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, 2011, and the accompanying 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, 2011, 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

We operate as a financial services and bank holding company. We have built a diversified business serving private clients, institutional investors, and investment banking clients located across the country. Our principal activities are: (i) private client services, including securities transaction and financial planning services; (ii) institutional equity and fixed income sales, trading and research, and municipal finance; (iii) investment banking services, including mergers and acquisitions, public offerings, and private placements; and (iv) retail and commercial banking, including personal and commercial lending programs.

Our core philosophy is based upon a tradition of trust, understanding, and studied advice. We attract and retain experienced professionals by fostering a culture of entrepreneurial, long-term thinking. We provide our private, institutional and corporate clients quality, personalized service, with the theory that if we place clients' needs first, both our clients and our company will prosper. Our unwavering client and employee focus have earned us a reputation as one of the leading brokerage and investment banking firms off Wall Street. We have grown our business both organically and through opportunistic acquisitions.

We plan to maintain our focus on revenue growth with a continued appreciation for the development of quality client relationships. 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 will continue to seek out opportunities that allow us to take advantage of the consolidation among middle-market firms, whereby allowing us to increase market share in our private client and institutional group businesses.

Stifel Financial Corp. (the "Parent"), through its wholly owned subsidiaries, principally Stifel, Nicolaus & Company, Incorporated ("Stifel Nicolaus"), Stifel Bank & Trust ("Stifel Bank"), Stifel Nicolaus Europe Limited ("SNEL"), Century Securities Associates, Inc. ("CSA"), and Stifel Nicolaus Canada, Inc. ("SN Canada"), is principally engaged in retail brokerage; securities trading; investment banking; investment advisory; retail, consumer, and commercial banking; and related financial services. Although we have offices throughout the United States, two Canadian cities, and three European cities, our major geographic area of concentration is the Midwest and Mid-Atlantic regions, with a growing presence in the Northeast, Southeast 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 institutional group 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 Global Wealth Management and Institutional Group 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 October 1, 2011, we acquired Stone & Youngberg LLC ("Stone & Youngberg"), a leading financial services firm specializing in municipal finance and fixed income securities. Stone & Youngberg's comprehensive institutional group expands our public finance, institutional sales and trading and bond underwriting, particularly in the Arizona and California markets, and adds more than 30 financial advisors in four offices to our Private Client Group. The purchase consideration consisted of cash, a portion paid at closing and a portion to be paid over the next three years, and stock based on the value of net assets at closing. In addition, we may be required to pay a contingent earn-out over a five year period after the close based upon revenue goals, as established in the purchase agreement. The public finance, institutional sales and trading, and retail businesses were integrated with Stifel Nicolaus immediately after the acquisition.

Results for the three and six months ended June 30, 2012

For the three months ended June 30, 2012, our net revenues increased 4.3% to $374.4 million compared to $358.9 million during the comparable period in 2011. Net income increased $22.7 million to $26.1 million for the three months ended June 30, 2012, compared to $3.4 million during the comparable period in 2011.

For the six months ended June 30, 2012, our net revenues increased 6.8% to $774.7 million compared to $725.5 million during the comparable period in 2011. Net income increased 75.0% to $60.9 million for the six months ended June 30, 2012, compared to $34.8 million during the comparable period in 2011.

Our revenue growth was primarily attributable to increased principal transactions revenues as a result of strong trading volumes and tightening credit spreads; higher investment banking revenues as a result of strong public finance activity and improved M&A revenues; growth in asset management and service fees as a result of an increase in investment advisory revenues; and increased net interest revenues as a result of the growth of net interest-earning assets at Stifel Bank. The increase in revenue growth was offset by a decline in commission revenues.

The results for the three and six months ended June 30, 2011 were significantly impacted by estimated costs of settlement and litigation-related expenses associated with the civil lawsuit and related regulatory investigation in connection with the previously disclosed matter involving five Southeastern Wisconsin school districts and merger-related expenses.

External Factors Impacting our Business

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. Investor confidence has been dampened by the sovereign debt concerns in Europe, concerns over unemployment levels and recently weaker U.S. economic data, lackluster jobs growth, and the uncertainty with the U.S. budget. These conditions have adversely affected investor and CEO confidence, resulting in significant declines in capital raising activity, as evidenced by the decline in IPOs during 2012 compared to 2011.

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. At June 30, 2012, the key indicators of the markets' performance, the Dow Jones Industrial Average, the NASDAQ and the S&P 500 closed 5.4%, 12.7% and 8.3% higher than their December 30, 2011 closing prices, respectively.

As a participant in the financial services industry, we are subject to complicated and extensive regulation of our business. The recent economic and political environment has led to legislative and regulatory initiatives, both enacted and proposed, that could substantially intensify the regulation of the financial services industry and may significantly impact us. On July 21, 2010, the Dodd-Frank Act was signed into law. The Dodd-Frank Act will have a broad impact on the financial services industry and will impose significant new regulatory and compliance requirements, including the designation of certain financial companies as systemically significant, the imposition of increased capital, leverage, and liquidity requirements, and numerous other provisions designed to improve supervision and oversight of, and strengthen safety and soundness within, the financial services sector. The expectation is that this new legislation will significantly restructure and increase regulation in the financial services industry, which could increase our cost of doing business, change certain business practices, and alter the competitive landscape.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2012 Compared with Three Months Ended June 30, 2011

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,
                                                               %
                                     2012         2011      Change        2012             2011
Revenues:
Commissions                       $   127,427   $ 138,315      (7.9 )          34.0 %           38.5 %
Principal transactions                 91,564      79,741      14.8            24.5             22.2
Investment banking                     67,363      64,418       4.6            18.0             18.0
Asset management and service fees      65,311      56,981      14.6            17.4             15.9
Interest                               27,181      21,229      28.0             7.3              5.9
Other income                            5,418       4,556      18.9             1.4              1.3
Total revenues                        384,264     365,240       5.2           102.6            101.8
Interest expense                        9,857       6,383      54.4             2.6              1.8
Net revenues                          374,407     358,857       4.3           100.0            100.0

Non-interest expenses:
Compensation and benefits             239,374     229,939       4.1            63.9             64.1
Occupancy and equipment rental         32,320      29,723       8.7             8.6              8.3
Communication and office supplies      20,797      18,515      12.3             5.6              5.2
Commissions and floor brokerage         7,747       6,894      12.4             2.1              1.9
Other operating expenses               30,295      69,911     (56.7 )           8.1             19.4
Total non-interest expenses           330,533     354,982      (6.9 )          88.3             98.9

Income before income taxes             43,874       3,875         *            11.7              1.1
Provision for income taxes             17,738         459         *             4.7              0.1
Net income                        $    26,136   $   3,416         *             7.0 %            1.0 %

* Percentage not meaningful.

Six Months Ended June 30, 2012 Compared with Six Months Ended June 30, 2011

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,
                                                             %
                                    2012        2011      Change        2012             2011
Revenues:
Commissions                       $ 250,730   $ 294,101     (14.7 )          32.3 %           40.5 %
Principal transactions              207,797     172,600      20.4            26.8             23.8
Investment banking                  137,801     105,836      30.2            17.8             14.6
Asset management and service fees   126,129     114,661      10.0            16.3             15.8
Interest                             52,438      40,085      30.8             6.8              5.5
Other income                         18,712      10,812      73.1             2.4              1.5
Total revenues                      793,607     738,095       7.5           102.4            101.7
Interest expense                     18,867      12,625      49.4             2.4              1.7
Net revenues                        774,740     725,470       6.8           100.0            100.0

Non-interest expenses:
Compensation and benefits           494,078     461,105       7.2            63.8             63.6
Occupancy and equipment rental       63,111      59,048       6.9             8.1              8.1
Communication and office supplies    41,170      37,360      10.2             5.3              5.1
Commissions and floor brokerage      15,359      13,543      13.4             2.0              1.9
Other operating expenses             57,894      99,855     (42.0 )           7.5             13.8
Total non-interest expenses         671,612     670,911       0.1            86.7             92.5

Income before income taxes          103,128      54,559      89.0            13.3              7.5
Provision for income taxes           42,219      19,745     113.8             5.4              2.7
Net income                        $  60,909   $  34,814      75.0             7.9 %            4.8 %

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,
                                                      %                                  %
                          2012          2011        Change      2012        2011      Change
Net revenues:
Commissions            $   127,427    $ 138,315        (7.9 ) $ 250,730   $ 294,101     (14.7 )
Principal transactions      91,564       79,741        14.8     207,797     172,600      20.4
Investment banking:
Capital raising             40,733       39,689         2.6      95,566      72,047      32.6
Strategic advisory
fees                        26,630       24,729         7.7      42,235      33,789      25.0
                            67,363       64,418         4.6     137,801     105,836      30.2
Asset management and
service fees                65,311       56,981        14.6     126,129     114,661      10.0
Net interest                17,324       14,846        16.7      33,571      27,460      22.3
Other income                 5,418        4,556        18.9      18,712      10,812      73.1
Total net revenues     $   374,407    $ 358,857         4.3   $ 774,740   $ 725,470       6.8

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 and the increased number of revenue producers in our Institutional Group segment.

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 June 30, 2012, commission revenues decreased 7.9% to $127.4 million from $138.3 million in the comparable period in 2011. For the six months ended June 30, 2012, commission revenues decreased 14.7% to $250.7 million from $294.1 million in the comparable period in 2011. The decrease in commission revenues is primarily attributable to a decrease in OTC transactions from the comparable periods in 2011.

Principal transactions - For the three months ended June 30, 2012, principal transactions revenues increased 14.8% to $91.6 million from $79.7 million in the comparable period in 2011. For the six months ended June 30, 2012, principal transactions revenues increased 20.4% to $207.8 million from $172.6 million in the comparable period in 2011. The increase in principal transactions revenues is primarily attributable to improved fixed income institutional brokerage revenues as a result of strong trading volumes and tightening credit spreads.

Investment banking - Investment banking revenues include: (i) capital raising revenues representing fees earned from the underwriting of debt and equity securities, and (ii) strategic advisory fees related to corporate debt and equity offerings, municipal debt offerings, merger and acquisitions, private placements and other investment banking advisory fees.

For the three months ended June 30, 2012, investment banking revenues increased 4.6%, to $67.4 million from $64.4 million in the comparable period in 2011. For the six months ended June 30, 2012, investment banking revenues increased 30.2%, to $137.8 million from $105.8 million in the comparable period in 2011. The increase in investment banking revenues is primarily attributable to an increase in advisory fees as a result of an increase in M&A activity and fixed income capital raising revenues, which is primarily attributable to strong public finance activity and our acquisition of Stone & Youngberg in October 2011. The increase was offset by a decrease in equity capital raising revenues as a result of weaker equity capital markets, which have been negatively impacted by the difficult market environment.

Capital raising revenues increased 2.6% to $40.7 million for the three months ended June 30, 2012 from $39.7 million in the comparable period in 2011. For the three months ended June 30, 2012, fixed income capital raising revenues increased $9.4 million, or 182.1%, to $14.6 million from $5.2 million in the comparable period in 2011. During the second quarter of 2012, equity capital raising revenues decreased 8.4% to $24.3 million from $26.5 million in the comparable period in 2011.

Capital raising revenues increased 32.6% to $95.6 million for the six months ended June 30, 2012 from $72.0 million in the comparable period in 2011. For the six months ended June 30, 2012, fixed income capital raising revenues increased $17.2 million, or 202.6%, to $25.6 million from $8.4 million in the comparable period in 2011. During the first six months of 2012, equity capital raising revenues increased 30.5% to $63.8 million from $48.9 million in the comparable period in 2011.

Strategic advisory fees increased 7.7% to $26.6 million for the three months ended June 30, 2012 from $24.7 million in the comparable period in 2011. Strategic advisory fees increased 25.0% to $42.2 million for the six months ended June 30, 2012 from $33.8 million in the comparable period in 2011. The increase in strategic advisory fees is primarily attributable to an increase in the number of completed transactions over the comparable periods in 2011.

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 June 30, 2012, asset management and service fee revenues increased 14.6% to $65.3 million from $57.0 million in the comparable period of 2011. For the six months ended June 30, 2012, asset management and service fee revenues increased 10.0% to $126.1 million from $114.7 million in the comparable period of 2011. The increase in asset management and service fees is primarily a result of an increase in investment advisory revenues, offset by a reduction in fees for money-fund balances due to the waiving of fees by certain fund managers. See "Assets in fee-based accounts" included in the table in "Results of Operations - Global Wealth Management."

Other income - For the three months ended June 30, 2012, other income increased 18.9% to $5.4 million from $4.6 million during the comparable period in 2011. For the six months ended June 30, 2012, other income increased 73.1% to $18.7 million from $10.8 million during the comparable period in 2011. Other income primarily includes investment gains, including gains on our private equity investments, and loan originations fees from Stifel Bank.

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, 2012                                      June 30, 2011
                                            Interest                                           Interest
                                            Income/        Average                             Income/        Average
                        Average Balance     Expense     Interest Rate      Average Balance     Expense     Interest Rate
Interest-earning
assets:
Margin balances
(Stifel Nicolaus)      $         510,857   $    4,921            3.86 %   $         446,387   $    4,517            4.05 %
Interest-earning
assets (Stifel Bank)           2,703,031       18,086            2.68             1,741,351       13,419            3.08
Stock borrow (Stifel
Nicolaus)                         94,203           57            0.24               113,410           46            0.16
Other (Stifel
Nicolaus)                                       4,117                                              3,247
Total interest revenue                     $   27,181                                         $   21,229

Interest-bearing
liabilities:
Short-term borrowings
(Stifel Nicolaus)      $         266,963   $      768            1.15 %   $         205,999   $      576            1.12 %
Interest-bearing
liabilities (Stifel
Bank)                          2,516,526        4,281            0.68             1,619,088        4,238            1.05
Stock loan (Stifel
Nicolaus)                        143,425          391            1.09               121,800          415            1.36
Senior notes (Stifel
Financial)                       175,000        3,047            6.96                     -            -               -
Interest-bearing
liabilities (Capital
Trusts)                           82,500        1,006            4.88                82,500          981            4.76
Other (Stifel
Nicolaus)                                         364                                                173
Total interest expense                          9,857                                              6,383
Net interest income                        $   17,324                                         $   14,846

                                                               Six Months Ended
                                       June 30, 2012                                      June 30, 2011
                                            Interest                                           Interest
                                            Income/        Average                             Income/        Average
                        Average Balance     Expense     Interest Rate      Average Balance     Expense     Interest Rate
Interest-earning
assets:
Margin balances
(Stifel Nicolaus)      $         507,422   $    9,806            3.86 %   $         445,421   $    9,104            4.09 %
Interest-earning
assets (Stifel Bank)           2,544,359       35,562            2.80             1,737,948       24,622            2.83
Stock borrow (Stifel
Nicolaus)                         80,936           30            0.08               105,354           51            0.10
Other (Stifel
Nicolaus)                                       7,040                                              6,308
Total interest revenue                     $   52,438                                         $   40,085

Interest-bearing
liabilities:
Short-term borrowings
. . .