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, 1996 ----------------- [ ] 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 11, 1997 was $32,425,544. Shares of Common Stock outstanding at March 11, 1997: 4,725,747 shares, par value $.15 per share. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Stockholders for the year ended December 31, 1996 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 22, 1997 are incorporated by reference to Part III hereof. Exhibit Index located on page 30.
3 PART I ITEM 1. BUSINESS Stifel Financial Corp. ("Financial") 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 43 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 retail securities offices and the municipal underwriting, trading, and institutional sales operations located in Oklahoma, and three retail 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 1996, 1995 and 1994 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 retail (individual) investor accounts. Retail commissions are charged on both stock exchange and over-the-counter transactions in accordance with the Company's commission schedule. In certain cases (usually on large trades or to active customers), discounts from that schedule are granted. The percentage of total commission revenue from institutional customers was 5% in 1996. 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. Retail investment executives also receive orders from institutional customers from time to time.
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 retail 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 and sold through its office in St. Louis. Prior to 1994, the majority of the Company's investment banking related revenue was generated by its Oklahoma City based public finance department. As a result of the negative publicity surrounding the two year investigation and civil injunctive action by the Securities and Exchange Commission, which was settled in August of 1995, related to certain municipal bond underwritings managed by the Oklahoma City office, the Company's ability to generate municipal bond underwritings in Oklahoma and elsewhere was adversely impacted (see also Item 7 "Management's Financial Discussion" and Note H of the Consolidated Financial Statements incorporated by reference herein). During 1995, the number of municipal bond offerings underwritten by the St. Louis public finance department was not only affected by the negative publicity as a result of the Securities and Exchange Commission investigation and enforcement action but also was effected by the downturn in the public finance market experienced industry-wide. Interest rates had not fluctuated downward as dramatically as several years ago, and consequently the volume of refinancings by institutions and governmental agencies has remained low. During 1996, the St. Louis public finance department rebounded somewhat as evidenced by the increase in the number of awards as senior manager for new issue underwritings, which increased to 34 awards in 1996 from 24 awards in 1995.
5 While several broker-dealers have ceased their public finance operations resulting from the industry-wide slowdown, management is uncertain at this time what effects, if any, this may have on the department's future performance. In calendar years 1996 and 1995, the majority of the Company's investment banking revenues have been generated by the corporate finance department. The growth in the revenue is due to the department's focus on providing research, financial advisory services, and consulting services for merger and acquisition and serving as a manager or co-manager for underwriting issuances of corporate debt or equity securities for financial institutions and Real Estate Investment Trusts (REITs) located primarily in the Midwest. Management expects the performance of the corporate finance department to remain strong. 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 that are judged to be material in prospectuses and other communications related to underwritings. Underwriting commitments cause a charge against net capital (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 provide generally for dealer discounts ranging up to 5.75 percent of the purchase price, depending upon the size of the transaction. 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 retail (individual) investor accounts. CSA is licensed in 50 states and has 93 registered representatives. Management expects CSA to continue to grow in significance in relation to the Company's operation as a whole.
6 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, 1996 was approximately $2,575,649,000. Pin Oak holds registrations as an investment advisor in six states. Todd is registered as an investment advisor in fourteen 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, 1996, Stifel, Nicolaus had assets under management of approximately $332,462,000 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. 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.
7 Research The Company's research department provides retail 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 retail 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 firms providing full retail brokerage services. 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 106-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
8 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. 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 $24,182,000 at December 31, 1996, which was approximately 9.7 percent of aggregate debit balances and approximately $19,191,000 in excess of required net capital. Employees There were 733 individuals employed by the Company as of February 28, 1997. This includes both full and part-time personnel.
9 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 43 locations in 14 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, 1996, for office space and equipment, was approximately $3,541,000. 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. 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 damages. 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 position. 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 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 permanent injunction and ancillary relief whereby, the Company paid approximately $1.1 million in disgorgement and prejudgement interest, and $250,000 in fines. Additionally, the Company is named in lawsuits filed by The Oklahoma Turnpike Authority ("OTA") and The State of Oklahoma. The OTA suit seeks $6.5 million in compensatory damages and an unspecified amount of punitive damages. The State of Oklahoma seeks $7.6 million in compensatory damages and that these damages be trebled.
10 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 $660 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. Management does not believe the ultimate resolution of these matters will have a materially adverse effect on the Company's financial position. See Note H to the Company's Consolidated Financial Statements, filed herein. 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: Positions or Offices Position with the Name Age with the Company Company Since - -------------------- --- ------------------------ ----------------- George H. Walker III 66 Chairman of the Board 1976 of Financial and Stifel, Nicolaus Gregory F. Taylor 47 President and Chief 1985 Executive Officer of Financial and Stifel, Nicolaus Stephen J. Bushmann 39 Chief Financial Officer 1981 of Financial Charles R. Hartman 53 General Counsel and 1994 Senior Vice President of Stifel, Nicolaus Michael A. Murphy 45 Senior Vice President - 1989 Director of Retail Group of Stifel, Nicolaus Rexford E. Riordan 63 Senior Vice President - 1979 Director of Investment Services Group of Stifel, Nicolaus Lawrence E. Somraty 48 President of Century 1977 Securities Associates, Inc. The following are brief summaries of the business experience during the past five years of each of the executive officers.
11 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., 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. Gregory F. Taylor was branch manager of Stifel, Nicolaus' Chicago branch from October, 1985 until July, 1988. He became Executive Vice President and Director of National Sales and Marketing of Stifel, Nicolaus in July, 1988, Chief Operating Officer in November, 1991 and President and Chief Executive Officer as of October 26, 1992. He was elected a Vice President of Financial in October, 1991 and President and Chief Executive Officer as of October 26, 1992. Stephen J. Bushmann joined Stifel, Nicolaus in October of 1981. He is Chief Financial Officer and Vice President 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 the 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 is Senior Vice President and Director of Retail Group of Stifel, Nicolaus. From 1989 - 1994, Mr. Murphy served as First Vice President and Director of Branch Administration. Rexford E. Riordan joined Stifel, Nicolaus in 1979. He is Senior Vice President and Director of Investment Services Group of Stifel, Nicolaus. From 1979 - 1995, Mr. Riordan served in various capacities in the firm including assisting in the National Sales department, Manager of Mutual Funds and Unit Investment Trusts departments, Director of Training, and served as First Vice President. Lawrence E. Somraty has been with Stifel, Nicolaus since 1977. He served as Option Department Manager, Senior Registered Options Principal, Investment Advisor and Branch Manager. He became the President of Century Securities Associates, Inc. in January 1991. 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 ------------------------------------------------ 1996 1995 Quarter High - Low High - Low ------------------------------------------------ First $ 6 1/4 - 5 7/8 $ 6 1/4 - 5 Second 7 3/4 - 6 1/8 6 1/8 - 5 1/8 Third 7 3/4 - 6 1/4 6 1/2 - 5 1/2 Fourth 8 1/8 - 6 5/8 6 - 5 1/4 ------------------------------------------------ b.) Holders The approximate number of stockholders of record on March 11, 1997 was 3,000. c.) Dividends Dividends paid were as follows: Record Payment Cash Stock Date Date Dividend Dividend - ------------------------------------------ 02/10/95 02/24/95 $0.03 5% 05/09/95 05/23/95 $0.03 - - 08/08/95 08/22/95 $0.03 - - 11/07/95 11/21/95 $0.03 - - 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 - - A regular quarterly cash dividend of $0.025 per share was established on February 9, 1993. On November 30, 1993 the regular quarterly cash dividend was increased to $0.03 per share. Note E of the Consolidated Financial Statements, incorporated by reference herein, describes the restrictions of paying future dividends. 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 Months Years Ended December 31, Ended Years Ended July -------------------------------- -------------------- (In thousands, except per share 1996 1995 1994 Dec. 31, 1993 1993 1992 and percentages) <S> <C> <C> <C> <C> <C> <C> Revenues Commissions $ 31,424 $ 28,292 $ 25,407 $ 11,949 $ 26,456 $ 25,204 Principal transactions 17,919 18,980 22,567 9,313 25,201 25,260 Investment banking 15,964 11,674 11,969 10,885 30,551 29,791 Interest 13,774 13,002 10,918 4,057 8,851 9,130 Sale of investment company shares 9,609 8,316 9,674 4,906 10,741 8,638 Sale of unit investment trusts 1,868 1,828 2,736 1,362 3,220 2,611 Sale of insurance products 2,867 2,109 2,207 1,263 1,614 1,676 Other 16,388 11,159 8,448 2,720 6,837 5,699 -------- -------- -------- -------- -------- -------- 109,813 95,360 93,926 46,455 113,471 108,009 -------- -------- -------- -------- -------- -------- Expenses Employee compensation and benefits 66,765 57,187 60,652 29,421 68,657 63,891 Commissions and floor brokerage 2,641 2,319 2,120 845 2,485 2,437 Communications and office supplies 6,794 7,651 8,045 3,090 6,836 6,168 Occupancy and equipment rental 7,255 7,884 9,397 3,333 7,648 7,401 Promotional 2,146 2,024 2,868 1,231 2,925 2,206 Interest 8,197 8,312 6,138 1,763 4,838 5,505 Litigation, settlements, and bad debts 3,292 1,610 2,467 473 1,237 3,745 Restructuring charge - - - - 2,672 - - - - - - Other operating expenses 7,121 7,066 8,788 3,239 7,575 7,588 -------- -------- -------- -------- -------- -------- 104,211 94,053 103,147 43,395 102,201 98,941 -------- -------- -------- -------- -------- -------- Income (loss) before income taxes and extraordinary credit 5,602 1,307 (9,221) 3,060 11,270 9,068 Provision (benefit) for income taxes 2,209 663 (3,718) 1,145 4,232 3,363 -------- -------- -------- -------- -------- -------- Income (loss) before extraordinary credit 3,393 644 (5,503) 1,915 7,038 5,705 Extraordinary Credit -- tax benefit from utilization of net operating loss carryforward - - - - - - - - - - 648 -------- -------- -------- -------- -------- -------- Net income (loss) $ 3,393 $ 644 $ (5,503) $ 1,915 $ 7,038 $ 6,353 ======== ======== ======== ======== ======== ======== Per Share Data Primary earnings (loss)(a) $ .71 $ .14 $ (1.17) $ .40 $ 1.52 $ 1.44 Fully Diluted earnings (loss)(a) $ .64 $ .14 $ (1.17) $ .36 $ 1.27 $ 1.21 Cash dividends $ .09 $ .12 $ .09 $ .055 $ .15 - -
14 Other Data Total assets $301,049 $226,775 $222,208 $288,203 $196,539 $191,059 Long-term obligations $ 10,000 $ 10,760 $ 11,520 $ 11,520 $ 10,000 $ 10,000 Stockholder's equity $ 37,752 $ 34,795 $ 34,226 $ 40,609 $ 38,995 $ 31,597 Net income as % average equity 9.35 % 1.87 % * N.M. 4.81 % 19.94 % 22.55 % Net income as % revenues 3.09 % 0.68 % * N.M. 4.12 % 6.20 % 5.88 % Average common shares and share equivalents outstanding (a): Primary 4,780 4,674 4,689 4,748 4,626 4,399 Fully diluted 6,281 6,105 6,107 6,165 6,106 5,817 </TABLE> (a) Retroactively restated to reflect the 5 percent stock dividend declared January 21, 1997. * Not Meaningful
15 The information called for in items 7 and 8 of Part II is set forth on the pages listed below of the Company's 1996 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 Financial Discussion. 8 through 13 ITEM 8. Financial Statements and Supplementary Data. 14 through 36 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 has 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, 1996. 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.
16 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 Form 10-K Report to Annual Stockholders Report ------------ --------- 1. The following consolidated financial statements of Stifel Financial Corp. and subsidiaries, included on pages 7 through 37 in the 1996 Annual Report to Stockholders, are incorporated by reference in Item 8 Independent Auditors' Report...........................14 Consolidated Statements of Financial Condition -- December 31, 1996 and December 31, 1995.............15 - 16 Consolidated Statements of Operations -- Years ended December 31, 1996, December 31, 1995 and December 31, 1994.................................17 Consolidated Statements of Stockholders' Equity -- Years ended December 31, 1996, December 31, 1995 and December 31, 1994.................................18 Consolidated Statements of Cash Flows -- Years ended December 31, 1996, December 31, 1995 and December 31, 1994...............................19 - 20 Notes to Consolidated Financial Statements...........21 - 35 2. The following consolidated financial statement schedules of Stifel Financial Corp. and subsidiaries are filed herewith pursuant to ITEM 14(d): Independent Auditors' Report.........................................22 Report of Independent Accountants....................................23 Report of Independent Accountants....................................24 Schedule I - Condensed Financial Information of Registrant.........25 - 28 Schedule II - Valuation and Qualifying Accounts......................29 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.
17 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.
18 (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 Appendix A of Financial's Definitive Proxy Statement filed March 21, 1997.
19 (k) 1998 Employee Stock Plan of Financial, incorporated herein by reference to Appendix B of Financial's Definitive Proxy Statement filed March 21, 1997. 11. Statement regarding computation of per share earnings, filed herewith. 13. Annual Report to Stockholders for the year ended December 31, 1996. Except for those portions of pages expressly incorporated by reference, the 1996 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. (a) Consent of Independent Accountants, filed herewith. 27. Financial Data Schedule BD, filed herewith. (b) Reports on Form 8-K: 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 has not provided any consultations to the Company.
20 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 21st day of March, 1997. STIFEL FINANCIAL CORP. (Registrant) By /s/ Gregory F. Taylor Gregory F. Taylor (Principal Executive Officer) /s/ Stephen J. Bushmann Stephen J. Bushmann (Principal Financial and Accounting Officer)
21 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 21, 1997, in the capacities indicated. /s/ George H. Walker III Chairman of the Board George H. Walker III /s/ Gregory F. Taylor President, Chief Executive Gregory F. Taylor 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/ Robert E. Lefton Director Robert E. Lefton /s/ James M. Oates Director James M. Oates
22 [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, 1996 and for the year then ended, and have issued our report thereon dated February 25, 1997; such consolidated financial statements and report are included in your 1996 Annual Report to Stockholders and are incorporated herein by reference. Our audit also included the 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 audit. In our opinion, such 1996 consolidated financial statement schedules, when considered in relation to the basic 1996 consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP St. Louis, Missouri February 25, 1997
23 [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 accompanying consolidated statement of financial condition of Stifel Financial Corp. and Subsidiaries as of December 31, 1995 and the related consolidated statements of operations, stockholders' equity, and cash flows for the years ended December 31, 1995 and December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Stifel Financial Corp. and Subsidiaries as of December 31, 1995 and the consolidated results of their operations and their cash flows for the years ended December 31, 1995 and December 31, 1994, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. St. Louis, Missouri February 25, 1996
24 [Coopers & Lybrand L.L.P. letterhead] Report of Independent Accountants Board of Directors Stifel Financial Corp. St. Louis, Missouri: Our report on the consolidated financial statements of Stifel Financial Corp. and Subsidiaries is included on page 23 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedules for the years ended December 31, 1995 and December 31, 1994 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
25 SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED BALANCE SHEETS STIFEL FINANCIAL CORP. Dec. 31, 1996 Dec. 31, 1995 ------------- ------------- ASSETS Cash $ 9,155 $ 9,155 Due from subsidiaries (a) 3,711,973 3,887,790 Investment in subsidiaries (a) 41,262,901 37,421,622 Office equipment and leasehold improvements, less allowances for depreciation and amortization of $9,705,941 and $12,107,975, respectively 2,182,025 2,972,388 Investments, at cost 815,764 736,549 Goodwill, net of amortization of $462,235 and $396,480, respectively 1,906,907 1,189,430 Other assets 1,389,304 2,102,135 ----------- ----------- TOTAL ASSETS $51,278,029 $48,319,069 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Due to subsidiaries (a) $ 1,739,432 $ 402,336 Obligation under capital lease 580,945 774,229 Long-term debt 10,000,000 10,760,000 Other liabilities 1,206,523 1,587,142 ----------- ----------- TOTAL LIABILITIES 13,526,900 13,523,707 Stockholders' Equity: Capital stock 715,158 681,134 Additional paid-in capital 21,402,971 19,622,646 Retained earnings 16,733,073 15,753,713 ----------- ----------- 38,851,202 36,057,493 Less cost of stock in treasury 892,892 1,162,376 Less unamortized stock awards 207,181 99,755 ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 37,751,129 34,795,362 ----------- ----------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $51,278,029 $48,319,069 =========== =========== - -------------------- (a) Eliminated in consolidation. See Notes to Consolidated Financial Statements (Item 8)
26 SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued) CONDENSED STATEMENTS OF OPERATIONS STIFEL FINANCIAL CORP. Years Ended December 31, ----------------------------------------- 1996 1995 1994 ---- ---- ---- Revenues: Lease $ 1,406,556 $ 1,708,160 $ 2,162,292 Other (59,024) (162,347) (7,522) ----------- ----------- ----------- 1,347,532 1,545,813 2,154,770 Expenses: Depreciation and amortization 1,431,798 1,751,250 2,325,301 Professional fees 246,178 170,664 236,506 Provision for doubtful collection 300,000 - - - - Miscellaneous 159,460 135,363 128,882 ----------- ----------- ----------- 2,137,436 2,057,277 2,690,689 ----------- ----------- ----------- Loss before income taxes (789,904) (511,464) (535,919) (Benefit) provision for income taxes (343,024) 52,100 26,246 ----------- ----------- ----------- Loss before equity in net income (loss) of subsidiaries (446,880) (563,564) (562,165) Equity in net income (loss) of subsidiaries 3,839,382 1,207,085 (4,941,170) ----------- ----------- ----------- NET INCOME (LOSS) $ 3,392,502 $ 643,521 $(5,503,335) =========== =========== =========== See Notes to Consolidated Financial Statements (Item 8)
27 SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued) <TABLE> CONDENSED STATEMENTS OF CASH FLOWS STIFEL FINANCIAL CORP. <CAPTION> Years Ended December 31, ------------------------------------------ 1996 1995 1994 ---- ---- ---- <S> <C> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 3,392,502 $ 643,521 $(5,503,335) Non-cash items included in net income (loss): Depreciation and amortization 1,431,798 1,751,250 2,325,301 Unrealized loss on investments 115,000 - - 321,300 Provision for doubtful collection 300,000 - - - - Deferred tax (benefit) provision (234,353) 105,547 (27,160) Undistributed (income) loss of subsidiaries (3,839,382) (1,207,085) 4,941,170 Amortization and forfeitures of restricted stock awards and stock benefits 75,055 84,346 107,341 ----------- ----------- ----------- 1,240,620 1,377,579 2,164,617 Net change in due to/due from subsidiaries 1,512,913 730,442 (718,361) Decrease (increase) in other assets 1,187,309 (1,162,037) 1,365,788 (Decrease) increase in other liabilities (379,298) 393,193 180,271 ----------- ----------- ----------- CASH PROVIDED BY OPERATING ACTIVITIES 3,561,544 1,339,177 2,992,315 ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from: Employee stock purchase plan 616,670 755,274 611,688 Exercised options 3,098 123,503 81,213 Dividend reinvestment plan 12,570 9,533 944 Payments for: Retirement of long-term debt (760,000) (760,000) - - Purchase of stock for treasury (520,321) (546,615) (1,416,932) Principal payments under capital lease (433,284) (255,053) (710,089) Cash dividend and rights redemption (625,128) (500,611) (354,368) ----------- ----------- ----------- CASH USED FOR FINANCING ACTIVITIES (1,706,395) (1,173,969) (1,787,544) ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from: Distributions/sales received on investments 36,360 94,893 25,000 Sales of office equipment and leasehold improvements 23,405 909,762 24,235 Dissolution of subsidiaries - - - - 505,000 Payments for: Acquisition of investments (1,513,232) - - (52,219) Office equipment and leasehold improvements (401,682) (1,169,863) (1,706,787) ----------- ----------- ----------- CASH USED FOR INVESTING ACTIVITIES (1,855,149) (165,208) (1,204,771) ----------- ----------- ----------- 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 =========== =========== ===========
28 Supplemental Disclosures of Cash Flow Information Schedule of Non-cash Investing and Financing Activities Fixed assets acquired under capital lease $ 240,000 - - $ 808,000 Restricted stock awards, net of forfeitures $ 181,000 $ 3,000 $ 146,000 Stock dividends distributed $ 1,788,000 $ 1,406,000 $ 1,287,000 </TABLE> See Notes to Consolidated Financial Statements (Item 8)
29 <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, 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 638,362 115,000 8,000 <F3> 745,362 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 972,795 88,500 422,933 <F3><F5> 638,362 Deducted from asset account: Reserves for securities owned 0 0 (200,000)<F5> 200,000 Year Ended December 31, 1994: Deducted from asset account: Allowances for doubtful accounts $1,435,058 $ 0 $ 364,073 <F1> $1,070,985 Deducted from asset account: Allowances for doubtful notes receivables 0 3,040,969 480,352 <F2> 2,560,617 Deducted from asset account: Reserves for investments 1,071,007 322,404 420,616 <F3> 972,795 Deducted from asset account: Reserves for securities owned 450,000 0 450,000 <F4> 0 - ---------------- <FN> <F1> Uncollected accounts written off and recoveries. <F2> Uncollected notes written off and recoveries. <F3> Investments disposed of. <F4> Securities disposed of. <F5> Reserve balance reclassified from Reserve for investments to conform to 1995 presentation. </TABLE>
30 EXHIBIT INDEX Stifel Financial Corp. and Subsidiaries Annual Report on Form 10-K Year Ended December 31, 1996 Exhibit Number Description - ------- ----------- 11. Statement regarding computation of per share earnings. 13. 1996 Annual Report to Stockholders.* 21. Subsidiaries of Stifel Financial Corp. 23.(a) Consent of Independent Auditors. 23.(b) Consent of Independent Accountants. 27. 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.