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.

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.

On March 23, 2009, we announced that Stifel Nicolaus had entered into a definitive agreement with UBS Financial Services Inc. ("UBS") to acquire certain specified branches from the UBS Wealth Management Americas branch network. As subsequently amended, we agreed to acquire 56 branches from UBS in four separate closings pursuant to this agreement. During the third quarter, we completed three of the four closings, which represented 40 branches. The final closing of 16 branches was completed on October 16, 2009.

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 Global Wealth Management segment. Since September 30, 2008, we have increased our number of financial advisors and branch offices by hiring 597 financial advisors and opening 96 branches, of which 312 financial advisors and 57 branches were part of our acquisitions of UBS and Butler Wick & Company, Inc. ("Butler Wick"). In addition, we added 59 revenue producing investment bankers, traders, institutional sales staff and mortgage bankers along with 437 branch and home office support staff.

Results for the three and nine months ended September 30, 2009

For the three months ended September 30, 2009, our net revenues increased 32.3% to a record $289.7 million compared to $218.9 million during the comparable period in 2008. Net income increased 73.3% to a record $22.1 million for the three months ended September 30, 2009 compared to $12.8 million during the comparable period in 2008.

For the nine months ended September 30, 2009, our net revenues increased 20.6% to a record $771.2 million compared to $639.4 million during the comparable period in 2008. Net income increased 29.6% to a record $51.1 million for the nine months ended September 30, 2009 compared to $39.4 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 during the nine months ended September 30, 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. At September 30, 2009, we estimate that our retail clients held $114.8 million of eligible ARS after issuer redemptions of $24.6 million and Stifel purchases of $40.6 million. 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

We are currently operating in a challenging environment: a recession and financial services industry issues related to credit quality, auction rate securities and liquidity continue to negatively impact activity levels. Concerns regarding future economic growth and corporate earnings created challenging conditions for the equity markets, which experienced broad-based declines, with equity indices starting to trend higher at the end of the third quarter of 2009. Fixed income credit markets experienced high levels of volatility, though there were signs of improvement in credit market liquidity at the end of the third 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.

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 September 30, 2009 Compared with Three Months Ended September
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
                                    September 30,                       September 30,
                                                       %
                             2009         2008      Change          2009             2008
Revenues:
Principal transactions    $   123,238   $  68,182      80.7 %            42.5 %           31.2 %
Commissions                    90,905      88,727       2.5              31.4             40.5
Investment banking             35,056      25,156      39.4              12.1             11.5
Asset management and
service fees                   25,498      30,336     (15.9 )             8.8             13.8
Interest                       11,306      12,819     (11.8 )             3.9              5.8
Other income/(loss)             6,586      (1,391 )       *               2.3             (0.6 )
Total revenues                292,589     223,829      30.7             101.0            102.2
Interest expense                2,906       4,906     (40.8 )             1.0              2.2
Net revenues                  289,683     218,923      32.3             100.0            100.0

Non-interest expenses:
Compensation and
benefits                      193,131     150,203      28.6              66.7             68.6
Occupancy and equipment
rental                         24,730      17,286      43.1               8.5              7.9
Communication and
office supplies                14,429      11,192      28.9               5.0              5.1
Commissions and floor
brokerage                       6,486       4,348      49.2               2.2              2.0
Other operating
expenses                       20,071      14,800      35.6               7.0              6.8
Total non-interest
expenses                      258,847     197,829      30.8              89.4             90.4

Income before income
taxes                          30,836      21,094      46.2              10.6              9.6
Provision for income
taxes                           8,698       8,317       4.6               3.0              3.8
Net income                $    22,138   $  12,777      73.3 %             7.6 %            5.8 %

* Percentage is not meaningful.

For the three months ended September 30, 2009, net revenues (total revenues less interest expense) increased $70.8 million to a record $289.7 million; a 32.3% increase over the $218.9 million recorded for the three months ended September 30, 2008. Net income increased 73.3% to a record $22.1 million for the three months ended September 30, 2009 compared to $12.8 million during the comparable period in 2008.

Nine Months Ended September 30, 2009 Compared with Nine Months Ended September 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 Nine Months Ended           For the Nine Months Ended
                                    September 30,                       September 30,
                                                       %
                              2009        2008      Change          2009             2008
Revenues:
Principal transactions     $  341,777   $ 200,793      70.2 %            44.3 %           31.4 %
Commissions                   246,236     257,491      (4.4 )            31.9 %           40.3
Investment banking             75,262      67,935      10.8               9.8             10.6
Asset management and
service fees                   74,974      90,580     (17.2 )             9.7             14.2
Interest                       31,782      39,175     (18.9 )             4.1              6.1
Other income/(loss)             9,440        (883 )       *               1.3             (0.1 )
Total revenues                779,471     655,091      19.0             101.1            102.5
Interest expense                8,302      15,740     (47.3 )             1.1              2.5
Net revenues                  771,169     639,351      20.6             100.0            100.0

Non-interest expenses:
Compensation and
benefits                      516,852     441,028      17.2              67.0             69.0
Occupancy and equipment
rental                         63,311      49,012      29.2               8.2              7.7
Communication and office
supplies                       39,403      32,887      19.8               5.1              5.1
Commissions and floor
brokerage                      17,167       8,315     106.5               2.2              1.3
Other operating expenses       55,336      42,940      28.9               7.2              6.7
Total non-interest
expenses                      692,069     574,182      20.5              89.7             89.8

Income before income
taxes                          79,100      65,169      21.4              10.3             10.2
Provision for income
taxes                          27,970      25,713       8.8               3.6              4.0
Net income                 $   51,130   $  39,456      29.6 %             6.7 %            6.2 %

* Percentage is not meaningful.

For the nine months ended September 30, 2009, net revenues (total revenues less interest expense) increased $131.8 million to a record $771.2 million; a 20.6% increase over the $639.4 million recorded for the nine months ended September 30, 2008. Net income increased 29.6% to a record $51.1 million for the nine months ended September 30, 2009 compared to $39.4 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 Nine Months Ended
                                      September 30,                       September 30,
                                                         %                                   %
                               2009         2008       Change       2009        2008      Change
Net revenues:
Principal transactions      $   123,238   $  68,182     80.7 %   $  341,777   $ 200,793    70.2 %
Commissions                      90,905      88,727      2.5        246,236     257,491    (4.4 )
Investment banking:
Capital raising                  22,332      11,104    101.1         42,065      35,946    17.0
Strategic advisory fees          12,724      14,052     (9.4 )       33,197      31,989     3.8
                                 35,056      25,156     39.4         75,262      67,935    10.8
Asset management and
service fees                     25,498      30,336    (15.9 )       74,974      90,580   (17.2 )
Net interest                      8,400       7,913      6.2         23,480      23,435     0.2
Other income/(loss)               6,586      (1,391 )      *          9,440        (883 )     *
Total net revenues          $   289,683   $ 218,923     32.3 %   $  771,169   $ 639,351    20.6 %

* Percentage is not meaningful.

Except as noted in the following discussion of variances, the underlying reasons for the increase in revenue can be attributed principally to the increased number of private client group offices and financial advisors in our Global Wealth Management segment, the increased number of revenue producers in our Capital Markets segment, the acquisition of Butler Wick on December 31, 2008, and the closing of the first three waves of the UBS acquisition during the third quarter of 2009. Butler Wick's results of operations are included in our results of operations prospectively from December 31, 2008, the date of acquisition. The results of operations for the acquired UBS branches are included in our results prospectively from the date of their respective conversion.

For the three and nine month periods ended September 30, 2009, these business acquisitions generated net revenues of $9.8 million and $21.2 million, respectively.

Principal transactions - For the three months ended September 30, 2009, principal transactions revenue increased 80.7% to $123.3 million from $68.2 million in the comparable period in 2008. For the nine months ended September 30, 2009, principal transactions revenue increased 70.2% to $341.8 million from $200.8 million in the comparable period in 2008. The increases are primarily attributable to increased principal transactions, primarily in over-the-counter ("OTC") 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.

Commissions - Commission revenues are primarily generated from agency transactions in OTC and listed equity securities, insurance products and options. In addition, commission revenues also include distribution fees for promoting and distributing mutual funds.

For the three months ended September 30, 2009, commission revenues increased 2.5% to $90.9 million from $88.7 million in the comparable period in 2008 primarily due to higher revenues from insurance sales and mutual funds. For the nine months ended September 30, 2009, commission revenues decreased 4.4% to $246.2 million from $257.5 million in the comparable period in 2008. While the equity markets began showing signs of improvement during the third quarter, the volatility in capital markets during the first half of 2009 has resulted in lower revenues for the nine months ended September 30, 2009 due to a decrease in trading volumes, as customers returned to traditional fixed income products.

For the three months ended September 30, 2009, investment banking revenues increased 39.4% to $35.1 million from $25.2 million in the comparable period in 2008. For the nine months ended September 30, 2009, investment banking revenues increased 10.8% to $75.3 million from $67.9 million in the comparable period in 2008.

Capital raising revenues increased $11.3 million, or 101.1%, to $22.4 million for the three months ended September 30, 2009 from $11.1 million in the comparable period in 2008. During the third quarter of 2009, equity and fixed income capital raising revenues were $15.9 million and $5.2 million, respectively, an increase of $9.4 million and $2.2 million, respectively, from the comparable period in 2008. Capital raising revenues increased 17.0% to $42.1 million for the nine months ended September 30, 2009 from $35.9 million in the comparable period in 2008. Equity and fixed income capital raising revenues were $26.5 million and $13.8 million, respectively, an increase of $2.1 million, or 8.5%, and $6.2 million, or 81.0%, respectively, from the comparable period in 2008. During the third quarter of 2009, capital market conditions continued to build upon the improvement that began in the second quarter 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 equity and fixed income financings during the second and third quarters were offset by the challenging market conditions that began during the second half of 2008 and continued into the first quarter of 2009.

Strategic advisory fees decreased 9.4% to $12.7 million for the three months ended September 30, 2009 from $14.1 million in the comparable period in 2008. Strategic advisory fees increased 3.8% to $33.2 million for the nine months ended September 30, 2009 from $32.0 million in the comparable period in 2008. The increase is primarily attributable to an increase in the number of completed equity 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 fees for 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 September 30, 2009, asset management and service fee revenues decreased 15.9% to $25.5 million from $30.3 million in the comparable period of 2008. For the nine months ended September 30, 2009, asset management and service fee revenues decreased 17.2% to $75.0 million from $90.6 million in the comparable period of 2008. The decrease is primarily a result of a reduction in fees for money-fund balances due to the waiving of fees by certain fund managers and lower assets under management as a result of market depreciation, offset by an 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 - Global Wealth Management."

Other income - For the three months ended September 30, 2009, other income increased $8.0 million to $6.6 million from a loss of $1.4 million during the comparable period in 2008. For the nine months ended September 30, 2009, other income increased $10.3 million to $9.4 million from a loss of $0.9 million during the comparable period in 2008.

The increases are primarily attributable to the reduction of investment losses during the three and nine months ended September 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
                                 September 30, 2009                           September 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)          $         301,697   $    3,277      4.34 %       $  389,272   $    5,173      5.32 %
Interest-earning
assets (Stifel
Bank)                        687,211        4,961      2.89            296,296        4,129      5.57
Stock borrow
(Stifel
Nicolaus)                     64,009            6      0.04             86,772          272      1.25
Other (Stifel
Nicolaus)                                   3,062                                     3,245
. . .