SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
o 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 incorporation or organization | (I.R.S. Employer Identification No.) |
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501 N. Broadway, St. Louis, Missouri | 63102-2102 |
(Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code | 314-342-2000 |
(Former name, former address, and former fiscal year,
if changed since last report)
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 reports) and (2) has been subject to such filing requirements for the past 90 days. Yesx Noo
Shares of common stock outstanding at May 1, 2001: 7,369,978, par value $0.15.
Stifel Financial Corp. And Subsidiaries
Form 10-Q Index
March 31, 2001
PART I. FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition -- March 31, 2001 and December 31, 2000 | 3 |
Consolidated Statements of Operations -- Three Months Ended March 31, 2001 and March 31, 2000 | 4 |
Consolidated Statements of Cash Flows-- Three Months Ended March 31, 2001 and March 31, 2000 | 5 |
Notes to Consolidated Financial Statements | 6 - 8 |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 9 -11 |
Item 3. Quantitative and Qualitative Disclosure about Market Risk | 11 |
PART II. OTHER INFORMATION
Item 1. Legal Proceedings | 12 |
Item 4. Submission of Matters to a Vote of Securities Holders | 12-13 |
Item 6. Exhibit(s) and Report(s) on Form 8-K | 12 |
Signatures | 14 |
Item 1. Financial Statements (Unaudited)
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except par values and share amounts)
| Unaudited | Audited |
| March 31, 2001 | December 31, 2000 | ||||||
ASSETS |
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Cash and cash equivalents | $ 12,677 | $ 14,589 | ||||||
Cash segregated for the exclusive benefit of customers | 188 | 187 | ||||||
Receivable from brokers and dealers | 22,837 | 30,730 | ||||||
Receivable from customers, net of allowance for doubtful receivables of $104 and $104, respectively | 313,546 | 305,478 | ||||||
Securities owned, at fair value | 33,918 | 24,760 | ||||||
Investments | 31,260 | 32,478 | ||||||
Membership in exchanges, at cost | 463 | 463 | ||||||
Office equipment and leasehold improvements, at cost, net of allowances for depreciation and amortization of $15,510 and $15,085, respectively | 10,400 | 9,689 | ||||||
Goodwill, net of accumulated amortization of $1,045 and $984, respectively | 5,199 | 5,261 | ||||||
Notes receivable from and advances to officers and employees, net of allowance for doubtful receivables from former employees of $330 and $331, respectively |
18,898 |
17,420 | ||||||
Deferred income tax | 2,909 | 3,036 | ||||||
Other assets | 11,733 | 14,221 | ||||||
Total Assets | $464,028 | $458,312 | ||||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
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Liabilities |
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Short-term borrowings from banks | $ 114,450 | $ 88,250 | ||||||
Payable to brokers and dealers | 160,911 | 155,522 | ||||||
Payable to customers | 30,445 | 40,484 | ||||||
Securities sold, but not yet purchased, at fair value | 2,807 | 4,355 | ||||||
Drafts payable | 13,970 | 19,034 | ||||||
Accrued employee compensation | 11,595 | 19,500 | ||||||
Obligations under capital leases | 1,555 | 1,771 | ||||||
Accounts payable and accrued expenses | 16,054 | 20,620 | ||||||
Long-term debt | 10,000 | 10,000 | ||||||
Other | 24,598 | 24,598 | ||||||
Total Liabilities | 386,385 | 384,134 | ||||||
Stockholders' Equity |
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Preferred stock -- $1 par value; authorized 3,000,000 shares; | - - | - - | ||||||
Common stock -- $0.15 par value; authorized 10,000,000 shares; issued 7,675,781 and 7,525,971 shares, respectively | 1,152 | 1,129 | ||||||
Additional paid-in capital | 48,129 | 45,920 | ||||||
Retained earnings | 33,999 | 32,827 | ||||||
| 83,280 | 79,876 | ||||||
Less: |
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Treasury stock, at cost, 298,390 and 297,879 shares, respectively | 2,970 | 2,938 | ||||||
Unamortized expense of restricted stock awards | 114 | 155 | ||||||
Unearned employee stock ownership plan shares, at cost, 199,271 and 203,337 shares, respectively | 2,553 | 2,605 | ||||||
Total Stockholders' Equity | 77,643 | 74,178 | ||||||
Total Liabilities and Stockholders' Equity | $464,028 | $458,312 |
See Notes to Consolidated Financial Statements.
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share amounts)
| Three Months Ended March 31, | |
| 2001 | 2000 |
REVENUES |
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Commissions | $ 20,475 | $ 25,560 |
Principal transactions | 6,987 | 9,176 |
Investment banking | 8,216 | 2,254 |
Interest | 6,448 | 7,706 |
Other | 6,361 | 7,521 |
| 48,487 | 52,217 |
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EXPENSES |
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Employee compensation and benefits | 30,380 | 32,118 |
Interest | 3,639 | 4,380 |
Occupancy and equipment rental | 4,147 | 3,464 |
Communications and office supplies | 2,929 | 2,496 |
Commissions and floor brokerage | 954 | 995 |
Other operating expenses | 3,804 | 3,679 |
| 45,853 | 47,132 |
Income before income taxes | 2,634 | 5,085 |
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Provision for income taxes | 1,060 | 1,805 |
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Net income | $ 1,574 | $ 3,280 |
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Net income per share: |
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Basic | $ 0.22 | $ 0.47 |
Diluted | $ 0.20 | $ 0.44 |
Dividends declared per share | $ 0.03 | $ 0.03 |
Average common equivalent shares outstanding: |
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Basic | 7,155 | 6,938 |
Diluted | 7,982 | 7,514 |
See Notes to Consolidated Financial Statements.
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)(In thousands)
Three Months Ended
CASH FLOWS FROM OPERATING ACTIVITIES | March 31, 2001 | March 31, 2000 |
Net income |
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Noncash and nonoperating items included in earnings: | $ 1,574 | $ 3,280 |
Depreciation and amortization | 994 | 757 |
Bonus notes amortization | 1,133 | 524 |
Realized & unrealized (gain)/losses | 429 | (612) |
Deferred items | 397 | (519) |
Amortization of restricted stock awards, units, and stock benefits | 466 | 269 |
| 4,993 | 3,699 |
Decrease (increase) in assets: |
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Operating receivables | (175) | (35,240) |
Cash segregated for the exclusive benefit of customers | (1) | (2) |
Securities owned | (9,158) | (10,449) |
Notes receivable from officers and employees | (2,611) | (644) |
Other assets | 3,355 | 151 |
Increase (decrease) in liabilities: | ||
Operating payables | (4,650) | 28,835 |
Securities sold, but not yet purchased | (1,548) | (780) |
Drafts payable, accrued employee compensation, and accounts payable and accrued expenses | (17,505) | (1,192) |
Cash Flows From Operating Activities | (27,300) | (15,622) |
CASH FLOWS FROM INVESTING ACTIVITIES |
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Cash received in acquisition of subsidiary | - - | 2,927 |
Sale of investments | - - | 214 |
Payments for: |
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Acquisition of office equipment and leasehold improvements | (1,631) | (1,568) |
Acquisition of investments | (91) | (799) |
Cash Flows From Investing Activities | (1,722) | 774 |
CASH FLOWS FROM FINANCING ACTIVITIES |
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Short-term borrowings, net | 26,200 | 19,281 |
Proceeds from: |
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Issuance of stock | 1,517 | 1,319 |
Payments for: |
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Purchase of stock for treasury | (159) | (1,047) |
Repayment of notes assumed in acquisition of subsidiary | - - | (1,500) |
Principal payments under capital lease obligation | (216) | (143) |
Cash dividends | (232) | (225) |
Cash Flows From Financing Activities | 27,110 | 17,685 |
(Decrease) increase in cash and cash equivalents | (1,912) | 2,837 |
Cash and cash equivalents - beginning of period | 14,589 | 16,861 |
Cash and Cash Equivalents - end of period | $12,677 | $19,698 |
Supplemental disclosure of cash flow information: |
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Income tax payments | $ 818 | $ 460 |
Interest payments | $ 4,007 | $ 3,939 |
Schedule of noncash investing and financing activities: |
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Employee stock ownership plan | $ 45 | $ 39 |
Acquisition of Hanifen, Imhoff Inc. | - - | $ 4,746 |
Restricted stock awards and stock units, net of forfeitures | $ 624 | $ 2,421 |
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See Notes to Consolidated Financial Statements.
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - REPORTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Stifel Financial Corp. and its subsidiaries (collectively referred to as the "Company"). The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. For further information, refer to the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000.
Where appropriate, prior year's financial information has been reclassified to conform with the current year presentation.
Comprehensive Income
The Company has no components of other comprehensive income, therefore comprehensive income equals net income.
NOTE B - NET CAPITAL REQUIREMENT
The Company's principal subsidiary, Stifel, Nicolaus & Company, Incorporated ("SN & Co."), is subject to the Uniform Net Capital Rule 15c3-1 under the Securities Exchange Act of 1934, as amended (the "Rule"), which requires the maintenance of minimum net capital, as defined. SN & Co. has elected to use the alternative method permitted by the Rule which requires maintenance of minimum net capital equal to the greater of $250,000 or 2 percent of aggregate debit items arising from customer transactions, as defined. The Rule also provides that equity capital may not be withdrawn and cash dividends may not be paid if resulting net capital would be less than 5 percent of aggregate debit items.
At March 31, 2001, SN & Co. had net capital of $37,646,296, which was 10.53% of its aggregate debit items, and $30,492,898 in excess of the minimum required net capital.
NOTE C - SEGMENT REPORTING
The Company's reportable segments include private client, equity capital markets, fixed income capital markets and other. The private client segment includes 70 branch offices and 123 independent contractor offices of the Company's broker-dealer subsidiaries located throughout the U.S., primarily in the Midwest. These branches provide securities brokerage services, including the sale of equities, mutual funds, fixed income products, and insurance, to their private clients. The Equity Capital Markets segment includes corporate finance management and participation in underwritings (exclusive of sales credits, which are included in the Private Client Group segment), mergers and acquisitions, institutional sales, trading, research, and market making. Fixed Income Capital Markets segment includes public finance, institutional sales, and competitive underwriting and trading. Investment advisory fees, clearing income and venture capital activities are included in Other.
Intersegment revenues and charges are eliminated between segments. The Company evaluates the performance of its segments and allocates resources to them based on various factors, including prospects for growth, return on investment, and return on revenues.
Information concerning operations in these segments of business is as follows (in thousands):
Three Months Ended March 31, | 2001 | 2000 |
Revenues |
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Private Client | $ 38,252 | $ 43,853 |
Equity Capital Markets | 5,341 | 3,972 |
Fixed Income Capital Markets | 5,030 | 2,217 |
Other | (136) | 2,175 |
Total Revenues | $ 48,487 | $ 52,217 |
Operating Contribution |
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Private Client | $5,161 | $7,563 |
Equity Capital Markets | 760 | 264 |
Fixed Income Capital Markets | 1,054 | (118) |
Other | (459) | 334 |
Total Operating Contribution | 6,516 | 8,043 |
Unallocated Overhead | (3,882) | (2,958) |
Pre-Tax Income | $ 2,634 | $ 5,085 |
The Company has not disclosed asset information by segment, as the information is not produced internally and its preparation is impracticable.
NOTE D - EARNINGS PER SHARE ("EPS")
Basic EPS is calculated by dividing net income by the weighted-average number of common shares outstanding. Diluted EPS is similar to basic EPS but adjusts for the effect of potential common shares.
The components of the basic and diluted earnings per share calculation for the three months ended March 31, are as follows (in thousands, except per share amounts):
Three Months Ended March 31, | 2001 | 2000 |
Income Available to Common Stockholders |
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Net Income | $ 1,574 | $ 3,280 |
Weighted Average Shares Outstanding |
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Basic Weighted Average Shares Outstanding: | 7,155 | 6,938 |
Potential Common Shares From Employee Benefit Plans | 827 | 576 |
Diluted Weighted Average Shares Outstanding | 7,982 | 7,514 |
Basic Earnings Per Share | $ 0.22 | $ 0.47 |
Diluted Earnings Per Share | $ 0.20 | $ 0.44 |
NOTE E - SUBSEQUENT EVENTS
On April 25, 2001, the Company's Board of Directors declared a regular quarterly cash dividend of $0.03 per share, payable on May 24, 2001 to stockholders of record as of the close of business on May 10, 2001.
At the April 25, 2001 Annual Meeting, stockholders approved the proposal to increase the total number of authorized shares of stock from 13,000,000 to 33,000,000 and to increase the authorized number of shares of Common Stock from 10,000,000 to 30,000,000.
******
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of federal securities laws. Actual results are subject to risks and uncertainties, including both those specific to the Company and those specific to the industry which could cause results to differ materially from those contemplated. The risks and uncertainties include, but are not limited to, general economic conditions, actions of competitors, regulatory actions, changes in legislation and technology changes. Undue reliance should not be placed on the forward-looking statements, which speak only as of the date of this Quarterly Report. The Company does not undertake any obligation to publicly update any forward-looking statements.
Business Environment
Compared to the prior year first quarter, investor confidence in the stock market plummeted as indicated by the major market indices, particularly the technology stock based NASDAQ composite, which decreased 60% from 4,573 to 1,840 on March 31, 2000 and 2001, respectively. The Dow Jones Industrial Average decreased 10% from 10,922 to 9,879 on March 31, 2000 and 2001, respectively. The Company's trading volume declined 6%, in the first quarter of 2001 compared to the prior year first quarter, reflecting declines in individual investor trading volume experienced industry-wide.
Results of Operations
The following table summarizes the changes in the major categories of revenue and expense for the three months ended March 2001 as compared to March 2000.
Increase / (Decrease) | Three Months Ended | |
(Dollars in thousands) | Amount | Percentage |
REVENUES: | ||
Commissions | $ (5,085) | (20)% |
Principal transactions | (2,189) | (24)% |
Investment banking | 5,962 | 264% |
Interest | (1,258) | (16)% |
Other | (1,160) | (15)% |
(3,730) | (7)% | |
EXPENSES: | ||
Employee compensation and benefits | (1,738) | (5)% |
Interest | (741) | (17)% |
Occupancy and equipment rental | 683 | 20% |
Communications and office supplies | 433 | 17% |
Commissions and floor brokerage | (41) | (4)% |
Other operating expenses | 125 | 3% |
(1,279) | (3)% | |
Three months ended March 2001 as compared to three months ended March 2000
The Company recorded net earnings of $1.6 million or $0.20 per diluted share on total revenues of $48.5 million for the three months ended March 31, 2001 compared to net earnings of $3.3 million or $0.44 per diluted share on total revenues of $52.2 million for the same period one year earlier.
Total revenues decreased $3.7 million (7%) resulting from decreases in commissions, principal transactions, interest revenues and other revenues which decreased $5.1 million (20%), $2.2 million (24%), $1.3 million (16%) and $1.2 million (15%) respectively, offset by an increase of $6.0 million (264%) in investment banking.
Revenues from commissions on sales of over-the-counter, listed equities, and mutual funds decreased principally due to declining markets conditions referred to above.
Revenues from principal transactions decreased principally due to uncertainty in the markets, which effected sales of over-the-counter equities and equity-based unit trusts.
Interest revenues declined as a result of decreased average borrowings by customers, and decreased stock borrow activities.
Other revenues decreased principally due to fluctuations in the Company's investment portfolio which resulted in a write down of approximately $482,000 in the period ending March 31, 2001 compared to an approximate $499,000 unrealized gain in the prior year first quarter combined with a receipt of $550,000 in death benefit proceeds from an insurance policy in the first quarter of 2000.
Investment banking revenues increased principally due to an increase in corporate finance revenue of $2.6 million (178%) and an increase in municipal finance revenue of $2.9 million (698%). The Company lead managed three equity offerings and completed four private placements during the first quarter of 2001. Bond market activity improved coincidental to the addition of a new public finance office opened in Brookfield, Wisconsin, in mid-year 2000, along with the merger of Hanifen Imhoff Inc. in January 2000.
Total expenses decreased $1.3 million (3%) for the first quarter of 2001 compared to the same period one year earlier. Decreases in employee compensation and benefits, commission and floor brokerage, and interest expense, were offset by increases in communications and office supplies, occupancy and equipment rental, and other operating expenses. Despite the poor market conditions the Company continued its expansion of its Private Client Group. Since March 31, 2000, the Company opened 13 Private Client branch offices, and recruited 132 investment executives and 29 independent contractors for net increases of 17%, 17% and 13% over the prior year first quarter.
Employee compensation and benefits, a significant portion of the Company's total expense, decreased $1.7 million (5%) in the first three months of 2001 compared to the prior year first quarter. The decrease in the variable component of compensation of $3.0 million (12%) declined consistent with the decreases in revenues and profitability. The offsetting increase in fixed compensation resulted from the Company's expansion activities.
Communication and office supplies and occupancy and equipment rental increased $433,000 (17%) and $683,000 (20%), respectively over the prior year first quarter due to the company's expansion activities
Interest expense decreased $741,000 (17%) due to decreased borrowings by the Company to finance customer margin.
The effective tax rate for the first three months ended March 31, 2001 increased from the same period one year earlier primarily due to the tax effect of death benefit proceeds from an insurance policy received in the first quarter of 2000.
Liquidity and Capital Resources
The majority of the Company's assets are highly liquid, consisting mainly of cash or assets readily convertible into cash. These assets are financed primarily by the Company's equity capital, customer credit balances, short-term bank loans, proceeds from securities lending, long term notes payable, and other payables. Changes in securities market volumes, related customer borrowing demands, underwriting activity, and levels of securities inventory affect the amount of the Company's financing requirements.
During the first three months of 2001, the Company repurchased 13,404 shares, using existing board authorizations, at an average price of $11.90 per share, to meet obligations under the Company's employee benefit plans.
Management believes the funds from operations, available informal short-term credit arrangements, and long-term borrowings, at March 31, 2001, will provide sufficient resources to meet the present and anticipated financing needs.
Stifel, Nicolaus & Company, Incorporated, the Company's principal broker-dealer subsidiary, is subject to certain requirements of the Securities and Exchange Commission with regard to liquidity and capital requirements. At March 31, 2001, Stifel, Nicolaus had net capital of approximately $37.6 million which exceeded the minimum net capital requirements by approximately $30.5 million.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
There have been no material changes from the information provided in the Company's Annual Report on Form 10-K for the year ended December 31, 2000.
PART II. OTHER INFORMATION
There have been no material changes in the legal proceedings previously reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. Such information is hereby incorporated by reference.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on April 25, 2001. Of 7,388,130 shares issued, outstanding and eligible to be voted at the meeting, 6,724,779 shares, constituting a quorum, were represented in person or by proxy at the meeting. Four matters were submitted to a vote of security holders at the meeting.
1.Election of Four Class III Directors. The first matter submitted was the election of four Class III director nominees to the Board of Directors, each to continue in office until the year 2004. Upon tabulation of the votes cast, it was determined that all four-director nominees had been elected. The voting results are set forth below:
Name | For | Withheld |
Robert E. Lefton | 6,239,933 | 484,846 |
Scott B. McCuaig | 6,260,720 | 464,059 |
James M. Oates | 6,260,269 | 464,510 |
George H. Walker III | 6,185,541 | 539,238 |
Because the Company has a staggered Board, the term of office of the following named Class I and II directors, who were not up for election at the 2001 annual meeting, continued after the meeting:
Class I (to continue in office until 2002)
Bruce A. Beda
Stuart I. Greenbaum
Ronald J. Kruszewski
Class II(to continue in office until 2003)
Charles A. Dill
Richard F. Ford
John J. Goebel
Walter F. Imhoff
- Proposal to Adopt the 2001 Incentive Stock Plan for key employees (the "Incentive Plan"). The second matter, a proposal to adopt the Incentive Plan, was approved by a majority of the 7,388,130 shares of the Company's common stock that were present and entitled to vote. The voting results on this matter were as follows:
- Proposal to amend the Restated Certificate of Incorporation to increase the total number of Authorized Shares of Stock from 13,000,000 to 33,000,000 and to increase the authorized number of shares of Common Stock from 10,000,000 to 30,000,000. The third matter, a proposal to amend the Restated Certificate of Incorporation, was approved by a majority of the 7,388,130 shares of the Company's common stock. The voting results on this matter were as follows:
- Proposal to Ratify the Appointment of Deloitte & Touche LLP ("Deloitte"). The fourth matter, a proposal to ratify the appointment of Deloitte as the Company's independent auditors for the year ending December 31, 2001, was approved by a majority of the 7,388,130 shares of the Company's common stock that were present and entitled to vote. The voting results on this matter were as follows:
For | 3,726,483 |
Against | 770,504 |
Abstain | 302,682 |
Non-Vote | 1,925,110 |
For | 6,091,426 |
Against | 626,098 |
Abstain | 7,255 |
For | 6,708,200 |
Against | 12,452 |
Abstain | 4,127 |
Item 6. Exhibit(s) and Report(s) on Form 8-K
- None
- Report(s) on Form 8-K
There were no reports on Form 8-K filed during the quarter ended March 31, 2001.
Pursuant to the requirement of Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| STIFEL FINANCIAL CORP. (Registrant) |
Date: May 15, 2001 | By /s/ Ronald J. Kruszewski Ronald J. Kruszewski |
Date: May 15, 2001 | By /s/ James M. Zemlyak James M. Zemlyak |
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
EXHIBIT INDEX
March 31, 2001
Exhibit Number | Description |
None |
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