The Management's Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended ("Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended ("Securities Exchange Act") that are based upon our current expectations and projections about current events. We intend for these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we are including this statement for purposes of these safe harbor provisions. You can identify these statements from our use of the words "may," "will," "should," "could," "would," "plan," "potential," "estimate," "project," "believe," "intend," "anticipate," "expect" and similar expressions. These forward-looking statements include statements relating to:

• our goals, intentions and expectations;

• our business plans and growth strategies;

• our ability to integrate and manage our acquired businesses;

• estimates of our risks and future costs and benefits; and

• forecasted demographic and economic trends relating to our industry.

These forward-looking statements are subject to significant risks, assumptions and uncertainties, including, among other things, changes in general economic and business conditions, actions of competitors, regulatory actions, changes in legislation, technology changes and the risks and other factors set forth in the Company's risk factors as updated and filed on Form 8-K Current Report on September 23, 2008 that may impact our results.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. In addition, our past results of operations do not necessarily indicate our future results. You should not place undue reliance on any forward-looking statements, which speak only as of the date they were made. We will not update these forward-looking statements, even though our situation may change in the future, unless we are obligated to do so under federal securities laws. We qualify all of our forward-looking statements by these cautionary statements.

Through its wholly-owned subsidiaries, principally Stifel, Nicolaus & Company, Incorporated ("Stifel Nicolaus"), Century Securities Associates, Inc. ("CSA"), Stifel Nicolaus Limited ("SN Ltd"), and Stifel Bank & Trust, the Company is engaged in retail brokerage, securities trading, investment banking, investment advisory, residential, consumer and commercial banking and related financial services throughout the United States and three European offices. Although the Company has offices across the United States, its major geographic area of concentration is in the Midwest and Mid-Atlantic regions with a growing presence in the East and West regions. The Company's principal customers are individual investors, corporations, municipalities and institutions.

Concerns over inflation, recession, energy costs, geopolitical issues, the U.S. sub-prime mortgage market, a declining residential real estate market in the U.S., the disruption in the auction-rate securities market, an increase in the rate of unemployment, and the availability and cost of credit continued to become increasingly pressing. The unprecedented extraordinarily turbulent market conditions during the third quarter were evidenced by the cataclysmic failure of a large investment bank, the failure of the nation's largest savings and loan, the governmental rescue of a large insurance company, the placement into conservatorship of two government-sponsored enterprises by the government and the consolidation of several large financial institutions. As a result, the global credit market came to a virtual standstill. The United States Treasury ("Treasury") department and the Federal Reserve took various forms of action to address the frozen credit conditions that now exist in the market. Additionally, on October 3, 2008, the United States House of Representatives passed the Emergency Economic Stabilization Act of 2008 that allows the Treasury to spend up to $700 billion to purchase distressed assets from banks and raises the limit on deposit insurance at banks and credit unions. Despite these efforts to restore liquidity and consumer confidence, the global markets have continued to be very volatile. At September 30, 2008, the key indicators of the markets' performances, the Dow Jones Industrial Average ("DJIA"), the NASDAQ, and the Standard and Poor's 500 Index ("S&P 500") closed approximately 18%, 21%, and 21% respectively, lower than their December 31, 2007 closing prices, and approximately 22%, 23%, and 24%, respectively, lower than their September 30, 2007 closing prices. Given such factors, the current quarter results may not be indicative of future results.

The U.S. Federal Reserve System's Federal Open Market Committee (the "FOMC") continues to be aggressive in monitoring monetary policy. During the third quarter the federal funds rate remained at 2.0%, primarily on the upside risks to inflation, although during the first nine months of 2008, the federal funds rate has decreased 225 basis points from the December 31, 2007 rate of 4.25%. Additionally, at an unscheduled meeting on October 8, 2008, the FOMC reduced the federal funds rate an additional 50 basis points to 1.5% on evidence of a weakening economy and a reduction in inflationary pressures. Then, on October 29, 2008, the federal funds rate was further reduced by 50 basis point to 1.0% at the regularly scheduled FOMC meeting. Long-term interest rates, as measured by the 10-year U.S. Daily Treasury Yield Curve, were 3.85% at September 30, 2008, down from 4.04% at December 31, 2007.

Although the Company does not engage in any significant proprietary trading for its own account, the inventory of securities held to facilitate customer trades and its market making activities are sensitive to market movements. The Company does not have any significant direct exposure to the sub-prime market crisis, but is subject to market fluctuations resulting from news and corporate events in the sub-prime mortgage markets, associated write-downs by other financial services firms and interest rate fluctuations. Stock prices for companies in this industry, including Stifel Financial Corp., have been volatile as a result of reactions to the global credit crisis and the continued volatility in the financial services industry. The Company will continue to monitor its market capitalization and review for potential goodwill asset impairment losses if events or changes in circumstances occur that would more likely than not reduce the fair value of the asset below its carrying amount.

Recently, several of the larger securities firms that primarily underwrote and supported the auctions for auction rate securities have, through regulatory settlements and otherwise, announced agreements to repurchase auction rate securities at par from certain of their clients; other securities firms have entered into similar agreements. The Company has received inquiries from the Securities and Exchange Commission, the Financial Industry Regulatory Authority, and several state regulatory authorities requesting information concerning the Company's activities in auction rate securities. Additionally, the Company and its subsidiary Stifel Nicolaus have been named in a civil suit. The Company is working with other industry participants in seeking to resolve issues relating to auction rate securities and is exploring a range of potential solutions, including the restructuring and refinancing of the debt underlying the auction rate securities. However, there is no assurance that these efforts will be successful. The Company's customers hold approximately $226.4 million of auction rate securities at September 30, 2008, exclusive of approximately $83.1 million of such securities that were either transferred to the Company or purchased after February 2008. If the Company were to purchase these securities from some or all of our clients in order to resolve pending claims, inquiries, or investigations, these purchases would likely have a material adverse effect on the Company's financial condition, including its cash position. Therefore, before purchasing any of these securities, the Company would be required to assess whether it had sufficient regulatory capital or borrowing capacity to do so.

On February 28, 2007, the Company closed on the acquisition of Ryan Beck Holdings, Inc. and its wholly owned broker-dealer subsidiary Ryan Beck & Company, Inc. ("Ryan Beck") from BankAtlantic Bancorp, Inc. Ryan Beck continued to operate as a free standing broker-dealer through the end of the third quarter of 2007, when the conversion of its existing branches to Stifel Nicolaus was completed. The results of operations for the Company, Private Client Group, Equity Capital Markets and Fixed Income Capital Markets include the acquired Ryan Beck business results of operations beginning on the date of acquisition.

On April 2, 2007, the Company completed its acquisition of First Service Financial Company ("First Service") and it's wholly owned subsidiary, FirstService Bank, by means of the merger of First Service with and into FSFC Acquisition Co. ("AcquisitionCo"), a Missouri corporation and wholly-owned subsidiary of the Company, with AcquisitionCo surviving the merger. Upon consummation of the merger, the Company became a bank holding company and a "financial holding company," subject to the supervision and regulation of The Board of Governors of the Federal Reserve System. Also, FirstService Bank has converted its charter from a Missouri bank to a Missouri trust company and changed its name to "Stifel Bank & Trust." The results of operations for the Company and the Stifel Bank segment include the acquired Stifel Bank & Trust business results of operations beginning on the date of acquisition.

The Company's overall financial results continue to be highly and directly correlated to: the direction and activity levels of the United States equity and fixed income markets; the increased activity from the successful integrations of the Ryan Beck acquisition on February 28, 2007 and the Stifel Bank & Trust acquisition on April 2, 2007; the Company's expansion of the Equity Capital Markets ("ECM"), Fixed Income Capital Markets ("FICM"), Stifel Bank & Trust; and the continued expansion of the Private Client Group ("PCG"). During the first nine months of 2008, the Company opened twenty-one branch offices and hired 142 financial advisors. In addition, the Company added 75, 47, and 21 revenue producers in its ECM, FICM, and Stifel Bank segments, and added 209 employees that directly support these revenue producers and 85 employees for home office support.

Comparability of the current year nine month results to the prior year period for total company and ECM segment results is affected by the inclusion of a significant investment banking transaction, which contributed $24.7 million in revenues in the prior year second quarter, and the decline in investment banking activity during the current year, principally due to poor market conditions. In addition, the prior year quarter and nine month periods include $3.2 million and $28.2 million, respectively, of acquisition-related expenses associated with the Ryan Beck acquisition, principally a charge related to the acceleration of vesting arising from the amendment of the Ryan Beck deferred compensation plans. In addition to these factors, comparability of the first nine months of 2008 results to the prior year first nine months for total company and segment results is affected by the inclusion of the full nine months of Ryan Beck's and Stifel Bank & Trusts' results of operations in 2008 compared to the inclusion of seven months of Ryan Beck's results of operations and six months of Stifel Bank & Trust's results of operations in the first nine months of 2007. For the nine months ended September 30, 2008, Ryan Beck contributed $144.3 million in net revenues compared to $134.2 million in the nine months ended September 30, 2007 and income before income taxes of $21.3 million for the nine months ended September 30, 2008, including the aforementioned revenue and expense items, compared to a loss of $6.2 million for the nine months ended September 30, 2007. Stifel Bank & Trust contributed $8.5 million in net revenues and $1.5 million in income before income taxes for the nine months ended September 30, 2008 compared to $2.9 million in net revenues and $643,000 in income before income taxes for the nine months ended September 30, 2007.

While the Company's net revenues increased to $639.4 million for the nine months ended September 30, 2008 compared to $550.9 million for the nine months ended September 30, 2007, primarily from increased commissions, principal transactions, and asset management and services fees, certain of our business activities were impacted by the particularly challenging equity market conditions as evidenced by the decline of the Company's investment banking revenues of approximately $70.0 million from the year ago period. The market turmoil has contributed to increased commissions and principal transactions revenues for the ECM and FICM as institutions rebalanced their portfolios to diminish exposure to the markets. Additionally, the market upheaval and the resultant failure of some Wall Street firms has led to increased market share of institutional business for the Company. The market turmoil has led to a decrease in the value of our customers' assets and a decrease in customer margin receivables. As a result, PCG commissions, asset management and service fees, and margin interest income may diminish in the future.

As a result of the turmoil in the credit markets, many issuances of auction rate securities ("ARS") have been adversely affected. The Company held $21.9 million of ARS at September 30, 2008 in its inventory of trading securities, which were considered to be illiquid. During September 2008, $11.6 million par value of auction rate securities in the Company's available-for-sale portfolio were called at par. The Company was carrying these auction rate securities at the estimated fair value of $11.0 million due to the illiquid markets for these types of securities. As a result, the $580,000 unrealized loss and related deferred tax benefit were removed from accumulated other comprehensive income. Additionally, the Company held a $10.0 million par value asset-backed security ("ABS"), consisting of collateralized debt obligation ("CDO") trust preferred securities related primarily to banks, which is carried at $7.6 million in the Company's held-to-maturity portfolio. This investment was also considered to be illiquid at September 30, 2008. The unrealized loss, included in accumulated other comprehensive income, will be amortized as an adjustment of yield over the remaining life of the security. The decline in the value is principally due to:
1) widening of credit spreads; 2) illiquid markets for CDOs; 3) global disruptions in the credit markets; and 4) increased supply of CDO secondary market securities from distressed sellers. The estimated fair value of this ABS security, based upon modeling techniques, was $7.0 million at September 30, 2008. The Company has the intent and ability to hold these ARS securities held as available-for-sale and CDO security until market recovery or maturity and has concluded that as of September 30, 2008 there has not been other than temporary impairment to these securities. The Company will continue to monitor these investments for impairment.

Our business does not produce predictable earnings and is potentially affected by many risk factors such as the economic and global credit slowdown, among others. For a further discussion of the factors that may affect our future operating results, see the updated risk factors that the Company filed on Form 8-K Current Report on September 23, 2008.

Results of Operations for the Company Nine months ended September 30, 2008 as compared to nine months ended September

                                    30, 2007

                                                        Nine Months Ended
                                         September 30, 2008           September 30, 2007
($'s in thousands)                         Amount   % of Net            Amount   % of Net
                                                    Revenues % Change            Revenues
Revenues
Commissions and principal transactions   $ 458,284    71.7 %      45%  $ 316,508    57.5%
Investment banking                          67,935    10.6      (51)     137,964   25.0
Asset management and service fees           90,580    14.2       26       72,018   13.1
Interest                                    39,175     6.1      (10)      43,371    7.9
Other                                         (883)  (0.1)       N/M       4,107    0.7
Total revenues                             655,091   102.5       14      573,968  104.2
Less: Interest expense                      15,740     2.5      (32)      23,089    4.2
Net revenues                               639,351   100.0       16      550,879  100.0
Non-Interest Expenses
Employee compensation and benefits         441,028    69.0       10      401,263   72.8
Occupancy and equipment rental              49,012     7.7       20       40,767    7.4
Communication and office supplies           32,887     5.1        5       31,303    5.7
Commissions and floor brokerage              8,315     1.3       15        7,246    1.3
Other operating expenses                    42,940     6.7        9       39,547    7.2
Total non-interest expenses                574,182    89.8       10      520,126   94.4
Income before income taxes                  65,169    10.2      112       30,753    5.6
Provision for income taxes                  25,713     4.0      107       12,418    2.3
Net income                               $  39,456     6.2 %     115%  $  18,335     3.3%

N/M- Not meaningful

The following table presents average balance data and operating interest income and expense data for the Company, as well as related interest yields for the periods indicated:

                                    Average Balances and Interest Income and Expense Data
                                                      Nine Months Ended
                                        September 30, 2008           September 30, 2007
($'s in thousands)                 Average   Operating  Average   Average  Operating Average
                                   Balance    Interest   Yield/   Balance  Interest  Yield/
                                             Inc./Exp.    Cost             Inc./Exp.  Cost
Interest-Earning Assets:
Margin balances of Stifel          $ 416,297   $ 17,413    5.58% $ 290,768  $ 18,119   8.31%
Nicolaus (1)
Interest-earning assets of Stifel    269,551     11,491    5.68%   172,433     5,823   6.75%
Bank & Trust (2)
Stock borrow of Stifel Nicolaus       63,273        726    1.53%    36,969     1,100   3.97%
Other                                             9,545                       18,329
Total interest income                          $ 39,175                     $ 43,371
Interest-Bearing Liabilities:
Stifel Nicolaus short-term         $ 153,053   $  2,656    2.31% $ 178,095  $  6,877   5.15%
borrowings
Interest-bearing liabilities of      220,341      4,599    2.78%   140,624     3,453   4.91%
Stifel Bank & Trust (2)
Stock loan of Stifel Nicolaus        131,562      2,549    2.58%   102,583     3,844   5.00%
Interest-bearing liabilities of       95,000      4,783    6.71%    95,158     5,140   7.20%
   Unconsolidated subsidiaries
Other                                             1,153                        3,775
Total interest expense                           15,740                       23,089
Net interest income                            $ 23,435                     $ 20,282

(1) Average margin balances increased as a result of the acquisition of Ryan Beck and the growth in the PCG segment.

(2) Stifel Bank & Trust was acquired on April 2, 2007. See further details of Stifel Bank & Trust assets and interest-bearing liabilities in Results of Operation-Stifel Bank & Trust discussion.

Except as noted in the following discussion of variances for the total Company and the ensuing segment results, the underlying reasons for the increase in revenue and expense categories for the first nine months can be attributed principally to the acquisitions discussed above in "Acquisitions" and the increased number of PCG offices and PCG financial advisors. Ryan Beck's and Stifel Bank & Trust's results of operations are included in the Company's results of operations prospectively from their respective dates of acquisition of February 28, 2007, and April 2, 2007. As such, the first nine months of 2007 includes only seven months of Ryan Beck's results of operations and six months of Stifel Bank & Trust's results of operations. As noted in the Executive Summary discussion above, for the nine months ended September 30, 2008, Ryan Beck contributed $144.3 million in net revenues compared to $134.2 million in the nine months ended September 30, 2007 and income before income taxes of $21.3 million for the nine months ended September 30, 2008, including the aforementioned revenue and expense items, compared to a loss of $6.2 million for the nine months ended September 30, 2007. Stifel Bank & Trust contributed $8.5 million in net revenues and income before income taxes of $1.5 million for the nine months ended September 30, 2008 compared to $2.9 million in net revenues and $643,000 in income before income taxes for the nine months ended September 30, 2007.

The Company's net revenues (total revenues less interest expense) increased $88.5 million to $639.4 million for the nine months ended September 30, 2008, a 16% increase over the $550.9 million recorded for the nine months ended September 30, 2007.

Commissions and principal transactions revenues increased 45% to $458.3 million for the first nine months of 2008 from $316.5 million for the first nine months of 2007, with increases of 19%, 36%, and 230% in the PCG, ECM, and FICM segments, respectively, primarily resulting from the aforementioned growth and market volatility leading to increased commissions, principally in OTC stocks, and increased principal transactions, primarily in mortgage-backed securities, municipal debt and corporate debt.

Investment banking revenues decreased 51% to $67.9 million for the first nine months of 2008 from $138.0 million for the first nine months of 2007 due to the industry-wide decline in common stock offerings and mergers and acquisitions caused by the challenging equity market conditions. Capital raising revenues decreased 56% to $35.9 million from $80.9 million for the prior year period and strategic advisory fees decreased 44% to $32.0 million from $57.1 million for the first nine months of 2007. Additionally, during the second quarter of 2007, the Company closed on a significant corporate finance investment banking transaction, which contributed $24.7 million in revenues.

Asset management and service fees revenues increased 26% to $90.6 million from $72.0 million for the prior year period, primarily resulting from a 44% increase in the number of Stifel Nicolaus managed accounts and a 28% increase in the value of assets in fee-based accounts and increased distribution fees for money market funds, principally FDIC insured accounts, attributable principally to the Ryan Beck acquisition and the continued growth of the Private Client Group (See Assets in Fee-based Accounts in Results of Operations for Private Client Group, nine months ended September 30, 2008).

Other revenues decreased $5.0 million to a loss of $883,000 for the first nine months of 2008 from $4.1 million for the first nine months of 2007, principally due to investment losses of approximately $5.9 million for the first nine months of 2008 as a result of the downturn in the equity markets, compared to investment gains of approximately $640,000 for the first nine months of 2007. Other miscellaneous revenues increased $1.6 million, principally due to increased bank fees from Stifel Bank & Trust.

Interest revenues decreased 10%, or $4.2 million, to $39.2 million for the first nine months of 2008 from $43.4 million for the first nine months of 2007, principally as a result of a $8.8 million decrease in interest revenues on fixed income inventory held for sale to clients and decreased interest revenues of $706,000 from customer margin borrowing, partially offset by increased interest revenues of $5.7 million from interest-earning assets of Stifel Bank & Trust. The average margin balances of Stifel Nicolaus increased to $416.3 million during the first nine months of 2008 compared to $290.8 million during the first nine months of 2007 at weighted average interest rates of 5.58% and 8.31%, respectively. The average interest-earning assets of Stifel Bank & Trust increased to $269.6 million during the first nine months of 2008 compared to $172.4 million during the first nine months of 2007 at weighted average interest rates of 5.68% and 6.75%, respectively. Interest expense decreased 32%, or $7.3 million, to $15.7 million for the first nine months of 2008 from $23.1 million for the first nine months of 2007, principally as a result of decreased interest rates charged by banks on decreased levels of borrowings to finance customer borrowing and firm inventory and decreased interest rates on stock loan borrowings, partially offset by increased average interest-bearing liabilities of Stifel Bank & Trust. See the Average Balances and Interest Income and Expense Data table, nine months ended September 30, 2008 above related to average balance data and operating interest income and expense data, as well as related interest yields for further information.

Employee compensation and benefits increased 10%, or $39.8 million, to $441.0 million for the first nine months of 2008 from $401.3 million for the first nine months of 2007, principally due to increased commissions and principal transactions revenue production. As a percentage of net revenues, employee compensation and benefits totaled 69.0% for the nine months ended September 30, 2008 compared to 72.8% for the nine months ended September 30, 2007. Included in compensation and benefits in 2007 is $22.7 million of acquisition-related expenses associated with the Ryan Beck acquisition, principally a charge related to the acceleration of vesting arising from the amendment of the Ryan Beck deferred compensation plans. A portion of employee compensation and benefits includes transition pay, principally in the form of upfront notes and accelerated payout in connection with the Company's continuing expansion efforts, of $20.8 million (3% of net revenues) and $18.3 million (3% of net revenues) for the nine months ended September 30, 2008 and September 30, 2007, respectively. The upfront notes are amortized over a five to ten year period. In addition, for the nine months ended September 30, 2008 and 2007, employee compensation and benefits includes $19.1 million and $17.7 million, respectively, for amortization of units awarded to Legg Mason Capital Markets . . .