The following discussion of the financial condition and results of operations of our company should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2008, and the accompanying condensed consolidated financial statements and notes thereto contained in this Quarterly Report on Form 10-Q.

Certain statements in this report may be considered forward-looking. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements. These forward-looking statements cover, among other things, statements made about general economic and market conditions, the investment banking industry, our objectives and results, and also may include our belief regarding the effect of various legal proceedings, management expectations, our liquidity and funding sources, counterparty credit risk, or other similar matters. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated, including those factors discussed below under "External Factors Impacting Our Business" as well as the factors identified under "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2008, as updated in our subsequent reports filed with the SEC. These reports are available at our web site at www.stifel.com and at the SEC web site at www.sec.gov.

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. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them in light of new information or future events, unless we are obligated to do so under federal securities laws.

Unless otherwise indicated, the terms "we," "us," "our" or "our company" in this report refer to Stifel Financial Corp. and its wholly-owned subsidiaries.

Executive Summary

Stifel Financial Corp. (the "Parent") 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 ("Stifel Bank"), 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 in three European offices. Although we have offices across the United States, our major geographic area of concentration is in the Midwest and Mid-Atlantic regions with a growing presence in the Northeast, Southwest and Western United States. Our principal customers are individual investors, corporations, municipalities and institutions.

We plan to maintain our focus on revenue growth with a continued focus on developing quality relationships with our clients. Within our private client business, our efforts will be focused on recruiting experienced financial advisors with established client relationships. Within our capital markets business, our focus continues to be on providing quality client management and product diversification. In executing our growth strategy, we take advantage of the consolidation among middle market firms, which we believe provides us opportunities in our private client and capital markets businesses.

On March 23, 2009, we entered into a definitive agreement with UBS Financial Services Inc. ("UBS"), which was amended on May 4, 2009, to acquire 56 branches from the UBS Wealth Management Americas branch network. The transaction is structured as an asset purchase for cash at a premium over certain balance sheet items, subject to adjustment. The closing of the acquisition is subject to customary conditions and the approval of all required governmental and other regulatory entities and is expected to occur in four phases. The first three phases, which represent 40 branches, are expected to close during the third quarter of 2009. The final phase is expected to close during the fourth quarter of 2009.

Our ability to attract and retain highly skilled and productive employees is critical to the success of our business. Accordingly, compensation and benefits comprise the largest component of our expenses, and our performance is dependent upon our ability to attract, develop and retain highly skilled employees who are motivated and committed to providing the highest quality of service and guidance to our clients.

Our 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, our expansion of the Capital Markets segment, and the continued expansion of our Private Client Group. Since June 30, 2008, we have increased our number of financial advisors and branch offices by hiring 384 financial advisors and opening 57 branches, of which 75 financial advisors and 17 branches were part of our acquisition of Butler Wick & Company, Inc. ("Butler Wick") on December 31, 2008. In addition, we added 77 revenue producing investment bankers, traders, institutional sales staff and mortgage bankers along with 335 branch and home office support staff.

Results for the three and six months ended June 30, 2009

For the three months ended June 30, 2009, our net revenues increased 25.2% to a record $261.5 million compared to $208.9 million during the comparable period in 2008. Net income increased 28.2% to $15.8 million for the three months ended June 30, 2009 compared to $12.3 million during the comparable period in 2008.

For the six months ended June 30, 2009, our net revenues increased 14.5% to a record $481.5 million compared to $420.4 million during the comparable period in 2008. Net income increased 8.7% to $29.0 million for the six months ended June 30, 2009 compared to $26.7 million during the comparable period in 2008.

Our revenue growth was primarily derived from increased principal transactions in institutional fixed income sales and trading resulting from turbulent markets, as institutions rebalanced their portfolios and their exposure to the market. In addition, the market upheaval and the resultant failure of some Wall Street firms have led to increased market share of institutional business. Certain of our business activities, however, were impacted by the particularly challenging equity market conditions which have led to a decrease in the value of our customers' assets. As a result, commissions, asset management and service fees, and margin interest income decreased in the second quarter and for the first half of 2009 and may diminish in the future. Our business does not produce predictable earnings and is affected by many risk factors such as the global economic and credit slowdown, among others.

On June 23, 2009, we announced that Stifel Nicolaus had received acceptance from approximately 95 percent of its clients that are eligible to participate in its voluntary plan to repurchase 100 percent of their auction rate securities ("ARS"). The eligible ARS were purchased by our retail clients before the collapse of the ARS market in February 2008. We estimate that our retail clients who are participating in the voluntary plan to repurchase held approximately $118.3 million of eligible ARS at June 30, 2009 after we purchased approximately $39.0 million of ARS from eligible customers during the second quarter.

We have recorded a liability for our estimated exposure to the voluntary repurchase plan based upon a net present value calculation, which is subject to change and future events, including redemptions. ARS redemptions have been at par and we believe will continue to be at par over the voluntary repurchase period. Future periods' results may be affected by changes in estimated redemption rates or changes in the fair value of ARS.

External Factors Impacting our Business

During the first half of 2009, the U.S. recession that began in 2008 continued with declines in the U.S. housing market, together with increasing foreclosures and unemployment. Concerns regarding future economic growth and corporate earnings created challenging conditions for the equity markets which experienced broad-based declines, with equity indices continuing to trend slightly lower at the end of the second quarter of 2009. Fixed income credit markets experienced high levels of volatility, though there was a modest improvement in credit market liquidity by the end of the quarter. The impact of these events marked a challenging environment for investment banking businesses with continued limited opportunities to distribute securities in the equity and debt capital markets.

Performance in the financial services industry in which we operate is highly correlated to the overall strength of economic conditions and financial market activity. Overall market conditions are a product of many factors, which are beyond our control and mostly unpredictable. These factors may affect the financial decisions made by investors, including their level of participation in the financial markets. In turn, these decisions may affect our business results. With respect to financial market activity, our profitability is sensitive to a variety of factors, including the demand for investment banking services as reflected by the number and size of equity and debt financings and merger and acquisition transactions, the volatility of the equity and fixed income markets, the level and shape of various yield curves, the volume and value of trading in securities, and the value of our customers' assets under management.

Although we do not engage in any significant proprietary trading for our own account, the inventory of securities held to facilitate customer trades and our market making activities are sensitive to market movements. We do not have any significant direct exposure to the sub-prime market, but are 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. We will continue to monitor our 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.

In connection with ARS, our broker-dealer subsidiaries have been subject to ongoing investigations, which include inquiries from the Securities and Exchange Commission (the "SEC"), the Financial Industry Regulatory Authority ("FINRA") and several state regulatory agencies, with which we are cooperating fully. We are also named in a class action lawsuit similar to that filed against a number of brokerage firms alleging various securities law violations, which we are vigorously defending. We are, in conjunction with other industry participants actively seeking a solution to ARS' illiquidity. See Item 1, "Legal Proceedings," in Part II of this report for further details regarding ARS investigations and claims.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2009 Compared with Three Months Ended June 30, 2008

The following table presents consolidated financial information for the periods
indicated (in thousands, except percentages):

                                                                    As a Percentage of Net
                                                                           Revenues
                             For the Three Months Ended           For the Three Months Ended
                                      June 30,                             June 30,
                                                       %
                             2009         2008      Change          2009             2008
Revenues:
Commissions               $    80,721   $  83,063     (2.8) %            30.9 %           39.8 %
Principal transactions        121,261      65,674      84.6              46.4             31.4
Investment banking             24,702      20,935      18.0               9.5             10.0
Asset management and
service fees                   24,543      29,966     (18.1 )             9.4             14.3
Interest                       10,584      12,667     (16.4 )             4.0              6.1
Other income                    2,739       1,715      59.7               1.0              0.8
Total revenues                264,550     214,020      23.6             101.2            102.4
Interest expense                3,045       5,069     (39.9 )             1.2              2.4
Net revenues                  261,505     208,951      25.2             100.0            100.0

Non-interest expenses:
Compensation and
benefits                      175,881     144,795      21.5              67.3             69.3
Occupancy and equipment
rental                         20,714      16,010      29.4               7.9              7.6
Communication and
office supplies                13,129       9,748      34.7               5.0              4.7
Commissions and floor
brokerage                       6,321       3,486      81.3               2.4              1.7
Other operating
expenses                       19,351      14,762      31.1               7.4              7.1
Total non-interest
expenses                      235,396     188,801      24.7              90.0             90.4

Income before income
taxes                          26,109      20,150      29.6              10.0              9.6
Provision for income
taxes                          10,294       7,818      31.7               3.9              3.7
Net income                $    15,815   $  12,332      28.2 %             6.1 %            5.9 %

For the three months ended June 30, 2009, net revenues (total revenues less interest expense) increased $52.6 million to a record $261.5 million; a 25.2% increase over the $208.9 million recorded for the three months ended June 30, 2008. Net income increased 28.2% to $15.8 million for the three months ended June 30, 2009 compared to $12.3 million during the comparable period in 2008.

Six Months Ended June 30, 2009 Compared with Six Months Ended June 30, 2008

The following table presents consolidated financial information for the periods
indicated (in thousands, except percentages):

                                                                    As a Percentage of Net
                                                                           Revenues
                               For the Six Months Ended            For the Six Months Ended
                                       June 30,                            June 30,
                                                       %
                              2009        2008      Change          2009             2008
Revenues:
Commissions                 $ 155,331   $ 168,764     (8.0) %            32.3 %           40.1 %
Principal transactions        218,539     132,611      64.8              45.4             31.6
Investment banking             40,206      42,779      (6.0 )             8.4             10.2
Asset management and
service fees                   49,476      60,244     (17.9 )            10.3             14.3
Interest                       20,476      26,356     (22.3 )             4.3              6.3
Other income                    2,854         508         *               0.4              0.1
Total revenues                486,882     431,262      12.9             101.1            102.6
Interest expense                5,396      10,834     (50.2 )             1.1              2.6
Net revenues                  481,486     420,428      14.5             100.0            100.0

Non-interest expenses:
Compensation and benefits     323,721     290,825      11.3              67.3             69.2
Occupancy and equipment
rental                         38,581      31,726      21.6               8.0              7.5
Communication and office
supplies                       24,974      21,695      15.1               5.2              5.2
Commissions and floor
brokerage                      10,681       3,967         *               2.2              0.9
Other operating expenses       35,265      28,140      25.3               7.3              6.7
Total non-interest
expenses                      433,222     376,353      15.1              90.0             89.5

Income before income
taxes                          48,264      44,075       9.5              10.0             10.5
Provision for income
taxes                          19,272      17,396      10.8               4.0              4.1
Net income                  $  28,992   $  26,679       8.7 %             6.0 %            6.4 %

* Percentage is not meaningful.

For the six months ended June 30, 2009, net revenues (total revenues less interest expense) increased $61.1 million to a record $481.5 million; a 14.5% increase over the $420.4 million recorded for the six months ended June 30, 2008. Net income increased 8.7% to $29.0 million for the six months ended June 30, 2009 compared to $26.7 million during the comparable period in 2008.

NET REVENUES

The following table presents consolidated net revenues for the periods indicated
(in thousands, except percentages):

                                 For the Three Months Ended          For the Six Months Ended
                                          June 30,                           June 30,
                                                          %                                  %
                                2009         2008       Change      2009        2008      Change
Net revenues:
Commissions                  $    80,721   $  83,063    (2.8) %   $ 155,331   $ 168,764   (8.0) %
Principal transactions           121,261      65,674     84.6       218,539     132,611    64.8
Investment banking:
Capital raising                   14,235      11,811     20.5        19,733      24,842   (20.6 )
Strategic advisory fees           10,467       9,124     14.7        20,473      17,937    14.1
                                  24,702      20,935     18.0        40,206      42,779    (6.0 )
Asset management and
service fees                      24,543      29,966    (18.1 )      49,476      60,244   (17.9 )
Net interest                       7,539       7,598     (0.8 )      15,080      15,522    (2.8 )
Other income                       2,739       1,715     59.7         2,854         508       *
Total net revenues           $   261,505   $ 208,951     25.2 %   $ 481,486   $ 420,428    14.5 %

* Percentage is not meaningful.

Except as noted in the following discussion of variances, the underlying reasons for the increase in revenue and expense categories can be attributed principally to the increased number of Private Client Group offices and financial advisors, the increased number of revenue producers in our Capital Markets segment, the increased administrative overhead to support the growth in our segments, the acquisition of Butler Wick on December 31, 2008, and transition costs associated with the UBS acquisition that will close during the third and fourth quarters of 2009. Butler Wick's results of operations are included in our results of operations prospectively from December 31, 2008, the date of acquisition. For the three and six month periods ended June 30, 2009, Butler Wick generated net revenues of $5.7 million and $11.4 million, respectively.

Commissions - For the three months ended June 30, 2009, commission revenues decreased 2.8% to $80.7 million from $83.1 million in the comparable period in 2008. For the six months ended June 30, 2009, commission revenues decreased 8.0% to $155.3 million from $168.8 million in the comparable period in 2008. The volatility in capital markets has resulted in a decrease in trading volumes, as customers have returned to traditional fixed income products.

Principal transactions - For the three months ended June 30, 2009, principal transactions revenue increased 84.6% to $121.3 million from $65.7 million in the comparable period in 2008, with increases of 51.3% and 116.8% in the Private Client Group and Capital Markets segments, respectively. For the six months ended June 30, 2009, principal transactions revenue increased 64.8% to $218.5 million from $132.6 million in the comparable period in 2008, with increases of 40.2% and 86.5% in the Private Client Group and Capital Markets segments, respectively. The increases are primarily attributable to increased principal transactions, primarily in over-the-counter equity, corporate and municipal debt and mortgage-backed bonds due to turbulent markets and customers returning to traditional fixed income products. The change in the mix from commissions-based revenues to principal transactions revenue has created an increase in our trading inventory levels primarily related to fixed income products.

Investment banking -For the three months ended June 30, 2009, investment banking revenues increased 18.0% to $24.7 million from $20.9 million in the comparable period in 2008. For the six months ended June 30, 2009, investment banking revenues decreased 6.0% to $40.2 million from $42.8 million in the comparable period in 2008.

Capital raising revenues increased 20.5% to $14.2 million for the three months ended June 30, 2009 from $11.8 million in the comparable period in 2008. Fixed income financing and equity financing revenues were $4.3 million and $9.6 million, respectively, an increase of $2.6 million and $0.2 million, respectively, from the comparable period in 2008. Capital raising revenues decreased 20.6% to $19.7 million for the six months ended June 30, 2009 from $24.9 million in the comparable period in 2008. Fixed income financing revenues were $8.6 million, an increase of $3.9 million, or 84.6% from the comparable period in 2008. Equity financing revenues were $10.6 million, a decrease of $7.3 million, or 40.7% from the comparable period in 2008. During the second quarter of 2009, capital market conditions began to improve for both equity and fixed income, and we raised capital for our clients in a number of successful corporate and public finance underwritings. The significant rebound in fixed income financings during the second quarter was offset by the challenging market conditions that began during the second half of 2008 and continued into the first quarter of 2009 related to equity financings.

Strategic advisory fees increased 14.7% to $10.5 million for the three months ended June 30, 2009 from $9.1 million in the comparable period in 2008. Strategic advisory fees increased 14.1% to $20.5 million for the six months ended June 30, 2009 from $17.9 million in the comparable period in 2008. The increases are primarily due to an increase in the number of completed transactions and the aggregate transaction value, as well as the average revenue per transaction, over the comparable periods in 2008.

Asset management and service fees - Asset management and service fees include mutual fund service fees and fees for other asset-based financial services provided to individuals and institutional clients. Investment advisory fees are charged based on the value of assets in fee-based accounts. Asset management and service fees are affected by changes in the balances of client assets due to market fluctuations and levels of net new client assets.

For the three months ended June 30, 2009, asset management and service fee revenues decreased 18.1% to $24.5 million from $30.0 million in the comparable period of 2008. For the six months ended June 30, 2009, asset management and service fee revenues decreased 17.9% to $49.5 million from $60.2 million in the comparable period of 2008. The decreases in the respective periods are primarily a result of a 26.1% decrease in the value of assets in fee-based accounts from June 30, 2008, offset by an 8.6% increase in the number of managed accounts attributable principally to the continued growth of the Private Client Group. See Assets in Fee-based Accounts included in the table in "Results of Operations
- Private Client Group."

Other income - For the three months ended June 30, 2009, other income increased $1.0 million to $2.7 million from $1.7 million during the comparable period in 2008. For the six months ended June 30, 2009, other income increased $2.3 million to $2.8 million from $0.5 million during the comparable period in 2008.

The increases are primarily attributable to the reduction of investment losses during the three and six months ended June 30, 2009.

NET INTEREST INCOME

The following tables present average balance data and operating interest revenue
and expense data, as well as related interest yields for the periods indicated
(in thousands, except rates):

                                                      Three Months Ended
                                   June 30, 2009                                 June 30, 2008
                                        Interest                                  Interest
                                        Income/        Average       Average      Income/        Average
                    Average Balance     Expense     Interest Rate    Balance      Expense     Interest Rate
Interest-earning
assets:
Margin balances
(Stifel
Nicolaus)          $         268,768   $    2,889      4.30 %       $  427,698   $    5,522      5.16 %
Interest-earning
assets (Stifel
Bank)                        519,326        3,778      2.91            271,265        3,811      5.62
Stock borrow
(Stifel
Nicolaus)                     80,817           17      0.09            102,713          188      0.73
Other (Stifel
Nicolaus)                                   3,900                                     3,146
Total interest
revenue                                $   10,584                                $   12,667

Interest-bearing
liabilities:
Short-term
borrowings
(Stifel
Nicolaus)          $         185,887   $      453      0.98 %       $  181,634   $      890      1.96 %
Interest-bearing
liabilities
(Stifel Bank)                460,935        1,008      0.87            222,168        1,436      2.59
Stock loan
(Stifel
Nicolaus)                     40,896          102      1.00            126,814          681      2.15
Interest-bearing
liabilities
(Capital Trusts)              82,500        1,365      6.62             95,000        1,584      6.67
Other (Stifel
Nicolaus)                                     117                                       478
Total interest
expense                                     3,045                                     5,069
Net interest
income                                 $    7,539                                $    7,598
. . .