for the Securities and Exchange Commission in Los Angeles, California and since April of 1982 a Los Angeles partner in the law firm of Rogers & Wells. Michael A. Murphy joined Stifel, Nicolaus in 1989. He was Vice President of Financial and Senior Vice President and Director of Private Client Group of Stifel, Nicolaus. From 1989 - 1994, Mr. Murphy served as First Vice President and Director of Branch Administration of Stifel, Nicolaus. Lawrence E. Somraty has been with Stifel, Nicolaus since 1977. He is Vice President of Financial and became the President of Century Securities Associates, Inc. in January 1991. Prior thereto, he served as Option Department Manager, Senior Registered Options Principal, Investment Advisor and Branch Manager. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ None
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 ------------------------------------------ 1997 1996 Quarter High - Low High - Low ------------------------------------------ First 8 5/8 - 7 $ 6 - 5 1/2 Second 11 1/2 - 7 1/8 7 3/8 - 5 3/4 Third 11 1/2 - 8 3/4 7 3/8 - 5 7/8 Fourth 16 1/8 - 11 3/8 7 7/8 - 6 3/8 ------------------------------------------ The Company from time-to-time uses funds generated from operations to purchase the Company's common stock throughout the calendar year. On October 29, 1997, the Company's Board of Directors authorized the purchase of an additional 262,500 shares to be used to satisfy share obligations for employee benefit plans. b.) Holders The approximate number of stockholders of record on March 10, 1998 was 3,000. c.) Dividends Dividends paid were as follows: Record Payment Cash Stock Date Date Dividend Dividend 02/06/96 02/20/96 $0.03 5% 05/07/96 05/21/96 $0.03 - - 11/05/96 11/19/96 $0.03 - - 02/4/97 02/18/97 $0.03 5% 05/6/97 05/20/97 $0.03 - - 08/5/97 08/19/97 $0.03 - - 11/11/97 11/25/97 $0.03 - - A regular quarterly cash dividend of $0.03 per share was established on November 30, 1993. On July 23, 1996, the Board of Directors of Financial approved the redemption of certain stock rights under a former Shareholder Rights Plan and the adoption of a new Shareholder Rights Plan. Shareholders on record, as of August 12, 1996, received a payment of $0.05 per share, representing the redemption price for the former Rights. This payment was in lieu of the regular quarterly cash dividend of $0.03 per share.
13 ITEM 6. SELECTED FINANCIAL DATA - -------------------------------- <TABLE> Stifel Financial Corp. and Subsidiaries Financial Summary <CAPTION> Five Year Months ended Years Ended December 31, Ended July 30, -------------------------------------------- (In thousands, except per 1997 1996 1995 1994 Dec. 31, 1993 1993 share and percentages) <S> <C> <C> <C> <C> <C> <C> Revenues Commissions $ 49,763 $ 43,900 $ 38,716 $ 37,287 $ 18,119 $ 38,812 Principal transactions 20,202 19,498 20,362 24,639 10,287 27,503 Investment banking 28,476 16,253 12,121 12,634 11,272 31,468 Interest 21,397 13,774 13,002 10,918 4,057 8,851 Other 16,258 16,388 11,159 8,448 2,720 6,837 -------- -------- -------- -------- -------- -------- 136,096 109,813 95,360 93,926 46,455 113,471 -------- -------- -------- -------- -------- -------- Expenses Employee compensation and benefits 82,094 66,765 57,187 61,527 29,433 68,678 Commissions and floor brokerage 2,780 2,641 2,319 2,120 845 2,485 Communications and office supplies 6,914 6,797 7,651 8,045 3,090 6,836 Occupancy and equipment rental 8,109 7,958 8,512 11,601 3,618 8,405 Interest 12,991 8,197 8,312 6,138 1,763 4,838 Litigation, settlements, and bad debts 3,726 3,292 1,610 2,467 473 1,237 Restructuring charge - - - - - - 2,672 - - - - Other operating expenses 10,061 8,561 8,462 8,577 4,173 9,722 -------- -------- -------- -------- -------- -------- 126,675 104,211 94,053 103,147 43,395 102,201 -------- -------- -------- -------- -------- -------- Income (loss) before income taxes 9,421 5,602 1,307 (9,221) 3,060 11,270 Provision (benefit) for income taxes 3,750 2,209 663 (3,718) 1,145 4,232 -------- -------- -------- -------- -------- -------- Net income (loss) $ 5,671 $ 3,393 $ 644 $ (5,503) $ 1,915 $ 7,038 ======== ======== ======== ======== ======== ======== Per Share Data Basic earnings (loss) <FA> $ 1.06 $ .69 $ .13 $ (1.15) $ .40 $ 1.49 Diluted earnings (loss) <FA> $ .92 $ .62 $ .13 $ (1.15) $ .34 $ 1.22 Cash dividends $ .12 $ .09 $ .12 $ .09 $ .055 $ .15 Other Data Total assets $315,484 $301,344 $226,775 $222,208 $288,203 $196,539 Long-term obligations $ 9,600 $ 10,000 $ 10,760 $ 11,520 $ 11,520 $ 10,000 Stockholders' equity $ 50,081 $ 37,752 $ 34,795 $ 34,226 $ 40,609 $ 38,995 Net income as % average equity 13.29% 9.35% 1.87% * N.M. 4.81% 19.94% Net income as % revenues 4.17% 3.09% 0.68% * N.M. 4.12% 6.20% Average common shares and share equivalents outstanding <FA>: Basic 5,325 4,905 4,837 4,802 4,835 4,729 Diluted 6,755 6,491 4,907 4,802 6,477 6,351 - ----------------------------------------------------------------------------------------------------------- </TABLE> <FA> Retroactively restated to reflect the 5 percent stock dividend declared January 20, 1998. * Not Meaningful
14 The information called for in items 7 and 8 of Part II is set forth on the pages listed below of the Company's 1997 Annual Report to Stockholders and is incorporated herein by reference: Pages In Annual Report To Stockholders (filed herewith in Exhibit 13) ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 16 through 21 ITEM 8. Financial Statements and Supplementary Data. 22 through 43 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The Company filed a report on Form 8-K dated October 29, 1996. This report Form 8-K contained information under Item 4. "Changes in registrant's certifying accountants". The Board of Directors of Financial, upon the recommendation of its Audit Committee, determined to replace Coopers & Lybrand L.L.P. as the Company's independent auditors for the year ended December 31, 1996. In addition, the Company filed a report on Form 8-K dated December 9, 1996. This report Form 8-K contained information under Item 4. "Changes in registrant's certifying accountants". The Board of Directors of Financial, upon the recommendation of its Audit Committee, determined to appoint Deloitte & Touche LLP as the Company's newly engaged certifying accountants and Deloitte & Touche LLP has accepted this appointment. During the two years ended December 31, 1995 and through the date of their appointment, Deloitte & Touche LLP had not provided any consultations to the Company. PART III ITEMS 10 THROUGH 13 Financial intends to file with the Securities and Exchange Commission a definitive proxy statement pursuant to Regulation 14A involving the election of directors not later than 120 days after the end of its fiscal year ended December 31, 1997. Accordingly, except to the extent included in Part I under the caption "Executive Officers of the Registrant", the information required by Part III (Items 10, 11, 12 and 13) is incorporated herein by reference to such definitive proxy statement in accordance with General Instruction G(3) to Form 10-K.
15 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this report: Reference (page) ---------------- Annual Report to Stockholders ------------ 1. The following consolidated financial statements of Stifel Financial Corp. and subsidiaries, included on pages 22 through 43 in the 1997 Annual Report to Stockholders, are incorporated by reference in Item 8 Consolidated Statements of Financial Condition -- December 31, 1997 and December 31, 1996............... 22 - 23 Consolidated Statements of Operations -- Years ended December 31, 1997, December 31, 1996 and December 31, 1995................................. 24 Consolidated Statements of Stockholders' Equity -- Years ended December 31, 1997, December 31, 1996 and December 31, 1995................................. 25 Consolidated Statements of Cash Flows -- Years ended December 31, 1997, December 31, 1996 and December 31, 1995................................. 26 - 27 Notes to Consolidated Financial Statements............. 28 - 42 Independent Auditors' Report........................... 43 2. The following consolidated financial statement schedules of Stifel Financial Corp. and subsidiaries are filed herewith pursuant to ITEM 14(d): Independent Auditors' Report Report of Independent Accountants Report of Independent Accountants Schedule I - Condensed Financial Information of Registrant Schedule II- Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.
16 3. Exhibits -------- Exhibit No. (Referenced to Item 601(b) of Regulation S-K) (a)(1) Restated Certificate of Incorporation of Financial filed with the Secretary of State of Delaware on June 1, 1983, incorporated herein by reference to Exhibit 3.1 to Financial's Registration Statement on Form S-1, as amended (Registration File No. 2-84232) filed July 19, 1983. (a)(2) Amendment to Restated Certificate of Incorporation of Financial filed with the Secretary of State of Delaware on May 11, 1987, incorporated herein by reference to Exhibit (3)(a)(2) to Financial's Report on Form 10-K for the year ended July 31, 1987. (a)(3) Certificate of Designation, Preferences, and Rights of Series A Junior Participating Preferred Stock of Financial filed with the Secretary of State of Delaware on July 10, 1987, incorporated herein by reference to Exhibit (3)(a)(3) to Financial's Report on Form 10-K for the year ended July 31, 1987. (a)(4) Amendment to Restated Certificate of Incorporation of Financial filed with the Secretary of State of Delaware on November 28, 1989, incorporated herein by reference to Exhibit (3)(a)(4) to Financial's Report on Form 10-K for the year ended July 27, 1990. (b) Amended and Restated By-Laws of Financial, incorporated herein by reference to Exhibit 3(b)(1) to Financial's Report on Form 10-K for fiscal year ended July 30, 1993. 4. Note Agreement dated as of October 15, 1988, between Financial and Bankers United Life Assurance Company and Pacific Fidelity Life Insurance Company, incorporated herein by reference to Exhibit 4 to Financial's Report on Form 10-Q for the quarterly period ended April 28, 1989. The Company hereby agrees to furnish the Securities and Exchange Commission copies of such instruments upon request. 10. (a)(1) Employment Agreement with George H. Walker III dated August 21, 1987, incorporated herein by reference to Exhibit 10(c) to Financial's Report on Form 10-K for the fiscal year ended July 31, 1987. (a)(2) First Amendment to Employment Agreement with George H. Walker III, incorporated herein by reference to Exhibit 10(a)(2) to Financial's Report on Form 10-K for the fiscal year ended July 31, 1992.
17 (b) Form of Indemnification Agreement with directors dated as of June 30, 1987, incorporated herein by reference to Exhibit 10.2 to Financial's Report on Form 8-K (date of earliest event reported - June 22, 1987) filed July 14, 1987. (c) 1983 Incentive Stock Option Plan of Financial, incorporated herein by reference to Exhibit 4(a) to Financial's Registration Statement on Form S-8 (Registration File No. 2-94326) filed November 14, 1984. (d) 1985 Incentive Stock Option Plan of Financial, incorporated herein by reference to Exhibit 28C to Financial's Registration Statement on Form S-8, as amended (Registration File No. 33-10030) filed November 7, 1986. (e) 1987 Non-qualified Stock Option Plan of Financial , incorporated herein by reference to Exhibit 10(h) to Financial's Report on Form 10-K for the fiscal year ended July 31, 1987. (f) Amendment to 1983 Incentive Stock Option Plan, 1985 Incentive Stock Option Plan and 1987 Non- Qualified Stock Option Plan, incorporated herein by reference to Exhibit 10(f) to Financial's Report on Form 10-K for the fiscal year ended July 28, 1989. (g)(1) 1993 Employee Stock Purchase Plan of Financial, incorporated herein by reference to ANNEX A of Financial's Definitive Proxy Statement (Registration File No. 33-16150) filed October 28, 1992. (g)(2) First Amendment to the 1993 Employee Stock Plan of Financial, incorporated herein by reference to Exhibit 4.5 to Financial's Registration Statement on Form S-8 (Registration File No. 33-53097) filed April 11, 1994. (h) Employment and Non-Competition Agreement with Gregory F. Taylor dated July 26, 1993, incorporated herein by reference to Exhibit 10(m) to Financial's Report on Form 10-K for fiscal year ended July 30, 1993. (i) Dividend Reinvestment and Stock Purchase Plan of Financial, incorporated herein by reference to Financial's Registration Statement on Form S-3 (Registration File No. 33-53699) filed May 18, 1994. (j) 1997 Incentive Stock Plan of Financial, incorporated herein by reference to Financial's Registration Statement on Form S-8 (Registration File No. 333-37805) filed October 14, 1997.
18 (k) 1998 Employee Stock Plan of Financial, incorporated herein by reference to Financial's Registration Statement on Form S-8 (Registration File No. 333-37807) filed October 14, 1997. (l) Employment Letter with Ronald J. Kruszewski, filed herewith. 13. Annual Report to Stockholders for the year ended December 31, 1997. Except for those portions of pages expressly incorporated by reference, the 1997 Annual Report to Stockholders is not deemed filed as part of this Annual Report on Form 10-K. 21. List of Subsidiaries of Financial, filed herewith. 23. (a) Consent of Independent Auditors, filed herewith. 23. (b) Consent of Independent Accountants, filed herewith. 27. (a) 1997 Financial Data Schedule BD, filed herewith. 27. (b) 1995 and 1996 Restated Financial Data Schedule BD, filed herewith. 27. (c) 1997 Restated Financial Data Schedule BD, filed herewith. (b) Reports on Form 8-K: The Company filed a report on Form 8-K dated December 31, 1997. This report Form 8-K contained information under Item 5. "Other Events". The Company announced that AEGON USA, Inc. Insurance Group had sold 1,207,500 shares of the Registrant's common stock. The Western and Southern Life Insurance Company and Stifel, Nicolaus Stock Ownership Plan and Trust had purchased 971,250 and 236,250 shares, respectively.
19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Louis, State of Missouri, on the 26th day of March, 1998. STIFEL FINANCIAL CORP. (Registrant) By /s/ Ronald J. Kruszewski ----------------------------- Ronald J. Kruszewski (Principal Executive Officer) /s/ Stephen J. Bushmann ----------------------------- Stephen J. Bushmann (Principal Financial and Accounting Officer)
20 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant on March 20, 1998, in the capacities indicated. /s/George H. Walker III Chairman of the Board George H. Walker III /s/Ronald J. Kruszewski President, Chief Executive Ronald J. Kruszewski Officer, and Director /s/Bruce A. Beda Director Bruce A. Beda /s/Belle A. Cori Director Belle A. Cori /s/Charles A. Dill Director Charles A. Dill /s/Richard F. Ford Director Richard F. Ford /s/John J. Goebel Director John J. Goebel /s/Stuart I. Greenbaum Director Stuart I. Greenbaum /s/Robert E. Lefton Director Robert E. Lefton /s/James M. Oates Director James M. Oates
21 [Deloitte & Touche LLP letterhead] Independent Auditors' Report To the Board of Directors and Stockholders of Stifel Financial Corp. St. Louis, Missouri: We have audited the consolidated financial statements of Stifel Financial Corp. and Subsidiaries as of December 31, 1997 and December 31, 1996, and for the years then ended, and have issued our report thereon dated February 20, 1998; such consolidated financial statements and report are included in your 1997 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the 1997 and 1996 consolidated financial statement schedules of Stifel Financial Corp. and Subsidiaries, listed in Item 14. These consolidated financial statement schedules are the responsibility of the Corporation's management. Our responsibility is to express an opinion based on our audits. In our opinion, such 1997 and 1996 consolidated financial statement schedules, when considered in relation to the basic 1997 and 1996 consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP February 20, 1998 St. Louis, Missouri
22 [Coopers & Lybrand L.L.P. letterhead] Report of Independent Accountants Stockholders and Board of Directors Stifel Financial Corp. St. Louis, Missouri We have audited the consolidated statements of operations, stockholders' equity, and cash flows of Stifel Financial Corp. and Subsidiaries for the year ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements of Stifel Financial Corp. and Subsidiaries referred to above present fairly, in all material respects, the consolidated results of their operations and their cash flows for the year ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. St. Louis, Missouri February 25, 1996
23 [Coopers & Lybrand L.L.P. letterhead] Report of Independent Accountants Board of Directors Stifel Financial Corp. St. Louis, Missouri: Our report on the consolidated statements of operations, stockholders' equity and cash flows of Stifel Financial Corp. and Subsidiaries is included on page 18 of this Form 10-K. In connection with our audit of such financial statements, we have also audited the related financial statement schedules for the year ended December 31, 1995 listed in the index on page 12 of this Form 10-K. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. /s/ Coopers & Lybrand L.L.P. St. Louis, Missouri February 25, 1996
24 SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED BALANCE SHEETS STIFEL FINANCIAL CORP. Dec. 31, 1997 Dec. 31, 1996 ------------- ------------- ASSETS Cash $ 9,155 $ 9,155 Due from subsidiaries (a) 3,615,656 3,711,973 Investment in subsidiaries (a) 47,214,574 41,262,901 Office equipment and leasehold improvements, less allowances for depreciation and amortization of $10,449,850 and $9,705,941, respectively 2,136,544 2,182,025 Investments, at cost 1,373,424 815,764 Goodwill, net of amortization of $554,095 and $462,235, respectively 1,815,047 1,906,907 Other assets 2,427,287 1,389,304 ----------- ----------- TOTAL ASSETS $58,591,687 $51,278,029 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Due to subsidiaries (a) $ 2,238,164 $ 1,739,432 Obligation under capital lease 522,498 580,945 Long-term debt 5,000,000 10,000,000 Other liabilities 749,881 1,206,523 ----------- ----------- TOTAL LIABILITIES 8,510,543 13,526,900 Stockholders' Equity: Capital stock 1,001,733 715,158 Additional paid-in capital 37,006,108 21,402,971 Retained earnings 17,425,321 16,733,073 ----------- ----------- 55,433,162 38,851,202 Less treasury stock, at cost 1,988,915 892,892 Less unearned employee stock ownership plan shares 3,179,125 -- Less unamortized expense of restricted stock awards, at cost 184,978 207,181 ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 50,081,144 37,751,129 ----------- ----------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $58,591,687 $51,278,029 =========== =========== (a) Eliminated in consolidation. See Notes to Consolidated Financial Statements (Item 8)
25 SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued) CONDENSED STATEMENTS OF OPERATIONS STIFEL FINANCIAL CORP. Years Ended December 31, --------------------------------------- 1997 1996 1995 ---- ---- ---- Revenues: Lease $1,202,248 $1,406,556 $1,708,160 Other 95,015 (59,024) (162,347) ---------- ---------- ---------- 1,297,263 1,347,532 1,545,813 Expenses: Depreciation and amortization 1,294,108 1,431,798 1,751,250 Professional fees 290,554 246,178 170,664 Provision for doubtful collection -- 300,000 -- Miscellaneous 194,419 159,460 135,363 ---------- ---------- ---------- 1,779,081 2,137,436 2,057,277 ---------- ---------- ---------- Loss before income taxes (481,818) (789,904) (511,464) (Benefit) provision for income taxes (201,150) (343,024) 52,100 Loss before equity in net income of subsidiaries (280,668) (446,880) (563,564) Equity in net income of subsidiaries 5,951,674 3,839,382 1,207,085 ---------- ---------- ---------- NET INCOME $5,671,006 $3,392,502 $ 643,521 ========== ========== ========== See Notes to Consolidated Financial Statements (Item 8)
26 SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued) <TABLE> CONDENSED STATEMENTS OF CASH FLOWS STIFEL FINANCIAL CORP. <CAPTION> Years Ended December 31, ----------------------------------------------- 1997 1996 1995 ---- ---- ---- <S> <C> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 5,671,006 $ 3,392,502 $ 643,521 Non-cash items included in net income: Depreciation and amortization 1,294,108 1,431,798 1,751,250 Unrealized (gain) loss on investment (127,590) 115,000 -- Deferred tax (benefit) provision (123,902) (234,353) 105,547 Undistributed (income) of subsidiaries (5,951,674) (3,839,382) (1,207,085) Amortization and forfeitures of restricted stock awards and stock benefits 172,357 75,055 84,346 ----------- ----------- ----------- 934,305 940,620 1,377,579 Net change in due to/due from subsidiaries 595,049 1,512,913 730,442 (Increase) decrease in other assets (796,569) 1,487,309 (1,162,037) (Decrease) increase in other liabilities (169,235) (379,298) 393,193 ----------- ----------- ----------- CASH PROVIDED BY OPERATING ACTIVITIES 563,550 3,561,544 1,339,177 ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from: Shares issued 2,071,564 -- -- Long-term debt 5,000,000 -- -- Employee stock purchase plan 727,208 616,670 755,274 Exercised options 101,082 3,098 123,503 Dividend reinvestment plan 7,936 12,570 9,533 Payments for: Retirement of long-term debt - - (760,000) (760,000) Purchase of stock for treasury (2,926,452) (520,321) (546,615) Purchase unearned ESOP shares (3,178,125) -- -- Principal payments under capital lease (392,248) (433,284) (255,053) Cash dividend and rights redemption (608,968) (625,128) (500,611) ----------- ----------- ----------- CASH USED FOR FINANCING ACTIVITIES 801,997 (1,706,395) (1,173,969) ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from: Distributions/sales received on investments 62,020 36,360 94,893 Sales of office equipment and leasehold Improvements 144,512 23,405 909,762 Payments for: Acquisition of investments (633,739) (1,513,232) -- Office equipment and leasehold improvements (938,340) (401,682) (1,169,863) ----------- ----------- ----------- CASH USED FOR INVESTING ACTIVITIES (1,365,547) (1,855,149) (165,208) ----------- ----------- ----------- Increase in cash 0 0 0 Cash (beginning of period) 9,155 9,155 9,155 ----------- ----------- ----------- Cash (end of period) $ 9,155 $ 9,155 $ 9,155 =========== =========== ===========
27 Supplemental Disclosures of Cash Flow Information Schedule of Non-cash Investing and Financing Activities Fixed assets acquired under capital lease $ 405,000 $ 240,000 -- Restricted stock awards, net of forfeitures $ 153,000 $ 182,000 $ 3,000 Employee stock ownership shares issued $ 300,000 $ 280,000 -- Debt converted to stock $10,000,000 -- -- Stock dividends distributed $ 4,370,000 $ 1,786,000 $ 1,406,000 </TABLE> See Notes to Consolidated Financial Statements (Item 8)
28 <TABLE> SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS STIFEL FINANCIAL CORP. AND SUBSIDIARIES <CAPTION> COL. A COL. B COL. C COL. D COL. E ------ ------ ------ ------ ------- Balance at Additions Balance Beginning Charged to Costs at End Description of Period and Expenses Deductions of Period ----------- ---------- ---------------- ---------- ---------- <S> <C> <C> <C> <C> Year Ended December 31, 1997: Deducted from asset account: Allowances for doubtful accounts $581,946 $2,038 $28,093 <F1> $555,891 Deducted from asset account: Allowances for doubtful notes receivables 2,551,627 235,229 410,505 <F2> 2,376,351 Deducted from asset account: Allowances for doubtful collection of other assets 300,000 62,000 300,000 <F4> 62,000 Deducted from asset account: Reserves for investments 735,362 175,154 230,670 <F3> 679,846 Deducted from asset account: Reserves for securities owned 200,000 0 0 200,000 Year Ended December 31, 1996: Deducted from asset account: Allowances for doubtful accounts $804,916 $28,400 $251,370 <F1> $581,946 Deducted from asset account: Allowances for doubtful notes receivables 3,002,220 173,467 624,060 <F2> 2,551,627 Deducted from asset account: Allowances for doubtful collection of other assets 0 300,000 0 300,000 Deducted from asset account: Reserves for investments 628,362 115,000 8,000 <F3> 735,362 Deducted from asset account: Reserves for securities owned 200,000 0 0 200,000 Year Ended December 31, 1995: Deducted from asset account: Allowances for doubtful accounts $1,070,985 $ 0 $266,069 <F1> $804,916 Deducted from asset account: Allowances for doubtful notes receivables 2,560,617 802,004 360,401 <F2> 3,002,220 Deducted from asset account: Reserves for investments 962,795 88,500 422,933 <F3><F5> 628,362 Deducted from asset account: Reserves for securities owned 0 0 (200,000) <F5> 200,000 - --------------------------- <FN> <F1> Uncollected accounts written off and recoveries. <F2> Uncollected notes written off and recoveries. <F3> Investments disposed of. <F4> Uncollected asset written off. <F5> Reserve balance reclassified from Reserve for investments to conform to 1995 presentation. </TABLE>
29 EXHIBIT INDEX Stifel Financial Corp. and Subsidiaries Annual Report on Form 10-K Year Ended December 31, 1997 Exhibit Number Description - ------- ----------- 10. (l) Employment Letter with Ronald J. Kruszewski, filed herewith. 13. 1997 Annual Report to Stockholders.* 21. Subsidiaries of Stifel Financial Corp. 23. (a) Consent of Independent Auditors. 23. (b) Consent of Independent Accountants. 27. (a) 1997 Financial Data Schedule BD. 27. (b) 1995 and 1996 Restated Financial Data Schedule BD. 27. (c) 1997 Restated Financial Data Schedule BD. * Certain portions of the Annual Report to Stockholders are incorporated herein by reference; the Annual Report to Stockholders is not to be deemed filed as a part of this Annual Report on Form 10-K.