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, 2002
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.) |
| |
501 N. Broadway, St. Louis, Missouri | 63102-2188 |
(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 No¨
Shares of common stock outstanding at May 1, 2002: 7,362,986, par value $0.15.
Stifel Financial Corp. And Subsidiaries
Form 10-Q Index
March 31, 2002
PART I. FINANCIAL INFORMATIONPAGE
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition -- | 3 |
Consolidated Statements of Operations -- | 4 |
Consolidated Statements of Cash Flows-- | 5 |
Notes to Consolidated Financial Statements | 6 - 9 |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 10 -13 |
Item 3. Quantitative and Qualitative Disclosure about Market Risk | 14 |
PART II. OTHER INFORMATION
Item 1. Legal Proceedings | 14 |
Item 4. Submissions of Matters to a Vote of Securities Holders | 14-15 |
Item 6. Exhibit(s) and Report(s) on Form 8-K | 15 |
Signatures | 16 |
Item 1. Financial Statements (Unaudited)
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
(In thousands, except par values and share amounts)
March 31, 2002 | December 31, 2001 | |
ASSETS | ||
Cash and cash equivalents | $ 13,048 | $ 16,314 |
Cash segregated for the exclusive benefit of customers | 169 | 191 |
Receivable from brokers and dealers | 46,601 | 49,800 |
Receivable from customers, net of allowance for doubtful receivables of $229 | 286,305 | 264,155 |
Securities owned, at fair value | 15,162 | 7,530 |
Securities owned and pledged, at fair value | 16,508 | 17,816 |
Investments | 31,259 | 31,183 |
Membership in exchanges, at cost | 463 | 463 |
Office equipment and leasehold improvements, at cost, net of allowances for depreciation and amortization of $18,457 and $18,661, respectively | 7,436 | 10,479 |
Goodwill, net of accumulated amortization of $1,127 | 3,807 | 3,807 |
Notes receivable from and advances to officers and employees, net of allowance for doubtful receivables from former employees of $526 | 20,725 | 21,733 |
Deferred income tax | 4,946 | 6,062 |
Other assets | 14,266 | 11,026 |
Total Assets | $460,695 | $440,559 |
LIABILITIES AND STOCKHOLDERS' EQUITY | ||
Liabilities | ||
Short-term borrowings | $ 82,075 | $ 66,800 |
Payable to brokers and dealers | 181,342 | 149,739 |
Payable to customers | 28,463 | 44,077 |
Securities sold, but not yet purchased, at fair value | 7,262 | 2,552 |
Drafts payable | 14,223 | 20,968 |
Accrued employee compensation | 9,620 | 16,645 |
Obligations under capital leases | 1,076 | 1,285 |
Accounts payable and accrued expenses | 17,134 | 22,644 |
Long-term debt | 10,000 | 10,000 |
Other | 25,771 | 24,598 |
Total Liabilities | 376,966 | 359,308 |
Subordinated Debt | 2,629 | 2,629 |
Stockholders' Equity | ||
Preferred stock -- $1 par value; authorized 3,000,000 shares; | - - | - - |
Common stock -- $0.15 par value; authorized 30,000,000 shares; | 1,152 | 1,152 |
Additional paid-in capital | 50,233 | 49,595 |
Retained earnings | 35,395 | 33,929 |
86,780 | 84,676 | |
Less: | ||
Treasury stock, at cost, 312,795 and 357,962 shares, respectively | 3,317 | 3,628 |
Unamortized expense of restricted stock awards | 18 | 29 |
Unearned employee stock ownership plan shares, at cost, 183,007 and 187,073 shares, respectively | 2,345 | 2,397 |
Total Stockholders' Equity | 81,100 | 78,622 |
Total Liabilities and Stockholders' Equity | $460,695 | $440,559 |
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, | ||
2002 | 2001 | |
REVENUES | ||
Commissions | $ 19,438 | $ 20,475 |
Principal transactions | 8,522 | 6,987 |
Investment banking | 10,841 | 8,216 |
Interest | 3,684 | 6,448 |
Other | 6,602 | 6,361 |
Total revenues | 49,087 | 48,487 |
Less: Interest expense | 1,284 | 3,639 |
Net revenues | 47,803 | 44,848 |
NON-INTEREST EXPENSES | ||
Employee compensation and benefits | 33,109 | 30,380 |
Occupancy and equipment rental | 4,515 | 4,147 |
Communications and office supplies | 2,571 | 2,929 |
Commissions and floor brokerage | 871 | 954 |
Other operating expenses | 3,890 | 3,804 |
Total non-interest expenses | 44,956 | 42,214 |
Income before income taxes | 2,847 | 2,634 |
Provision for income taxes | 1,146 | 1,060 |
Net income | $ 1,701 | $ 1,574 |
Earnings per share: | ||
Basic | $ 0.24 | $ 0.22 |
Diluted | $ 0.21 | $ 0.20 |
Dividends declared per share | $ 0.03 | $ 0.03 |
Average common equivalent | ||
Basic | 7,229 | 7,155 |
Diluted | 8,104 | 7,989 |
See Notes to Consolidated Financial Statements.
STIFEL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)(In thousands)
Three Months Ended
March 31, 2002 | March 31, 2001 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Net income | $ 1,701 | $ 1,574 |
Noncash and nonoperating items included in earnings: | ||
Depreciation and amortization | 844 | 994 |
Bonus notes amortization | 1,514 | 1,133 |
(Gain)/losses on investments | 286 | 429 |
Deferred items | 1,395 | 397 |
Amortization of restricted stock awards, units, and stock benefits | 585 | 466 |
6,325 | 4,993 | |
Decrease (increase) in assets: | ||
Operating receivables | (18,951) | (175) |
Cash segregated for the exclusive benefit of customers | 22 | (1) |
Securities owned | (6,324) | (9,158) |
Notes receivable from officers and employees | (506) | (2,611) |
Other assets | (3,542) | 3,355 |
Increase (decrease) in liabilities: | ||
Operating payables | 15,989 | (4,650) |
Securities sold, but not yet purchased | 4,710 | (1,548) |
Drafts payable, accrued employee compensation, and accounts payable and accrued expenses | (19,326) | (17,505) |
Cash Flows From Operating Activities | (21,603) | (27,300) |
Proceeds from sale of investments | 67 | - - |
Payments for: | ||
Acquisition of office equipment and leasehold improvements | (706) | (1,631) |
Acquisition of investments | - - | (91) |
Cash Flows From Investing Activities | (639) | (1,722) |
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Short-term borrowings, net | 15,275 | 26,200 |
Proceeds from: | ||
Issuance of stock | 1,483 | 1,517 |
Sale/leaseback of office equipment | 3,951 | - - |
Payments for: | ||
Purchase of stock for treasury | (1,288) | (159) |
Principal payments under capital lease obligation | (210) | (216) |
Cash dividends | (235) | (232) |
Cash Flows From Financing Activities | 18,976 | 27,110 |
Decrease in cash and cash equivalents | (3,266) | (1,912) |
Cash and cash equivalents -beginning of period | 16,314 | 14,589 |
Cash and Cash Equivalents -end of period | $ 13,048 | $ 12,677 |
Supplemental disclosure of cash flow information: | ||
Income tax payments | $ 1,475 | $ 818 |
Interest payments | $ 1,161 | $ 4,007 |
Schedule of noncash investing and financing activities: | ||
Employee stock ownership plan | $ 42 | $ 45 |
Restricted stock awards and stock units, net of forfeitures | $ 1,800 | $ 1,374 |
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, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. For further information, refer to the financial stat ements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001.
Where appropriate, prior year's financial information has been reclassified to conform to 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, 2002, SN & Co. had net capital of $42,696,194, which was 13.13% of its aggregate debit items, and $36,190,292 in excess of the minimum required net capital.
NOTE C - FINANCIAL INSTRUMENTS
The Company receives collateral in connection with securities borrowed transactions, customer margin loans and other loans. Under many agreements, the Company is permitted to sell or repledge these securities held as collateral and use these securities to enter into securities lending arrangements or deliver to counterparties to cover short positions. At March 31, 2002, the fair value of securities received as collateral where the Company is permitted to sell or repledge the securities was $388,453,000 and the fair value of the collateral that had been sold or repledged was $298,507,000.
NOTE D - SALE-LEASEBACK TRANSACTION
During the quarter, the Company entered into a sale-leaseback arrangement of $4.0 million for certain office furniture and equipment. The lease expires on February 2005 with an option to purchase the equipment at the higher of market value or 15% of the original purchase price. The Company makes quarterly payments of $320,000. At the time of the sale the Company's recorded net book value for the equipment was $2.8 million resulting in a deferred gain of $1.2 million, which will be amortized ratably over the life of the lease. The transaction will be accounted for as an operating lease.
NOTE E -SEGMENT REPORTING
The Company's reportable segments include Private Client Group, Equity Capital Markets, Fixed Income Capital Markets and Other. Prior years' financial information has been reclassified to conform with the current year presentation. The Private Client Group segment includes branch offices and 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. Investmen t advisory fees, clearing income and venture capital activities are included in Other.
Intersegment net 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, | Increase / (Decrease |
2002 | 2001 | $ Amount | Percent | |
Net Revenues | ||||
Private Client Group | $ 34,972 | $ 32,366 | $ 2,606 | 8% |
Equity Capital Markets | 8,895 | 5,798 | 3,097 | 53% |
Fixed Income Capital Markets | 2,402 | 4,476 | (2,074) | -46% |
Other | 1,534 | 2,208 | (674) | -31% |
Total Net Revenues | $ 47,803 | $ 44,848 | $ 2,955 | 7% |
Operating Contribution | ||||
Private Client Group | $ 5,095 | $ 3,933 | $ 1,162 | 30% |
Equity Capital Markets | 2,598 | 1,165 | 1,433 | 123% |
Fixed Income Capital Markets | (196) | 1,367 | (1,563) | N/A |
Other/ Unallocated Overhead | (4,650) | (3,831) | (819) | N/A |
Pre-Tax Income | $ 2,847 | $ 2,634 | $ 213 | 8% |
The Company has not disclosed asset information by segment, as the information is not produced internally and its preparation is impracticable.
NOTE F -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, | ||||
2002 | 2001 | |||
Income Available to Common Stockholders | ||||
Net Income | $ 1,701 | $ 1,574 | ||
Weighted Average Shares Outstanding | ||||
Basic Weighted Average Shares Outstanding: | 7,229 | 7,155 | ||
Potential Common Shares From Employee Benefit Plans | 875 | 834 | ||
Diluted Weighted Average Shares Outstanding | 8,104 | 7,989 | ||
Basic Earnings Per Share | $ 0.24 | $ 0.22 | ||
Diluted Earnings Per Share | $ 0.21 | $ 0.20 | ||
NOTE G - SUBSEQUENT EVENTS
On April 25,2002 the Company completed the offering of 1,380,000 shares of 9% cumulative Trust Preferred Securities for $34.5 million (net proceeds of approximately $32.8 million after offering expenses of approximately $275,000 and underwriting commissions). The preferred securities represent an indirect interest in junior subordinated debentures purchased from the Company by Stifel Financial Capital Trust I, a Delaware Trust and wholly owned subsidiary of the Company. The preferred securities may be redeemed no earlier than June 30, 2007 but no later than June 30, 2032. Distributions of the cumulative cash distributions will be made quarterly. Undistributed payments will accumulate interest of 9% per annum compounded quarterly.
On April 30, 2002, the Company extinguished the $10.0 million principal amount of long term debt to Western and Southern Life Insurance Company, a significant shareholder, due June 30, 2004 bearing interest of 8.0% per annum.
On May 9, 2002, the Company's Board of Directors declared a regular quarterly cash dividend of $0.03 per share, payable on June 6, 2002 to stockholders of record as of the close of business on May 23, 2002.
NOTE H - RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and in August 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 141 discontinues the use of pooling of interests method of accounting for business combinations and requires that the purchase method be used. SFAS No. 144 supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of Accounting Principles Board ("APB") Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of a Disposal of a Segment of a Business, and Extraordinary, Unusual, and Infrequently Occurring Events and Transactions, for the Disposal of a Segment of a Business." The Statements were effective for the Company's consolidated financial statements on January 1, 2002. The adoption of the provisions of these statements did not have a material impact on the Company's consolidated financial statements.
In June 2001, FASB issued SFAS No. 142 "Goodwill and Other Intangible Asset." SFAS No. 142, effective for fiscal years beginning after December 15, 2001, will require discontinuing the amortization of goodwill and other intangible assets with indefinite useful lives. Instead, these assets will be tested periodically for impairment and written down to their value as necessary. The following is unaudited pro forma financial data for the combined operations, assuming the adoption had taken place on January 1, 2001.
(in thousands, except per share amounts) | Three Months Ended March 31, 2001 |
Reported Net Income | $ 1,574 |
Add Back: Goodwill Amortization | $ 33 |
Adjusted Net Income | $ 1,607 |
Reported and Adjusted Basic Earnings Per Share | $ 0.22 |
Reported and Adjusted Diluted Earnings Per Share | $ 0.20 |
The Company has not performed the initial impairment test, but believes that the adoption of the provisions SFAS No. 142 is not expected to have a material impact on the Company's consolidated financial statements.
In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 establishes accounting standards for recognition and measurement of a liability for an asset retirement obligation and the associated asset retirement cost. The adoption of the provisions of these statements is not expected to have a material impact on the Company's consolidated financial statements.
******
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.
Critical Accounting Policies
For a description of critical accounting policies, including those which involve varying degrees of judgment, see Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. In addition, see Note A of Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001 for a more comprehensive listing of significant accounting policies.
Business Environment
The financial markets began the first quarter of 2002 on a languid note as investor confidence continued to be shaken on news of questionable accounting practices, mixed signals on the economic recovery, and weak corporate earnings. The major market indices, the Dow Jones Industrial Average ("Dow"), the NASDAQ composite and the Standard and Poors 500 Index ("S&P"), reflected the lack of investor confidence and the effects of the news. The Dow increased 3.8% from the December 31, 2001 mark of 10,022 to 10,404 at March 31, 2002 driven by economically sensitive stocks. The NASDAQ composite fell 5.4% to 1,845 at March 31, 2002 from 1,950 at December 31, 2001 mainly due to continued weakness of the technology sector. The S&P remained relatively unchanged. Daily share volumes on both the New York Stock Exchange and the NASDAQ declined 5 % from December 31, 2001 to March 31, 2002. The Company's trading volume declined 4%, in the first quarter of 2002 compared to the prior y ear fourth quarter, reflecting declines in individual investor trading volume experienced industry-wide.
In the discussion to follow, results for the three months ended March 31, 2002 will be compared to the results for the three months ended March 31, 2001. Certain reclassifications have been made to prior period amounts to conform to the current period's presentation. See Note A of Notes to Consolidated Financial Statements.
Results of Operations
The following table summarizes the changes in the major categories of revenue and expense for the three months ended March 31, 2002 as compared to March 31, 2001.
Increase (Decrease) (Dollars in thousands) | Amount | Percentage |
REVENUES: | ||
Commissions | $ (1,037) | (5)% |
Principal transactions | 1,535 | 22% |
Investment banking | 2,625 | 32% |
Interest | (2,764) | (43)% |
Other | 241 | 4% |
Total Revenues | 600 | 1% |
Less: Interest expense | (2,355) | (65)% |
Net Revenues | 2,955 | 7% |
NON-INTEREST EXPENSES: | ||
Employee compensation and benefits | 2,729 | 9% |
Occupancy and equipment rental | 368 | 9% |
Communications and office supplies | (358) | (12)% |
Commissions and floor brokerage | (83) | (9)% |
Other operating expenses | 86 | 2% |
Total non-interest expenses | 2,742 | 6% |
Three months ended March 2002 as compared to three months ended March 2001
The Company recorded net earnings of $1.7 million or $0.21 per diluted share on net revenues of $47.8 million for the three months ended March 31, 2002 compared to net earnings of $1.6 million or $0.20 per diluted share on net revenues of $44.8 million for the same period one year earlier.
Net revenues increased $3.0 million (7%) resulting from increases in principal transactions, investment banking and other revenues which increased $1.5 million (22%), $2.6 million (32%), and $241,000 (4%) respectively, offset by decreases in commissions and net interest of $1.0 million (5%), and $409,000 (15%).
Revenues from principal transactions increased $1.5 million as a result of increased trading activity in corporate and municipal bonds as investors sought alternatives to equity based products.
Investment banking revenues increased principally due to an increase in corporate finance revenue of $4.3 million (91%) offset by a decrease in municipal finance revenue of $1.7 million (50%). Corporate finance fee income increased due to an increase in the number of managed equity offerings from three in the first quarter of 2001 to eight in the first quarter of 2002. Municipal finance revenue decreased due to a decrease in the number of senior or co-managed underwritings during the first quarter of 2002 resulting from declining economic conditions and a decrease in the number of refinancings as municipalities and institutions took advantage of the reduced interest rates in 2001.
Net interest income declined $409,000(15%) due to a $2.8 million decrease in interest income, principally resulting from decreased borrowings by customers and decreased rates charged to those customers. The decrease in interest income was offset by a $2.4 million decrease in interest expense, resulting from decreased short term borrowings, along with decreased rates on those borrowings, and decreased stock loan activity by the Company to finance customer borrowings on margin accounts. Average short-term borrowings decreased $17.6 million primarily for customer collaterized bank borrowings and stock loan activity, with a 63% decrease in rates.
Revenues from commissions or agency transactions decreased due to the decline in demand for equity based products resulting from poor market conditions.
Total non-interest expenses increased $2.7 million (6%), primarily resulting from an increase in the employee compensation and benefits. Non-interest expenses excluding employee compensation and benefits were essentially unchanged as compared to the prior year first quarter.
Employee compensation and benefits, a significant portion of the Company's expenses, increased $2.7 million (9%) primarily resulting from an increase in variable employee compensation, principally investment executive compensation and incentive based compensation which increased in conjunction with increased production and profitability.
Business Segment Results
The Private Client Group recorded an increase in net revenues of $2.6 million (8.0%) to $35.0 million from $32.4 million principally as a result of commissions generated from underwriting activities of the Equity Capital Markets offset by decreased margin interest income.
Equity Capital Markets recorded an increase in net revenues of $3.1 million (53%) due to significant management and advisory fees and an increase in the number of lead or co-managed underwritings from three in the first quarter of 2001 to eight in the first quarter of 2002.
Fixed Income Capital Markets recorded a decrease in net revenues of $ 2.1 million (46%) to $2.4 million from $4.5 million resulting principally from a decrease in the number of senior or co managed municipal underwritings resulting from slowed economic conditions and a decrease in the number of refinancings as municipalities and institutions took advantage of the reduced interest rates during 2001.
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 2002, the Company repurchased 112,141 shares, using existing board authorizations, at an average price of $11.49 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 issuance of $34.5 million of preferred securities will provide sufficient resources to meet the present and anticipated financing needs.
On April 25, 2002 the Company completed the offering of 1,380,000 shares of its 9% cumulative Trust Preferred Securities for net proceeds of approximately $32.8 million after offering expenses of approximately $275,000 and underwriting commissions. The proceeds were used to repay short-term borrowings from banks with weighted average interest rates on those borrowings of 2.3%. In addition, the Company repaid $10.0 million principal amount of long term indebtedness, due to June 30, 2004, payable to Western & Southern Life Insurance Company, a significant shareholder, bearing interest of 8.0% per annum. In addition the Company will utilize proceeds from the offering for general corporate purposes, to repurchase shares of the Company's common stock and to finance future expansion activities.
On May 9, 2002, the Company's board of directors authorized the repurchase of up to 750,000 additional shares. These purchases may be made on the open market or in privately negotiated transactions, depending upon market conditions and other factors. Repurchased shares may be used to meet obligations under the Company's employee benefit plans and for general corporate purposes. This authorization is in addition to Stifel's previously announced stock repurchase plan. Further, the Company announced the elimination of future dividends on its common stock.
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, 2002, Stifel, Nicolaus had net capital of approximately $42.7 million which exceeded the minimum net capital requirements by approximately $36.2 million.
Recent Accounting Pronouncements
In June 2001, FASB issued SFAS No. 142 "Goodwill and Other Intangible Asset." SFAS No. 142, effective for fiscal years beginning after December 15, 2001, will require discontinuing the amortization of goodwill and other intangible assets with indefinite useful lives. Instead, these assets will be tested periodically for impairment and written down to their value as necessary. The following is unaudited pro forma financial data for the combined operations, assuming the adoption had taken place on January 1, 2001.
(in thousands, except per share amounts) | Three Months Ended March 31, 2001 |
Reported Net Income | $ 1,574 |
Add Back: Goodwill Amortization | $ 33 |
Adjusted Net Income | $ 1,607 |
Reported and Adjusted Basic Earnings Per Share | $ 0.22 |
Reported and Adjusted Diluted Earnings Per Share | $ 0.20 |
The Company has not performed the initial impairment test, but believes that the adoption of the provisions SFAS No. 142 is not expected to have a material impact on the Company's consolidated financial statements.
In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 establishes accounting standards for recognition and measurement of a liability for an asset retirement obligation and the associated asset retirement cost. The adoption of the provisions of these statements is not expected to have a material impact on the Company's consolidated financial statements.
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, 2001.
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, 2001. 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 May 9, 2002. Of 7,367,885 shares issued, outstanding and eligible to be voted at the meeting, 6,649,988 shares, constituting a quorum, were represented in person or by proxy at the meeting. Three matters were submitted to a vote of security holders at the meeting.
1.Election of Three Class I Directors. The first matter submitted was the election of three Class I director nominees to the Board of Directors, each to continue in office until the year 2005. Upon tabulation of the votes cast, it was determined that all three-director nominees had been elected. The voting results are set forth below:
Name | For | Withheld |
Robert J. Baer | 6,584,415 | 65,573 |
Bruce A. Beda | 6,594,079 | 55,909 |
Ronald J. Kruszewski | 6,619,094 | 30,894 |
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 2002 annual meeting, continued after the meeting:
Class II (to continue in office until 2003)
Charles A. Dill
Richard F. Ford
John J. Goebel
Walter F. Imhoff
Class III (to continue in office until 2004)
Robert E. Lefton
Scott B. McCuaig
James M. Oates
George H. Walker III
- Proposal to Approve the 2003 Employee Stock Purchase Plan. The second matter, a proposal to approve the 2003 Employee Stock Purchase Plan, was approved by a majority of the 7,367,885 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 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, 2002, was approved by a majority of the 7,367,885 shares of the Company's common stock that were present and entitled to vote. The voting results on this matter were as follows:
For | 4,703,791 |
Against | 62,195 |
Abstain | 14,095 |
Non-Vote | 1,869,907 |
For | 6,628,176 |
Against | 10,157 |
Abstain | 11,655 |
Item 6. Exhibit(s) and Report(s) on Form 8-K
- Exhibits: None.
- Report(s) on Form 8-K
There were no reports on Form 8-K filed during the quarter ended March 31, 2002.
The Company filed a report on Form 8-K datedApril 17, 2002. This report Form 8-K contained information under Item 5. Other Events. Stifel Financial Corp., a Delaware corporation, and Stifel Financial Capital Trust I, a Delaware business trust (the "Trust" and, together with the Company, the "Offerors"), entered into an Underwriting Agreement providing for the sale by the Trust to the underwriters named therein of $30,000,000 of 9.00% Cumulative Trust Preferred Securities (liquidation amount $25 per preferred security) (the "Securities"). The Offerors granted the underwriters an option to purchase up to $4,500,000 additional Securities solely to cover over-allotments. This Form 8-K was filed solely to file certain exhibits previously filed as exhibits to the Registration Statement on Form S-3 filed by the Offerors with the Securities and Exchange Commission (the "Commission") on March 27, 2002, which have been amended as a result of the Registrat ion Statement on Form S-3 filed by the Offerors with the Commission on April 17, 2002, pursuant to Rule 462(b) under the Securities Act of 1933, as amended.
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, 2002 | By /s/ Ronald J. Kruszewski Ronald J. Kruszewski |
Date: May 15, 2002 | By /s/ James M. Zemlyak James M. Zemlyak |