FORM 10-K







 


 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION




Washington, D.C. 20549




FORM 10-K





ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934





For the Fiscal Year Ended December 31, 2009





Commission File No. 1-9305




STIFEL
	FINANCIAL CORP.




(Exact Name of Registrant as specified in its Charter)








     
     
     




    DELAWARE

     
    43-1273600


    (State or Other Jurisdiction of

     
    (IRS Employer Identification No.)


    Incorporation or Organization)
     
     


     
     
     


    501 North Broadway
     
     


    St. Louis, Missouri
     
    63102


    (Address of Principal Executive Offices)

     
    (Zip Code)







(314) 342-2000

(Registrant’s Telephone Number, Including Area Code)




Securities registered pursuant to Section 12(b) of the Act:








     
     
     




     

     
    Name of Each Exchange


    Title of Each Class

     
    On Which Registered


     

     
     


    Common Stock, par value $0.15 per share

     
    The New York Stock Exchange


     
     
    Chicago Stock Exchange


    Preferred Stock Purchase Rights

     
    The New York Stock Exchange



     
     
    Chicago Stock Exchange







Securities registered pursuant to Section 12(g) of the Act: None




Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes þ
	No o




Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Exchange Act. Yes o No þ




Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
þ No o




Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of Registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ
	
Indicate by check mark whether the registrant has submitted
	electronically and posted on its corporate Web site, if any, every
	Interactive Data File required to be submitted and posted pursuant to
	Rule 405 of Regulation S-T during the preceding 12 months (or for such
	shorter period that the registrant was required to submit and post such
	files). Yes o No o





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.










     
     
     
     
     
     
     




    Large accelerated filer þ

     
    Accelerated filer o

     
    Non-accelerated filer o

     
    Smaller reporting company o


     

     
     
     
    (Do not check if a smaller reporting company)
     
     








Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ






The aggregate market value of the registrant's common stock, $0.15 par value per
share, held by non-affiliates of the registrant as of the close of business on
June 30, 2009 was $1,461,940,857.*  



The number of shares outstanding of the registrant's common stock, $0.15 par
value per share, as of the close of business on February 1, 2010 was 30,884,711.





*   In determining this amount, the registrant assumed that the executive
officers of the registrant and the registrant's directors are affiliates of the
registrant. Such assumptions shall not be deemed to be conclusive for any other
purposes.  




DOCUMENTS INCORPORATED BY REFERENCE




Portions of the Proxy Statement for
	the annual meeting of shareholders, to be held on April 13, 2010, are
	incorporated by reference in Part III hereof.




 


 





 







 






STIFEL FINANCIAL CORP.



TABLE OF CONTENTS


	
		
		

		 
		
		

		 
		
		

		 
		
		 
	
	
		
		


		Part I
		
		

		 
		
		

		 
		
		 
	
	
		
		

		 
		
		


		Item 1.
		
		

		Business
		
		4
	
	
		
		

		 
		
		


		Item 1A.
		
		

		Risk Factors
		
		14
	
	
		
		

		 
		
		


		Item 1B.
		
		

		Unresolved Staff Comments
		
		24
	
	
		
		

		 
		
		


		Item 2.
		
		

		Properties
		
		25
	
	
		
		

		 
		
		


		Item 3.
		
		

		Legal Proceedings
		
		26
	
	
		
		

		 
		
		

		Item 4.
		
		

		Submission of Matters to a Vote of
		Security Holders
		
		27
	
	
		
		


		Part II
		
		

		 
		
		

		 
		
		 
	
	
		
		

		 
		
		

		Item 5.
		
		


		Market for Registrant's Common Equity, Related Stockholder Matters and
		Issuer Purchases of Equity Securities
		
		28
	
	
		
		

		 
		
		


		Item 6.
		
		

		Selected Financial Data
		
		31
	
	
		
		

		 
		
		


		Item 7.
		
		

		Management's Discussion and Analysis
		of Financial Condition and Results of Operations
		
		33
	
	
		
		

		 
		
		


		Item 7A.
		
		

		Quantitative and Qualitative
		Disclosures About Market Risk
		
		81
	
	
		
		

		 
		
		


		Item 8.
		
		

		Financial Statements and
		Supplementary Data
		
		86
	
	
		
		

		 
		
		


		Item 9.
		
		

		Changes in and Disagreements with
		Accountants and Accounting and Financial Disclosure
		
		147
	
	
		
		

		 
		
		


		Item 9A.
		
		

		Controls and Procedures
		
		147
	
	
		
		

		 
		
		


		Item 9B.
		
		

		Other Information
		
		149
	
	
		
		


		Part III
		
		

		 
		
		

		 
		
		 
	
	
		
		

		 
		
		


		Item 10.
		
		

		Directors, Executive Officers and
		Corporate Governance
		
		149
	
	
		
		

		 
		
		


		Item 11.
		
		

		Executive Compensation
		
		149
	
	
		
		

		 
		
		


		Item 12.
		
		


		Security Ownership of Certain Beneficial Owners and Management and
		Related Stockholder Matters
		
		149
	
	
		
		

		 
		
		


		Item 13.
		
		

		Certain Relationships and Related
		Transactions, and Director Independence
		
		150
	
	
		
		

		 
		
		


		Item 14.
		
		

		Principal Accounting Fees and
		Services
		
		150
	
	
		
		


		Part IV
		
		

		 
		
		

		 
		
		 
	
	
		
		

		 
		
		

		Item 15.
		
		

		Exhibits, Financial Statement
		Schedules
		
		151
	
	
		
		

		 
		
		

		 
		
		

		 
		
		 
	
	
		
		

		 
		
		

		 
		
		

		Signatures
		
		156
	
	
		
		

		 
		
		

		 
		
		

		 
		
		 
	



3











PART I



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, political,
regulatory and market conditions, the investment banking and brokerage
industries, 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 "Risk Factors" in
Item 1A, as well as those discussed in "External Factors Impacting Our Business"

included
in "Management Discussion and Analysis of Financial Condition and Results of
Operations" in Part II, Item 7 of this report.



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.
We undertake no obligation to publicly release
any revisions to the forward-looking statements or reflect events or
circumstances after the date of this document.




ITEM 1.  
BUSINESS



Stifel Financial
Corp. is a Delaware corporation and a financial holding company headquartered in
St. Louis. We were organized in 1983. Our principal subsidiary is Stifel,
Nicolaus & Company, Incorporated ("Stifel Nicolaus"), a full service retail and
institutional brokerage and investment banking firm. Stifel Nicolaus is the
successor to a partnership founded in 1890. Our other subsidiaries include
Century Securities Associates, Inc. ("CSA"), an independent contractor
broker-dealer firm, Stifel Nicolaus Limited ("SN Ltd"), our international
subsidiary, and Stifel Bank & Trust ("Stifel Bank"), a retail and commercial
bank. Unless the context requires otherwise, the terms "our company," "we," and
"our" as used herein refer to Stifel Financial Corp. and its subsidiaries.





With our
century-old operating history, we have built a diversified business serving
private clients, institutional investors and investment banking clients located
across the country. Our principal activities are:




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.   



4










We have
grown our business both organically and through opportunistic acquisitions. Over
the past several years, we have grown substantially, primarily by completing and
successfully integrating a number of acquisitions, including our acquisition of
the capital markets business of Legg Mason ("LM
Capital Markets")
from Citigroup in December 2005 and the following more recent acquisitions:





Business
Segments



We
operate in the following segments: Global Wealth Management, Capital Markets,
and Other.
As a result of organizational changes in the second quarter of 2009, which
included a change in the management reporting structure of our company, the
segments formerly reported as Equity Capital Markets and Fixed Income Capital
Markets have been combined into a single segment called Capital Markets. In
addition,
the UBS
branch acquisition and related customer account conversion to our platform has
enabled us to further leverage our customers' assets, which allows us the
ability to provide a full array of financial products to both our Private Client
Group and Stifel Bank customers. As a result, during the third quarter of 2009,
we changed
how we manage these reporting units and consequently they were combined to form
the Global Wealth Management segment.
Previously
reported segment information has been revised to reflect this change. For a
discussion of the financial results of our segments, see Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Segment Analysis."  



5











Narrative
description of business



As of December 31,
2009, we employed 4,434 individuals, including 1,719 financial advisors. In
addition, 166 financial advisors were affiliated with CSA as independent
contractors. As of December 31, 2009, through our broker-dealer subsidiaries, we
provide securities related financial services to approximately 1.0 million
client accounts of customers throughout the United States and Europe. Our
customers include individuals, corporations, municipalities and institutions.
Although we have customers throughout the United States, our major geographic
area of concentration is in the Midwest and Mid-Atlantic regions, with a growing
presence in the Northeast, Southeast and Western United States. No single client
accounts for a material percentage of any segment of our business. Our
inventory, which we believe is of modest size and intended to turn-over quickly,
exists to facilitate order flow and support the investment strategies of our
clients.
Although we do not engage in
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.
Furthermore, our
balance sheet is highly liquid, without material holdings of securities that are
difficult to value or remarket. We believe that our broad platform, fee-based
revenues and strong distribution network position us well to take advantage of
current trends within the financial services sector.




GLOBAL WEALTH MANAGEMENT



We provide
securities transaction, brokerage and investment services to our clients through
the consolidated Stifel Nicolaus branch system and through CSA, our wholly-owned
independent contractor subsidiary. We have made significant investments in
personnel and technology to grow the Private Client Group over the past ten
years. At December 31, 2009, the Private Client Group, with a concentration in
the Midwest and Mid-Atlantic regions and a growing presence in the Northeast,
Southeast and Western United States, had a network of 1,885 financial advisors,
consisting of 1,719 employees located in 272 branch offices in 42 states and the
District of Columbia and 166 independent contractors.  








Consolidated Stifel Nicolaus Branch System



Our
financial advisors provide a broad range of investments and services, including
financial planning services to our clients. We offer equity securities, taxable
and tax-exempt fixed income securities, including municipal, corporate, and
government agency securities, preferred stock and unit investment trusts. We
also offer a broad range of externally managed fee-based products. In addition,
we offer insurance and annuity products and investment company shares through
agreements with numerous third party distributors. We encourage our financial
advisors to pursue the products and services they feel most comfortable
recommending, rather than emphasizing proprietary products. Our private clients
may choose from a traditional, commission-based structure or fee-based money
management programs. In most cases, commissions are charged for sales of
investment products to clients based on an established commission schedule. In
certain cases, varying discounts may be given based on relevant client or trade
factors determined by the financial advisor.  




CSA
Private Client



At December 31,
2009, CSA had affiliations with 166 independent contractors in 134 branch
offices in 28 states. CSA's independent contractors provide the same types of
financial products and services to its private clients as does Stifel Nicolaus.
Under their contractual arrangements, these independent contractors may also
provide accounting services, real estate brokerage, insurance, or other business
activities for their own account. However, all securities transactions must be
transacted through CSA. Independent contractors are responsible for all of their
direct costs and are paid a larger percentage of commissions to compensate them
for their added expenses. CSA is an introducing broker-dealer and, as such,
clears its transactions through Stifel Nicolaus.



6











Customer
Financing



Client securities
transactions are effected on either a cash or margin basis. The customer
deposits less than the full cost of the security when securities are purchased
on a margin basis. We make a loan for the balance of the purchase price. Such
loans are collateralized by the securities purchased. The amounts of the loans
are subject to the margin requirements of Regulation T of the Board of Governors
of the Federal Reserve System, Financial Industry Regulatory Authority ("FINRA")
margin
requirements, and our internal policies, which usually are more restrictive than
Regulation T or FINRA requirements. In permitting customers to purchase
securities on margin, we are subject to the risk of a market decline, which
could reduce the value of our collateral below the amount of the customers'
indebtedness.






Stifel
Bank



In April
2007, we completed the acquisition of First Service, a St. Louis-based full
service bank, which now operates as Stifel Bank & Trust and is reported in the
Global Wealth Management segment. Since the closing of the bank acquisition, we
have grown retail and commercial bank assets from $145.6 million on acquisition
date to $1,142.0 million at December 31, 2009. Through Stifel Bank, we offer
retail and commercial banking services to private and corporate clients,
including personal loan programs such as fixed and variable mortgage loans, home
equity lines of credit, personal loans, loans secured by CDs or savings,
automobile loans and securities-based loans as well as commercial lending
programs such as small business loans, commercial real estate loans, lines of
credit, credit cards, term loans, and inventory and receivables financing, in
addition to other banking products. We believe this acquisition will not only
help us serve our private clients more effectively by offering them a broader
range of services, but will also enable us to better utilize our private client
cash balances.





CAPITAL MARKETS



The Capital
Markets segment includes research, equity and fixed income institutional sales
and trading, investment banking, public finance and syndicate, and consisted of
734 employees at December 31, 2009.




Research



Our
research department consisted of 151 analysts and support associates who publish
research across multiple industry groups and provide our clients with timely,
insightful and actionable research, aimed at improving investment performance.







Institutional Sales and Trading



Our
equity sales and trading team distributes our proprietary equity research
products and communicates our investment recommendations to our client base of
institutional investors, executes equity trades, sells the securities of
companies for which we act as an underwriter and makes a market in over 2,200
domestic securities at December 31, 2009. In our various sales and trading
activities, we take a focused approach on servicing our clients as opposed to
proprietary trading for our own account. Located in 13 cities in the United
States as well as Geneva, London and Madrid, our equity sales and trading team,
consisting of 159 professionals and support professionals and associates,
services approximately 1,400 clients globally.



The fixed
income institutional sales and trading group consists of 181 professionals and
support associates, located in 21 cities in the United States and is comprised
of taxable and tax-exempt sales departments. Our institutional sales and trading
group executes trades in both tax-exempt and taxable products, with
diversification across municipal, corporate, government agency and
mortgage-backed securities. Our fixed income inventory is maintained primarily
to facilitate order flow and support the investment strategies of our
institutional fixed income clients, as opposed to seeking trading profits
through proprietary trading.



7













Investment Banking



Our
investment banking activities include the provision of financial advisory
services principally with respect to mergers and acquisitions, and the execution
of public offerings and private placements of debt and equity securities. The
investment banking group, consisting of 159 professionals and support
associates, focuses on middle-market companies as well as on larger companies in
targeted industries where we have particular expertise, which include real
estate, financial services, healthcare, aerospace/defense and government
services, telecommunications, transportation, energy, business services,
consumer services, industrial, technology and education.  



Our
public finance group acts as an underwriter and dealer in bonds issued by
states, cities and other political subdivisions and acts as manager or
participant in offerings managed by other firms. The public finance group
consists of 77 professionals and support associates.




Syndicate



Our
syndicate department, which consists of seven origination and execution
professionals and support associates, coordinates marketing, distribution,
pricing and stabilization of our managed equity and debt offerings.  In
addition, the department coordinates our underwriting participations and selling
group opportunities managed by other investment banking firms.





OTHER SEGMENT



The Other segment
includes interest income from stock borrow activities, unallocated interest
expense, interest income and gains and losses on investments held, and all
unallocated overhead costs associated with the execution of orders; processing
of securities transactions; custody of client securities; receipt,
identification, and delivery of funds and securities; compliance with regulatory
and legal requirements; internal financial accounting and controls; acquisition
charges related to the LM Capital Markets and Ryan Beck acquisitions; and
general administration. At December 31, 2009, we employed 527 persons in this
segment.



BUSINESS CONTINUITY



We have developed
a business continuity plan that is designed to permit continued operation of
business critical functions in the event of disruptions to our St. Louis,
Missouri headquarters facility. Several critical business applications are
supported by our outside vendors who maintain backup capabilities. We
periodically participate in testing these backup facilities. Likewise, the
business functions that we run internally can be supported without the St. Louis
headquarters, either through our redundant computer capacities in our Jersey
City, New Jersey; and Baltimore, Maryland locations, or from our branch
locations that can connect to our third party securities processing vendor
through its primary or redundant facilities. Systems have been designed so that
we can route all mission critical processing activity either through Jersey City
or Baltimore to alternate locations, which can be staffed with relocated
personnel as appropriate.


8










GROWTH STRATEGY



We
believe our plans for growth will allow us to increase our revenues and to
expand our role with clients as a valued partner. In executing our growth
strategy, we take advantage of the consolidation among mid-tier firms, which we
believe provides us opportunities in our private client and capital markets
businesses. We intend to pursue the following strategies:




COMPETITION



We compete with
other securities firms, some of which offer their customers a broader range of
brokerage services, have substantially greater resources, and may have greater
operating efficiencies. In addition, we face increasing competition from other
financial institutions, such as commercial banks, online service providers, and
other companies offering financial services. The Financial Modernization Act,
signed into law in late 1999, lifted restrictions on banks and insurance
companies, permitting them to provide financial services once dominated by
securities firms. In addition, recent consolidation in the financial services
industry may lead to increased competition from larger, more diversified
organizations.  



We rely on the
expertise acquired in our market area over our 119-year history, our personnel,
and our equity capital to operate in the competitive environment.




9










REGULATION



The securities
industry in the United States is subject to extensive regulation under federal
and state laws. The Securities and Exchange Commission ("SEC") is the federal
agency charged with the administration of the federal securities laws. Much of
the regulation of broker-dealers, however, has been delegated to self-regulatory
organizations ("SRO"), principally FINRA, the Municipal Securities Rulemaking
Board, and securities exchanges. SROs adopt rules (which are subject to approval
by the SEC) that govern the industry and conduct periodic examinations of member
broker-dealers. Securities firms are also subject to regulation by state
securities commissions in the states in which they are registered.





As a result of
federal and state registration and SRO memberships, broker-dealers are subject
to overlapping schemes of regulation that cover all aspects of their securities
businesses. Such regulations cover matters including capital requirements; uses
and safekeeping of clients' funds; conduct of directors, officers, and
employees; recordkeeping and reporting requirements; supervisory and
organizational procedures intended to ensure compliance with securities laws and
to prevent improper trading on material nonpublic information; employee-related
matters, including qualification and licensing of supervisory and sales
personnel; limitations on extensions of credit in securities transactions;
clearance and settlement procedures; requirements for the registration,
underwriting, sale, and distribution of securities; and rules of the SROs
designed to promote high standards of commercial honor and just and equitable
principles of trade. A particular focus of the applicable regulations concerns
the relationship between broker-dealers and their customers. As a result, many
aspects of the broker-dealer customer relationship are subject to regulation,
including, in some instances, "suitability" determinations as to certain
customer transactions, limitations on the amounts that may be charged to
customers, timing of proprietary trading in relation to customers' trades, and
disclosures to customers.



Additional
legislation, changes in rules promulgated by the SEC and by SROs, and changes in
the interpretation or enforcement of existing laws and rules often directly
affect the method of operation and profitability of broker-dealers. The SEC and
the SROs conduct regular examinations of our broker-dealer subsidiaries and also
initiate targeted and other specific inquiries from time to time, which
generally include the investigation of issues involving substantial portions of
the securities industry. The SEC and the SROs may determine to take no formal
action in certain matters. The SEC and the SROs may conduct administrative
proceedings, which can result in censures, fines, suspension, or expulsion of a
broker-dealer, its officers, or employees. The principal purpose of regulation
and discipline of broker-dealers is the protection of customers and the
securities markets rather than the protection of creditors and stockholders of
broker-dealers.





As broker-dealers,
Stifel Nicolaus, and CSA are subject to the Uniform Net Capital Rule (Rule
15c3-1) promulgated by the SEC. The Uniform Net Capital Rule is designed to
measure the general financial integrity and liquidity of a broker-dealer and the
minimum net capital deemed necessary to meet the broker-dealer's continuing
commitments to its customers and other broker-dealers. Broker-dealers may be
prohibited from expanding their business and declaring cash dividends. A
broker-dealer that fails to comply with the Uniform Net Capital Rule may be
subject to disciplinary actions by the SEC and SROs, such as FINRA, including
censures, fines, suspension, or expulsion. Stifel Nicolaus has chosen to
calculate its net capital under the alternative method, which prescribes that
their net capital shall not be less than the greater of $1.0 million or two
percent of aggregate debit balances (primarily receivables from customers and
broker-dealers) computed in accordance with the SEC's Customer Protection Rule
(Rule 15c3-3). CSA calculates its net capital under the aggregate indebtedness
method whereby its aggregate indebtedness may not be greater than fifteen times
its net capital (as defined). Both methods allow broker-dealers to increase
their commitments to customers only to the extent their net capital is deemed
adequate to support an increase. Our international subsidiary, SN Ltd, is
subject to the regulatory supervision and requirements of the Financial Services
Authority ("FSA") in the United Kingdom.
See the
section entitled "Liquidity and Capital Resources" in Item 7 of this report
regarding our minimum net capital requirements.




10










Our company, as a
bank and financial holding company, is subject to regulation, including capital
requirements, by the Federal Reserve. Stifel Bank is subject to various
regulatory capital requirements administered by the Federal Deposit Insurance
Corporation ("FDIC") and state banking authorities. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on our company's and Stifel Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, our company and Stifel Bank must meet specific capital guidelines that
involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. Our
company's and Stifel Bank's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk weightings,
and other factors. Quantitative measures established by regulation to ensure
capital adequacy require our company and Stifel Bank to maintain minimum amounts
and ratios of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and Tier 1 capital (as defined) to average
assets (as defined). We may be required to increase our regulatory capital and
pay higher FDIC premiums, including special assessments, due to the impact of
current state of the financial services industry and overall economy on the
insurance fund of the FDIC.






The statistical
disclosures required to be made by a bank holding company are included in Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations" of this report.



As a
public company whose common stock is listed on the New York Stock Exchange
("NYSE") and the Chicago Stock Exchange ("CHX"), we are subject to corporate
governance requirements established by the SEC, NYSE, and CHX, as well as
federal and state law. Under the Sarbanes-Oxley Act of 2002 (the "Act"), we are
required to meet certain requirements regarding business dealings with members
of the Board of Directors, the structure of our Audit Committee, ethical
standards for our senior financial officers, implementation of an internal
control structure and procedures for financial reporting, and additional
responsibilities regarding financial statements for our Chief Executive Officer
and Chief Financial Officer and their assessment of our internal controls over
financial reporting. Compliance with all aspects of the Act, particularly the
provisions related to management's assessment of internal controls, has imposed
additional costs on our company reflecting internal staff and management time,
as well as additional audit fees since the Act went into effect.




11












Executive Officers



Information
regarding our executive officers and their ages as of February 26, 2010 are as
follows:


	
		
		

		Name
		
		

		 
		
		

		Age
		
		

		 
		
		

		Position(s)
	
	
		
		

		Ronald J. Kruszewski 

		
		

		 
		
		

		51

		
		

		 
		
		

		Chairman of
		the Board of Directors, President, and Chief Executive Officer of the
		Company and Chairman of the Board of Directors and Chief Executive
		Officer of Stifel Nicolaus
	
	
		
		

		Scott B. McCuaig

		
		
		

		 
		
		

		60 

		
		
 
		
		

		Senior Vice
		President and Director of the Company and President, Co-Chief Operating
		Officer, and Director of Stifel Nicolaus.
	
	
		
		

		James M. Zemlyak 

		
		

		 
		
		

		50 

		
		

		 
		
		

		Senior Vice
		President Chief Financial Officer, Treasurer and Director of the Company
		and Executive Vice President, Co-Chief Operating Officer, and Director
		of Stifel Nicolaus.
	
	
		
		

		Richard J. Himelfarb

		
		

		 
		
		

		68

		
		

		 
		
		

		Vice
		Chairman, Senior Vice President and Director of the Company and
		Executive Vice President, Chairman of Investment Banking, and Director
		of Stifel Nicolaus.
	
	
		
		

		David M. Minnick 

		
		

		 
		
		

		53

		
		

		 
		
		

		Senior Vice President and General Counsel
		of the Company and Stifel Nicolaus.
	
	
		
		

		Thomas P. Mulroy

		
		

		 
		
		

		48 

		
		
 
		
		

		Senior Vice
		President and Director of the Company and Executive Vice President,
		Co-Director of Capital Markets, and Director of Stifel Nicolaus.
	
	
		
		

		Victor J. Nesi

		
		

		 
		
		

		49

		
		
 
		
		

		Senior Vice President and Director of the
		Company and Executive Vice President, Director of Investment Banking,
		Co-Director of Capital Markets, and Director of Stifel Nicolaus.
	
	
		
		

		Ben A. Plotkin 

		
		

		 
		
		

		54

		
		
 
		
		

		Vice-Chairman, Senior Vice President and
		Director of the Company and Executive Vice President of Stifel Nicolaus.
	
	
		
		

		David D. Sliney 

		
		

		 
		
		

		40

		
		

		 
		
		

		Senior Vice President of the Company and
		Senior Vice President and Director of Stifel Nicolaus.
	




Ronald J.
Kruszewski
has been President and Chief Executive Officer of our company and Stifel
Nicolaus since September 1997 and Chairman of the Board of Directors of our
company and Stifel Nicolaus since April 2001. Prior thereto, Mr. Kruszewski
served as Managing Director and Chief Financial Officer of Baird Financial
Corporation and Managing Director of Robert W. Baird & Co. Incorporated, a
securities broker-dealer firm, from 1993 to September 1997. Mr. Kruszewski has
been a Director since September 1997.




Scott B.
McCuaig
has been Senior Vice President and President of the Private Client Group and
Stifel Nicolaus and Director of Stifel Nicolaus since January 1998 and President
and Co-Chief Operating Officer of Stifel Nicolaus since August 2002. Prior
thereto, Mr. McCuaig served as Managing Director, head of marketing, and
regional sales manager of Robert W. Baird & Co. Incorporated from June 1988 to
January 1998. Mr. McCuaig has been a Director since April 2001.






James M.
Zemlyak
joined Stifel Nicolaus in February 1999. Mr. Zemlyak has been our Senior Vice
President, Chief Financial Officer, and Treasurer and a member of the Board of
Directors of Stifel Nicolaus since February 1999, Co-Chief Operating Officer of
Stifel Nicolaus since August 2002, and Executive Vice President of Stifel
Nicolaus since December 1, 2005. Mr. Zemlyak also served as Chief Financial
Officer of Stifel Nicolaus from February 1999 to October 2006. Prior to joining
our company, Mr. Zemlyak served as Managing Director and Chief Financial Officer
of Baird Financial Corporation from 1997 to 1999 and Senior Vice President and
Chief Financial Officer of Robert W. Baird & Co. Incorporated from 1994 to 1999.




12












Richard J. Himelfarb
has
served as Senior Vice President and Director of our company
and Executive Vice President, and Director of Stifel Nicolaus since December
2005. Mr. Himelfarb was designated Chairman of Investment Banking in July 2009.
Prior to that, Mr. Himelfarb served as Executive Vice President and Director of
Investment Banking from December 2005 through July 2009. Prior to joining our
company, Mr. Himelfarb served as a director of Legg Mason, Inc. from November
1983 and Legg Mason Wood Walker, Inc. from January 2005. Mr. Himelfarb was
elected Executive Vice President of Legg Mason and Legg Mason Wood Walker, Inc.
in July 1995, having previously served as Senior Vice President from November
1983.  




David M. Minnick
has served as Senior Vice President and General Counsel of our company and
Stifel Nicolaus since October 2004. Prior thereto, Mr. Minnick served as Vice
President and Counsel for A.G. Edwards & Sons, Inc. from August 2002 through
October 2004, Senior Regional Attorney for NASD Regulation, Inc. from November
2000 through July 2002, as an attorney in private law practice from September
1998 through November 2000, and as General Counsel and Managing Director of
Morgan Keegan & Company, Inc. from October 1990 through August 1998.




Thomas P. Mulroy
has served as Senior Vice President and Director of our company
and Executive Vice President, and Director of Stifel Nicolaus since December
2005. Mr. Mulroy was named Co-Director of Capital Markets in July 2009. Prior to
that, Mr. Mulroy served as Director of Equity Capital Markets from December 2005
through July 2009. Mr. Mulroy has responsibility for institutional equity sales,
trading, and research. Prior to joining our company, Mr. Mulroy was elected
Executive Vice President of Legg Mason, Inc. in July 2002 and of Legg Mason Wood
Walker, Inc. in November 2000. Mr. Mulroy became a Senior Vice President of Legg
Mason, Inc. in July 2000 and Legg Mason Wood Walker, Inc. in August 1998.






Victor J.
Nesi
has served as Executive Vice President, Director of Investment Banking and
Co-Director of Capital Markets since July 2009. Mr. Nesi has served as Director
of our company since August 2009. Mr. Nesi has responsibility for corporate
finance investment banking activities and is Co-Director of our Capital Markets
segment. Mr. Nesi has more than 20 years of banking and private equity
experience, most recently with Merrill Lynch, where he headed the global private
equity business for the telecommunications and media industry. From 2005 to
2007, he directed Merrill Lynch's investment banking group for the Americas
region. Prior to joining Merrill Lynch in 1996, Mr. Nesi spent seven years as an
investment banker at Salomon Brothers and Goldman Sachs.




Ben A.
Plotkin
has been a Vice-Chairman, Senior Vice President and Director of our company
since August 2007 and an Executive Vice President of Stifel Nicolaus since
February, 2007. Mr. Plotkin also served as Chairman and Chief Executive Officer
of Ryan Beck & Company, Inc., from 1997 until its acquisition by our company in
2007. Mr. Plotkin was elected Executive Vice President of Ryan Beck in 1990. Mr.
Plotkin became a Senior Vice President of Ryan Beck in 1989, and was appointed
First Vice President of Ryan Beck in December of 1987. Mr. Plotkin joined Ryan
Beck in May of 1987 as a Director and Vice President in the Investment Banking
Division.




David D.
Sliney
has been a Senior Vice President of our company since May 2003. In 1997, Mr.
Sliney began a Strategic Planning and Finance role with Stifel Nicolaus and has
served as a Director of Stifel Nicolaus since May 2003. Mr. Sliney is also
responsible for our company's Operations and Technology departments. Mr. Sliney
joined Stifel Nicolaus in 1992, and between 1992 and 1995, Mr. Sliney worked as
a fixed income trader and later assumed responsibility for the firm's Equity
Syndicate Department.




13










AVAILABLE INFORMATION



Our internet
address is
www.stifel.com. We make available, free of charge, through a link to the SEC
web site, annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and amendments to reports filed or furnished pursuant to
Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, as
well as proxy statements, as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the SEC.





Additionally, we
make available on our web site under "Investor Relations - Corporate
Governance," and in print upon request of any shareholder to our Chief Financial
Officer, a number of our corporate governance documents. These include:
Executive Committee charter, Audit Committee charter, Compensation Committee
charter, Nominating/Corporate Governance Committee charter, Corporate Governance
Guidelines, Complaint Reporting Process, and the Code of Ethics for Employees.
Within the time period required by the SEC and the NYSE, we will post on our web
site any modifications to any of the available documents. The information on our
website is not incorporated by reference into this report. Our Chief Financial
Officer can be contacted at Stifel Financial Corp., One Financial Plaza, 501 N.
Broadway, St. Louis, MO 63102, telephone: (314) 342-2000.





ITEM 1A.  
RISK FACTORS



In addition to the
other information set forth in this report, you should carefully consider the
following factors which could materially affect our business, financial
condition or future results of operations. Although the risks described below
are those that management believes are the most significant, these are not the
only risks facing our company. Additional risks and uncertainties not currently
known to us or that we currently do not deem to be material also may materially
affect our business, financial condition or future results of operations. We may
amend or supplement these risk factors from time to time in other reports we
file with the SEC.



Our results of operations may be
adversely affected by conditions in the global financial markets and economic
downturn.



Our
results of operations are materially affected by conditions in the financial
markets and economic conditions generally, both in the United States and
elsewhere around the world. Significant weaknesses and volatility in the credit
markets stemming from difficulties in the U.S housing market spread to the
broader financial market and lead to a decline in global economic growth that
has resulted in a significant recession. Specifically, dramatic declines in U.S.
housing market values, together with increasing foreclosures and unemployment,
have resulted in significant write-downs of asset values by financial
institutions, including government-sponsored entities, as well as major
commercial and investment banks. These write-downs, which were initially
associated with mortgaged-backed securities but which have substantially spread
to credit default swaps and other derivative securities, in turn have caused
many financial institutions to seek additional capital, to merge with larger and
stronger institutions and, in some cases, to fail. Reflecting concern about the
stability of the financial markets generally and the strength of counterparties,
many lenders and institutional investors have ceased to provide funding to even
the most credit-worthy borrowers. This market turmoil and tightening of credit
have led to an increased level of commercial and consumer delinquencies, lack of
consumer confidence, increased market volatility and widespread reduction of
business activity generally.  



The
resulting economic pressures on consumers and businesses and the lack of
confidence in the financial markets have adversely affected our business,
financial condition and results of operations. Despite recent improvements in
market conditions, a potential future decline in these conditions would likely
exacerbate the adverse effects of these difficult market conditions on us and
others in the financial services industry. It is difficult to predict how long
these uncertain market and economic conditions and the accompanying recession
will continue, whether the global credit crisis will cause market and economic
conditions to continue to deteriorate, and which of our markets, products and
businesses will continue to be adversely affected and to what degree. We may
have impairment losses if events or changes in circumstances occur which may
reduce the fair value of an asset below its carrying amount. As a result, these
conditions could adversely affect our financial condition and results of
operations. In addition, we may be subject to increased regulatory scrutiny and
litigation due to these issues and events.




14










A
significant portion of our revenue is derived from commissions, margin interest
revenue, principal transactions, asset management and service fees, and
investment banking fees. Accordingly, severe market fluctuations, weak economic
conditions, a decline in stock prices, trading volumes, or liquidity could have
an adverse affect on our profitability. Continued or further credit dislocations
or sustained market downturns may result in a decrease in the volume of trades
we execute for our clients, a decline in the value of securities we hold in
inventory as assets, and reduced investment banking revenues. Poor economic
conditions have adversely affected investor confidence, resulting in significant
industry-wide declines in the size and number of underwritings and advisory
transactions, which could continue to have an adverse effect on our revenues.



The fixed
income markets are experiencing a period of extreme volatility which has
negatively impacted market liquidity conditions. As a result, fixed income
instruments are experiencing liquidity issues, increased price volatility,
credit downgrades, and increased likelihood of default. In addition to being
hard to dispose of, securities that are less liquid are also more difficult to
value. Domestic and international equity markets have also been experiencing
heightened volatility and turmoil, and as a result issuers that have exposure to
the real estate, mortgage and credit markets, including banks and
broker-dealers, have been particularly affected. These events and the continuing
market upheavals may have an adverse effect on us. In the event of a sustained
market downturn, our results of operations could be adversely affected by those
factors in many ways. Our revenues are likely to decline in such circumstances
and, if we were unable to reduce expenses at the same pace, our profit margins
would erode. Even in the absence of a sustained market downturn, we are exposed
to substantial risk of loss due to market volatility.



In
addition, declines in the market value of securities generally result in a
decline in revenues from fees based on the asset values of client portfolios, in
the failure of buyers and sellers of securities to fulfill their settlement
obligations, and in the failure of our clients to fulfill their credit and
settlement obligations. During market downturns, our counterparties may be less
likely to complete transactions. Also, we permit our clients to purchase
securities on margin. During periods of steep declines in securities prices, the
value of the collateral securing client accounts' margin purchases may drop
below the amount of the purchaser's indebtedness. If the clients are unable to
provide additional collateral for these loans, we may lose money on these margin
transactions. This may cause us to incur additional expenses defending or
pursuing claims or litigation related to counterparty or client defaults.



In
addition, in certain of the transactions we are required to post collateral to
secure our obligations to the counterparties. In the event of a bankruptcy or
insolvency proceeding involving such counterparties, we may experience delays in
recovering our assets posted as collateral or may incur a loss to the extent
that the counterparty was holding collateral in excess of our obligation to such
counterparty. There is no assurance that any such losses would not materially
and adversely affect our business, financial condition and results of
operations.



Recent legislative and regulatory actions, and any such future actions,
to address the current liquidity and credit crisis in the financial industry may
significantly affect our financial condition, results of operation, liquidity or
stock price.



Recent
economic conditions, particularly in the financial markets, as well as the
effect of the change of administration in the White House, have resulted in
government regulatory agencies and political bodies placing increased focus on
and scrutiny of the financial services industry. In addition to the U.S.
Treasury Department's Capital Purchase Program (in which we have not
participated), under the Troubled Asset Relief Program announced last fall and
the new Capital Assistance Program announced in the spring (in which we have not
participated), the U.S. Government has taken steps that include enhancing the
liquidity support available to financial institutions, establishing a commercial
paper funding facility, temporarily guaranteeing money market funds and certain
types of debt issuances, and increasing insurance on bank deposits, and the U.S.
Congress, through the Emergency Economic Stabilization Act of 2008, and the
American Recovery and Reinvestment Act of 2009 have imposed a number of
restrictions and limitations on the operations of financial services firms
participating in the federal programs. Further, there is no assurance that these
programs individually or collectively will have beneficial effects in the credit
markets, will address credit or liquidity issues of companies that participate
in the programs or will reduce volatility or uncertainty in the financial
markets. The failure of these programs to have their intended effects could have
a material adverse effect on the financial markets, which in turn could
materially and adversely affect our financial condition, results of operations,
or liquidity.




15










We anticipate new legislative and regulatory
initiatives over the next several years, including many focused specifically on
the financial services industry that could further substantially increase
regulation of the financial services industry and impose restrictions on the
operations and general ability of firms within the industry to conduct business
consistent with historical practices. We cannot predict the substance or impact
of pending or future legislation, regulation or the application thereof.
Compliance with such current and potential regulation and scrutiny may
significantly increase our costs, impede the efficiency of our internal business
processes, require us to increase our regulatory capital, impact how we
compensate and incent our associates and limit our ability to pursue business
opportunities in an efficient manner.



Lack of sufficient liquidity or access
to capital could impair our business and financial condition.



Liquidity
is essential to our business. If we have insufficient liquid assets, we will be
forced to curtail our operations, and our business will suffer. Our assets,
consisting mainly of cash or assets readily convertible into cash, are our
principle source of liquidity. These assets are financed primarily by our equity
capital, debentures to trusts, client credit balances, short-term bank loans,
proceeds from securities lending, customer deposits and other payables. We
currently finance our client accounts and firm trading positions through
ordinary course borrowings at floating interest rates from various banks on a
demand basis and securities lending, with company-owned and client securities
pledged as collateral. Changes in securities market volumes, related client
borrowing demands, underwriting activity, and levels of securities inventory
affect the amount of our financing requirements.



The
capital and credit markets have been experiencing volatility and disruption
since early 2008, and reached unprecedented levels during the first quarter of
2009. In some cases, the markets have produced downward pressure on stock prices
and credit availability for certain issuers without regard to those issuers'
underlying financial strength. Despite recent improvements in market conditions,
if market disruption and volatility return to the unprecedented levels reached
in early 2009 or worsen, there can be no assurance that we will not experience
an adverse effect, which may be material to our business, financial condition
and results of operations and affect our ability to access capital.



Our
liquidity requirements may change in the event we need to raise more funds than
anticipated to increase inventory positions, support more rapid expansion,
develop new or enhanced services and products, acquire technologies, or respond
to other unanticipated liquidity requirements. We rely exclusively on financing
activities and distributions from our subsidiaries for funds to implement our
business and growth strategies. Net capital rules or the borrowing arrangements
of our subsidiaries, as well as the earnings, financial condition, and cash
requirements of our subsidiaries, may each limit distributions to us from our
subsidiaries.



In the
event existing internal and external financial resources do not satisfy our
needs, we may have to seek additional outside financing. The availability of
outside financing will depend on a variety of factors, such as market
conditions, the general availability of credit, the volume of trading
activities, the overall availability of credit to the financial services
industry, credit ratings, and credit capacity, as well as the possibility that
lenders could develop a negative perception of our long-term or short-term
financial prospects if we incurred large trading losses or if the level of our
business activity decreased due to a market downturn or otherwise. We currently
do not have a credit rating, which could adversely affect our liquidity and
competitive position by increasing our borrowing costs and limiting access to
sources of liquidity that require a credit rating as a condition to providing
funds.




16










Current trends in the global financial
markets could cause significant fluctuations in our stock price.



Stock
markets in general, and stock prices of financial services firms in particular,
including us, have in recent years, and particularly in the latter part of 2008
continuing through the first quarter of 2009, experienced significant price and
volume fluctuations. The market price of our common stock may continue to be
subject to similar market fluctuations which may be unrelated to our operating
performance or prospects, and increased volatility could result in an overall
decline in the market price of our common stock. Factors that could
significantly impact the volatility of our stock price include:  





Significant declines in the market price of our common stock or failure of the
market price of our common stock to increase could harm our ability to recruit
and retain key employees, including our executives and financial advisors and
other key professional employees and those who have joined us from companies we
have acquired, reduce our access to debt or equity capital and otherwise harm
our business or financial condition. In addition, we may not be able to use our
common stock effectively as consideration in connection with future
acquisitions.



We face intense competition in our
industry.



All
aspects of our business and of the financial services industry in general are
intensely competitive. We expect competition to continue and intensify in the
future. Our business will suffer if we do not compete successfully. We compete
on the basis of a number of factors, including the quality of our personnel, the
quality and selection of our investment products and services, pricing (such as
execution pricing and fee levels), and reputation. Because of market unrest and
increased government intervention, the financial services industry has recently
undergone significant consolidation, which has further concentrated equity
capital and other financial resources in the industry and further increased
competition. Many of our competitors use their significantly greater financial
capital and scope of operations to offer their customers more products and
services, broader research capabilities, access to international markets, and
other products and services not currently offered by us.



We
compete directly with national full-service broker-dealers, investment banking
firms, and commercial banks and, to a lesser extent, with discount brokers and
dealers and investment advisors. In addition, we face competition from new
entrants into the market and increased use of alternative sales channels by
other firms. Domestic commercial banks and investment banking boutique firms
have entered the broker-dealer business, and large international banks have
begun serving our markets as well. Legislative and regulatory initiatives
intended to ease restrictions on the sale of securities and underwriting
activities by commercial banks have increased competition. We also compete
indirectly for investment assets with insurance companies, real estate firms,
hedge funds and others. This increased competition could cause our business to
suffer.



The
industry of electronic and/or discount brokerage services is continuing to
develop. Increased competition from firms using new technology to deliver these
products and services may materially and adversely affect our operating results
and financial position. Competitors offering internet-based or other electronic
brokerage services may have lower costs and offer their customers more
attractive pricing and more convenient services than we do. In addition, we
anticipate additional competition from underwriters who conduct offerings of
securities through electronic distribution channels, bypassing financial
intermediaries such as us altogether. These and other competitive pressures may
have an adverse affect on our competitive position and, as a result, our
operations, financial condition and liquidity.




17











Regulatory and legal developments could adversely affect our business and
financial condition.



The
financial services industry is subject to extensive regulation and
broker-dealers and investment advisors are subject to regulations covering all
aspects of the securities business. We could be subject to civil liability,
criminal liability, or sanctions, including revocation of our subsidiaries'
registrations as investment advisors or broker-dealers, revocation of the
licenses of our financial advisors, censures, fines, or a temporary suspension
or permanent bar from conducting business, if we violate such laws or
regulations. Any such liability or sanction could have a material adverse effect
on our business, financial condition and prospects. Moreover, our independent
contractor subsidiaries, CSA and SN Ltd give rise to a potentially higher risk
of noncompliance because of the nature of the independent contractor
relationships involved.



As a bank
holding company, we are subject to regulation by the Federal Reserve. Stifel
Bank is subject to regulation by the FDIC. As a result, we are subject to a risk
of loss resulting from failure to comply with banking laws. The recent economic
and political environment has caused regulators to increase their focus on the
regulation of the financial services industry, including introducing proposals
for new legislation. We are unable to predict whether any of these proposals
will be implemented and in what form, or whether any additional or similar
changes to statutes or regulations, including the interpretation or
implementation thereof, will occur in the future. Any such action could affect
us in substantial and unpredictable ways and could have an adverse effect on our
business, financial condition and results of operations. We also may be
adversely affected as a result of changes in federal, state or foreign tax laws,
or by changes in the interpretation or enforcement of existing laws and
regulations.  For additional information regarding our
regulatory environment and our approach to managing regulatory risk, see Item 1
"Business - Regulation" and Item 7A "Quantitative and Qualitative Disclosures
About Market Risk."




Our
company and its subsidiaries are named in and subject to various proceedings and
claims arising primarily from our securities business activities, including
lawsuits, arbitration claims, class actions, and regulatory matters. Some of
these claims seek substantial compensatory, punitive, or indeterminate damages.
Our company and its subsidiaries are also involved in other reviews,
investigations and proceedings by governmental and self-regulatory organizations
regarding our business which may result in adverse judgments, settlements,
fines, penalties, injunctions and other relief.  



The
regulatory investigations include inquiries from the SEC, FINRA and several
state regulatory authorities requesting information concerning our activities
with respect to auction rate securities ("ARS") and in connection with certain
investments made by other post-employment benefit ("OPEB") trusts formed by five
Southwestern Wisconsin school districts.



In
turbulent economic times such as these, the volume of claims and amount of
damages sought in litigation and regulatory proceedings against financial
institutions has historically increased. These risks include potential liability
under securities and other laws for alleged materially false or misleading
statements made in connection with securities offerings and other transactions,
issues related to the suitability of our investment advice based on our clients'
investment objectives, and potential liability for other advice we provide to
participants in strategic transactions. Legal actions brought against us may
result in judgments, settlements, fines, penalties or other results, any of
which could materially adversely affect our business, financial condition or
results of operations, or cause us serious reputational harm.



For a
discussion of our legal matters, including ARS and OPEB litigation, and our
approach to managing legal risk, see Item 3, "Legal Proceedings" and Item 7A,
"Quantitative and Qualitative Disclosures About Market Risk."




18










Failure to comply with regulatory
capital requirements would significantly harm our business.



The SEC
requires broker-dealers to maintain adequate regulatory capital in relation to
their liabilities and the size of their customer business. These rules require
Stifel Nicolaus and CSA, our broker-dealer subsidiaries, to maintain a
substantial portion of their assets in cash or highly liquid investments.
Failure to maintain the required net capital may subject our broker-dealer
subsidiaries to limitations on their activities, or in extreme cases, suspension
or revocation of their registration by the SEC and suspension or expulsion by
FINRA and other regulatory bodies, and, ultimately, liquidation. Our
international subsidiary, SN Ltd, is subject to similar limitations under
applicable laws in the United Kingdom. Failure to comply with the net capital
rules could have material and adverse consequences, such as:




In
addition, a change in the net capital rules or the imposition of new rules
affecting the scope, coverage, calculation, or amount of net capital
requirements, or a significant operating loss or any large charge against net
capital, could have similar adverse effects. In addition, as a bank holding
company, we and our bank subsidiary are subject to various regulatory
requirements administered by the federal banking agencies, including capital
adequacy requirements pursuant to which we and our bank subsidiary must meet
specific capital guidelines that involve quantitative measures of assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. See Item 1 "Business - Regulation" for additional
information regarding our regulatory environment.




We have experienced significant pricing
pressure in areas of our business, which may impair our revenues and
profitability.



In recent
years, our business has experienced significant pricing pressures on trading
margins and commissions in fixed income and equity trading. In the fixed income
market, regulatory requirements have resulted in greater price transparency,
leading to increased price competition and decreased trading margins. In the
equity market, we have experienced increased pricing pressure from institutional
clients to reduce commissions, and this pressure has been augmented by the
increased use of electronic and direct market access trading, which has created
additional competitive downward pressure on trading margins. The trend towards
using alternative trading systems is continuing to grow, which may result in
decreased commission and trading revenue, reduce our participation in the
trading markets and our ability to access market information, and lead to the
creation of new and stronger competitors. Institutional clients also have
pressured financial services firms to alter "soft dollar" practices under which
brokerage firms bundle the cost of trade execution with research products and
services. Some institutions are entering into arrangements that separate (or
"unbundle") payments for research products or services from sales commissions.
These arrangements have increased the competitive pressures on sales commissions
and have affected the value our clients place on high-quality research.
Additional pressure on sales and trading revenue may impair the profitability of
our business. Moreover, our inability to reach agreement regarding the terms of
unbundling arrangements with institutional clients who are actively seeking such
arrangements could result in the loss of those clients, which would likely
reduce our institutional commissions. We believe that price competition and
pricing pressures in these and other areas will continue as institutional
investors continue to reduce the amounts they are willing to pay, including by
reducing the number of brokerage firms they use, and some of our competitors
seek to obtain market share by reducing fees, commissions or margins.



Our underwriting and market-making
activities place our capital at risk.



We may
incur losses and be subject to reputational harm to the extent that, for any
reason, we are unable to sell securities we purchased as an underwriter at the
anticipated price levels. As an underwriter, we also are subject to heightened
standards regarding liability for material misstatements or omissions in
prospectuses and other offering documents relating to offerings we underwrite.
As a market maker, we may own large positions in specific securities, and these
undiversified holdings concentrate the risk of market fluctuations and may
result in greater losses than would be the case if our holdings were more
diversified.




19










Our ability to attract, develop and
retain highly skilled and productive employees is critical to the success of our
business.



Our
people are our most valuable asset. Our ability to develop and retain our client
base and to obtain investment banking and advisory engagements depends upon the
reputation, judgment, business generation capabilities and project execution
skills of highly skilled and often highly specialized employees, including our
executive officers. The unexpected loss of services of any of these key
employees and executive officers, or the inability to recruit and retain highly
qualified personnel in the future, could have an adverse effect on our business
and results of operations.



Financial
advisors typically take their clients with them when they leave us to work for a
competitor. From time to time, in addition to financial advisors, we have lost
equity research, investment banking, public finance, institutional sales and
trading professionals, and in some cases, clients, to our competitors.




Competition for personnel within the financial services industry is intense. The
cost of retaining skilled professionals in the financial services industry has
escalated considerably, as competition for these professionals has intensified.
Employers in the industry are increasingly offering guaranteed contracts,
upfront payments, and increased compensation. These can be important factors in
a current employee's decision to leave us as well as a prospective employee's
decision to join us. As competition for skilled professionals in the industry
increases, we may have to devote more significant resources to attracting and
retaining qualified personnel. In particular, our financial results may be
adversely affected by the amortization costs incurred by us in connection with
the upfront loans we offer to financial advisors.




Moreover,
companies in our industry whose employees accept positions with competitors
frequently claim that those competitors have engaged in unfair hiring practices.
We are currently subject to several such claims and may be subject to additional
claims in the future as we seek to hire qualified personnel, some of whom may
currently be working for our competitors. Some of these claims may result in
material litigation. We could incur substantial costs in defending ourselves
against these claims, regardless of their merits. Such claims could also
discourage potential employees who currently work for our competitors from
joining us.



We may recruit financial advisors, make
strategic acquisitions of businesses, or divest or exit existing businesses,
which could cause us to incur unforeseen expenses and have disruptive effects on
our business and may strain our resources.



Our
growth strategies have included, and will continue to include, the recruitment
of financial advisors and strategic acquisitions. Since December 2005, we have
completed six acquisitions: LM Capital Markets in 2005, the private client
business of MJSK in 2006, Ryan Beck and First Service in 2007, Butler Wick in
2008 and certain branches from the UBS Wealth Management Americas branch network
in 2009. These acquisitions or any acquisition that we determine to pursue will
be accompanied by a number of risks. The growth of our business and expansion of
our client base has strained, and may continue to strain, our management and
administrative resources. Costs or difficulties relating to such transactions,
including integration of financial advisors, and other employees, products and
services, technology systems, accounting systems and management controls, may be
greater than expected. Unless offset by a growth of revenues, the costs
associated with these investments will reduce our operating margins. In
addition, because, as noted above, financial professionals typically take their
clients with them when they leave, if key employees or other senior management
personnel of the businesses we have acquired determine that they do not wish to
remain with our company over the long term or at all, we would not inherit
portions of the client base of those businesses, which would reduce the value of
those acquisitions to us.



In
addition to past growth, we cannot assure investors that we will be able to
manage our future growth successfully. The inability to do so could have a
material adverse effect on our business, financial condition and results of
operations. After we announce or complete any given acquisition in the future,
our share price could decline if investors view the transaction as too costly or
unlikely to improve our competitive position. We may be unable to retain key
personnel after any such transaction, and the transaction may impair
relationships with customers and business partners. These difficulties could
disrupt our ongoing business, increase our expenses and adversely affect our
operating results and financial condition. In addition, we may be unable to
achieve anticipated benefits and synergies from any such transaction as fully as
expected or within the expected time frame. Divestitures or elimination of
existing businesses or products could have similar effects.




20










Moreover,
to the extent we pursue increased expansion to different geographic markets or
grow generally through additional strategic acquisitions, we cannot assure you
that we will identify suitable acquisition candidates, that acquisitions will be
completed on acceptable terms or that we will be able to successfully integrate
the operations of any acquired business into our existing business. Such
acquisitions could be of significant size and involve firms located in regions
of the United States where we do not currently operate, or internationally. To
acquire and integrate a separate organization would further divert management
attention from other business activities. This diversion, together with other
difficulties we may encounter in integrating an acquired business, could have a
material adverse effect on our business, financial condition and results of
operations. In addition, we may need to borrow money to finance acquisitions,
which would increase our leverage. Such funds might not be available on terms as
favorable to us as our current borrowing terms or at all.



The rapid growth of Stifel Bank may expose us to
increased operational risk, credit risk and sensitivity to market interest rates
along with increased regulation, examinations and supervision by regulators.





We have experienced rapid growth in the balance
sheet of Stifel Bank. The increase is primarily attributable to the growth in
securities-based loans and deposits as a result of the UBS acquisition. Although
our stock-secured loans are collateralized by assets held in brokerage accounts,
we are exposed to some credit and operational risk associated with these loans.
We describe some of the integration related operational risks associated with
our recent acquisitions above, which includes many of the same risks related to
the growth of Stifel Bank. With the increase in deposits, and resulting
liquidity, we have been able to expand our investment portfolio, primarily with
government agency securities In addition, Stifel Bank has significantly grown
its mortgage banking business. Although we believe we have adequate underwriting
policies in place, there are inherent risks associated with the mortgage banking
business. For further discussion of our segments, including our Stifel Bank
reporting unit, see Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Segment Analysis."




As a result of the high percentage of our assets
and liabilities that are in the form of interest-bearing or interest-related
instruments, we are more sensitive to changes in interest rates, in the shape of
the yield curve or in relative spreads between market interest rates.





The monetary, tax and other policies of the
government and its agencies, including the Federal Reserve, have a significant
impact on interest rates and overall financial market performance. An important
function of the Federal Reserve is to regulate the national supply of bank
credit and market interest rates. The actions of the Federal Reserve influence
the rates of interest that we charge on loans and that we pay on borrowings and
interest-bearing deposits, which may also affect the value of our on-balance
sheet and off-balance sheet financial instruments. We cannot predict the nature
or timing of future changes in monetary, tax and other policies or the effect
that they may have on our activities and results of operations.  



In addition, Stifel Bank is heavily regulated at
the state and federal level. This regulation is to protect depositors, federal
deposit insurance funds, consumers and the banking system as a whole, not our
stockholders. Federal and state regulations can significantly restrict our
businesses, and we are subject to various regulatory actions which could include
fines, penalties or other sanctions for violations of laws and regulatory rules
if we are ultimately found to be out of compliance.



Our risk management policies and
procedures may leave us exposed to unidentified or unanticipated risk.



We seek
to manage, monitor and control our operational, legal and regulatory risk
through operational and compliance reporting systems, internal controls,
management review processes and other mechanisms; however, there can be no
assurance that our procedures will be fully effective. Further, our risk
management methods are based on an evaluation of information regarding markets,
clients and other matters that are based on assumptions that may no longer be
accurate. In addition, we have undergone significant growth in recent years. A
failure to adequately manage our growth, or to effectively manage our risk,
could materially and adversely affect our business and financial condition. We
must also address potential conflicts of interest that arise in our business. We
have procedures and controls in place to address conflicts of interest, but
identifying and managing potential conflicts of interest can be complex and
difficult and our reputation could be damaged if we fail, or appear to fail, to
deal appropriately with conflicts of interest. See Item 7A, "Quantitative and
Qualitative Disclosures About Market Risk" for more information on how we
monitor and manage market and certain other risks.  




21










We continually encounter technological
change, and we may have fewer resources than many of our competitors to continue
to invest in technological improvements, which are important to attract and
retain financial advisors.



We rely
extensively on electronic data processing and communications systems. Adapting
or developing our technology systems to meet new regulatory requirements, client
needs and industry demands is critical for our business. Introduction of new
technologies present new challenges on a regular basis. In addition to better
serving our clients, the effective use of technology increases efficiency and
enables our company to reduce costs. Our future success will depend in part upon
our ability to successfully maintain and upgrade our systems and our ability to
address the needs of our clients by using technology to provide products and
services that will satisfy their demands for convenience, as well as to create
additional efficiencies in our operations. Many of our competitors have
substantially greater resources to invest in technological improvements. We
cannot assure you that we will be able to effectively upgrade our systems,
implement new technology-driven products and services or be successful in
marketing these products and services to our clients.



Our operations and infrastructure and
those of the service providers upon which we rely may malfunction or fail.



Our
business is highly dependent on our ability to process, on a daily basis, a
large number of transactions across diverse markets, and the transactions we
process have become increasingly complex. The inability of our systems to
accommodate an increasing volume of transactions could also constrain our
ability to expand our businesses. If any of these systems do not operate
properly or are disabled, or if there are other shortcomings or failures in our
internal processes, people or systems, we could suffer impairments, financial
loss, a disruption of our businesses, liability to clients, regulatory
intervention or reputational damage.



We have
outsourced certain aspects of our technology infrastructure, including trade
processing, data centers, disaster recovery systems, and wide area networks, as
well as market data servers, which constantly broadcast news, quotes, analytics,
and other important information to the desktop computers of our financial
advisors. We contract with other vendors to produce, batch, and mail our
confirmations and customer reports. We are dependent on our technology providers
to manage and monitor those functions. A disruption of any of the outsourced
services would be out of our control and could negatively impact our business.
We have experienced disruptions on occasion, none of which has been material to
our operations and results. However, there can be no guarantee that future
disruptions with these providers will not occur.



We also
face the risk of operational failure, termination or capacity constraints of any
of the clearing agents, exchanges, clearing houses or other financial
intermediaries we use to facilitate our securities transactions. Any such
failure or termination could adversely affect our ability to effect transactions
and to manage our exposure to risk.



Our
operations also rely on the secure processing, storage and transmission of
confidential and other information in our computer systems and networks.
Although we take protective measures and endeavor to modify them as
circumstances warrant, our computer systems, software and networks may be
vulnerable to unauthorized access, computer viruses or other malicious code and
other events that could have a security impact. If one or more of such events
occur, this could jeopardize our or our clients' or counterparties' confidential
and other information processed, stored in and transmitted through our computer
systems and networks, or otherwise cause interruptions or malfunctions in our,
our clients', our counterparties' or third parties' operations which could
result in significant losses or reputational damage. We may be required to
expend significant additional resources to modify our protective measures, to
investigate and remediate vulnerabilities or other exposures or to make required
notifications, and we may be subject to litigation and financial losses that are
either not insured or not fully covered through any insurance maintained by us.




22










We may suffer losses if our reputation
is harmed.



Our
ability to attract and retain customers and employees may be adversely affected
to the extent our reputation is damaged. If we fail to deal with, or appear to
fail to deal with, various issues that may give rise to reputational risk, we
could harm our business prospects. These issues include, but are not limited to,
appropriately dealing with potential conflicts of interest, legal and regulatory
requirements, ethical issues, money-laundering, privacy, record-keeping, sales
and trading practices, and the proper identification of the legal, reputational,
credit, liquidity and market risks inherent in our products. Failure to
appropriately address these issues could also give rise to additional legal risk
to us, which could, in turn, increase the size and number of claims and damages
asserted against us or subject us to regulatory enforcement actions, fines, and
penalties.



Our current stockholders may experience
dilution in their holdings if we issue additional shares of common stock as a
result of future offerings or acquisitions where we use our common stock.



As part
of our business strategy, we may continue to seek opportunities for growth
through strategic acquisitions, in which we may consider issuing equity
securities as part of the consideration. Additionally, we may obtain additional
capital through the public or private sale of equity securities. If we sell
equity securities, the value of our common stock could experience dilution.
Furthermore, these securities could have rights, preferences and privileges more
favorable than those of the common stock.  Moreover, if we issue additional
shares of common stock in connection with future acquisitions or as a result of
a financing, investors ownership interest in our company will be diluted.



The
issuance of any additional shares of common stock or securities convertible into
or exchangeable for common stock or that represent the right to receive common
stock, or the exercise of such securities, could be substantially dilutive to
stockholders of our common stock. Holders of our shares of common stock have no
preemptive rights that entitle holders to purchase their pro rata share of any
offering of shares of any class or series and, therefore, such sales or
offerings could result in increased dilution to our stockholders. The market
price of our common stock could decline as a result of sales of shares of our
common stock or securities convertible into or exchangeable for common stock.



We are subject to an increased risk of
legal proceedings, which may result in significant losses to us that we cannot
recover. Claimants in these proceedings may be customers, employees, or
regulatory agencies, among others, seeking damages for mistakes, errors,
negligence or acts of fraud by our employees.



Many
aspects of our business subject us to substantial risks of potential liability
to customers and to regulatory enforcement proceedings by state and federal
regulators. Participants in the financial services industry face an increasing
amount of litigation and arbitration proceedings. Dissatisfied clients regularly
make claims against broker-dealers and their employees for, among others,
negligence, fraud, unauthorized trading, suitability, churning, failure to
supervise, breach of fiduciary duty, employee errors, intentional misconduct,
unauthorized transactions by financial advisors or traders, improper recruiting
activity, and failures in the processing of securities transactions. These types
of claims expose us to the risk of significant loss. Acts of fraud are difficult
to detect and deter, and while we believe our supervisory procedures are
reasonably designed to detect and prevent violations of applicable laws, rules
and regulations, we cannot assure investors that our risk management procedures
and controls will prevent losses from fraudulent activity. In our role as
underwriter and selling agent, we may be liable if there are material
misstatements or omissions of material information in prospectuses and other
communications regarding underwritten offerings of securities. At any point in
time, the aggregate amount of existing claims against us could be material.
While we do not expect the outcome of any existing claims against us to have a
material adverse impact on our business, financial condition, or results of
operations, we cannot assure you that these types of proceedings will not
materially and adversely affect our company. We do not carry insurance that
would cover payments regarding these liabilities, with the exception of fidelity
coverage with respect to certain fraudulent acts of our employees. In addition,
our by-laws provide for the indemnification of our officers, directors, and
employees to the maximum extent permitted under Delaware law. In the future, we
may be the subject of indemnification assertions under these documents by our
officers, directors or employees who have or may become defendants in
litigation. These claims for indemnification may subject us to substantial risks
of potential liability.  For a discussion of our legal matters (including ARS
and OPBE litigation) and our approach to managing legal risk, see Item 3, "Legal
Proceedings."  



23










In
addition to the foregoing financial costs and risks associated with potential
liability, the costs of defending litigation and claims has increased over the
last several years. The amount of outside attorneys' fees incurred in connection
with the defense of litigation and claims could be substantial and might
materially and adversely affect our results of operations as such fees occur.
Securities class action litigation in particular is highly complex and can
extend for a protracted period of time, thereby substantially increasing the
costs incurred to resolve this litigation.




Misconduct by our employees or by the
employees of our business partners could harm us and is difficult to detect and
prevent.



There
have been a number of highly publicized cases involving fraud or other
misconduct by employees in the financial services industry in recent years, and
we run the risk that employee misconduct could occur at our company. For
example, misconduct could involve the improper use or disclosure of confidential
information, which could result in regulatory sanctions and serious reputational
or financial harm. It is not always possible to deter misconduct and the
precautions we take to detect and prevent this activity may not be effective in
all cases. Our ability to detect and prevent misconduct by entities with which
we do business may be even more limited. We may suffer reputational harm for any
misconduct by our employees or those entities with which we do business.



Provisions in our certificate of
incorporation and bylaws and of Delaware law may prevent or delay an acquisition
of our company, which could decrease the market value of our common stock.





Our
articles of incorporation and bylaws and Delaware law contain provisions that
are intended to deter abusive takeover tactics by making them unacceptably
expensive to prospective acquirors and to encourage prospective acquirors to
negotiate with our board of directors rather than to attempt a hostile takeover.
These provisions include giving the board of directors authority to issue,
without further action or approval of the stockholders, additional shares of
common stock to the public, thereby increasing the number of shares that would
have to be acquired to effect a change in control of our company. Delaware law
also imposes some restrictions on mergers and other business combinations
between us and any holder of 15% or more of our outstanding common stock. We
believe these provisions protect our stockholders from coercive or otherwise
unfair takeover tactics by requiring potential acquirors to negotiate with our
board of directors and by providing our board of directors with more time to
assess any acquisition proposal. These provisions are not intended to make our
company immune from takeovers. However, these provisions apply even if the offer
may be considered beneficial by some stockholders and could delay or prevent an
acquisition that our board of directors determines is not in the best interests
of our company and our stockholders.  




ITEM 1B. 


UNRESOLVED STAFF COMMENTS

None.

24










ITEM 2.  


PROPERTIES



The following
table sets forth the location, approximate square footage and use of each of the
principal properties used by our company during the year ended December 31,
2009. On December 30, 2009, Stifel Bank
entered into a Branch Purchase and Assumption Agreement providing for the sale
of a branch office. The transaction, which is subject to regulatory
approvals and certain closing conditions, is expected to be completed during the
first quarter of 2010. See Note 4 of the Notes to Consolidated Financial
Statements for further information regarding our sale of the branch office.
We lease or
sublease all of these properties with the exception of the Stifel Bank branch,
where we own the building and lease the land. All properties are leased under
operating leases. Such leases expire at various times through 2020, with the
exception of the land lease, which with the exercise of an existing option
expires in 2014. The annual base rent expense (including operating expenses,
property taxes and assessments, as applicable) for all facilities is currently
$43.5 million and is subject to annual adjustments as well as changes in
interest rates.


	
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Location
		
		

		 
		
		

		Approximate Square Footage
		
		

		 
		
		


		Use
	
	
		
		


		One Financial Plaza



		501 North Broadway


		St. Louis,
		Missouri 63102
		
		

		 
		
		


		127,000

		
		

		 
		
		


		Headquarters and administrative offices of Stifel Nicolaus and Global
		Wealth Management operations (including CSA).

		
	
	
		
		


		One South Street



		Baltimore, Maryland 21202
		
		

		 
		
		


		76,000

		
		
		

		 
		
		


		Capital Markets operations and Administrative offices.

		
	
	
		
		


		237 Park Avenue



		New York, New York 10017
		
		

		 
		
		


		60,000

		
		
		

		 
		
		


		Global Wealth Management and Capital Markets operations.
	
	
		
		


		18 Columbia Turnpike Florham Park, New Jersey 07932
		
		

		 
		
		


		50,000

		
		
		

		 
		
		


		Global Wealth Management and Capital Markets operations.

	
	
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	



We also maintain
operations in 294 branch offices in various locations throughout the United
States and in certain foreign countries, primarily for our broker-dealer
business. Our Global Wealth Management segment leases 272 offices which are
primarily concentrated in the Midwest and Mid-Atlantic regions with a growing
presence in the Northeast, Southeast and Western United States. Our Capital
Markets segment leases 20 offices in the United States and certain foreign
locations. In addition, Stifel Bank leases two locations in the St. Louis area
for its administrative offices and branch operations. We believe that, at the
present time, the facilities are suitable and adequate to meet our needs and
that such facilities have sufficient productive capacity and are appropriately
utilized.



Leases for the
branch offices of CSA, our independent contractor firm, are the responsibility
of the respective independent financial advisors. The Geneva and Madrid Capital
Markets branch offices are the responsibility of the respective consultancies
associated with SN Ltd.



See Note 18 of the
Notes to Consolidated Financial Statements for further information regarding our
lease obligations.



25










ITEM 3. 


LEGAL
PROCEEDINGS



Our
company and its subsidiaries are named in and subject to various proceedings and
claims arising primarily from our securities business activities, including
lawsuits, arbitration claims, class actions, and regulatory matters. Some of
these claims seek substantial compensatory, punitive, or indeterminate damages.
Our company and its subsidiaries are also involved in other reviews,
investigations and proceedings by governmental and self-regulatory organizations
regarding our business, which may result in adverse judgments, settlements,
fines, penalties, injunctions and other relief.  We are contesting the
allegations in these claims, and we believe that there are meritorious defenses
in each of these lawsuits, arbitrations and regulatory investigations. In view
of the number and diversity of claims against the company, the number of
jurisdictions in which litigation is pending and the inherent difficulty of
predicting the outcome of litigation and other claims, we cannot state with
certainty what the eventual outcome of pending litigation or other claims will
be. In our opinion, based on currently available information, review with
outside legal counsel, and consideration of amounts provided for in our
consolidated financial statements with respect to these matters, the ultimate
resolution of these matters will not have a material adverse impact on our
financial position. However, resolution of one or more of these matters may have
a material effect on the results of operations in any future period, depending
upon the ultimate resolution of those matters and depending upon the level of
income for such period.



The
regulatory investigations include inquiries from the SEC, FINRA and several
state regulatory authorities requesting information concerning our activities
with respect to auction rate securities ("ARS"), and inquiries from the SEC and
a state regulatory authority requesting information relating to our role in
investments made by five Southeastern Wisconsin school districts (the "school
districts") in transactions involving collateralized debt obligations ("CDOs").
We intend to cooperate fully with the SEC, FINRA and the several states in these
investigations.



On or about December 28, 2009, an
agreement in principle was reached between the State of Missouri, the State of
Indiana, the State of Colorado and with an association of other State securities
regulatory authorities related to previously disclosed ARS matters. The
agreement provided, among other things: for the dismissal with prejudice of all
actions filed against Stifel Nicolaus and its agents; for the modification of
the previously disclosed ARS repurchase offer; for the payment of: five hundred
and twenty five thousand dollars for fines and penalties to state securities
regulatory authorities; two hundred and fifty thousand dollars to the State of
Missouri for costs, expenses and other payments; twenty five thousand dollars to
the State of Indiana for costs of investigation; for the retention of an outside
consultant not unacceptable to the Missouri and Indiana Securities Commissioners
concerning Stifel Nicolaus' Supervisory Policies and Procedures regarding
certain types of investment products; and, subject to applicable regulatory
requirements and limitations, for Stifel Nicolaus to cooperate with its bank
affiliate to use its best efforts to make no net cost loans to Eligible ARS
investors, provided such investors have a demonstrated need for liquidity.



As part of the modified ARS repurchase offer we
have accelerated the previously disclosed repurchase plan. The second repurchase
from Eligible ARS investors of the greater of 10% or twenty five thousand
dollars of Eligible ARS, originally planned for June 30, 2010, was completed in
January 2010. We will follow up with similar repurchases in December 2010 and
December 2011. The accelerated plan exceeds the initial target date for
completing the voluntary repurchase program - June 2012 - by six months. A
supplemental repurchase will be made of any Eligible ARS remaining after the one
in December 2010 for Eligible ARS investors who held ARS totaling one hundred
and fifty thousand dollars or less as of January 1, 2009.



We are
named in a civil lawsuit filed in the United States District Court for the
Eastern District of Missouri (the "Missouri Federal Court") on August 8, 2008
seeking class action status for investors who purchased and continue to hold ARS
offered for sale between June 11, 2003 and February 13, 2008, the date when most
auctions began to fail and the auction market froze, which alleges
misrepresentation about the investment characteristics of ARS and the auction
markets (the "ARS Class Action"). We believe that, based upon currently
available information and review with outside counsel, we have meritorious
defenses to this lawsuit, and intend to vigorously defend all claims asserted
therein. Furthermore, approximately 97% of the Eligible ARS investors have
agreed to participate in the ARS repurchase offer.



26










We are
also named in a civil lawsuit filed in the Circuit Court of Milwaukee, Wisconsin
(the "Wisconsin State Court") on September 29, 2008. The lawsuit has been filed
against our company and Stifel Nicolaus, Royal Bank of Canada Europe Ltd. ("RBC")
and certain other RBC entities (collectively the "Defendants") by the school
districts and the individual trustees for other post-employment benefit ("OPEB")
trusts established by those school districts (the "Plaintiffs"). The suit was
removed to the United States District Court for the Eastern District of
Wisconsin (the "Wisconsin Federal Court") on October 31, 2008, which remanded
the case to the Wisconsin State Court on April 10, 2009.  



The suit
arises out of the purchase of certain CDOs by the OPEB trusts. The RBC entities
structured and served as "arranger" for the CDOs. We served as placement
agent/broker in connection with the OPEB trusts' purchase of the investments.
The total amount of the investments made by the OPEB trusts was $200.0 million.
Plaintiffs assert that the school districts contributed $37.5 million to the
OPEB trusts to purchase the investments. The balance of $162.5 million used to
purchase the investments was borrowed by the OPEB trusts from Depfa Bank. The
recourse of the lender is each of the OPEB trusts' respective assets and the
moral obligations of each school district. The legal claims asserted include
violation of the Wisconsin Securities Act, fraud and negligence. The lawsuit
seeks equitable relief, unspecified compensatory damages, treble damages,
punitive damages and attorney's fees and costs. The Plaintiffs claim that the
RBC entities and our company either made misrepresentations or failed to
disclose material facts in connection with the sale of the CDOs in violation of
the Wisconsin Securities Act. We believe the Plaintiffs reviewed and understood
the relevant offering materials and that the investments were suitable based
upon, among other things, our receipt of written acknowledgement of risks from
each of the Plaintiffs. The Wisconsin State Court recently denied the
Defendants' motions to dismiss, and the Defendants will formally respond to the
allegations of the Second Amended Complaint. We believe, based upon currently
available information and review with outside counsel, that we have meritorious
defenses to this lawsuit, and intend to vigorously defend all of the Plaintiffs'
claims.



ITEM 4. 



SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



No matters were
submitted to a vote of security holders during the quarter ended December 31,
2009.



27










PART II




 



ITEM 5.   
MARKET FOR REGISTRANT'S
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES



Market Information



Our common stock
is traded on the New York Stock Exchange and Chicago Stock Exchange under the
symbol "SF." The closing sale price of our common stock as reported on the New
York Stock Exchange on February 1, 2010 was $52.88 As of that date; our common
stock was held by approximately 10,000 shareholders. The following table sets
forth for the periods indicated the high and low trades for our common stock (as
adjusted for the three-for-two stock split in June 2008):


	
		
		


		 
		
		

		2009
		
		

		 
		
		

		2008
		
		

		 
	
	
		
		


		 
		
		

		High
		
		

		 
		
		

		Low
		
		

		 
		
		

		High
		
		

		 
		
		

		Low
		
		

		 
	
	
		
		

		First quarter
		
		

		$
		
		


		48.41
		
		


		 
		
		

		$
		
		


		29.13
		
		

		 
		
		

		$
		
		


		35.02
		
		

		 
		
		

		$
		
		


		24.67
		
		

		 
	
	
		
		

		Second quarter
		
		

		$
		
		


		52.33
		
		


		 
		
		

		$
		
		


		41.00
		
		

		 
		
		

		$
		
		


		39.71
		
		

		 
		
		

		$
		
		


		28.12
		
		

		 
	
	
		
		

		Third quarter
		
		

		$
		
		


		57.23
		
		

		 
		
		

		$
		
		


		43.43
		
		

		 
		
		

		$
		
		


		60.61
		
		

		 
		
		

		$
		
		


		31.56
		
		

		 
	
	
		
		

		Fourth quarter
		
		

		$
		
		


		59.54
		
		


		 
		
		

		$
		
		


		50.76
		
		

		 
		
		

		$
		
		


		50.00
		
		

		 
		
		

		$
		
		


		30.42
		
		

		 
	
	


We did not pay
cash dividends during 2009 or 2008 and do not anticipate paying cash dividends
in the foreseeable future. The payment of dividends on our common stock is
subject to several factors including operating results, financial requirements
of our company, and the availability of funds from our subsidiaries. See Note 20
of the Notes to Consolidated Financial Statements for more information on the
capital restrictions placed on Stifel Bank and our broker-dealer subsidiaries.



Securities
Authorized for Issuance Under Equity Compensation Plans



Information about
securities authorized for issuance under our equity compensation plans is
contained in Item 12 - "Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters."



Issuer Purchases of Equity Securities  




There
were no unregistered sales of equity securities during the quarter ended
December 31, 2009. There were also no purchases made by or on behalf of Stifel
Financial Corp. or any "affiliated purchaser"
(as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of
our common stock during the quarter ended December 31, 2009.
 



We have
an ongoing authorization, as amended, from the Board of Directors to repurchase
our common stock in the open market or in negotiated transactions. In May 2005,
our Board of Directors authorized the repurchase of an additional 3,000,000
shares, for a total authorization to repurchase up to 4,500,000 shares. At
December 31, 2009, the maximum number of shares that may yet be purchased under
this plan was 2,010,831.  



28










Stock Performance Graph



Five-Year
Shareholder Return Comparison



The graph below
compares the cumulative stockholder return on our common stock with the
cumulative total return of a Peer Group Index, the Standard & Poor's 500 Index
("S&P 500") and the Securities Broker-Dealer Index for the five fiscal year
period ending December 31, 2009. The AMEX Securities Broker-Dealer Index
consists of twelve firms in the brokerage sector. The Broker-Dealer Index does
not include our company. The stock price information shown on the graph below is
not necessarily indicative of future price performance.  



The material in
this report is not deemed "filed" with the SEC and is not to be incorporated by
reference into any of our filing under the Securities Act of 1933 or the
Securities Exchange Act of 1934, whether made before or after the date hereof
and irrespective of any general incorporation language in any such filings.



 



29










The following
table and graph assume that $100.00 was invested on December 31, 2004 in our
common stock, the Peer Group Index, the S&P 500 Index and the AMEX Securities
Broker-Dealer Index, with reinvestment of dividends.


	
		
		

		 
		
		
 
		
		

		2005
		
		
 
		
		

		2006
		
		

		 
		
		

		2007
		
		

		 
		
		

		2008
		
		

		 
		
		

		2009
		
		
 
	
	
		
		

		Stifel Financial Corp.
		
		
 
		
		
$
		
		

		179
		
		
 
		
		
$
		
		

		187
		
		

		 
		
		
$
		
		

		251
		
		
 
		
		
$
		
		

		328
		
		
 
		
		
$
		
		

		424
		
		
 
	
	
		
		

		Peer Group
		
		
 
		
		
$
		
		

		110
		
		
 
		
		
$
		
		

		149
		
		

		 
		
		
$
		
		

		150
		
		
 
		
		
$
		
		

		103
		
		
 
		
		
$
		
		

		138
		
		
 
	
	
		
		

		S&P 500 Index
		
		
 
		
		
$
		
		

		105
		
		
 
		
		
$
		
		

		122
		
		

		 
		
		
$
		
		

		128
		
		
 
		
		
$
		
		

		81
		
		
 
		
		
$
		
		

		102
		
		
 
	
	
		
		

		AMEX Securities Broker/Dealer Index
		
		
 
		
		
$
		
		

		129
		
		
 
		
		
$
		
		

		158
		
		

		 
		
		
$
		
		

		136
		
		
 
		
		
$
		
		

		51
		
		
 
		
		
$
		
		

		75
		
		
 
	


 
 







*  Compound annual growth rate.



The Peer Group
Index consists of the following companies that serve the same markets as us and
which compete with us in one or more markets:


	
		
		
 
		
		
 
		
		
 
		
		
 
	
	
		
		

		Oppenheimer Holdings, Inc.
		
		
 
		
		
SWS Group, Inc.
		
		
 
	
	
		
		

		Sanders Morris Harris Group Inc.
		
		
 
		
		
Stifel Financial Corp.
		
		
 
	
	
		
		

		Raymond James Financial, Inc.
		
		
 
		
		
Piper Jaffray Companies
		
		
 
	
	
		
		
 
		
		
 
		
		

		 
		
		
 
	



30










ITEM 6. 


SELECTED FINANCIAL DATA



The following
selected consolidated financial data (presented in thousands, except per share
amounts) is derived from our consolidated financial statements. This data should
be read in conjunction with the consolidated financial statements and notes
thereto, and with Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations."



	
		
			
			

			

			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
		
		
			
			

			

			 
			
			

			 
			
			

			Year Ended December 31,
			
			

			 
		
		
			
			

			

			 
			
			

			 
			
			


			2009
			
			

			 
			
			


			2008
			
			

			 
			
			


			2007
			
			

			 
			
			


			2006
			
			

			 
			
			


			2005
			
			

			 
		
		
			
			

			

			Revenues:
			
			

			 
			
			

			 
			
			


			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
		
		
			
			


			Principal transactions
			
			

			 
			
			

			$
			
			


			458,188
			
			

			 
			
			

			$ 
			
			


			293,285
			
			

			 
			
			


			$ 
			
			


			139,248
			
			

			 
			
			

			$
			
			


			86,365
			
			

			 
			
			

			$
			
			


			44,110
			
			

			 
		
		
			
			


			Commissions
			
			

			 
			
			

			 
			
			


			345,520
			
			

			 
			
			

			 
			
			


			341,090
			
			

			 
			
			

			 
			
			


			315,514
			
			

			 
			
			

			 
			
			


			199,056
			
			

			 
			
			

			 
			
			


			107,976
			
			

			 
		
		
			
			


			Investment banking
			
			

			 
			
			

			 
			
			


			125,807
			
			

			 
			
			

			 
			
			


			83,710
			
			

			 
			
			

			 
			
			


			169,413
			
			

			 
			
			

			 
			
			


			82,856
			
			

			 
			
			

			 
			
			


			55,893
			
			

			 
		
		
			
			


			Asset management and service fees
			
			

			 
			
			

			 
			
			


			112,706
			
			

			 
			
			

			 
			
			


			119,926
			
			

			 
			
			

			 
			
			


			101,610
			
			

			 
			
			

			 
			
			


			57,713
			
			

			 
			
			

			 
			
			


			43,476
			
			

			 
		
		
			
			


			Interest
			
			

			 
			
			

			 
			
			


			46,860
			
			

			 
			
			

			 
			
			


			50,148
			
			

			 
			
			

			 
			
			


			59,071
			
			

			 
			
			

			 
			
			


			35,804
			
			

			 
			
			

			 
			
			


			18,022
			
			

			 
		
		
			
			


			Other income
			
			

			 
			
			

			 
			
			


			13,789
			
			

			 
			
			

			 
			
			


			688
			
			

			 
			
			

			 
			
			


			8,234
			
			

			 
			
			

			 
			
			


			9,594
			
			

			 
			
			

			 
			
			


			533
			
			

			 
		
		
			
			


			Total revenues
			
			

			 
			
			

			 
			
			


			1,102,870
			
			

			 
			
			

			 
			
			


			888,847
			
			

			 
			
			

			 
			
			


			793,090
			
			

			 
			
			

			 
			
			


			471,388
			
			

			 
			
			

			 
			
			


			270,010
			
			

			 
		
		
			
			


			Interest expense
			
			

			 
			
			

			 
			
			


			12,234
			
			

			 
			
			

			 
			
			


			18,510
			
			

			 
			
			

			 
			
			


			30,025
			
			

			 
			
			

			 
			
			


			19,581
			
			

			 
			
			

			 
			
			


			6,275
			
			

			 
		
		
			
			


			Net revenues
			
			

			 
			
			

			 
			
			


			1,090,636
			
			

			 
			
			

			 
			
			


			870,337
			
			

			 
			
			

			 
			
			


			763,065
			
			

			 
			
			

			 
			
			


			451,807
			
			

			 
			
			

			 
			
			


			263,735
			
			

			 
		
		
			
			


			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
		
		
			
			

			

			Non-interest expenses:
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
		
		
			
			


			Compensation and benefits
			
			

			 
			
			

			 
			
			


			718,115
			
			

			 
			
			

			 
			
			


			582,778
			
			

			 
			
			

			 
			
			


			543,021
			
			

			 
			
			

			 
			
			


			329,703
			
			

			 
			
			

			 
			
			


			174,765
			
			

			 
		
		
			
			


			Occupancy and equipment rental
			
			

			 
			
			

			 
			
			


			89,741
			
			

			 
			
			

			 
			
			


			67,984
			
			

			 
			
			

			 
			
			


			57,796
			
			

			 
			
			

			 
			
			


			30,751
			
			

			 
			
			

			 
			
			


			22,625
			
			

			 
		
		
			
			


			Communications and office supplies
			
			

			 
			
			

			 
			
			


			54,745
			
			

			 
			
			

			 
			
			


			45,621
			
			

			 
			
			

			 
			
			


			42,355
			
			

			 
			
			

			 
			
			


			26,666
			
			

			 
			
			

			 
			
			


			12,087
			
			

			 
		
		
			
			


			Commissions and floor brokerage
			
			

			 
			
			

			 
			
			


			23,416
			
			

			 
			
			

			 
			
			


			13,287
			
			

			 
			
			

			 
			
			


			9,921
			
			

			 
			
			

			 
			
			


			6,388
			
			

			 
			
			

			 
			
			


			4,134
			
			

			 
		
		
			
			


			Other operating expenses
			
			

			 
			
			

			 
			
			


			84,205
			
			

			 
			
			

			 
			
			


			68,898
			
			

			 
			
			

			 
			
			


			56,126
			
			

			 
			
			

			 
			
			


			31,930
			
			

			 
			
			

			 
			
			


			17,402
			
			

			 
		
		
			
			


			Total non-interest expenses
			
			

			 
			
			

			 
			
			


			970,222
			
			

			 
			
			

			 
			
			


			778,568
			
			

			 
			
			

			 
			
			


			709,219
			
			

			 
			
			

			 
			
			


			425,438
			
			

			 
			
			

			 
			
			


			231,013
			
			

			 
		
		
			
			

			

			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
		
		
			
			

			

			Income before income tax expense
			
			

			 
			
			

			 
			
			


			120,414
			
			

			 
			
			

			 
			
			


			91,769
			
			

			 
			
			

			 
			
			


			53,846
			
			

			 
			
			

			 
			
			


			26,369
			
			

			 
			
			

			 
			
			


			32,722
			
			

			 
		
		
			
			


			Provision for income taxes
			
			

			 
			
			

			 
			
			


			44,616
			
			

			 
			
			

			 
			
			


			36,267
			
			

			 
			
			

			 
			
			


			21,676
			
			

			 
			
			

			 
			
			


			10,938
			
			

			 
			
			

			 
			
			


			13,078
			
			

			 
		
		
			
			

			

			Net income
			
			

			 
			
			

			$
			
			


			75,798
			
			

			 
			
			

			$
			
			


			55,502
			
			

			 
			
			


			$
			
			


			32,170
			
			

			 
			
			

			$
			
			


			15,431
			
			

			 
			
			

			$
			
			


			19,644
			
			

			 
		
		
			
			


			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
		
		
			
			

			

			Earnings per common share:
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
		
		
			
			


			Basic
			
			

			 
			
			

			$
			
			


			2.68
			
			

			 
			
			

			$
			
			


			2.31
			
			

			 
			
			


			$
			
			


			1.48
			
			

			 
			
			

			$
			
			


			0.89
			
			

			 
			
			

			$
			
			


			1.33
			
			

			 
		
		
			
			


			Diluted
			
			

			 
			
			

			$
			
			


			2.35
			
			

			 
			
			

			$
			
			


			1.98
			
			

			 
			
			


			$
			
			


			1.25
			
			

			 
			
			

			$
			
			


			0.74
			
			

			 
			
			

			$
			
			


			1.04
			
			

			 
		
		
			
			


			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
		
		
			
			

			

			Weighted average number of common shares outstanding:
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
		
		
			
			


			Basic
			
			

			 
			
			

			 
			
			


			28,297
			
			

			 
			
			

			 
			
			


			24,069
			
			

			 
			
			

			 
			
			


			21,754
			
			

			 
			
			

			 
			
			


			17,269
			
			

			 
			
			

			 
			
			


			14,742
			
			

			 
		
		
			
			


			Diluted
			
			

			 
			
			

			 
			
			


			32,294
			
			

			 
			
			

			 
			
			


			28,073
			
			

			 
			
			

			 
			
			


			25,723
			
			

			 
			
			

			 
			
			


			20,863
			
			

			 
			
			

			 
			
			


			18,879
			
			

			 
		
		
			
			

			

			Financial Condition
			
			

			 
			
			

			 
			
			


			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
		
		
			
			


			Total assets
			
			

			 
			
			


			$
			
			


			3,167,356
			
			

			 
			
			

			$
			
			


			1,558,145
			
			

			 
			
			

			$
			
			


			1,499,440
			
			

			 
			
			

			$
			
			


			1,084,774
			
			

			 
			
			

			$
			
			


			842,001
			
			

			 
		
		
			
			


			Long-term obligations
			
			

			 
			
			


			$
			
			


			101,979
			
			

			 
			
			

			$
			
			


			106,860
			
			

			 
			
			

			$
			
			


			124,242
			
			

			 
			
			

			$
			
			


			98,379
			
			

			 
			
			

			$
			
			


			97,182
			
			

			 
		
		
			
			


			Shareholders' equity
			
			

			 
			
			


			$
			
			


			873,446
			
			

			 
			
			

			$
			
			


			593,185
			
			

			 
			
			

			$
			
			


			424,637
			
			

			 
			
			

			$
			
			


			220,265
			
			

			 
			
			

			$
			
			


			155,093
			
			

			 
		
		
			
			


			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
		
	




31










On May 12, 2008,
our Board of Directors approved a 50% stock dividend, in the form of a
three-for-two stock split, of our common stock payable on June 12, 2008 to
stockholders of record as of May 29, 2008. Per share data, for all periods
presented, have been adjusted to give effect to this stock split.



The following
items should be considered when comparing the data from year-to-year: 1) the
continued expansion of our Private Client Group, including the acquisition of
MJSK in December 2006; 2) the acquisition of Ryan Beck in February 2007; 3) the
acquisition of FirstService Bank in April 2007; 4) the acquisition of Butler
Wick on December 31, 2008 and 5) the acquisition of 56 UBS branches during the
third and fourth quarters of 2009. See Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations," made part hereof,
for a discussion of these items and other items that may affect the
comparability of data from year-to-year.

Net income and
earnings per share for the years ended December 31, 2009, 2008, 2007 and 2006
includes the impact of the adoption of accounting guidance related to the
share-based payments for our incentive stock plans. The stock-based compensation
charges recorded in "Compensation and benefits" as a result of the adoption were
not present in 2005. See Note 21 of the Notes to Consolidated Financial
Statements for information regarding employee incentive plans.



32










ITEM 7. 


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS



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 this Annual Report on Form 10-K for the year ended
December 31, 2009.




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.
Through our
broker-dealer subsidiaries located throughout the United States, we provide
securities brokerage services, including the sale of equities, mutual funds,
fixed income products, and insurance, as well as offering banking products to
their private clients through Stifel Bank, which provides

residential, consumer, and commercial lending, as well as FDIC-insured deposit
accounts to customers of our broker-dealer subsidiaries and to the general
public. In
addition, we provide securities brokerage, trading, and research services to
institutions with an emphasis on the sale of equity and fixed income products.
We also manage and participate in underwritings for both corporate and public
finance, merger and acquisition, and financial advisory services.  



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 will continue to look for
opportunities to 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. We completed the acquisition on October 16, 2009.





As a
result of the acquisition, Stifel Nicolaus hired 495 financial advisors and
support staff in these branches and successfully converted approximately 144,000
accounts with approximately $16.2 billion in customer assets, including related
securities-based and margin loans of $207.4 million and $1.7 billion in money
market accounts and FDIC-insured balances to the Stifel Nicolaus platform. 





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. Despite the significant
volatility in the market during the first half of 2009, we began to see signs of
improvement in the capital markets during the third and fourth quarters of 2009.
At December 31, 2009, the key indicators of the markets' performance, the Dow
Jones Industrial Average, the NASDAQ, and the S&P 500 closed 18.8%, 43.9%, and
23.5%, respectively, higher than their December 31, 2008 closing prices. Since
December 31, 2008, we have added 99
private client group offices and 645 financial advisors, including 56 offices
and 321 Financial Advisors from UBS and 17 offices and 67 financial advisors
from Butler Wick, as part of our ongoing footprint expansion efforts.
In addition, we added 64 revenue producing investment bankers, traders,
institutional sales staff and lending officers along with 587 branch and home
office support staff.



33










Results
for the year ended December 31, 2009



For the
year ended December 31, 2009, our net revenues increased 25.3% to a record
$1,090.6 million compared to $870.3 million during the comparable period in
2008, which represents our fourteenth consecutive annual increase in net
revenues. Net income increased 36.6% to a record $75.8 million for the year
ended December 31, 2009 compared to $55.5 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 year ended December 31, 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.



In
addition to the increased market share that has resulted from market upheaval,
we have incurred additional expenses related to increased Securities Investor
Protection Corporation ("SIPC") assessments, higher FDIC premiums, including
special assessments, increased litigation costs due to the failure of certain
financial institutions, and an increase in the cost of growth as we continue our
expansion efforts. These additional costs have reduced our profit margins and
may continue to in the future if our revenue growth does not absorb the
additional costs of operating in the current environment.



On December 28, 2009, we announced that Stifel
Nicolaus had reached an agreement between the State of Missouri, the State of
Indiana, the State of Colorado and with an association of other State securities
regulatory authorities regarding the repurchase of ARS from Eligible ARS
investors. As part of the modified ARS repurchase offer we have accelerated the
previously announced repurchase plan. We have agreed to repurchase ARS from
Eligible ARS investors in four phases starting in January 2010 and ending on
December 31, 2011. During January 2010, we repurchased at par ARS of $21.2
million.
At January 31, 2010, we estimate that
our retail clients held $103.1 million of eligible ARS after issuer redemptions
of $23.5 million and Stifel repurchases of $81.2 million.
See Item 3, "Legal Proceedings," in Part I of this report for further details
regarding ARS claims.



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 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.  




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.



34










Although
we do not engage in 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 SEC, FINRA and several state
regulatory agencies, with which we are cooperating fully. We are also named in a
class action lawsuit similar to those 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 3, "Legal Proceedings," for further
details regarding ARS investigations and claims.



35










RESULTS OF OPERATIONS



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


	
		
		

		 
		
		
 
		
		
 
		
		

		 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		

		 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
	
	
		
		

		 
		
		
 
		
		

		For the Year Ended December 31,
		
		
 
		
		

		Percentage
Change 
		
		
 
		
		
 
		
		

		As a Percentage of
Net Revenues
for the Year Ended
December 31,
		
		
 
	
	
		
		

		 
		
		
 
		
		

		2009
		
		
 
		
		

		2008
		
		
 
		
		

		2007
		
		
 
		
		

		2009 vs. 2008
		
		
 
		
		

		2008 vs. 2007
		
		
 
		
		
 
		
		

		2009
		
		
 
		
		

		2008
		
		
 
		
		

		2007
		
		
 
	
	
		
		

		Revenues:
		
		
 
		
		
 
		
		

		 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		

		 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
	
	
		
		

		Principal transactions
		
		
 
		
		
$
		
		

		458,188
		
		
 
		
		
$
		
		

		293,285
		
		
 
		
		
$
		
		

		139,248
		
		
 
		
		

		56.2
		
		
%
		
		

		110.6
		
		
%
		
		
 
		
		

		42.0
		
		
%
		
		

		33.7
		
		
%
		
		

		18.3
		
		
%
	
	
		
		

		Commissions
		
		
 
		
		
 
		
		

		345,520
		
		
 
		
		
 
		
		

		341,090
		
		
 
		
		
 
		
		

		315,514
		
		
 
		
		

		1.3
		
		
 
		
		

		8.1
		
		
 
		
		
 
		
		

		31.7
		
		
 
		
		

		39.2
		
		
 
		
		

		41.3
		
		
 
	
	
		
		

		Investment banking
		
		
 
		
		
 
		
		

		125,807
		
		
 
		
		
 
		
		

		83,710
		
		
 
		
		
 
		
		

		169,413
		
		
 
		
		

		50.3
		
		
 
		
		

		(50.6
		
		
)
		
		
 
		
		

		11.5
		
		
 
		
		

		9.6
		
		
 
		
		

		22.2
		
		
 
	
	
		
		

		Asset management and service fees
		
		
 
		
		
 
		
		

		112,706
		
		
 
		
		
 
		
		

		119,926
		
		
 
		
		
 
		
		

		101,610
		
		
 
		
		

		(6.0
		
		
)
		
		

		18.0
		
		
 
		
		
 
		
		

		10.3
		
		
 
		
		

		13.8
		
		
 
		
		

		13.3
		
		
 
	
	
		
		

		Interest
		
		
 
		
		
 
		
		

		46,860
		
		
 
		
		
 
		
		

		50,148
		
		
 
		
		
 
		
		

		59,071
		
		
 
		
		

		(6.6
		
		
)
		
		

		(15.1
		
		
)
		
		
 
		
		

		4.3
		
		
 
		
		

		5.7
		
		
 
		
		

		7.7
		
		
 
	
	
		
		

		Other income
		
		
 
		
		
 
		
		

		13,789
		
		
 
		
		
 
		
		

		688
		
		
 
		
		
 
		
		

		8,234
		
		
 
		
		

		*
		
		
 
		
		

		(91.6
		
		
)
		
		
 
		
		

		1.3
		
		
 
		
		

		0.1
		
		
 
		
		

		1.1
		
		
 
	
	
		
		

		Total revenues
		
		
 
		
		
 
		
		

		1,102,870
		
		
 
		
		
 
		
		

		888,847
		
		
 
		
		
 
		
		

		793,090
		
		
 
		
		

		24.1
		
		
 
		
		

		12.1
		
		
 
		
		
 
		
		

		101.1
		
		
 
		
		

		102.1
		
		
 
		
		

		103.9
		
		
 
	
	
		
		

		Interest expense
		
		
 
		
		
 
		
		

		12,234
		
		
 
		
		
 
		
		

		18,510
		
		
 
		
		
 
		
		

		30,025
		
		
 
		
		

		(33.9
		
		
)
		
		

		(38.4
		
		
)
		
		
 
		
		

		1.1
		
		
 
		
		

		2.1
		
		
 
		
		

		3.9
		
		
 
	
	
		
		

		Net revenues
		
		
 
		
		
 
		
		

		1,090,636
		
		
 
		
		
 
		
		

		870,337
		
		
 
		
		
 
		
		

		763,065
		
		
 
		
		

		25.3
		
		
 
		
		

		14.1
		
		
 
		
		
 
		
		

		100.0
		
		
 
		
		

		100.0
		
		
 
		
		

		100.0
		
		
 
	
	
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
	
	
		
		

		Non-interest expenses:
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
	
	
		
		

		Compensation and benefits
		
		
 
		
		
 
		
		

		718,115
		
		
 
		
		
 
		
		

		582,778
		
		
 
		
		
 
		
		

		543,021
		
		
 
		
		

		23.2
		
		
 
		
		

		7.3
		
		
 
		
		
 
		
		

		65.8
		
		
 
		
		

		67.0
		
		
 
		
		

		71.2
		
		
 
	
	
		
		

		Occupancy and equipment rental
		
		
 
		
		
 
		
		

		89,741
		
		
 
		
		
 
		
		

		67,984
		
		
 
		
		
 
		
		

		57,796
		
		
 
		
		

		32.0
		
		
 
		
		

		17.6
		
		
 
		
		
 
		
		

		8.2
		
		
 
		
		

		7.8
		
		
 
		
		

		7.6
		
		
 
	
	
		
		

		Communication and office supplies
		
		
 
		
		
 
		
		

		54,745
		
		
 
		
		
 
		
		

		45,621
		
		
 
		
		
 
		
		

		42,355
		
		
 
		
		

		20.0
		
		
 
		
		

		7.7
		
		
 
		
		
 
		
		

		5.0
		
		
 
		
		

		5.2
		
		
 
		
		

		5.6
		
		
 
	
	
		
		

		Commissions and floor brokerage
		
		
 
		
		
 
		
		

		23,416
		
		
 
		
		
 
		
		

		13,287
		
		
 
		
		
 
		
		

		9,921
		
		
 
		
		

		76.2
		
		
 
		
		

		33.9
		
		
 
		
		
 
		
		

		2.2
		
		
 
		
		

		1.5
		
		
 
		
		

		1.3
		
		
 
	
	
		
		

		Other operating expenses
		
		
 
		
		
 
		
		

		84,205
		
		
 
		
		
 
		
		

		68,898
		
		
 
		
		
 
		
		

		56,126
		
		
 
		
		

		22.2
		
		
 
		
		

		22.8
		
		
 
		
		
 
		
		

		7.8
		
		
 
		
		

		7.9
		
		
 
		
		

		7.4
		
		
 
	
	
		
		

		Total non-interest expenses
		
		
 
		
		
 
		
		

		970,222
		
		
 
		
		
 
		
		

		778,568
		
		
 
		
		
 
		
		

		709,219
		
		
 
		
		

		24.6
		
		
 
		
		

		9.8
		
		
 
		
		
 
		
		

		89.0
		
		
 
		
		

		89.4
		
		
 
		
		

		93.1
		
		
 
	
	
		
		
 
		
		
 
		
		
 
		
		

		 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
	
	
		
		

		Income before income
		taxes
		
		
 
		
		
 
		
		

		120,414
		
		
 
		
		
 
		
		

		91,769
		
		
 
		
		
 
		
		

		53,846
		
		
 
		
		

		31.2
		
		
 
		
		

		70.4
		
		
 
		
		
 
		
		

		11.0
		
		
 
		
		

		10.6
		
		
 
		
		

		6.9
		
		
 
	
	
		
		

		Provision for income taxes
		
		
 
		
		
 
		
		

		44,616
		
		
 
		
		
 
		
		

		36,267
		
		
 
		
		
 
		
		

		21,676
		
		
 
		
		

		23.0
		
		
 
		
		

		67.3
		
		
 
		
		
 
		
		

		4.1
		
		
 
		
		

		4.2
		
		
 
		
		

		2.8
		
		
 
	
	
		
		

		Net income
		
		
 
		
		
$
		
		

		75,798
		
		
 
		
		
$
		
		

		55,502
		
		
 
		
		
$
		
		

		32,170
		
		
 
		
		

		36.6
		
		
%
		
		

		72.5
		
		
%
		
		
 
		
		

		6.9
		
		
%
		
		

		6.4
		
		
%
		
		

		4.1
		
		
%
	
	
		
		

		 
		
		
 
		
		
 
		
		

		 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		

		 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
	
	
		
		

		* Percentage not meaningful.
		
		
 
		
		
 
		
		

		 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		

		 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
	
	
		
		

		 
		
		
 
		
		
 
		
		

		 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		

		 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
	



For the
year ended December 31, 2009, net revenues (total revenues less interest
expense) increased $220.3 million to a record $1,090.6 million; a 25.3% increase
over the $870.3 million recorded for the year ended December 31, 2008, which
represents our fourteenth consecutive annual increase in net revenues. Net
income increased 36.6% to a record $75.8 million for the year ended December 31,
2009 compared to $55.5 million during the comparable period in 2008.



36










NET REVENUES



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


	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		For the Year Ended December 31,
		
		
		
		

		 
		
		

		Percentage Change
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		2009
		
		

		 
		
		


		2008
		
		

		 
		
		


		2007
		
		

		 
		
		

		2009 vs. 2008
		
		

		 
		
		


		2008 vs. 2007
		
		

		 
	
	
		
		


		Revenues:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
	
	
		
		


		Principal transactions
		
		

		 
		
		

		$
		
		


		458,188
		
		

		 
		
		

		$
		
		


		293,285
		
		

		 
		
		

		$
		
		


		139,248
		
		

		 
		
		

		 
		
		

		56.2
		
		


		%
		
		


		 
		
		


		110.6
		
		

		%
	
	
		
		


		Commissions
		
		

		 
		
		


		 
		
		


		345,520
		
		

		 
		
		

		 
		
		


		341,090
		
		

		 
		
		

		 
		
		


		315,514
		
		

		 
		
		

		 
		
		

		1.3
		
		


		 
		
		


		 
		
		


		8.1
		
		

		 
	
	
		
		


		Investment banking:
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
	
	
		
		


		Capital raising
		
		

		 
		
		


		 
		
		


		76,563
		
		

		 
		
		

		 
		
		


		45,205
		
		

		 
		
		

		 
		
		


		95,084
		
		

		 
		
		

		 
		
		

		69.4
		
		


		 
		
		


		 
		
		


		(52.5
		
		

		)
	
	
		
		


		Advisory
		
		

		 
		
		


		 
		
		


		49,244
		
		

		 
		
		

		 
		
		


		38,505
		
		

		 
		
		

		 
		
		


		74,329
		
		

		 
		
		

		 
		
		

		27.9
		
		


		 
		
		


		 
		
		


		(48.2
		
		

		)
	
	
		
		


		 
		
		

		 
		
		


		 
		
		


		125,807
		
		

		 
		
		

		 
		
		


		83,710
		
		

		 
		
		

		 
		
		


		169,413
		
		

		 
		
		

		 
		
		

		50.3
		
		


		 
		
		


		 
		
		


		(50.6
		
		

		)
	
	
		
		


		Asset management and service fees
		
		

		 
		
		


		 
		
		


		112,706
		
		

		 
		
		

		 
		
		


		119,926
		
		

		 
		
		

		 
		
		


		101,610
		
		

		 
		
		

		 
		
		

		(6.0
		
		


		)
		
		


		 
		
		


		18.0
		
		

		 
	
	
		
		


		Net interest
		
		

		 
		
		


		 
		
		


		34,626
		
		

		 
		
		

		 
		
		


		31,638
		
		

		 
		
		

		 
		
		


		29,046
		
		

		 
		
		

		 
		
		

		9.4
		
		


		 
		
		


		 
		
		


		8.9
		
		

		 
	
	
		
		


		Other income
		
		

		 
		
		


		 
		
		


		13,789
		
		

		 
		
		

		 
		
		


		688
		
		

		 
		
		

		 
		
		


		8,234
		
		

		 
		
		

		 
		
		

		*
		
		


		 
		
		


		 
		
		


		(91.6
		
		

		)
	
	
		
		

		Total net revenues
		
		

		 
		
		


		$ 
		
		


		1,090,636
		
		

		 
		
		

		$ 
		
		


		870,337
		
		

		 
		
		

		$
		
		


		763,065
		
		

		 
		
		

		 
		
		

		25.3
		
		


		%
		
		


		 
		
		


		14.1
		
		

		%
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
	
	
		
		


		*     Percentage is not meaningful.
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
	



Year
Ended December 31, 2009 Compared with Year Ended December 31, 2008



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 UBS acquisition 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. The results of operations for the acquired UBS branches are
included in our results prospectively from the date of their respective
conversion. For the year ended December 31, 2009, these business acquisitions
generated net revenues of $23.0 million and $27.1 million, respectively.



Principal transactions - For the year ended December
31, 2009, principal transactions revenue increased 56.2% to $458.2 million from
$293.3 million in the comparable period in 2008. The increase is primarily
attributable to increased principal transactions, primarily in corporate debt,
over-the-counter ("OTC") equity,  mortgage-backed bonds and municipal debt 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, options and mutual funds.  



For the
year ended December 31, 2009, commission revenues increased 1.3% to $345.5
million from $341.1 million in the comparable period in 2008. While the equity
markets began showing signs of improvement during the second half of 2009, the
volatility in capital markets during the first half of 2009 has resulted in
modest revenue growth for the year ended December 31, 2009. The continued
expansion of our private client group through acquisitions and organic growth
has been offset by a decrease in trading volumes, as customers returned to
traditional fixed income products.



37










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
year ended December 31, 2009, investment banking revenues increased 50.3% to
$125.8 million from $83.7 million in the comparable period in 2008.  



Capital
raising revenues increased 69.4% to $76.6 million for the year ended December
31, 2009 from $45.2 million in the comparable period in 2008. Equity and fixed
income capital raising revenues were $52.6 million and $19.9 million,
respectively, an increase of $23.8 million, or 82.6%, and $8.6 million, or
76.2%, respectively, from the comparable period in 2008. During the second half
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 half of 2009 was offset by the challenging market conditions
that began during the second half of 2008 and continued into the first half of
2009.  



Strategic
advisory fees increased 27.9% to $49.2 million for the year ended December 31,
2009 from $38.5 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
year ended December 31, 2009, asset management and service fee revenues
decreased 6.0% to $112.7 million from $119.9 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
year ended December 31, 2009, other income increased $13.1 million to $13.8
million from $0.7 million during the comparable period in 2008. The increase is
primarily attributable to the reduction of investment losses during the year
ended December 31, 2009, offset by the
recognition of other-than-temporary impairment of $1.9 million on our
held-to-maturity debt security.



38










Year
Ended December 31, 2008 Compared with Year Ended December 31, 2007



Except as
noted in the following discussion of variances, the underlying reasons for the
increase in revenue can be attributed principally to the acquisitions of Ryan
Beck and Stifel Bank in 2007 and the increased number of private client group
offices and financial advisors. Ryan Beck's and Stifel Bank's results of
operations are included in our results of operations prospectively from their
respective dates of acquisition of February 28, 2007 and April 2, 2007. As such,
the results of operations for 2007 include only ten months of Ryan Beck's
results of operations and nine months of Stifel Bank's results of operations.
For the year ended December 31, 2008, Ryan Beck contributed $187.8 million in
net revenues and income before income taxes of $26.9 million compared to $180.8
million in net revenues and a loss before income taxes of $14.3 million for the
comparable period in 2007. Stifel Bank contributed $9.6 million in net revenues
and income before income taxes of $0.6 million for the year ended December 31,
2008 compared to $4.8 million in net revenues and $1.0 million in income before
income taxes for the comparable period in 2007.



For the
year ended December 31, 2008, net revenues (total revenues less interest
expense) increased $107.2 million to a record $870.3 million; a 14.1% increase
over the $763.1 million recorded for the year ended December 31, 2007. Net
income increased 72.5% to a record $55.5 million for the year ended December 31,
2008 compared to $32.2 million during the comparable period in 2007.



Principal transactions - For the year ended December
31, 2008, principal transactions revenue increased 110.6% to $293.3 million from
$139.2 million in the comparable period in 2007. The increase is primarily
attributable to increased principal transactions, primarily in corporate debt
and mortgage-backed bonds.



Commissions - For the year ended December 31, 2008,
commission revenues increased 8.1% to $341.1 million from $315.5 million in the
comparable period in 2007. The increase is primarily attributable to the
aforementioned growth and market volatility leading to increased commissions,
principally in OTC stocks.



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
year ended December 31, 2008, investment banking revenues decreased 50.6% to
$83.7 million from $169.4 million in the comparable period in 2007. The decrease
is attributable to the industry-wide decline in common stock offerings and
mergers and acquisitions caused by challenging capital market conditions.



Capital
raising revenues decreased 52.5% to $45.2 million for the year ended December
31, 2008 from $95.1 million in the comparable period in 2007. Equity and fixed
income capital raising revenues were $28.8 million and $11.3 million,
respectively, a decrease of 60.1% and 6.9%, respectively, from the comparable
period in 2007.



Strategic
advisory fees decreased 48.2% to $38.5 million for the year ended December 31,
2008 from $74.3 million in the comparable period in 2007. During the second
quarter of 2007, we closed on a significant corporate finance investment banking
transaction which contributed $24.7 million in revenue.



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
year ended December 31, 2008, asset management and service fee revenues
increased 18.0% to $119.9 million from $101.6 million in the comparable period
of 2007. The increase is primarily attributable to a 10.9% increase in the
number of Stifel Nicolaus managed accounts and increased distribution fees for
money market funds, principally Federal Deposit Insurance Corporation insured
accounts, attributable principally to the Ryan Beck acquisition and the
continued growth of the private client group, offset by a 13.4% decrease in the
value of assets in fee-based accounts. See Assets in Fee-based Accounts included
in the table in "Results of Operations - Global Wealth Management."



39











Other income - For
the year ended December 31, 2008, other income decreased $7.5 million to $0.7
million from $8.2 million during the comparable period in 2007.



The
decrease is primarily attributable to investment losses of $7.5 million in 2008
as a result of the downturn in the equity markets, and an impairment charge of
$2.4 million on $4.0 million of asset backed securities held at Stifel Bank
recorded during the fourth quarter due to an other-than-temporary decline in
value. The losses were offset by a $6.7 million gain before certain expenses and
taxes on the extinguishment of $12.5 million of 6.78% Stifel Financial Capital
Trust IV Cumulative Preferred Securities in December 2008. We issued 142,196
shares of our common stock in exchange for $12,500 par value of 6.78% Cumulative
Trust Preferred Securities, originally offered and sold by Stifel Financial
Capital Trust IV. As a result, we extinguished $12,500 of our debenture to
Stifel Financial Capital Trust IV in the fourth quarter of 2008.



40










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):


	
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		For the Year Ended
	
	
		
		


		 
		
		

		 
		
		

		December 31, 2009
		
		

		 
		
		


		December 31, 2008
		
		

		 
		
		


		December 31, 2007
	
	
		
		


		 
		
		

		 
		
		

		Average Balance
		
		

		 
		
		

		Interest Income/ Expense
		
		

		 
		
		

		Average Interest Rate
		
		

		 
		
		


		Average Balance
		
		

		 
		
		


		Interest Income/ Expense
		
		

		 
		
		


		Average Interest Rate
		
		

		 
		
		


		Average Balance
		
		

		 
		
		


		Interest Income/ Expense
		
		

		 
		
		


		Average Interest Rate
	
	
		
		


		Interest-earning assets:
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Margin balances (Stifel Nicolaus)
		
		

		 
		
		

		$
		
		


		290,043
		
		

		 
		
		


		$
		
		

		12,499
		
		


		 
		
		

		4.31
		
		


		%
		
		

		 
		
		


		$
		
		


		382,536
		
		

		 
		
		

		$
		
		


		20,930
		
		

		 
		
		


		5.47
		
		

		%
		
		


		 
		
		


		$
		
		


		332,196
		
		

		 
		
		

		$
		
		


		26,565
		
		

		 
		
		


		8.00
		
		

		%
	
	
		
		


		Interest-earning assets (Stifel Bank) *
		
		

		 
		
		


		$ 
		
		


		687,232
		
		

		 
		
		


		 
		
		

		20,283
		
		


		 
		
		

		2.95
		
		


		%
		
		

		 
		
		


		$
		
		


		273,893
		
		

		 
		
		

		 
		
		


		15,253
		
		

		 
		
		


		5.57
		
		

		%
		
		


		 
		
		


		$
		
		


		188,022
		
		

		 
		
		

		 
		
		


		9,400
		
		

		 
		
		


		6.67
		
		

		%
	
	
		
		


		Stock borrow (Stifel Nicolaus)
		
		

		 
		
		


		$ 
		
		


		32,588
		
		

		 
		
		


		 
		
		

		43
		
		


		 
		
		

		0.13
		
		


		%
		
		

		 
		
		


		$
		
		


		61,097
		
		

		 
		
		

		 
		
		


		733
		
		

		 
		
		


		1.20
		
		

		%
		
		


		 
		
		


		$
		
		


		37,019
		
		

		 
		
		

		 
		
		


		1,342
		
		

		 
		
		


		3.63
		
		

		%
	
	
		
		


		Other (Stifel Nicolaus)
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		

		14,035
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		13,232
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		
 
		
		


		 
		
		

		 
		
		

		 
		
		


		21,764
		
		

		 
		
		


		 
		
		

		 
	
	
		
		

		Total interest revenue
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		$
		
		

		46,860
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		$
		
		


		50,148
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		
 
		
		


		 
		
		


		 
		
		

		$
		
		


		59,071
		
		

		 
		
		


		 
		
		

		 
	
	
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		

		Interest-bearing liabilities:
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Short-term borrowings (Stifel Nicolaus)
		
		

		 
		
		


		$ 
		
		


		107,383
		
		

		 
		
		


		$
		
		

		1,065
		
		


		 
		
		

		0.99
		
		


		%
		
		

		 
		
		


		$
		
		


		132,660
		
		

		 
		
		

		$
		
		


		3,021
		
		

		 
		
		


		2.28
		
		

		%
		
		


		 
		
		


		$
		
		


		156,778
		
		

		 
		
		

		$
		
		


		7,626
		
		

		 
		
		


		4.86
		
		

		%
	
	
		
		


		Interest-bearing liabilities (Stifel Bank) *
		
		

		 
		
		


		$
		
		

		626,754
		
		

		 
		
		


		 
		
		

		4,649
		
		


		 
		
		

		0.74
		
		


		%
		
		

		 
		
		


		$
		
		


		229,205
		
		

		 
		
		

		 
		
		


		5,434
		
		

		 
		
		


		2.37
		
		

		%
		
		

		 
		
		


		$
		
		


		152,284
		
		

		 
		
		

		 
		
		


		5,469
		
		

		 
		
		


		4.79
		
		

		%
	
	
		
		


		Stock loan (Stifel Nicolaus)
		
		

		 
		
		


		$
		
		

		53,110
		
		

		 
		
		


		 
		
		

		570
		
		


		 
		
		

		1.07
		
		


		%
		
		

		 
		
		


		$
		
		


		105,424
		
		

		 
		
		

		 
		
		


		2,608
		
		

		 
		
		


		2.47
		
		

		%
		
		

		 
		
		


		$
		
		


		119,590
		
		

		 
		
		

		 
		
		


		5,764
		
		

		 
		
		


		4.82
		
		

		%
	
	
		
		


		Interest-bearing liabilities (Capital Trusts)
		
		

		 
		
		


		$
		
		


		82,500
		
		

		 
		
		


		 
		
		

		5,488
		
		


		 
		
		

		6.65
		
		


		%
		
		

		 
		
		


		$
		
		


		93,019
		
		

		 
		
		

		 
		
		


		6,233
		
		

		 
		
		


		6.70
		
		

		%
		
		


		 
		
		


		$
		
		


		99,679
		
		

		 
		
		

		 
		
		


		6,849
		
		

		 
		
		


		6.87
		
		

		%
	
	
		
		


		Other (Stifel Nicolaus)
		
		

		 
		
		
 
		
		


		 
		
		

		 
		
		


		 
		
		

		462
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		
 
		
		


		 
		
		

		 
		
		

		 
		
		


		1,214
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		4,317
		
		

		 
		
		


		 
		
		

		 
	
	
		
		

		Total interest expense
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		$ 
		
		

		12,234
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		$
		
		


		18,510
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		$
		
		


		30,025
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Net interest income
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		$
		
		

		34,626
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		$
		
		


		31,638
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		$
		
		


		29,046
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
	


*  See
Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and
Interest Rate Differential table included in "Results of Operations - Global
Wealth Management" for additional information on Stifel Bank's average balances
and interest income and expense.



41










Year
Ended December 31, 2009 Compared with Year Ended December 31, 2008



Net interest income - Net interest income is the
difference between interest earned on interest-earning assets and interest paid
on funding sources. Net interest income is affected by changes in the volume and
mix of these assets and liabilities, as well as by fluctuations in interest
rates and portfolio management strategies. For the year ended December 31, 2009,
net interest income increased 9.4% to $34.6 million from $31.6 million in the
comparable period in 2008.



For the
year ended December 31, 2009, interest revenue decreased 6.6%, or $3.3 million,
to $46.9 million from $50.1 million in the comparable period in 2008,
principally as a result of an $8.4 million decrease in interest revenue from
customer margin borrowing, offset by increased interest revenues of $5.0 million
from the interest-earning assets of Stifel Bank. The average margin balances of
Stifel Nicolaus decreased to $290.0 million for the year ended December 31, 2009
compared to $382.5 million during the comparable period in 2008 at weighted
average interest rates of 4.31% and 5.47%, respectively. The average
interest-earning assets of Stifel Bank increased to $687.2 million for the year
ended December 31, 2009 compared to $273.9 million during the comparable period
in 2008 at weighted average interest rates of 2.95% and 5.57%, respectively.



For the
year ended December 31, 2009, interest expense decreased 33.9%, or $6.3 million,
to $12.2 million from $18.5 million in the comparable period in 2008. The
decrease is due to decreased interest rates charged by banks on lower levels of
borrowings to finance customer borrowing and firm inventory, decreased interest
rates on stock loan borrowings and the extinguishment of $12.5 million of 6.78%
Stifel Financial Capital Trust IV Cumulative Preferred Securities in November
2008. See "Net Interest Income" table above for more details.



Year
Ended December 31, 2008 Compared with Year Ended December 31, 2007



Net interest income - For the year ended December 31,
2008, net interest income increased 8.9%, or $2.6 million, to $31.6 million from
$29.0 million in the comparable period in 2007.



For the
year ended December 31, 2008, interest revenue decreased 15.1% to $50.1 million
from $59.1 million in the comparable period in 2007, principally as a result of
a $8.4 million decrease in interest revenues on fixed income inventory held for
sale to clients and a $5.6 million decrease in interest revenue from customer
margin borrowing, partially offset by increased interest revenues of $5.6
million from the interest-earning assets of Stifel Bank. The average margin
balances of Stifel Nicolaus increased to $382.5 million for the year ended
December 31, 2008 compared to $332.2 million during the comparable period in
2007 at weighted average interest rates of 5.47% and 8.00%, respectively. The
average interest-earning assets of Stifel Bank increased to $273.9 million for
the year ended December 31, 2008 compared to $188.0 million during the
comparable period in 2007 at weighted average interest rates of 5.57% and 6.67%,
respectively.



For the
year ended December 31, 2008, interest expense decreased 38.4% to $18.5 million
from $30.0 million in the comparable period in 2007. The decreases are due to
decreased interest rates charged by banks on lower levels of borrowings to
finance customer borrowing and firm inventory and decreased interest rates on
stock loan borrowings.



42










NON-INTEREST EXPENSES



The following
table presents consolidated non-interest expenses for the periods indicated 
(in thousands, except percentages):


	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		For the Year Ended December 31,
		
		
		
		

		 
		
		

		Percentage Change
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		2009
		
		

		 
		
		


		2008
		
		

		 
		
		


		2007
		
		

		 
		
		

		2009 vs. 2008
		
		

		 
		
		


		2008 vs. 2007
		
		

		 
	
	
		
		


		Non-interest expenses:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
	
	
		
		


		Compensation and benefits
		
		

		 
		
		

		$
		
		


		718,115
		
		

		 
		
		

		$
		
		


		582,778
		
		

		 
		
		

		$
		
		


		543,021
		
		

		 
		
		

		 
		
		

		23.2
		
		


		%
		
		


		 
		
		


		7.3
		
		

		%
	
	
		
		


		Occupancy and equipment rental
		
		

		 
		
		


		 
		
		


		89,741
		
		

		 
		
		

		 
		
		


		67,984
		
		

		 
		
		

		 
		
		


		57,796
		
		

		 
		
		

		 
		
		

		32.0
		
		


		 
		
		


		 
		
		


		17.6
		
		

		 
	
	
		
		


		Communications and office supplies
		
		

		 
		
		


		 
		
		


		54,745
		
		

		 
		
		

		 
		
		


		45,621
		
		

		 
		
		

		 
		
		


		42,355
		
		

		 
		
		

		 
		
		

		20.0
		
		


		 
		
		


		 
		
		


		7.7
		
		

		 
	
	
		
		


		Commissions and floor brokerage
		
		

		 
		
		


		 
		
		


		23,416
		
		

		 
		
		

		 
		
		


		13,287
		
		

		 
		
		

		 
		
		


		9,921
		
		

		 
		
		

		 
		
		

		76.2
		
		


		 
		
		


		 
		
		


		33.9
		
		

		 
	
	
		
		


		Other operating expenses
		
		

		 
		
		


		 
		
		


		84,205
		
		

		 
		
		

		 
		
		


		68,898
		
		

		 
		
		

		 
		
		


		56,126
		
		

		 
		
		

		 
		
		

		22.2
		
		


		 
		
		


		 
		
		


		22.8
		
		

		 
	
	
		
		

		Total non-interest expenses
		
		

		 
		
		


		$ 
		
		


		970,222
		
		

		 
		
		

		$ 
		
		


		778,568
		
		

		 
		
		

		$
		
		


		709,219
		
		

		 
		
		

		 
		
		

		24.6
		
		


		%
		
		


		 
		
		


		9.8
		
		

		%
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
	



Year
Ended December 31, 2009 Compared with Year Ended December 31, 2008



Except as
noted in the following discussion of variances, the underlying reasons for the
increase in non-interest expenses can be attributed principally to our continued
expansion, increased administrative overhead to support the growth in our
segments and the transaction costs associated with the UBS acquisition.






Compensation and benefits -
Compensation and benefits expenses, which are the largest component of our
expenses, include salaries, bonuses, transition pay, benefits, amortization of
stock-based compensation, employment taxes and other employee-related costs.
Transition pay consists principally of upfront notes, signing bonuses and
retention awards in connection with our continuing expansion efforts. See Use of
Capital Resources in the "Liquidity and Capital Resources" section of this
report for additional information regarding our use of upfront notes. A
significant portion of compensation expense is comprised of production-based
variable compensation, including discretionary bonuses, which fluctuates in
proportion to the level of business activity, increasing with higher revenues
and operating profits. Other compensation costs, including base salaries,
stock-based compensation amortization, and benefits, are more fixed in nature.



For the
year ended December 31, 2009, compensation and benefits expense increased 23.2%,
or $135.3 million, to $718.1 million from $582.8 million during the comparable
period in 2008.  The increase in compensation and benefits
expense is primarily attributable to increased headcount and higher
production-based variable compensation.




Compensation and benefits expense as a percentage of net revenues decreased to
65.8% for the year ended December 31, 2009, from 67.0% for the comparable period
in 2008. The decrease in compensation and benefits expense as a percent of net
revenues is primarily attributable to increased net revenues as compared to the
year ended December 31, 2008, offset by an increase in transition pay and base
salaries.



A portion
of compensation and benefits expense includes transition pay of $56.2 million
(5.2% of net revenues) for the year ended December 31, 2009 compared to $34.3
million (3.9% of net revenues) for the comparable period in 2008. In addition,
for the year ended December 31, 2008, compensation and benefits expense includes
$25.6 million for amortization of units awarded to Legg Mason ("LM Capital
Markets") associates, which were fully amortized as of December 31, 2008.



43











Occupancy and equipment rental -  
For the
year ended December 31, 2009, occupancy and equipment rental expense increased
32.0% to $89.7 million from $68.0 million during the comparable period in 2008.
The increase is primarily due to the continued expansion of our segments, which
has increased our rent and depreciation expense.  As of December 31, 2009, we
have 294 locations compared to 225 at December 31, 2008.




Communications and office supplies -
Communications expense include costs for telecommunication and data
communication, primarily for obtaining third-party market data information. For
the year ended December 31, 2009, communications and office supplies expense
increased 20.0% to $54.7 million from $45.6 million during the comparable period
in 2008. The increases were primarily attributable to our continued expansion as
we sustained our growth initiatives throughout 2009 by adding additional revenue
producers and support staff.  




Commissions and floor brokerage -  
For the
year ended December 31, 2009, commissions and floor brokerage expense increased
76.2% to $23.4 million from $13.3 million during the comparable period in 2008.
The increase is primarily attributable to increased business activity. The
increase over the comparable period in 2008 is also attributable to a rebate of
$1.5 million received during the first quarter of 2008 related to 2007 clearing
fees. We received no such rebates in 2009.




Other operating expenses -  
Other
operating expenses primarily include license and registration fees,
litigation-related expenses, which consist of amounts we reserve and/or pay out
related to legal and regulatory matters, travel and entertainment, promotional
expenses and expenses for professional services.



For the
year ended December 31, 2009, other operating expenses increased 22.2% to $84.2
million from $68.9 million during the comparable period in 2008.  



The
increase is primarily attributable to the continued growth in all segments
during 2009, which included increased license and registration fees, SIPC
assessments, securities processing fees, travel and promotion, legal expenses
and UBS acquisition costs of $3.4 million. The increase in legal expenses is
attributable to an increase in litigation associated with the ongoing
investigations in connection with ARS, and litigation costs
to defend industry recruitment claims.




Provision for income taxes -  
For the
year ended December 31, 2009, our provision for income taxes was $44.6 million,
representing an effective tax rate of 37.1%, compared to $36.3 million for the
comparable period in 2008, representing an effective tax rate of 39.5%.
Our current year effective tax rate was reduced
due to the recognition of a tax benefit of $3.4 million during the third quarter
related to an investment and jobs creation tax credit.



44










Year
Ended December 31, 2008 Compared with Year Ended December 31, 2007



Except as
noted in the following discussion of variances, the underlying reasons for the
increase in non-interest expenses can be attributed principally to our continued
expansion and increased administrative overhead to support the growth in our
segments.  




Compensation and benefits -  
For the
year ended December 31, 2008, compensation and benefits expense increased 7.3%,
or $39.8 million, to $582.8 million from $543.0 million during the comparable
period in 2007. The increase in compensation and benefits expense over the prior
year periods is primarily attributable to increased headcount and higher
production-based variable compensation. Compensation and benefits expense as a
percentage of net revenues decreased to 67.0% for the year ended December 31,
2008, from 71.2% for the comparable period in 2007. Included in compensation and
benefits in 2007 is $24.9 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 of $34.3 million
(3.9% of net revenues) and $28.6 million (3.7% of net revenues) for the twelve
months ended December 31, 2008 and 2007, respectively. In addition, for the
twelve months ended December 31, 2008 and 2007, employee compensation and
benefits includes $25.6 million and $24.2 million, respectively, for
amortization of units awarded to LM Capital Markets associates. These units were
fully amortized as of December 31, 2008.




Occupancy and equipment rental -  
For the
year ended December 31, 2008, occupancy and equipment rental expense increased
17.6% to $68.0 million from $57.8 million during the comparable period in 2007.
The increase is primarily due to the increase in rent and depreciation expense. 
As of December 31, 2008, we have 225 locations compared to 175 at December 31,
2007.




Communications and office supplies -  
For the year ended December 31, 2008,
communications and office supplies expense increased 7.7% to $45.6 million from
$42.4 million during the comparable period in 2007. The increase is primarily
attributable to our continued expansion as we sustained our growth initiatives
throughout 2008 by adding additional revenue producers and support staff. During
2008, we began classifying certain outsourced services which were historically
recorded as communications and office supplies as commission and floor
brokerage. As a result, we recorded $6.1 million of expenses as commissions and
floor brokerage expense in 2008.




Commissions and floor brokerage -  
For the
year ended December 31, 2008, commissions and floor brokerage expense increased
33.9% to $13.3 million from $9.9 million during the comparable period in 2007.
The increase is primarily attributable to increased business activity and the
previously mentioned classification change. The increase over the comparable
period in 2007 is offset by a rebate of $1.5 million received during the first
quarter of 2008 related to 2007 clearing fees.  




Other operating expenses -  
For the
year ended December 31, 2008, other operating expenses increased 22.8% to $68.9
million from $56.1 million during the comparable period in 2007. The increase
was primarily attributable to the continued growth in all segments during 2008.



During
the fourth quarter of 2008 we recorded a contingency charge of $5.3 million
related to our voluntary partial repurchase plan for certain auction rate
securities. Included in 2007 other operating expenses is a $1.3 million charge
for the write off of deferred issuance costs related to the 9% Stifel Financial
Capital Trust I Convertible Preferred Securities called on July 13, 2007.




Provision for income taxes -  
For the
year ended December 31, 2008, our provision for income taxes was $36.3 million,
representing an effective tax rate of 39.5%, compared to $21.7 million for the
comparable period in 2007, representing an effective tax rate of 40.3%.
The higher effective tax rate in 2007 was due to
the proportionately higher level of non-deductible expenses to net income.




45










SEGMENT ANALYSIS





Our
reportable segments include Global Wealth Management, Capital Markets, and
Other. The UBS branch acquisition and related customer account conversion to our
platform has enabled us to leverage our customers' assets, which allows us the
ability to provide a full array of financial products to both our private client
group and Stifel Bank customers. As a result, during the third quarter of 2009,
we changed how we manage these reporting
units and consequently they were combined to form the Global Wealth Management
segment.
Previously reported segment information
has been revised to reflect this change.



As a result of
organizational changes in the second quarter of 2009, which included a change in
the management reporting structure of our company, the segments formerly
reported as Equity Capital Markets and Fixed Income Capital Markets have been
combined into a single segment called Capital Markets. Previously reported
segment information has been revised to reflect this change.



Our Global Wealth
Management segment consists of two businesses, the private client group and
Stifel Bank.  The private client group includes branch offices and independent
contractor offices of our broker-dealer subsidiaries located throughout the
United States, primarily in the Midwest and Mid-Atlantic regions with a growing
presence in the Northeast, Southeast and Western United States. These branches
provide securities brokerage services, including the sale of equities, mutual
funds, fixed income products, and insurance, as well as offering banking
products to their private clients through Stifel Bank, which provides
residential, consumer, and commercial
lending, as well as Federal Depository Insurance Corporation-insured deposit
accounts to customers of our broker-dealer subsidiaries and to the general
public.



The Capital
Markets segment includes institutional sales and trading. It provides securities
brokerage, trading, and research services to institutions with an emphasis on
the sale of equity and fixed income products. This segment also includes the
management of and participation in underwritings for both corporate and public
finance (exclusive of sales credits, which are included in the Global Wealth
Management segment), merger and acquisition, and financial advisory services.





The Other
segment includes interest income from stock borrow activities, unallocated
interest expense, interest income and gains and losses from investments held,
and all unallocated overhead costs associated with the execution of orders;
processing of securities transactions; custody of client securities; receipt,
identification, and delivery of funds and securities; compliance with regulatory
and legal requirements; internal financial accounting and controls; acquisition
charges related to the LM Capital Markets and Ryan Beck & Company, Inc. ("Ryan
Beck") acquisitions, and general administration.



We evaluate the
performance of our segments and allocate resources to them based on various
factors, including prospects for growth, return on investment, and return on
revenues.




46










Results of Operations - Global
Wealth Management



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


	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		For the Year Ended December 31,
		
		

		 
		
		

		Percentage


		Change  
		
		
		

		 
		
		

		 
		
		

		As a Percentage of


		Net Revenues


		for the Year Ended


		December 31,
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		2009
		
		

		 
		
		


		2008
		
		

		 
		
		


		2007
		
		

		 
		
		

		2009 vs. 2008
		
		

		 
		
		


		2008 vs. 2007
		
		

		 
		
		

		 
		
		


		2009
		
		

		 
		
		


		2008
		
		

		 
		
		


		2007
		
		

		 
	
	
		
		


		Revenues:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Commissions
		
		

		 
		
		


		$
		
		


		234,052
		
		

		 
		
		

		$
		
		


		191,542
		
		

		 
		
		

		$
		
		


		191,987
		
		

		 
		
		

		22.2
		
		


		%
		
		


		(0.2
		
		

		)%
		
		

		 
		
		


		39.6
		
		


		%
		
		


		40.7
		
		

		%
		
		


		43.6
		
		

		%
	
	
		
		


		Principal transactions
		
		

		 
		
		

		 
		
		


		194,384
		
		

		 
		
		

		 
		
		


		124,578
		
		

		 
		
		

		 
		
		


		89,363
		
		

		 
		
		

		56.0
		
		


		 
		
		


		39.4
		
		

		 
		
		

		 
		
		


		32.9
		
		


		 
		
		


		26.4
		
		

		 
		
		


		20.3
		
		

		 
	
	
		
		


		Asset management and service fees
		
		

		 
		
		


		 
		
		


		112,166
		
		

		 
		
		

		 
		
		


		119,047
		
		

		 
		
		

		 
		
		


		101,128
		
		

		 
		
		

		(5.8
		
		


		)
		
		


		17.7
		
		

		 
		
		

		 
		
		


		19.0
		
		


		 
		
		


		25.3
		
		

		 
		
		


		23.0
		
		

		 
	
	
		
		


		Interest
		
		

		 
		
		


		 
		
		


		35,269
		
		

		 
		
		

		 
		
		


		38,207
		
		

		 
		
		

		 
		
		


		40,690
		
		

		 
		
		

		(7.7
		
		


		)
		
		


		(6.1
		
		

		)
		
		

		 
		
		


		6.0
		
		


		 
		
		


		8.1
		
		

		 
		
		


		9.2
		
		

		 
	
	
		
		


		Investment banking
		
		

		 
		
		


		 
		
		


		14,906
		
		

		 
		
		

		 
		
		


		15,515
		
		

		 
		
		

		 
		
		


		40,071
		
		

		 
		
		

		(3.9
		
		


		)
		
		


		(61.3
		
		

		)
		
		

		 
		
		


		2.5
		
		


		 
		
		


		3.3
		
		

		 
		
		


		9.1
		
		

		 
	
	
		
		


		Other income/(loss)
		
		

		 
		
		


		 
		
		


		8,626
		
		

		 
		
		

		 
		
		


		(1,174
		
		

		)
		
		

		 
		
		


		1,851
		
		

		 
		
		

		*
		
		


		 
		
		


		*
		
		

		 
		
		

		 
		
		


		1.4
		
		

		 
		
		


		(0.2
		
		

		)
		
		


		0.4
		
		

		 
	
	
		
		

		Total revenues
		
		

		 
		
		


		 
		
		


		599,404
		
		

		 
		
		

		 
		
		


		487,715
		
		

		 
		
		

		 
		
		


		465,090
		
		

		 
		
		

		22.9
		
		


		 
		
		


		4.9
		
		

		 
		
		

		 
		
		


		101.4
		
		


		 
		
		


		103.6
		
		

		 
		
		


		105.6
		
		

		 
	
	
		
		


		Interest expense
		
		

		 
		
		


		 
		
		


		8,081
		
		

		 
		
		

		 
		
		


		16,710
		
		

		 
		
		

		 
		
		


		24,579
		
		

		 
		
		

		(51.6
		
		


		)
		
		


		(32.0
		
		

		)
		
		

		 
		
		


		1.4
		
		


		 
		
		


		3.6
		
		

		 
		
		


		5.6
		
		

		 
	
	
		
		

		Net revenues
		
		

		 
		
		


		 
		
		


		591,323
		
		

		 
		
		

		 
		
		


		471,005
		
		

		 
		
		

		 
		
		


		440,511
		
		

		 
		
		

		25.5
		
		


		 
		
		


		6.9
		
		

		 
		
		

		 
		
		


		100.0
		
		


		 
		
		


		100.0
		
		

		 
		
		


		100.0
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Non-interest expenses:
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Compensation and benefits
		
		

		 
		
		


		 
		
		


		370,157
		
		

		 
		
		

		 
		
		


		289,207
		
		

		 
		
		

		 
		
		


		275,728
		
		

		 
		
		

		28.0
		
		


		 
		
		


		4.9
		
		

		 
		
		

		 
		
		


		62.6
		
		


		 
		
		


		61.4
		
		

		 
		
		


		62.6
		
		

		 
	
	
		
		


		Occupancy and equipment rental
		
		

		 
		
		


		 
		
		


		50,487
		
		

		 
		
		

		 
		
		


		36,200
		
		

		 
		
		

		 
		
		


		29,033
		
		

		 
		
		

		39.5
		
		


		 
		
		


		24.7
		
		

		 
		
		

		 
		
		


		8.5
		
		


		 
		
		


		7.7
		
		

		 
		
		


		6.6
		
		

		 
	
	
		
		


		Communication and office supplies
		
		

		 
		
		


		 
		
		


		26,628
		
		

		 
		
		

		 
		
		


		19,341
		
		

		 
		
		

		 
		
		


		15,915
		
		

		 
		
		

		37.7
		
		


		 
		
		


		21.5
		
		

		 
		
		

		 
		
		


		4.5
		
		


		 
		
		


		4.1
		
		

		 
		
		


		3.6
		
		

		 
	
	
		
		


		Commissions and floor brokerage
		
		

		 
		
		


		 
		
		


		7,606
		
		

		 
		
		

		 
		
		


		4,452
		
		

		 
		
		

		 
		
		


		4,747
		
		

		 
		
		

		70.9
		
		


		 
		
		


		(6.2
		
		

		)
		
		

		 
		
		


		1.3
		
		


		 
		
		


		0.9
		
		

		 
		
		


		1.1
		
		

		 
	
	
		
		


		Other operating expenses
		
		

		 
		
		


		 
		
		


		36,397
		
		

		 
		
		

		 
		
		


		23,708
		
		

		 
		
		

		 
		
		


		18,745
		
		

		 
		
		

		53.5
		
		


		 
		
		


		26.5
		
		

		 
		
		

		 
		
		


		6.2
		
		


		 
		
		


		5.1
		
		

		 
		
		


		4.2
		
		

		 
	
	
		
		

		Total non-interest expenses
		
		

		 
		
		


		 
		
		


		491,275
		
		

		 
		
		

		 
		
		


		372,908
		
		

		 
		
		

		 
		
		


		344,168
		
		

		 
		
		

		31.7
		
		


		 
		
		


		8.4
		
		

		 
		
		

		 
		
		


		83.1
		
		


		 
		
		


		79.2
		
		

		 
		
		


		78.1
		
		

		 
	
	
		
		


		Income before income taxes
		
		

		 
		
		

		$
		
		


		100,048
		
		

		 
		
		

		$
		
		


		98,097
		
		

		 
		
		

		$
		
		


		96,343
		
		

		 
		
		

		2.0
		
		


		%
		
		


		1.8
		
		

		 %
		
		

		 
		
		


		16.9
		
		


		%
		
		


		20.8
		
		

		%
		
		


		21.9
		
		

		%
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		*     Percentage is not meaningful.
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
	



	
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		

		 
		
		

		 
		
		


		 
		
		

		December 31, 2009
		
		

		 
		
		

		 
		
		


		December 31, 2008
		
		

		 
		
		

		 
		
		


		December 31, 2007
		
		

		 
	
	
		
		

		Branch offices (actual)
		
		

		 
		
		


		 
		
		

		272
		
		

		 
		
		

		 
		
		


		196
		
		

		 
		
		

		 
		
		


		148
		
		

		 
	
	
		
		

		Financial advisors (actual)
		
		

		 
		
		


		 
		
		

		1,719
		
		

		 
		
		

		 
		
		


		1,142
		
		

		 
		
		

		 
		
		


		966
		
		

		 
	
	
		
		

		Independent contractors (actual)
		
		

		 
		
		

		 
		
		

		166
		
		

		 
		
		

		 
		
		


		173
		
		

		 
		
		

		 
		
		


		197
		
		

		 
	
	
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Assets in fee-based accounts:
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		

		Value (in thousands)
		
		

		 
		
		

		 
		
		

		9,309,775
		
		

		 
		
		

		 
		
		


		5,775,565
		
		

		 
		
		

		 
		
		


		6,668,882
		
		

		 
	
	
		
		

		Number of accounts (actual)
		
		

		 
		
		

		 
		
		

		44,071
		
		

		 
		
		

		 
		
		


		24,177
		
		

		 
		
		

		 
		
		


		21,803
		
		

		 
	
	
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	





47











Year Ended December 31, 2009 Compared with Year Ended December 31, 2008



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, the acquisition of Butler
Wick on December 31, 2008, and the closing of the UBS acquisition during the
third and fourth quarters of 2009. During the year ended December 31, 2009, we
added 99 private client group offices and 645 financial advisors, including 56
offices and 321 Financial Advisors from UBS and 17 offices and 67 financial
advisors from Butler Wick as part of our ongoing footprint expansion efforts.



NET REVENUES



For the year ended
December 31, 2009, Global Wealth Management net revenues increased 25.5% to
$591.3 million from $471.0 million for the comparable period in 2008. The
increase in net revenues is primarily attributable to an increase in principal
transactions, commissions and net interest revenues offset by decreases in asset
management and service fees and investment banking.  



Commissions -  
For the year ended December 31, 2009,
commission revenues increased 22.2% to $234.1 million from $191.5 million in the
comparable period in 2008. The increase is primarily attributable to an increase
in agency transactions in OTC and listed equity securities, and insurance
products. In addition, mutual fund revenue has increased over the comparable
period in 2008.  



Principal transactions - For the year ended December
31, 2009, principal transactions revenue increased 56.0% to $194.4 million from
$124.6 million in the comparable period in 2008. The increase is primarily
attributable to increased principal transactions, primarily in corporate debt,
OTC equity, mortgage-backed bonds and municipal debt 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.




Asset management and service fees -  
For the year ended December 31, 2009,
asset management and service fees decreased 5.8% to $112.2 million from $119.0
million in the comparable period in 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, offset by an increase in the number of managed accounts
attributable principally to the continued growth of the private client group
through the UBS transaction and organic growth and the growth in the value of
assets in fee-based accounts from December 31, 2008. See Assets in Fee-based
Accounts included in the table above for further details.




Interest revenue -  
For the
year ended December 31, 2009, interest revenue decreased 7.7% to $35.3 million
from $38.2 million in the comparable period in 2008. The decrease is primarily
due to a decrease in interest revenue from customer margin borrowing to finance
trading activity and lower average customer margin balances offset by increased
interest revenues of $4.7 million from the interest-earning assets of Stifel
Bank. See
"Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates
and Interest Rate Differential" below for a further discussion of the changes in
interest revenues.



Investment
banking -
Investment banking, which represents sales credits for investment banking
underwritings, decreased 3.9% to $14.9 million for the year ended December 31,
2009 from $15.5 million during the comparable period in 2008.
While there has been a significant
rebound in investment banking activity, which began during the second quarter of
2009, our current year results were negatively impacted by the challenging
market conditions that began during the second half of 2008 and continued into
the first half of 2009. See further discussion of investment banking activities
in the Capital Markets segment section.



Interest expense -  
For the year ended December 31,
2009, interest expense decreased 51.6% to $8.1 million from $16.7 million in the
comparable period in 2008. The decrease is primarily due to decreased interest
rates charged by banks on lower levels of borrowings.  See
"Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates
and Interest Rate Differential" below for a further discussion of the changes in
interest expense.




48










NON-INTEREST
EXPENSES 




For the year ended
December 31, 2009, Global Wealth Management non-interest expenses increased
31.7% to $491.3 million from $372.9 million for the comparable period in 2008.



Unless
specifically discussed below, the fluctuations in non-interest expenses were
primarily attributable to the continued growth of our private client group
during the year ended December 31, 2009. Our expansion efforts include the
acquisitions of UBS and Butler Wick, as well as organic growth. As of December
31, 2009, we have 272 branch offices compared to 196 at December 31, 2008. In
addition, since December 31, 2008, we have added 1,087 revenue producers and
support staff.



Compensation
and benefits -  
For the year ended December 31,
2009, compensation and benefits expense increased 28.0% to $370.2 million from
$289.2 million during the comparable period in 2008.
The increase is
principally due to increased variable compensation as a result of increased
production and increased fixed compensation as a result of the expansion of our
branch office support.  




Compensation and benefits expense as a percentage of net revenues increased to
62.6% for the year ended December 31, 2009 compared to 61.4% for the comparable
period in 2008. The increase in compensation and benefits expense as a percent
of net revenues is primarily attributable to increased transition pay, which
consists of the amortization of upfront notes, signing bonuses and retention
awards, and increased overhead in connection with our continued expansion
efforts.



A portion
of compensation and benefits expense includes transition pay, principally in the
form of upfront notes, signing bonuses and retention awards in connection with
our continuing expansion efforts, of $40.6 million (6.9% of net revenues) for
the year ended December 31, 2009 compared to $28.2 million (6.0% of net
revenues) for the year ended December 31, 2008. The upfront notes are amortized
over a five to ten year period.




Occupancy and equipment rental -  
For the
year ended December 31, 2009, occupancy and equipment rental expense increased
39.5% to $50.5 million from $36.2 million during the comparable period in 2008.






Communications and office supplies -  
For the year ended December 31, 2009,
communications and office supplies expense increased 37.7% to $26.6 million from
$19.3 million during the comparable period in 2008.




Commissions and floor brokerage -  
For the
year ended December 31, 2009, commissions and floor brokerage expense increased
$3.1 million, or 70.9%, to $7.6 million from $4.5 million during the comparable
period in 2008.




Other operating expenses -
For the year ended December 31, 2009, other operating expenses increased 53.5%
to $36.4 million from $23.7 million during the comparable period in 2008. As a
result of the growth of the private client group during the year ended December
31, 2009, there has been an increase in license and registration fees,
securities processing fees, and expenses associated with our acquisition of UBS
of $3.4 million, as well as litigation costs to defend industry recruiting
claims.



INCOME BEFORE INCOME TAXES



For the
year ended December 31, 2009, income before
income taxes increased 2.0% to $100.0 million from $98.1 million during the
comparable period in 2008. Profit margins for the year ended December 31, 2009
have decreased to 16.9% from 20.8% during the comparable period in 2008. Profit
margins have diminished resulting from start-up costs associated with branch
office openings and the transaction costs associated with the UBS acquisition,
as we took advantage of the opportunities created by market displacement.




49










Year
Ended December 31, 2008 Compared with Year Ended December 31, 2007



NET REVENUES



For the year ended
December 31, 2008, Global Wealth Management net revenues increased 6.9% to
$471.0 million from $440.5 million for the comparable period in 2007. The
increase in net revenues is primarily attributable to an increase in principal
transactions, asset management and service fees and net interest revenues offset
by decreases in commissions and investment banking.  



Commissions -  
For the year ended December 31, 2008,
commission revenues of $191.5 million remained consistent with the comparable
period in 2007. The
continued
expansion of the private client group during 2008 lead to an increase in the
number of financial advisors and customer accounts. The impact of the expansion
on commissions revenues was offset by the
change in the mix from commissions-based revenues to principal transactions
revenue as a result of the market upheaval and customers returning to fixed
income products.

Principal transactions - For the year ended December
31, 2008, principal transactions revenue increased 39.4% to $124.6 million from
$89.4 million in the comparable period in 2007. The increase is primarily
attributable to
the increased
number of branch locations resulting from the Ryan Beck acquisition and the
continued expansion of the private client group and an increase in the number of
financial advisors.




Asset management and service fees -  
For the year ended December 31, 2008,
asset management and service fees increased 17.7% to $119.0 million from $101.1
million in the comparable period in 2007. The increase is primarily a result of
increased distribution fees for money market funds, principally Federal Deposit
Insurance Corporation insured accounts, offset by a 13.4% decrease in the value
of assets in fee-based accounts from December 31, 2007. See Assets in Fee-based
Accounts included in the table above for further details.




Interest revenue -  
For the
year ended December 31, 2008, interest revenue decreased 6.1% to $38.2 million
from $40.7 million in the comparable period in 2007. The decrease is primarily
due to a decrease in interest revenue from customer margin borrowing to finance
trading activity and lower average customer margin balances.
See "Distribution
of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest
Rate Differential" below for a further discussion of the changes in interest
revenues.



Investment
banking -
Investment banking, which represents sales credits for investment banking
underwritings, decreased 61.3% to $15.5 million for the year ended December 31,
2008 from $40.1 million during the comparable period in 2007.
The decrease is attributable to the
industry-wide decline in common stock offerings and mergers and acquisitions
caused by challenging capital market conditions during 2008. See further
discussion of investment banking activities in the Capital Markets segment
section.




Interest expense -  
For the
year ended December 31, 2008, interest expense decreased 32.0% to $16.7 million
from $24.6 million in the comparable period in 2007. The decrease is primarily
due to decreased interest rates charged by banks on lower levels of borrowings
to finance customer borrowing.
See "Distribution
of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest
Rate Differential" below for a further discussion of the changes in interest
expense.




50










NON-INTEREST
EXPENSES 




For the year ended
December 31, 2008, Global Wealth Management non-interest expenses increased 8.4%
to $372.9 million from $344.2 million for the comparable period in 2007.



Unless
specifically discussed below, the fluctuations in non-interest expenses were
primarily attributable to the continued growth of our private client group
during the year ended December 31, 2008. As of December 31, 2008, we have 196
branch offices compared to 148 at December 31, 2007.



Compensation
and benefits -  
For the year ended December 31,
2008, compensation and benefits expense increased 4.9% to $289.2 million from
$275.7 million during the comparable period in 2007.
The increase is
principally due to increased variable compensation as a result of increased
production and fixed compensation.
Compensation and benefits expense as a
percentage of net revenues decreased to 61.4% for the year ended December 31,
2008 compared to 62.6% for the comparable period in 2007.  



A portion
of compensation and benefits expenses includes transition pay, principally in
the form of upfront notes, signing bonuses and retention awards in connection
with our continuing expansion efforts, of $28.2 million (6.0% of net revenues)
for the year ended December 31, 2008 compared to $23.1 million (5.2% of net
revenues) for the year ended December 31, 2007. The upfront notes are amortized
over a five to ten year period.




Occupancy and equipment rental -  
For the
year ended December 31, 2008, occupancy and equipment rental expense increased
24.7% to $36.2 million from $29.0 million during the comparable period in 2007.




Communications and office supplies -  
For the year ended December 31, 2008,
communications and office supplies expense increased 21.5% to $19.3 million from
$15.9 million during the comparable period in 2007.




Commissions and floor brokerage -  
For the
year ended December 31, 2008, commissions and floor brokerage expense decreased
$0.2 million, or 6.2%, to $4.5 million from $4.7 million during the comparable
period in 2007.




Other operating expenses -
For the year ended December 31, 2008, other operating expenses increased 26.5%
to $23.7 million from $18.7 million during the comparable period in 2007.





INCOME BEFORE INCOME TAXES



For the
year ended December 31, 2008, income before
income taxes increased 1.8%, or $1.8 million, to $98.1 million from $96.3
million during the comparable period in 2007. The increase is primarily
attributable to increased net revenues and the scalability of increased
production.




51









The information
required by Securities Act Guide 3 - Statistical Disclosure by Bank Holding
Company is presented below:



I.     
Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and
Interest Rate Differential



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


	
		
		


		 
		
		

		 
		
		

		For the Year Ended 

	
	
		
		


		 
		
		

		 
		
		

		December 31, 2009
		
		

		 
		
		


		December 31, 2008
	
	
		
		


		 
		
		

		 
		
		

		Average Balance
		
		

		 
		
		

		Interest Income/

		
		
		Expense
		
		

		 
		
		

		Average Interest Rate
		
		

		 
		
		


		Average Balance
		
		

		 
		
		


		Interest Income/



		Expense
		
		

		 
		
		


		Average Interest Rate
	
	
		
		


		Assets:
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		

		Federal funds sold
		
		

		 
		
		

		$
		
		


		195,783
		
		


		 
		
		


		$
		
		

		763
		
		


		 
		
		

		0.39
		
		


		%
		
		

		 
		
		


		$
		
		


		10,027
		
		

		 
		
		

		$
		
		


		214
		
		

		 
		
		


		2.14
		
		

		%
	
	
		
		


		U.S. government agencies
		
		

		 
		
		


		 
		
		


		1,775
		
		


		 
		
		


		 
		
		

		97
		
		


		 
		
		

		5.46
		
		


		 
		
		

		 
		
		


		 
		
		


		13,361
		
		

		 
		
		

		 
		
		


		824
		
		

		 
		
		


		6.17
		
		

		 
	
	
		
		

		State and political subdivisions:
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Taxable
		
		

		 
		
		


		 
		
		

		-
		
		


		 
		
		


		 
		
		

		-
		
		


		 
		
		

		-
		
		


		 
		
		

		 
		
		


		 
		
		


		9,240
		
		

		 
		
		

		 
		
		


		375
		
		

		 
		
		


		4.05
		
		

		 
	
	
		
		


		Non-taxable  (1)
		
		

		 
		
		


		 
		
		


		1,096
		
		

		 
		
		


		 
		
		

		45
		
		


		 
		
		

		4.11
		
		


		 
		
		

		 
		
		


		 
		
		


		1,530
		
		


		 
		
		

		 
		
		


		58
		
		

		 
		
		


		3.81
		
		

		 
	
	
		
		

		Mortgage-backed securities
		
		

		 
		
		


		 
		
		


		162,694
		
		


		 
		
		


		 
		
		

		5,878
		
		


		 
		
		

		3.61
		
		


		 
		
		

		 
		
		


		 
		
		


		32,916
		
		

		 
		
		

		 
		
		


		1,731
		
		

		 
		
		


		5.26
		
		

		 
	
	
		
		


		Corporate bonds
		
		

		 
		
		


		 
		
		


		27,627
		
		


		 
		
		


		 
		
		

		1,244
		
		


		 
		
		

		4.50
		
		


		 
		
		

		 
		
		


		 
		
		


		926
		
		

		 
		

		 
		
		


		57
		
		

		 
		
		


		6.12
		
		

		 
	
	
		
		


		Asset-backed securities
		
		

		 
		
		


		 
		
		


		16,997
		
		


		 
		
		


		 
		
		

		717
		
		


		 
		
		

		4.22
		
		


		 
		
		

		 
		
		


		 
		
		


		20,060
		
		

		 
		
		

		 
		
		


		1,519
		
		

		 
		
		


		7.57
		
		

		 
	
	
		
		


		Federal Home Loan Bank ("FHLB") and other capital stock
		
		

		 
		
		


		 
		
		

		762
		
		


		 
		
		


		 
		
		

		9
		
		


		 
		
		

		1.18
		
		


		 
		
		

		 
		
		

		 
		
		


		991
		
		

		 
		
		

		 
		
		


		28
		
		

		 
		
		


		2.82
		
		

		 
	
	
		
		


		Loans (2)  
		
		

		 
		
		


		 
		
		

		239,879
		
		


		 
		
		


		 
		
		

		9,914
		
		


		 
		
		

		4.13
		
		


		 
		
		

		 
		
		

		 
		
		


		170,244
		
		

		 
		
		

		 
		
		


		9,807
		
		

		 
		
		


		5.76
		
		

		 
	
	
		
		


		Loans held for sale
		
		

		 
		
		


		 
		
		


		40,619
		
		


		 
		
		


		 
		
		

		1,616
		
		


		 
		
		

		3.98
		
		


		 
		
		

		 
		
		


		 
		
		


		14,598
		
		

		 
		
		

		 
		
		


		640
		
		

		 
		
		


		4.38
		
		

		 
	
	
		
		

		Total interest-earning assets
		
		
		(3)
		
		

		 
		
		


		$
		
		


		687,232
		
		


		 
		
		


		$
		
		

		20,283
		
		


		 
		
		

		2.95
		
		


		%
		
		

		 
		
		


		$
		
		


		273,893
		
		

		 
		
		

		$
		
		


		15,253
		
		

		 
		
		


		5.57
		
		

		%
	
	
		
		


		Cash and due from banks
		
		

		 
		
		


		 
		
		


		4,927
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		3,444
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Other non interest-earning assets
		
		

		 
		
		

		 
		
		


		23,289
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		23,350
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Total
		assets
		
		

		 
		
		

		$
		
		


		715,448
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		$
		
		


		300,687
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		

		
		Liabilities and shareholders' equity:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Deposits:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Money market
		
		

		 
		
		

		$
		
		


		591,961
		
		

		 
		
		


		$
		
		

		3,841
		
		


		 
		
		

		0.65
		
		


		%
		
		

		 
		
		


		$
		
		


		178,198
		
		


		 
		
		

		$
		
		


		3,491
		
		

		 
		
		


		1.96
		
		

		%
	
	
		
		


		Time deposits
		
		

		 
		
		

		 
		
		


		20,104
		
		

		 
		
		


		 
		
		

		676
		
		


		 
		
		

		3.36
		
		


		 
		
		

		 
		
		


		 
		
		


		36,287
		
		


		 
		
		

		 
		
		


		1,600
		
		

		 
		
		


		4.41
		
		

		 
	
	
		
		


		Demand deposits
		
		

		 
		
		

		 
		
		


		11,072
		
		

		 
		
		


		 
		
		

		29
		
		


		 
		
		

		0.26
		
		


		 
		
		

		 
		
		


		 
		
		


		2,755
		
		


		 
		
		

		 
		
		


		44
		
		

		 
		
		


		1.60
		
		

		 
	
	
		
		


		Savings
		
		

		 
		
		

		 
		
		


		303
		
		

		 
		
		


		 
		
		

		-
		
		


		 
		
		

		-
		
		


		 
		
		

		 
		
		


		 
		
		


		339
		
		


		 
		
		

		 
		
		


		3
		
		

		 
		
		


		0.97
		
		

		 
	
	
		
		


		FHLB advances
		
		

		 
		
		

		 
		
		


		3,304
		
		

		 
		
		


		 
		
		

		103
		
		


		 
		
		

		3.12
		
		


		 
		
		

		 
		
		


		 
		
		


		10,739
		
		


		 
		
		

		 
		
		


		275
		
		

		 
		
		


		2.56
		
		

		 
	
	
		
		


		Federal funds and repurchase agreements
		
		

		 
		
		

		 
		
		


		10
		
		

		 
		
		


		 
		
		

		-
		
		


		 
		
		

		-
		
		


		 
		
		

		 
		
		


		 
		
		


		887
		
		


		 
		
		

		 
		
		


		21
		
		

		 
		
		


		2.41
		
		

		 
	
	
		
		

		Total interest-bearing liabilities
		
		
		(3)
		
		

		 
		
		

		$
		
		


		626,754
		
		

		 
		
		


		$
		
		

		4,649
		
		


		 
		
		

		0.74
		
		


		%
		
		

		 
		
		


		$
		
		


		229,205
		
		


		 
		
		

		$
		
		


		5,434
		
		

		 
		
		


		2.37
		
		

		%
	
	
		
		


		Non interest-bearing deposits
		
		

		 
		
		

		 
		
		


		15,054
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		15,293
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Other non interest-bearing liabilities
		
		

		 
		
		

		 
		
		


		3,014
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		1,480
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		

		Total liabilities
		
		

		 
		
		

		 
		
		


		644,822
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		245,978
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Shareholders' equity
		
		

		 
		
		

		 
		
		


		70,626
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		54,709
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		

		Total liabilities and shareholders'
		equity
		
		

		 
		
		

		$
		
		


		715,448
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		$
		
		


		300,687
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Net interest margin
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		$
		
		

		15,634
		
		


		 
		
		

		2.27
		
		


		%
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		$
		
		


		9,819
		
		

		 
		
		


		3.58
		
		

		%
	
	



52









	
		
		


		 
		
		

		 
		
		

		Period
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		April 2, 2007 - December 31, 2007 *
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		Average Balance
		
		

		 
		
		

		Interest Income/

		
		
		Expense
		
		

		 
		
		

		Average Interest Rate
		
		

		 
	
	
		
		


		Assets:
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		

		Federal funds sold
		
		

		 
		
		


		$
		
		


		24,717
		
		


		 
		
		

		$
		
		


		944
		
		

		 
		
		


		5.10
		
		

		%
		
		

		 
	
	
		
		


		U.S. government agencies
		
		

		 
		
		

		 
		
		


		21,490
		
		


		 
		
		

		 
		
		


		897
		
		

		 
		
		


		5.57
		
		

		 
		
		

		 
	
	
		
		

		State and political subdivisions:
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
	
	
		
		


		Taxable
		
		

		 
		
		

		 
		
		


		5,238
		
		


		 
		
		

		 
		
		


		231
		
		

		 
		
		


		5.88
		
		

		 
		
		

		 
	
	
		
		


		Non-taxable  (1)
		
		

		 
		
		

		 
		
		


		1,527
		
		

		 
		
		

		 
		
		


		38
		
		

		 
		
		


		3.32
		
		

		 
		
		

		 
	
	
		
		

		Mortgage-backed securities
		
		

		 
		
		

		 
		
		


		19,473
		
		


		 
		
		

		 
		
		


		902
		
		

		 
		
		


		6.18
		
		

		 
		
		

		 
	
	
		
		


		Corporate bonds
		
		

		 
		
		

		 
		
		


		664
		
		


		 
		
		

		 
		
		


		36
		
		

		 
		
		


		7.18
		
		

		 
		
		

		 
	
	
		
		


		Asset-backed securities
		
		

		 
		
		

		 
		
		


		9,465
		
		


		 
		
		

		 
		
		


		517
		
		

		 
		
		


		7.28
		
		

		 
		
		

		 
	
	
		
		


		FHLB and other capital stock
		
		

		 
		
		

		 
		
		


		503
		
		


		 
		
		

		 
		
		


		19
		
		

		 
		
		


		5.05
		
		

		 
		
		

		 
	
	
		
		


		Loans (2)  
		
		

		 
		
		

		 
		
		


		104,945
		
		


		 
		
		

		 
		
		


		5,816
		
		

		 
		
		


		7.39
		
		

		 
		
		

		 
	
	
		
		


		Loans held for sale
		
		

		 
		
		

		 
		
		


		-
		
		


		 
		
		

		 
		
		


		-
		
		

		 
		
		


		-
		
		

		 
		
		

		 
	
	
		
		

		Total interest-earning assets
		
		
		(3)
		
		

		 
		
		

		$
		
		


		188,022
		
		


		 
		
		

		$
		
		


		9,400
		
		

		 
		
		


		6.67
		
		

		%
		
		

		 
	
	
		
		


		Cash and due from banks
		
		

		 
		
		

		 
		
		


		1,696
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
	
	
		
		


		Other non interest-earning assets
		
		

		 
		
		


		 
		
		


		16,746
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
	
	
		
		


		Total
		assets
		
		

		 
		
		


		$
		
		


		206,464
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
	
	
		
		

		Liabilities and shareholders' equity:
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
	
	
		
		


		Deposits:
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
	
	
		
		


		Money market
		
		

		 
		
		


		$
		
		


		92,915
		
		

		 
		
		

		$
		
		


		3,290
		
		

		 
		
		


		4.69
		
		

		%
		
		

		 
	
	
		
		


		Time deposits
		
		

		 
		
		


		 
		
		


		53,490
		
		

		 
		
		

		 
		
		


		1,982
		
		

		 
		
		


		4.94
		
		

		 
		
		

		 
	
	
		
		


		Demand deposits
		
		

		 
		
		


		 
		
		


		1,623
		
		

		 
		
		

		 
		
		


		40
		
		

		 
		
		


		3.27
		
		

		 
		
		

		 
	
	
		
		


		Savings
		
		

		 
		
		


		 
		
		


		495
		
		

		 
		
		

		 
		
		


		9
		
		

		 
		
		


		2.42
		
		

		 
		
		

		 
	
	
		
		


		FHLB advances
		
		

		 
		
		


		 
		
		


		3,642
		
		

		 
		
		

		 
		
		


		145
		
		

		 
		
		


		5.32
		
		

		 
		
		

		 
	
	
		
		


		Federal funds and repurchase agreements
		
		

		 
		
		


		 
		
		


		119
		
		

		 
		
		

		 
		
		


		3
		
		

		 
		
		


		3.33
		
		

		 
		
		

		 
	
	
		
		

		Total interest-bearing liabilities
		
		
		(3)
		
		

		 
		
		


		$
		
		


		152,284
		
		

		 
		
		

		$
		
		


		5,469
		
		

		 
		
		


		4.79
		
		

		%
		
		

		 
	
	
		
		


		Non interest-bearing deposits
		
		

		 
		
		


		 
		
		


		9,442
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
	
	
		
		


		Other non interest-bearing liabilities
		
		

		 
		
		


		 
		
		


		850
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
	
	
		
		

		Total liabilities
		
		

		 
		
		


		 
		
		


		162,576
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
	
	
		
		


		Shareholders' equity
		
		

		 
		
		


		 
		
		


		43,888
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
	
	
		
		

		Total liabilities and shareholders'
		equity
		
		

		 
		
		


		$
		
		


		206,464
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
	
	
		
		


		Net interest margin
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		$
		
		


		3,931
		
		

		 
		
		


		2.51
		
		

		%
		
		

		 
	
	
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
	


* 
Stifel Bank was acquired on April 2, 2007.



(1)
Due to immaterial amount of income recognized on
tax-exempt securities, yields were not calculated on a tax equivalent basis.



(2) Loans on non-accrual status are
included in average balances.



(3) See Net Interest Income table
included in "Results of Operations" for additional information on our company's
average balances and operating interest and expenses.




53










Net
interest income -
Net interest income is the difference between interest earned on
interest-earning assets and interest paid on funding sources. Net interest
income is affected by changes in the volume and mix of these assets and
liabilities, as well as by fluctuations in interest rates and portfolio
management strategies.



For the
year ended December 31, 2009, interest revenue for Stifel Bank of $20.3 million
was generated from weighted average interest-earning assets of $687.2 million at
a weighted average interest rate of 2.95%. Interest-earning assets principally
consist of residential, consumer, and commercial loans, securities, and federal
funds sold.



For the
year ended December 31, 2008, interest revenue for Stifel Bank of $15.3 million
was generated from weighted average interest-earning assets of $273.9 million at
a weighted average interest rate of 5.57%. Interest revenue of $9.4 million for
the period April 2 through December 31, 2007 was generated from weighted average
interest-earning assets of $188.0 million at a weighted average interest rate of
6.67%. Interest-earning assets principally consist of residential, consumer, and
commercial loans, securities, and federal funds sold.



Interest
expense represents interest on customer money market and savings accounts,
interest on time deposits and other interest expense. The weighted average
balance of interest-bearing liabilities during the year ended December 31, 2009
was $626.8 million at a weighted average interest rate of 0.74%. The weighted
average balance of interest-bearing liabilities during the year ended December
31, 2008 was $229.2 million at a weighted average interest rate of 2.37%. The
weighted average balance of interest-bearing liabilities for the period April 2
through December 31, 2007 was $152.3 million at a weighted average interest rate
of 4.79%.  



The
growth in Stifel Bank has been primarily driven by (i) the conversion of UBS
branches to the Stifel Nicolaus platform with money market funds and
FDIC-insured balances of $1.7 billion and (ii) the growth in deposits associated
with brokerage customers of Stifel Nicolaus. At December 31, 2009, the balance
of Stifel Nicolaus brokerage customer deposits at Stifel Bank was $1,008.6
million compared to $228.7 million at December 31, 2008.  



See the
average balances and interest rates for Stifel Bank presented above for more
information regarding average balances, interest income and expense, and average
interest rate yields.




54










The following
table sets forth an analysis of the effect on net interest income of volume and
rate changes for the periods indicated (in thousands):


	
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		Year Ended December 31, 2009

		Compared to Year Ended

		December 31, 2008
		
		

		 
		
		

		Year Ended December 31, 2008

		Compared to Year Ended 

		December 31, 2007
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		Increase (decrease) due to:
		
		

		 
		
		

		Increase (decrease) due to:
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		Volume
		
		

		 
		
		

		Rate
		
		

		 
		
		

		Total
		
		

		 
		
		

		Volume
		
		

		 
		
		

		Rate
		
		

		 
		
		

		Total
		
		

		 
	
	
		
		


		Interest income:
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		

		Federal funds sold
		
		

		 
		
		

		$
		
		


		862
		
		


		 
		
		


		$
		
		

		(313
		
		


		)
		
		

		$
		
		


		549
		
		

		 
		
		

		$
		
		


		(214
		
		

		)
		
		

		$
		
		


		(516
		
		

		)
		
		

		$
		
		


		(730
		
		

		)
	
	
		
		


		U.S. government agencies
		
		

		 
		
		


		 
		
		


		(646
		
		


		)
		
		


		 
		
		

		(81
		
		


		)
		
		


		 
		
		


		(727
		
		

		)
		
		

		 
		
		


		(102
		
		

		)
		
		

		 
		
		


		29
		
		

		 
		
		

		 
		
		


		(73
		
		

		)
	
	
		
		

		State and political subdivisions:
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Taxable
		
		

		 
		
		


		 
		
		


		(187
		
		


		)
		
		


		 
		
		

		(188
		
		


		)
		
		


		 
		
		


		(375
		
		

		)
		
		

		 
		
		


		243
		
		

		 
		
		

		 
		
		


		(99
		
		

		)
		
		

		 
		
		


		144
		
		

		 
	
	
		
		


		Non-taxable
		
		

		 
		
		


		 
		
		


		(17
		
		

		)
		
		


		 
		
		

		4
		
		


		 
		
		


		 
		
		


		(13
		
		


		)
		
		


		 
		
		

		-
		
		


		 
		
		


		 
		
		


		20
		
		


		 
		
		


		 
		
		


		20
		
		


		 
	
	
		
		

		Mortgage-backed securities
		
		

		 
		
		


		 
		
		


		4,846
		
		


		 
		
		


		 
		
		

		(699
		
		


		)
		
		


		 
		
		


		4,147
		
		

		 
		
		

		 
		
		


		977
		
		

		 
		
		

		 
		
		


		(148
		
		

		)
		
		

		 
		
		


		829
		
		

		 
	
	
		
		


		Corporate bonds
		
		

		 
		
		


		 
		
		


		1,206
		
		


		 
		
		


		 
		
		

		(19
		
		


		)
		
		


		 
		
		


		1,187
		
		

		 
		
		

		 
		
		


		26
		
		

		 
		
		

		 
		
		


		(5
		
		

		)
		
		

		 
		
		


		21
		
		

		 
	
	
		
		


		Asset-backed securities
		
		

		 
		
		


		 
		
		


		(205
		
		


		)
		
		


		 
		
		

		(597
		
		


		)
		
		

		 
		
		


		(802
		
		

		)
		
		

		 
		
		


		968
		
		

		 
		
		

		 
		
		


		34
		
		

		 
		
		

		 
		
		


		1,002
		
		

		 
	
	
		
		


		FHLB and other capital stock
		
		

		 
		
		


		 
		
		

		(5
		
		


		)
		
		


		 
		
		

		(14
		
		


		)
		
		


		 
		
		

		(19
		
		

		)
		
		

		 
		
		


		17
		
		

		 
		
		

		 
		
		


		(8
		
		

		)
		
		

		 
		
		


		9
		
		

		 
	
	
		
		


		Loans  
		
		

		 
		
		


		 
		
		

		3,697
		
		


		 
		
		


		 
		
		

		(3,590
		
		


		)
		
		


		 
		
		

		107
		
		

		 
		
		

		 
		
		


		5,472
		
		

		 
		
		

		 
		
		


		(1,481
		
		

		)
		
		

		 
		
		


		3,991
		
		

		 
	
	
		
		


		Loans held for sale
		
		

		 
		
		


		 
		
		


		912
		
		


		 
		
		


		 
		
		

		64
		
		


		 
		
		


		 
		
		


		976
		
		

		 
		
		

		 
		
		


		640
		
		

		 
		
		

		 
		
		

		-
		
		

		 
		
		

		 
		
		


		640
		
		

		 
	
	
		
		

		 
		
		

		 
		
		


		$
		
		


		10,463
		
		


		 
		
		


		$
		
		

		(5,433
		
		


		)
		
		

		$
		
		


		5,030
		
		

		 
		
		

		$
		
		


		8,027
		
		

		 
		
		

		$
		
		


		(2,174
		
		

		)
		
		

		$
		
		


		5,853
		
		

		 
	
	
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		

		 
		
		

		 
		
		


		Increase (decrease) due to:
		
		

		 
		
		


		Increase (decrease) due to:
		
		

		 
	
	
		
		

		 
		
		

		 
		
		


		Volume
		
		

		 
		
		

		Rate
		
		

		 
		
		


		Total
		
		

		 
		
		


		Volume
		
		

		 
		
		


		Rate
		
		

		 
		
		


		Total
		
		

		 
	
	
		
		

		Interest expense:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Deposits:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Money market
		
		

		 
		
		

		$
		
		


		3,900
		
		

		 
		
		


		$
		
		

		(3,550
		
		


		)
		
		

		$
		
		


		350
		
		

		 
		
		


		$
		
		


		3,227
		
		


		 
		
		


		$
		
		


		(3,026
		
		


		)
		
		


		$
		
		


		201
		
		


		 
	
	
		
		


		Time deposits
		
		

		 
		
		

		 
		
		


		(603
		
		

		)
		
		


		 
		
		

		(321
		
		


		)
		
		


		 
		
		


		(924
		
		

		)
		
		


		 
		
		


		(286
		
		


		)
		
		


		 
		
		


		(96
		
		


		)
		
		


		 
		
		


		(382
		
		


		)
	
	
		
		


		Demand deposits
		
		

		 
		
		

		 
		
		


		46
		
		

		 
		
		


		 
		
		

		(61
		
		


		)
		
		


		 
		
		


		(15
		
		

		)
		
		


		 
		
		


		34
		
		


		 
		
		


		 
		
		


		(30
		
		


		)
		
		


		 
		
		


		4
		
		


		 
	
	
		
		


		Savings
		
		

		 
		
		

		 
		
		

		-
		
		

		 
		
		


		 
		
		

		(3
		
		


		)
		
		


		 
		
		


		(3
		
		

		)
		
		


		 
		
		


		(2
		
		


		)
		
		


		 
		
		


		(4
		
		


		)
		
		


		 
		
		


		(6
		
		


		)
	
	
		
		


		FHLB advances
		
		

		 
		
		

		 
		
		


		(222
		
		

		)
		
		


		 
		
		

		50
		
		


		 
		
		


		 
		
		


		(172
		
		

		)
		
		


		 
		
		


		261
		
		


		 
		
		


		 
		
		


		(131
		
		


		)
		
		


		 
		
		


		130
		
		


		 
	
	
		
		


		Federal funds and repurchase agreements
		
		

		 
		
		

		 
		
		


		(11
		
		

		)
		
		


		 
		
		

		(10
		
		


		)
		
		


		 
		
		


		(21
		
		

		)
		
		


		 
		
		


		19
		
		


		 
		
		


		 
		
		


		(1
		
		


		)
		
		


		 
		
		


		18
		
		


		 
	
	
		
		

		 
		
		

		 
		
		

		$
		
		


		3,110
		
		

		 
		
		


		$
		
		

		(3,895
		
		


		)
		
		

		$
		
		


		(785
		
		

		)
		
		


		$
		
		


		3,253
		
		


		 
		
		


		$
		
		


		(3,288
		
		


		)
		
		


		$
		
		


		(35
		
		


		)
	
	
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	



Increases and
decreases in interest revenue and interest expense result from changes in
average balances (volume) of interest-earning bank assets and liabilities, as
well as changes in average interest rates. The effect of changes in volume is
determined by multiplying the change in volume by the previous year's average
yield/cost. Similarly, the effect of rate changes is calculated by multiplying
the change in average yield/cost by the previous year's volume. Changes
applicable to both volume and rate have been allocated proportionately.




55










II.    Investment
Portfolio



The following
tables provide a summary of the amortized cost and fair values of the
available-for-sale securities and held-to-maturity security at December 31,
2009, 2008 and 2007 (in thousands):


	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		 
		
		

		 
		
		

		December 31, 2009
		
		


		 
	
	
		
		


		 
		
		

		 
		
		


		Amortized

		
		
		cost
		
		


		 
		
		

		Gross unrealized
		

		
		
		gains  
		(1)
		
		

		 
		
		


		Gross unrealized losses  
		(1)
		
		


		 
		
		

		Estimated

		
		
		fair value
		
		


		 
	
	
		
		


		Available-for-sale
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		U.S. government securities
		
		

		 
		
		

		$
		
		


		998
		
		

		 
		
		

		$
		
		


		13
		
		


		 
		
		


		$
		
		


		-
		
		

		 
		
		

		$
		
		


		1,011
		
		


		 
	
	
		
		


		State and municipal securities
		
		

		 
		
		


		 
		
		


		960
		
		

		 
		
		

		 
		
		


		32
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		


		 
		
		


		992
		
		


		 
	
	
		
		


		Mortgage-backed securities:
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
	
	
		
		


		Agency
		
		

		 
		
		

		 
		
		


		432,820
		
		

		 
		
		

		 
		
		


		1,880
		
		


		 
		
		


		 
		
		


		(1,681
		
		

		)
		
		

		 
		
		


		433,019
		
		

		 
	
	
		
		


		Non-agency
		
		

		 
		
		


		 
		
		


		39,905
		
		

		 
		
		

		 
		
		


		683
		
		

		 
		
		

		 
		
		


		(2,122
		
		

		)
		
		


		 
		
		


		38,466
		
		

		 
	
	
		
		


		Commercial
		
		


		 
		
		

		 
		
		


		47,274
		
		

		 
		
		

		 
		
		


		683
		
		


		 
		
		


		 
		
		


		(317
		
		

		)
		
		

		 
		
		


		47,640
		
		


		 
	
	
		
		


		Corporate fixed income securities
		
		


		 
		
		

		 
		
		


		40,788
		
		

		 
		
		

		 
		
		


		2,102
		
		


		 
		
		


		 
		
		


		-
		
		

		 
		
		

		 
		
		


		42,890
		
		


		 
	
	
		
		


		Asset-backed securities
		
		

		 
		
		

		 
		
		


		13,235
		
		


		 
		
		


		 
		
		


		1,235
		
		


		 
		
		


		 
		
		


		-
		
		

		 
		
		


		 
		
		

		14,470
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		$
		
		


		575,980
		
		

		 
		
		

		$
		
		


		6,628
		
		


		 
		
		


		$
		
		


		(4,120
		
		

		)
		
		

		$
		
		


		578,488
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Held-to-maturity
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Asset-backed securities  (2)
		
		

		 
		
		

		$
		
		


		7,574
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		(3,298
		
		


		)
		
		

		$
		
		


		4,276
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		December 31, 2008
		
		


		 
	
	
		
		


		 
		
		

		 
		
		


		Amortized

		
		
		cost
		
		


		 
		
		

		Gross unrealized
		

		
		
		gains  
		(1)
		
		

		 
		
		


		Gross unrealized losses  
		(1)
		
		


		 
		
		

		Estimated

		
		
		fair value
		
		


		 
	
	
		
		


		Available-for-sale
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		U.S. government securities
		
		

		 
		
		


		$
		
		


		8,447
		
		

		 
		
		

		$
		
		


		144
		
		


		 
		
		


		$
		
		


		-
		
		

		 
		
		


		$
		
		


		8,591
		
		


		 
	
	
		
		


		State and municipal securities
		
		

		 
		
		

		 
		
		


		1,513
		
		

		 
		
		

		 
		
		


		19
		
		

		 
		
		

		 
		
		


		(1
		
		

		)
		
		

		 
		
		


		1,531
		
		


		 
	
	
		
		


		Mortgage-backed securities:
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
	
	
		
		


		Agency
		
		

		 
		
		


		 
		
		


		12,821
		
		

		 
		
		

		 
		
		


		-
		
		


		 
		
		


		 
		
		


		(391
		
		

		)
		
		


		 
		
		


		12,430
		
		

		 
	
	
		
		


		Non-agency
		
		

		 
		
		

		 
		
		


		23,091
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		(5,669
		
		

		)
		
		

		 
		
		


		17,422
		
		

		 
	
	
		
		


		Asset-backed securities
		
		


		 
		
		


		 
		
		


		11,400
		
		

		 
		
		

		 
		
		


		-
		
		


		 
		
		


		 
		
		


		(977
		
		

		)
		
		


		 
		
		


		10,423
		
		


		 
	
	
		
		


		 
		
		

		 
		
		


		$
		
		


		57,272
		
		

		 
		
		

		$
		
		


		163
		
		


		 
		
		


		$
		
		


		(7,038
		
		

		)
		
		


		$
		
		


		50,397
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Held-to-maturity
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Asset-backed securities  (2)
		
		

		 
		
		


		$
		
		


		7,574
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		(1,324
		
		


		)
		
		


		$
		
		


		6,250
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	




56









	
		
		


		 
		
		

		 
		
		


		December 31, 2007
		
		


		 
	
	
		
		


		 
		
		

		 
		
		


		Amortized

		
		
		cost
		
		


		 
		
		

		Gross unrealized
		

		
		
		gains  
		(1)
		
		

		 
		
		


		Gross unrealized losses  
		(1)
		
		


		 
		
		

		Estimated

		
		
		fair value
		
		


		 
	
	
		
		


		Available-for-sale
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		U.S. government securities
		
		

		 
		
		


		$
		
		


		22,485
		
		

		 
		
		

		$
		
		


		278
		
		


		 
		
		


		$
		
		


		(1
		
		

		)
		
		


		$
		
		


		22,762
		
		


		 
	
	
		
		


		State and municipal securities
		
		

		 
		
		

		 
		
		


		15,121
		
		

		 
		
		

		 
		
		


		5
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		15,126
		
		


		 
	
	
		
		


		Mortgage-backed securities:
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
	
	
		
		


		Agency
		
		

		 
		
		


		 
		
		


		13,465
		
		

		 
		
		

		 
		
		


		-
		
		


		 
		
		


		 
		
		


		(10
		
		

		)
		
		


		 
		
		


		13,455
		
		

		 
	
	
		
		


		Non-agency
		
		

		 
		
		

		 
		
		


		14,444
		
		

		 
		
		

		 
		
		


		232
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		14,676
		
		

		 
	
	
		
		


		Corporate bonds
		
		


		 
		
		


		 
		
		


		2,993
		
		

		 
		
		

		 
		
		


		-
		
		


		 
		
		


		 
		
		


		(23
		
		

		)
		
		


		 
		
		


		2,970
		
		


		 
	
	
		
		


		Asset-backed securities
		
		


		 
		
		


		 
		
		


		19,699
		
		

		 
		
		

		 
		
		


		-
		
		


		 
		
		


		 
		
		


		(1,581
		
		

		)
		
		


		 
		
		


		18,118
		
		


		 
	
	
		
		


		 
		
		

		 
		
		

		$
		
		


		88,207
		
		

		 
		
		

		$
		
		


		515
		
		


		 
		
		


		$
		
		


		(1,615
		
		

		)
		
		


		$
		
		


		87,107
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	



(1)
Unrealized gains/(losses) related to available-for-sale securities are reported
in other comprehensive income/(loss).



(2)
Held-to-maturity securities are carried on the consolidated statements of
financial condition at amortized cost and the changes in the value of these
securities, other than impairment charges, are not reported on the financial
statements.




57










On June 30, 2008,
we transferred a $10,000 par value asset backed security, consisting of
investment-grade trust preferred securities related primarily to banks, with an
amortized cost basis of $10,069 from our available-for-sale securities portfolio
to our held-to-maturity portfolio. This security was transferred at the
estimated fair value of $7,574. The gross unrealized loss of $2,495 included in
accumulated other comprehensive income/(loss) is being amortized as an
adjustment of yield over the remaining life of the security. The estimated fair
value of the held-to-maturity security at December 31, 2009 was $4,276. The
estimated fair value was determined using several factors; however, primary
weight was given to discounted cash flow modeling techniques that incorporated
an estimated discount rate based upon recent observable debt security issuances
with similar characteristics.  



We evaluate our investment securities portfolio
on a quarterly basis for other-than-temporary impairment ("OTTI"). We assesses
whether OTTI has occurred when the fair value of a debt security is less than
the amortized cost basis at the balance sheet date. Under these circumstances,
OTTI is considered to have occurred (1) if we intend to sell the security; (2)
if it is more likely than not we will be required to sell the security before
recovery of its amortized cost basis; or (3) the present value of the expected
cash flows is not sufficient to recover the entire amortized cost basis. For
securities that we do not expect to sell or it is not more likely than not to be
required to sell, credit-related OTTI, represented by the expected loss in
principal, is recognized in earnings, while noncredit-related OTTI is recognized
in other comprehensive income/(loss) ("OCI"). For securities which we expect to
sell, all OTTI is recognized in earnings.



Noncredit-related OTTI results from other
factors, including increased liquidity spreads and extension of the security.
Presentation of OTTI is made in the income statement on a gross basis with a
reduction for the amount of OTTI recognized in OCI. We applied the related OTTI
guidance on our held-to-maturity debt security.



Based on the evaluation, we recognized
other-than-temporary impairment of $1.9 million related to credit through
earnings for the year ended December 31, 2009. For the impaired security,
unrealized losses not related to credit and therefore recognized in other
comprehensive income was $1.1 million (net of tax was $0.6 million) as of
December 31, 2009. The following table provides a summary of our
held-to-maturity security at December 31, 2009 (in thousands):


	
		
		


		 
		
		

		 
		
		


		 
		
		


		 
	
	
		
		


		 
		
		

		 
		
		


		December 31,
		

		
		
		2009
		
		


		 
	
	
		
		


		Held-to-maturity:
		
		

		 
		
		

		 
		
		


		 
		
		


		 
	
	
		
		


		Original Amortized cost  
		(1)  
		
		


		 
		
		

		$
		
		


		10,069
		
		


		 
	
	
		
		


		Impairment losses
		
		

		 
		
		

		 
		
		


		(1,881
		
		

		)
	
	
		
		

		Amortized cost
		
		


		 
		
		

		 
		
		


		8,188
		
		

		 
	
	
		
		


		Non-credit related impairment losses on securities not expected to be
		sold
		
		


		 
		
		

		 
		
		


		(614
		
		

		)
	
	
		
		


		Carrying value  
		(2)  
		
		


		 
		
		

		$
		
		


		7,574
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	



(1)
For securities transferred to held-to-maturity from available-for-sale,
amortized cost is defined as the original purchase cost, plus or minus any
accretion or amortization of interest, less any impairment previously recognized
in earnings.



(2)
Held-to-maturity securities are carried on the consolidated statement of
financial condition at amortized cost and the changes in the value of these
securities, other than impairment charges, are not reported on the financial
statements.




58










The
maturities and related weighted-average yields of available-for-sale and
held-to-maturity securities at December 31, 2009 are as follows (in
thousands, except rates):


	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		 
		
		

		 
		
		


		Within 1

		
		
		Year
		
		


		 
		
		

		1-5 Years
		
		

		 
		
		


		5-10 Years
		
		


		 
		
		

		After 10 Years
		
		


		 
		
		

		Total
		
		


		 
	
	
		
		


		Available-for-sale:  
		(1)
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		U.S. government securities
		
		

		 
		
		


		$
		
		


		1,011
		
		

		 
		
		

		$
		
		


		-
		
		


		 
		
		


		$
		
		


		-
		
		

		 
		
		


		$
		
		


		-
		
		


		 
		
		

		$
		
		

		1,011
		
		


		 
	
	
		
		


		State and municipal securities
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		992
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		


		 
		
		


		 
		
		

		992
		
		


		 
	
	
		
		


		Mortgage-backed securities:
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
	
	
		
		


		Agency
		
		

		 
		
		


		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		

		 
		
		


		 
		
		


		433,019
		
		

		 
		
		

		 
		
		


		433,019
		
		

		 
	
	
		
		


		Non-agency
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		9,658
		
		

		 
		
		

		 
		
		


		28,808
		
		


		 
		
		


		 
		
		

		38,466
		
		


		 
	
	
		
		


		Commercial
		
		


		 
		
		


		 
		
		


		-
		
		

		 
		
		

		 
		
		


		9,866
		
		


		 
		
		


		 
		
		


		15,125
		
		

		 
		
		


		 
		
		


		22,649
		
		


		 
		
		


		 
		
		

		47,640
		
		


		 
	
	
		
		


		Corporate fixed income securities
		
		


		 
		
		


		 
		
		


		6,271
		
		

		 
		
		

		 
		
		


		35,532
		
		


		 
		
		


		 
		
		


		1,087
		
		

		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		

		42,890
		
		


		 
	
	
		
		


		Asset-backed securities
		
		

		 
		
		

		 
		
		


		691
		
		


		 
		
		


		 
		
		


		4,246
		
		


		 
		
		


		 
		
		


		9,533
		
		

		 
		
		

		 
		
		


		-
		
		


		 
		
		


		 
		
		

		14,470
		
		


		 
	
	
		
		


		 
		
		

		 
		
		

		$
		
		


		7,973
		
		


		 
		
		


		$
		
		

		50,636
		
		

		 
		
		

		$
		
		


		35,403
		
		


		 
		
		

		$
		
		


		484,476
		
		


		 
		
		


		$
		
		

		578,488
		
		


		 
	
	
		
		


		Held-to-Maturity:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Asset-backed securities
		
		

		 
		
		

		$
		
		

		-
		
		


		 
		
		


		$
		
		

		-
		
		

		 
		
		

		$
		
		

		-
		
		


		 
		
		

		$
		
		


		7,574
		
		

		 
		
		

		$
		
		


		7,574
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Weighted-average yield
		
		

		 
		
		


		 
		
		


		3.72
		
		


		%
		
		


		 
		
		

		4.66
		
		


		%
		
		


		 
		
		


		4.55
		
		


		%
		
		

		 
		
		


		3.65
		
		

		%
		
		

		 
		
		


		3.79
		
		

		%
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	



(1)        
Due to an
immaterial amount of income recognized on tax-exempt securities, yields were not
calculated on a tax equivalent basis.



We did
not hold securities from any single issuer that exceeded ten percent of our
shareholders' equity at December 31, 2009.




59










III.   Loan
Portfolio



The following
table presents the balance and associated percentage of each major loan category
in Stifel Bank's loan portfolio at December 31, 2009, 2008 and 2007 (in
thousands):


	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		As of December 31,
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		2009
		
		

		 
		
		


		2008
		
		

		 
		
		


		2007
		
		

		 
	
	
		
		


		Consumer
		
		

		 
		
		

		$
		
		


		227,436
		
		

		 
		
		


		$
		
		


		19,662
		
		

		 
		
		

		$
		
		


		4,044
		
		

		 
	
	
		
		


		Residential real estate
		
		

		 
		
		

		 
		
		


		52,086
		
		

		 
		
		

		 
		
		


		58,778
		
		

		 
		
		

		 
		
		


		24,285
		
		

		 
	
	
		
		


		Home equity lines of credit
		
		

		 
		
		

		 
		
		


		33,369
		
		

		 
		
		

		 
		
		


		28,612
		
		

		 
		
		

		 
		
		


		1,524
		
		

		 
	
	
		
		


		Commercial  
		
		

		 
		
		

		 
		
		


		11,294
		
		

		 
		
		

		 
		
		


		27,538
		
		

		 
		
		

		 
		
		


		31,417
		
		

		 
	
	
		
		


		Commercial real estate
		
		

		 
		
		

		 
		
		


		10,152
		
		

		 
		
		

		 
		
		


		38,446
		
		

		 
		
		

		 
		
		


		39,184
		
		

		 
	
	
		
		


		Construction and land
		
		

		 
		
		

		 
		
		


		952
		
		

		 
		
		

		 
		
		


		13,968
		
		

		 
		
		

		 
		
		


		24,447
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		335,289
		
		

		 
		
		

		 
		
		


		187,004
		
		

		 
		
		

		 
		
		


		124,901
		
		

		 
	
	
		
		


		Unamortized loan origination costs, net of loan fees
		
		

		 
		
		

		 
		
		


		1,556
		
		

		 
		
		

		 
		
		


		591
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		

		Loans in process
		
		

		 
		
		

		 
		
		


		14
		
		


		 
		
		

		 
		
		


		(3,878
		
		

		)
		
		

		 
		
		


		109
		
		

		 
	
	
		
		


		Allowance for loan losses
		
		

		 
		
		

		 
		
		


		(1,702
		
		

		)
		
		


		 
		
		


		(2,448
		
		

		)
		
		

		 
		
		


		(1,685
		
		

		)
	
	
		
		


		 
		
		

		 
		
		

		$
		
		


		335,157
		
		

		 
		
		


		$
		
		


		181,269
		
		

		 
		
		

		$
		
		


		123,325
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	



 




The maturities of
the loan portfolio at December 31, 2009 are as follows (in thousands):


	
		
		


		 
		
		

		 
		
		


		Within 1 Year
		
		

		 
		
		

		1-5 Years
		
		


		 
		
		

		Over 5 Years
		
		

		 
		
		

		Total
		
		


		 
	
	
		
		


		 
		
		

		 
		
		


		$
		
		


		196,004
		
		

		 
		
		

		$
		
		


		64,188
		
		


		 
		
		


		$
		
		


		82,901
		
		

		 
		
		


		$
		
		


		343,093
		
		


		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	



The sensitivity of
loans with maturities in excess of one year at December 31, 2009 is as follows
(in thousands):


	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		 
		
		

		 
		
		

		1-5 Years
		
		


		 
		
		


		Over 5 Years
		
		

		 
		
		


		Total
		
		


		 
	
	
		
		


		Fixed rate loans
		
		

		 
		
		

		$
		
		


		35,113
		
		


		 
		
		


		$
		
		


		1,446
		
		

		 
		
		


		$
		
		


		36,559
		
		


		 
	
	
		
		


		Variable or adjustable rate loans
		
		

		 
		
		

		 
		
		


		29,075
		
		


		 
		
		


		 
		
		


		81,455
		
		

		 
		
		


		 
		
		


		110,530
		
		


		 
	
	
		
		


		 
		
		

		 
		
		

		$
		
		


		64,188
		
		


		 
		
		


		$
		
		


		82,901
		
		

		 
		
		


		$
		
		


		147,089
		
		


		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	




60










Changes in the
allowance for loan losses at Stifel Bank were as follows (in thousands):


	
		
		


		 
		
		

		 
		
		


		Year Ended December 31,
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		2009
		
		


		 
		
		


		2008
		
		


		 
		
		


		2007*
		
		

		 
	
	
		
		


		Allowance for loan losses, beginning of period
		
		

		 
		
		


		$
		
		

		2,448
		
		


		 
		
		

		$ 
		
		


		1,685
		
		


		 
		
		


		$
		
		


		-
		
		

		 
	
	
		
		

		Acquisition of Stifel Bank
		
		

		 
		
		


		 
		
		


		-
		
		


		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		1,127
		
		

		 
	
	
		
		

		Provision for loan losses
		
		

		 
		
		


		 
		
		

		604
		
		


		 
		
		

		 
		
		


		1,923
		
		

		 
		
		

		 
		
		


		558
		
		

		 
	
	
		
		

		Charge-offs:
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Construction and land
		
		

		 
		
		


		 
		
		

		(859
		
		


		)
		
		

		 
		
		


		(493
		
		

		)
		
		

		 
		
		


		(2
		
		

		)
	
	
		
		


		Commercial real estate
		
		

		 
		
		


		 
		
		

		(294
		
		


		)
		
		

		 
		
		


		(253
		
		

		)
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Real estate construction loans
		
		

		 
		
		


		 
		
		

		(213
		
		


		)
		
		

		 
		
		


		(414
		
		


		)
		
		


		 
		
		


		-
		
		

		 
	
	
		
		


		Other
		
		

		 
		
		


		 
		
		

		(25
		
		


		)
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Total charge-offs
		
		

		 
		
		


		 
		
		

		(1,391
		
		


		)
		
		

		 
		
		


		(1,160
		
		

		)
		
		

		 
		
		


		(2
		
		

		)
	
	
		
		

		Recoveries
		
		

		 
		
		


		 
		
		

		41
		
		


		 
		
		

		 
		
		


		-
		
		


		 
		
		


		 
		
		


		2
		
		

		 
	
	
		
		


		Allowance for loan losses, end of period
		
		

		 
		
		


		$
		
		

		1,702
		
		


		 
		
		

		$
		
		


		2,448
		
		


		 
		
		


		$
		
		


		1,685
		
		

		 
	
	
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
	
	
		
		

		Net charge-offs to average bank loans outstanding, net
		
		

		 
		
		

		 
		
		

		0.58
		
		


		%
		
		

		 
		
		


		0.64
		
		


		%
		
		


		 
		
		


		0.00
		
		

		%
	
	


*      The results
of Stifel Bank are included prospectively from April 2, 2007, the date of
acquisition.



The following is a
breakdown of the allowance for loan losses by type for the periods indicated 
(in thousands, except rates):  


	
		
		


		 
		
		

		 
		
		

		December 31, 2009
		
		

		 
		
		


		December 31, 2008
		
		


		 
		
		


		December 31, 2007
	
	
		
		


		 
		
		

		 
		
		


		Balance
		
		

		 
		
		

		Percent*
		
		

		 
		
		


		Balance
		
		

		 
		
		

		Percent*
		
		


		 
		
		

		Balance
		
		


		 
		
		

		Percent*
	
	
		
		


		Residential real estate
		
		

		 
		
		

		$ 
		
		


		619
		
		

		 
		
		

		15.8
		
		


		%
		
		

		 
		
		

		$ 
		
		


		584
		
		

		 
		
		


		44.8
		
		

		%
		
		


		 
		
		

		$
		
		


		100
		
		


		 
		
		


		5.9
		
		

		%
	
	
		
		


		Commercial real estate
		
		

		 
		
		

		 
		
		


		610
		
		

		 
		
		

		3.0
		
		


		 
		
		

		 
		
		

		 
		
		


		1,192
		
		

		 
		
		


		30.0
		
		

		 
		
		


		 
		
		

		 
		
		


		972
		
		


		 
		
		


		57.7
		
		

		 
	
	
		
		


		Commercial
		
		

		 
		
		

		 
		
		
321
		
		

		 
		
		

		3.4
		
		


		 
		
		

		 
		
		

		 
		
		


		646
		
		

		 
		
		


		14.7
		
		

		 
		
		


		 
		
		

		 
		
		


		56
		
		


		 
		
		


		3.3
		
		

		 
	
	
		
		


		Consumer
		
		

		 
		
		

		 
		
		


		152
		
		

		 
		
		

		77.8
		
		


		 
		
		

		 
		
		

		 
		
		


		26
		
		

		 
		
		


		10.5
		
		

		 
		
		


		 
		
		

		 
		
		


		8
		
		


		 
		
		


		0.5
		
		

		 
	
	
		
		


		Unallocated
		
		

		 
		
		

		 
		
		

		-
		
		

		 
		
		

		-
		
		

		 
		
		

		 
		
		


		 
		
		


		-
		
		

		 
		
		


		-
		
		

		 
		
		


		 
		
		

		 
		
		


		549
		
		


		 
		
		


		32.6
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		$
		
		


		1,702
		
		

		 
		
		

		100.0
		
		

		%
		
		

		 
		
		


		$
		
		


		2,448
		
		

		 
		
		


		100.0
		
		

		%
		
		


		 
		
		

		$
		
		


		1,685
		
		


		 
		
		


		100.0
		
		

		%
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
	



*      Represents
percentage of loans to loan portfolio total.

 At
December 31, 2009, Stifel Bank had $1,368 of non-accrual loans that were more
than 90 days past due, for which there was a specific allowance of an
insignificant amount. Further, Stifel Bank had $533 in troubled debt
restructurings at December 31, 2009. At December 31, 2008 and 2007, Stifel Bank
had $0.6 million and $0.7 million in non-accrual loans, respectively, for which
there was a specific reserve of
$0.2 million and
$0.3 million, respectively.
In
addition, there were no accrual loans delinquent 90 days or more or troubled
debt restructurings at December 31, 2008 and 2007.  



Stifel
Bank has no exposure to sub-prime mortgages.
The gross interest income related to impaired loans, which would have been
recorded had these loans been current in accordance with their original terms,
and the interest income recognized on these loans during the years ended
December 31, 2009, 2008 and 2007, were immaterial to the consolidated financial
statements.



See the section
entitled "Critical Accounting Policies and Estimates" herein regarding Stifel
Bank's policies for establishing loan loss reserves, including placing loans on
non-accrual status.




61










V.    Deposits



Deposits consist of money market and savings
accounts, certificates of deposit and demand deposits. The average balances of
deposits and the associated weighted-average interest rates for the periods
indicated are as follows (in thousands, except percentages):


	
		
		

		 
		
		

		 
		
		

		Year ended December 31,
		
		

		 
		
		

		Period
	
	
		
		

		 
		
		

		 
		
		

		2009
		
		

		 
		
		


		2008
		
		

		 
		
		


		April 2, - December 31, 2007
	
	
		
		

		 
		
		

		 
		
		


		Average Balance
		
		

		 
		
		

		Average Interest Rate
		
		

		 
		
		


		Average Balance
		
		

		 
		
		

		Average Interest Rate
		
		

		 
		
		


		Average Balance
		
		

		 
		
		

		Average Interest Rate
	
	
		
		

		Demand deposits (interest bearing)
		
		

		 
		
		

		$
		
		


		603,033
		
		

		 
		
		

		0.64
		
		


		%
		
		

		 
		
		


		$
		
		


		180,953
		
		

		 
		
		


		1.95
		
		

		%
		
		

		 
		
		

		$
		
		


		94,538
		
		

		 
		
		


		4.23
		
		

		%
	
	
		
		

		Certificates of deposit (time deposits)
		
		

		 
		
		

		$
		
		


		20,104
		
		

		 
		
		

		3.36
		
		


		%
		
		

		 
		
		


		$
		
		


		36,287
		
		

		 
		
		


		4.41
		
		

		%
		
		

		 
		
		

		$
		
		


		53,490
		
		

		 
		
		


		4.94
		
		

		%
	
	
		
		

		Demand deposits (non-interest bearing)
		
		

		 
		
		

		$
		
		


		15,054
		
		

		 
		
		


		*
		
		


		 
		
		

		 
		
		


		$
		
		


		15,293
		
		

		 
		
		


		*
		
		

		 
		
		

		 
		
		

		$
		
		


		9,442
		
		

		 
		
		


		*
		
		
 
	
	
		
		

		Savings accounts
		
		

		 
		
		

		$
		
		


		303
		
		

		 
		
		

		-
		
		


		%
		
		

		 
		
		


		$
		
		


		339
		
		

		 
		
		


		0.97
		
		

		%
		
		

		 
		
		

		$
		
		


		495
		
		

		 
		
		


		2.42
		
		

		%
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		* Not applicable.
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	



The results of
Stifel Bank are included prospectively from April 2, 2007, the date of
acquisition.



Scheduled
maturities of certificates of deposit greater than $100,000 at December 31, 2009
were as follows (in thousands):


	
		
		


		 
		
		

		 
		
		


		0-3 Months
		
		

		 
		
		

		3-6 Months
		
		


		 
		
		


		6-12 Months
		
		

		 
		
		


		Over 12 Months
		
		


		 
		
		

		Total
		
		


		 
	
	
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
	
	
		
		


		 
		
		

		 
		
		


		$
		
		


		5,423
		
		

		 
		
		

		$
		
		


		265
		
		


		 
		
		


		$
		
		


		248
		
		

		 
		
		


		$
		
		


		1,770
		
		


		 
		
		

		$
		
		


		7,706
		
		


		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	



VI.   Return on
Equity and Assets


	
		
		


		 
		
		

		 
		
		


		Year Ended December 31,
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		2009
		
		


		 
		
		


		2008
		
		


		 
		
		


		2007
		
		

		 
	
	
		
		


		Return on assets (net income as a percentage of average total assets)
		
		

		 
		
		


		 
		
		

		2.93
		
		


		%
		
		

		 
		
		


		3.32
		
		


		%
		
		


		 
		
		


		2.12
		
		

		%
	
	
		
		


		Return on equity (net income as a percentage of average shareholders'
		equity)
		
		

		 
		
		


		 
		
		

		9.97
		
		


		%
		
		

		 
		
		


		11.10
		
		

		%
		
		

		 
		
		


		8.24
		
		

		%
	
	
		
		

		Dividend payout ratio *
		
		

		 
		
		


		 
		
		

		-
		
		


		%
		
		

		 
		
		


		-
		
		

		%
		
		

		 
		
		

		-
		
		

		%
	
	
		
		


		Equity to assets ratio (average shareholders' equity as a percentage of
		average total assets)
		
		

		 
		
		


		 
		
		

		29.35
		
		


		%
		
		

		 
		
		


		29.90
		
		

		%
		
		

		 
		
		


		25.70
		
		

		%
	
	
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		

		* We did not declare or pay any dividends during 2009, 2008 or
		2007.
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
	




62











VII.         Short-term Borrowings



The following is a
summary of our short-term borrowings for the years ended December 31, 2009, 2008
and 2007 (in thousands, except rates):


	
		
		


		 
		
		

		 
		
		

		Short-Term Borrowings
		
		

		 
		
		

		 
		
		


		Stock Loan
		
		


		 
		
		

		 
	
	
		
		


		2009:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
	
	
		
		

		Amount outstanding at December 31, 2009
		
		

		 
		
		

		$
		
		


		90,800
		
		

		 
		
		

		 
		
		

		$
		
		


		16,667
		
		


		 
		
		

		 
	
	
		
		


		Weighted-average interest rate thereon
		
		

		 
		
		

		 
		
		


		1.04
		
		

		%
		
		

		 
		
		

		 
		
		


		0.33
		
		

		%
		
		

		 
	
	
		
		

		Maximum amount of withdrawals at any month-end
		
		

		 
		
		

		$
		
		


		212,300
		
		

		 
		
		

		 
		
		

		$
		
		


		85,432
		
		

		 
		
		

		 
	
	
		
		

		Average amount outstanding during the year
		
		

		 
		
		

		$
		
		


		107,383
		
		

		 
		
		

		 
		
		

		$
		
		


		53,110
		
		

		 
		
		

		 
	
	
		
		


		Weighted-average interest rate thereon
		
		

		 
		
		

		 
		
		


		0.99
		
		

		%
		
		

		 
		
		

		 
		
		


		1.07
		
		

		%
		
		

		 
	
	
		
		


		2008:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
	
	
		
		

		Amount outstanding at December 31, 2008
		
		

		 
		
		

		$
		
		

		-
		
		

		 
		
		

		 
		
		

		$
		
		


		16,987
		
		

		 
		
		

		 
	
	
		
		


		Weighted-average interest rate thereon
		
		

		 
		
		

		 
		
		

		-
		
		

		%
		
		

		 
		
		

		 
		
		


		0.52
		
		

		%
		
		

		 
	
	
		
		

		Maximum amount of withdrawals at any month-end
		
		

		 
		
		

		$
		
		


		265,300
		
		

		 
		
		

		 
		
		

		$
		
		


		162,888
		
		

		 
		
		

		 
	
	
		
		

		Average amount outstanding during the year
		
		

		 
		
		

		$
		
		


		132,660
		
		

		 
		
		

		 
		
		

		$
		
		


		105,424
		
		

		 
		
		

		 
	
	
		
		


		Weighted-average interest rate thereon
		
		

		 
		
		

		 
		
		


		2.28
		
		

		%
		
		

		 
		
		

		 
		
		


		2.47
		
		

		%
		
		

		 
	
	
		
		


		2007:
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
	
	
		
		

		Amount outstanding at December 31, 2007
		
		

		 
		
		

		$
		
		


		127,850
		
		

		 
		
		

		 
		
		

		$
		
		


		138,475
		
		

		 
		
		

		 
	
	
		
		


		Weighted-average interest rate thereon
		
		

		 
		
		

		 
		
		


		4.53
		
		

		%
		
		

		 
		
		

		 
		
		


		4.12
		
		

		%
		
		

		 
	
	
		
		

		Maximum amount of withdrawals at any month-end
		
		

		 
		
		

		$
		
		


		362,050
		
		

		 
		
		

		 
		
		

		$
		
		


		186,164
		
		

		 
		
		

		 
	
	
		
		

		Average amount outstanding during the year
		
		

		 
		
		

		$
		
		


		156,778
		
		

		 
		
		

		 
		
		

		$
		
		


		119,590
		
		

		 
		
		

		 
	
	
		
		


		Weighted-average interest rate thereon
		
		

		 
		
		

		 
		
		


		4.86
		
		

		%
		
		

		 
		
		

		 
		
		


		4.82
		
		

		%
		
		

		 
	
	
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
	




63










Results of Operations - Capital
Markets



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


	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		For the Year Ended December 31,
		
		

		 
		
		

		Percentage


		Change  
		
		
		

		 
		
		

		 
		
		

		As a Percentage of


		Net Revenues


		for the Year Ended


		December 31,
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		2009
		
		

		 
		
		


		2008
		
		

		 
		
		


		2007
		
		

		 
		
		

		2009 vs. 2008
		
		

		 
		
		


		2008 vs. 2007
		
		

		 
		
		

		 
		
		


		2009
		
		

		 
		
		


		2008
		
		

		 
		
		


		2007
		
		

		 
	
	
		
		


		Revenues:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Principal transactions
		
		

		 
		
		

		$
		
		


		263,804
		
		

		 
		
		

		$
		
		


		168,707
		
		

		 
		
		

		$
		
		


		49,882
		
		

		 
		
		

		56.4
		
		


		%
		
		


		238.2
		
		

		%
		
		

		 
		
		


		53.3
		
		


		%
		
		


		43.2
		
		

		%
		
		


		16.4
		
		

		%
	
	
		
		


		Commissions
		
		

		 
		
		


		 
		
		


		111,469
		
		

		 
		
		

		 
		
		


		149,547
		
		

		 
		
		

		 
		
		


		123,486
		
		

		 
		
		

		(25.5
		
		


		)
		
		


		21.1
		
		

		 
		
		

		 
		
		


		22.6
		
		


		 
		
		


		38.3
		
		

		 
		
		


		40.8
		
		

		 
	
	
		
		


		Capital raising
		
		

		 
		
		


		 
		
		


		61,657
		
		

		 
		
		

		 
		
		


		29,690
		
		

		 
		
		

		 
		
		


		55,420
		
		

		 
		
		

		107.7
		
		


		 
		
		


		(46.4
		
		

		)
		
		

		 
		
		


		12.5
		
		


		 
		
		


		7.6
		
		

		 
		
		


		18.3
		
		

		 
	
	
		
		


		Advisory
		
		

		 
		
		


		 
		
		


		49,244
		
		

		 
		
		

		 
		
		


		38,506
		
		

		 
		
		

		 
		
		


		74,153
		
		

		 
		
		

		27.9
		
		


		 
		
		


		(48.1
		
		

		)
		
		

		 
		
		


		10.0
		
		


		 
		
		


		9.9
		
		

		 
		
		


		24.5
		
		

		 
	
	
		
		


		Investment banking
		
		

		 
		
		


		 
		
		


		110,901
		
		

		 
		
		

		 
		
		


		68,196
		
		

		 
		
		

		 
		
		


		129,573
		
		

		 
		
		

		62.6
		
		


		 
		
		


		(47.4
		
		

		)
		
		

		 
		
		


		22.5
		
		


		 
		
		


		17.5
		
		

		 
		
		


		42.8
		
		

		 
	
	
		
		


		Interest
		
		

		 
		
		


		 
		
		


		9,847
		
		

		 
		
		

		 
		
		


		9,068
		
		

		 
		
		

		 
		
		


		20,668
		
		

		 
		
		

		8.6
		
		


		 
		
		


		(56.1
		
		

		)
		
		

		 
		
		


		2.0
		
		


		 
		
		


		2.3
		
		

		 
		
		


		6.8
		
		

		 
	
	
		
		


		Other income
		
		

		 
		
		


		 
		
		


		1,331
		
		

		 
		
		

		 
		
		


		1,439
		
		

		 
		
		

		 
		
		


		875
		
		

		 
		
		

		(7.6
		
		


		)
		
		


		64.6
		
		

		 
		
		

		 
		
		


		0.3
		
		

		 
		
		


		0.3
		
		

		 
		
		


		0.3
		
		

		 
	
	
		
		

		Total revenues
		
		

		 
		
		


		 
		
		


		497,352
		
		

		 
		
		

		 
		
		


		396,957
		
		

		 
		
		

		 
		
		


		324,484
		
		

		 
		
		

		25.3
		
		


		 
		
		


		22.3
		
		

		 
		
		

		 
		
		


		100.7
		
		


		 
		
		


		101.6
		
		

		 
		
		


		107.1
		
		

		 
	
	
		
		


		Interest expense
		
		

		 
		
		


		 
		
		


		3,260
		
		

		 
		
		

		 
		
		


		6,231
		
		

		 
		
		

		 
		
		


		21,553
		
		

		 
		
		

		(47.7
		
		


		)
		
		


		(71.1
		
		

		)
		
		

		 
		
		


		0.7
		
		


		 
		
		


		1.6
		
		

		 
		
		


		7.1
		
		

		 
	
	
		
		

		Net revenues
		
		

		 
		
		


		 
		
		


		494,092
		
		

		 
		
		

		 
		
		


		390,726
		
		

		 
		
		

		 
		
		


		302,931
		
		

		 
		
		

		26.5
		
		


		 
		
		


		29.0
		
		

		 
		
		

		 
		
		


		100.0
		
		


		 
		
		


		100.0
		
		

		 
		
		


		100.0
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Non-interest expenses:
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Compensation and benefits
		
		

		 
		
		


		 
		
		


		287,835
		
		

		 
		
		

		 
		
		


		233,679
		
		

		 
		
		

		 
		
		


		188,145
		
		

		 
		
		

		23.2
		
		


		 
		
		


		24.2
		
		

		 
		
		

		 
		
		


		58.3
		
		


		 
		
		


		59.8
		
		

		 
		
		


		62.1
		
		

		 
	
	
		
		


		Occupancy and equipment rental
		
		

		 
		
		


		 
		
		


		16,249
		
		

		 
		
		

		 
		
		


		14,194
		
		

		 
		
		

		 
		
		


		10,804
		
		

		 
		
		

		14.5
		
		


		 
		
		


		31.4
		
		

		 
		
		

		 
		
		


		3.3
		
		


		 
		
		


		3.6
		
		

		 
		
		


		3.6
		
		

		 
	
	
		
		


		Communication and office supplies
		
		

		 
		
		


		 
		
		


		18,540
		
		

		 
		
		

		 
		
		


		19,087
		
		

		 
		
		

		 
		
		


		19,879
		
		

		 
		
		

		(2.9
		
		


		)
		
		


		(4.0
		
		

		)
		
		

		 
		
		


		3.7
		
		


		 
		
		


		4.9
		
		

		 
		
		


		6.5
		
		

		 
	
	
		
		


		Commissions and floor brokerage
		
		

		 
		
		


		 
		
		


		15,716
		
		

		 
		
		

		 
		
		


		8,806
		
		

		 
		
		

		 
		
		


		3,239
		
		

		 
		
		

		78.5
		
		


		 
		
		


		171.9
		
		

		 
		
		

		 
		
		


		3.2
		
		


		 
		
		


		2.3
		
		

		 
		
		


		1.1
		
		

		 
	
	
		
		


		Other operating expenses
		
		

		 
		
		


		 
		
		


		26,619
		
		

		 
		
		

		 
		
		


		23,068
		
		

		 
		
		

		 
		
		


		20,015
		
		

		 
		
		

		15.4
		
		


		 
		
		


		15.3
		
		

		 
		
		

		 
		
		


		5.4
		
		


		 
		
		


		5.9
		
		

		 
		
		


		6.6
		
		

		 
	
	
		
		

		Total non-interest expenses
		
		

		 
		
		


		 
		
		


		364,959
		
		

		 
		
		

		 
		
		


		298,834
		
		

		 
		
		

		 
		
		


		242,082
		
		

		 
		
		

		22.1
		
		


		 
		
		


		23.4
		
		

		 
		
		

		 
		
		


		73.9
		
		


		 
		
		


		76.5
		
		

		 
		
		


		79.9
		
		

		 
	
	
		
		


		Income before income taxes
		
		

		 
		
		

		$
		
		


		129,133
		
		

		 
		
		

		$
		
		


		91,892
		
		

		 
		
		

		$
		
		


		60,849
		
		

		 
		
		

		40.5
		
		


		%
		
		


		51.0
		
		

		%
		
		

		 
		
		


		26.1
		
		


		%
		
		


		23.5
		
		

		%
		
		


		20.1
		
		

		%
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
	




64










Year
Ended December 31, 2009 Compared with Year Ended December 31, 2008



NET REVENUES



For the year ended
December 31, 2009, Capital Markets net revenues increased 26.5% to $494.1
million from $390.7 million for the comparable period in 2008. The increase in
net revenues for the year ended December 31, 2009 over the comparable period in
2008 is primarily attributable to an increase in principal transactions,
investment banking and net interest revenues offset by a decrease in
commissions.



Principal transactions - For the year ended December
31, 2009, principal transactions revenue increased $95.1 million, or 56.4%, to
$263.8 million from $168.7 million in the comparable period in 2008. The
increase is primarily attributable to increased principal transactions,
primarily in corporate debt, OTC equity, mortgage-backed bonds and municipal
debt due to turbulent markets and institutional 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 - For the year ended December 31, 2009,
commission revenues decreased 25.5% to $111.5 million from $149.5 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.  



Investment banking - For the year ended December 31,
2009, investment banking revenues increased 60.6% to $109.5 million from $68.2
million in the comparable period in 2008.  



For the
year ended December 31, 2009, capital raising revenues increased $30.6 million,
or 103.0%, to $60.3 million from $29.7 million in the comparable period in 2008.



For the
year ended December 31, 2009, fixed income capital raising revenues increased
$7.3 million to $12.7 million from $5.4 million during the comparable period in
2008.  



During
the second half of 2009, capital market conditions began to improve, and we
raised capital for our clients in a number of successful public finance
underwritings. In addition, our revenues were positively impacted by our
investment in public finance offices and professional staff during the second
half of 2008. For the year ended December 31, 2009, we were involved, as manager
or co-manager, in 369 tax-exempt issues with a total par value of $21.6 billion
compared to 108 issues with a total par value of $6.4 billion during the
comparable period in 2008.  



For the
year ended December 31, 2009, equity capital raising revenues increased $23.6
million to $43.6 million from $20.0 million during the comparable period in
2008. During the year ended December 31, 2009, we were involved, as manager or
co-manager in 72 equity underwritings which raised a total of $21.4 billion,
compared to 46 during the comparable period in 2008, an increase of 56.5% in the
number of underwritings over the comparable period in 2008.



For the
year ended December 31, 2009, strategic advisory fees increased 27.9% to $49.2
million from $38.5 million in the comparable period in 2008. The increase is
primarily due 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.  



Interest revenue - For the year ended December 31,
2009, interest revenue increased 8.6% to $9.8 million from $9.1 million in the
comparable period in 2008. The increase in interest revenues is primarily
attributable to increased interest earned on our trading inventory. 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.



Interest expense - For the year ended December 31,
2009, interest expense decreased 47.7%, or $2.9 million, to $3.3 million from
$6.2 million in the comparable period in 2008. The decrease is due to decreased
interest rates charged by banks on lower levels of borrowings to finance firm
inventory.  




65










NON-INTEREST
EXPENSES 




For the year ended
December 31, 2009, Capital Markets non-interest expenses increased 22.1% to
$365.0 million from $298.8 million for the comparable period in 2008.



Unless
specifically discussed below, the fluctuations in non-interest expenses were
primarily attributable to the continued growth of our Capital Markets segment
during the year ended December 31, 2009. We have added 63 revenue producers (15
equity sales and trading professionals, 19 investment bankers, 19 fixed income
sales and trading professionals and 10 public finance professionals) and 34
support staff since December 31, 2008.



Compensation
and benefits -

For the year ended December 31, 2009, compensation and benefits expense
increased 23.2% to $287.8 million from $233.7 million during the comparable
period in 2008.
The increase is
primarily due to increased fixed compensation and
higher production-based variable compensation due to higher production as
compared to the prior year.




Compensation and benefits expense as a percentage of net revenues decreased to
58.3% for the year ended December 31, 2009, compared to 59.8% for the comparable
period in 2008. The decrease in compensation and benefits expense as a percent
of net revenues is primarily attributable to increased net revenues, offset by
increased costs associated with our continued expansion efforts during 2009.




Occupancy and equipment rental -
For the year ended December 31, 2009, occupancy and equipment rental expense
increased 14.5% to $16.2 million from $14.2 million during the comparable period
in 2008.




Communications and office supplies -  
For the
year ended December 31, 2009, communications and office supplies expense
decreased 2.9% to $18.5 million from $19.1 million during the first year of
2008.




Commissions and floor brokerage -
For the year ended December 31, 2009, commissions and floor brokerage expense
increased $6.9 million to $15.7 million from $8.8 million during the first year
of 2008.




 Other operating expenses -
For the year ended December 31, 2009, other operating expenses increased 15.4%
to $26.6 million from $23.1 million during the comparable period in 2008.





INCOME BEFORE INCOME TAXES



For the
year ended December 31, 2009, income before
income taxes for the Capital Markets segment increased $37.2 million, or 40.5%,
to $129.1 million from $91.9 million during the comparable period in 2008. The
increase is primarily attributable to increased revenues and the scalability of
increased production as a result of our continued expansion of the Capital
Markets segment during 2009.  




66










Year
Ended December 31, 2008 Compared with Year Ended December 31, 2007



NET REVENUES



For the year ended
December 31, 2008, Capital Markets net revenues increased 29.0% to $390.7
million from $302.9 million for the comparable period in 2007. The increase in
net revenues for the year ended December 31, 2008 over the comparable period in
2007 is primarily attributable to an increase in principal transactions,
commissions and net interest revenues offset by a decrease in investment
banking.



Principal transactions - For the year ended December
31, 2008, principal transactions revenue increased $118.8 million to $168.7
million from $49.9 million in the comparable period in 2007. The increase is
primarily attributable to increased principal transactions, primarily in
corporate and municipal debt and mortgage-backed bonds due to turbulent markets
and institutional customers returning to traditional fixed income products.





Commissions - For the year ended December 31, 2008,
commission revenues increased 21.1% to $149.5 million from $123.5 million in the
comparable period in 2007. The increase is primarily attributable to the
continued expansion of the Capital Markets segment.  



Investment banking - For the year ended December 31,
2008, investment banking revenues decreased 47.4% to $68.2 million from $129.6
million in the comparable period in 2007. The decrease is attributable to the
industry-wide decline in common stock offerings and mergers and acquisitions
caused by challenging capital market conditions during 2008.



For the
year ended December 31, 2008, capital raising revenues decreased $25.7 million,
or 46.4%, to $29.7 million from $55.4 million in the comparable period in 2007.
For the year ended December 31, 2008, fixed income capital raising revenues
decreased $2.5 million to $5.4 million from $7.9 million during the comparable
period in 2007. For the year ended December 31, 2008, equity capital raising
revenues decreased $19.1 million to $20.0 million from $39.1 million during the
comparable period in 2007.



For the
year ended December 31, 2008, strategic advisory fees decreased $35.7 million,
or 48.1%, to $38.5 million from $74.2 million in the comparable period in 2007.
During the second quarter of 2007, we closed on a significant corporate finance
investment banking transaction which contributed $24.7 million in revenue.





Interest revenue - For the year ended December 31,
2008, interest revenue decreased $11.6 million, or 56.1%, to $9.1 million from
$20.7 million in the comparable period in 2007. The decrease in interest
revenues is primarily attributable to decreased fixed income inventory held for
sale to clients and the decline in interest rates.  



Interest expense - For the year ended December 31,
2008, interest expense decreased $15.4 million, or 71.1%, to $6.2 million from
$21.6 million in the comparable period in 2007. The decrease is attributable to
decreased interest expense incurred to carry the lower levels of fixed income
inventory and a decrease in interest rates.  




67










NON-INTEREST
EXPENSES 




For the year ended
December 31, 2008, Capital Markets non-interest expenses increased 23.4% to
$298.8 million from $242.1 million for the comparable period in 2007.



Compensation
and benefits -

For the year ended December 31, 2008, compensation and benefits expense
increased 24.2% to $233.7 million from $188.1 million during the comparable
period in 2007.
The increase is
primarily due to increased fixed compensation and
higher production-based variable compensation due to higher production as
compared to the prior year.




Compensation and benefits expense as a percentage of net revenues decreased to
59.8% for the year ended December 31, 2008, compared to 62.1% for the comparable
period in 2007. The decrease in compensation and benefits expense as a percent
of net revenues is primarily attributable to increased net revenues.




Occupancy and equipment rental -
For the year ended December 31, 2008, occupancy and equipment rental expense
increased 31.4% to $14.2 million from $10.8 million during the comparable period
in 2007. The increase is primarily attributable to the expansion of Capital
Markets segment, including increased expenses associated with the new downtown
Baltimore location for our capital markets operations, which was occupied
beginning in the fall of 2007.




Communications and office supplies -  
For the year ended December 31, 2008,
communications and office supplies expense decreased 4.0% to $19.1 million from
$19.9 million during the first year of 2007. During 2008, we began classifying
certain outsourced services which were historically recorded as communications
and office supplies as commission and floor brokerage. As a result, we recorded
$6.1 million of expenses as commission and floor brokerage in 2008.




Commissions and floor brokerage -
For the year ended December 31, 2008, commissions and floor brokerage expense
increased $5.6 million to $8.8 million from $3.2 million during the first year
of 2007.




 Other operating expenses -
For the year ended December 31, 2008, other operating expenses increased 15.3%
to $23.1 million from $20.0 million during the comparable period in 2007. The
increase is primarily attributable to the expansion of Capital Markets segment.



INCOME BEFORE INCOME TAXES



For the
year ended December 31, 2008, income before
income taxes for the Capital Markets segment increased $31.1 million, or 51.0%,
to $91.9 million from $60.8 million during the comparable period in 2007. The
increase is primarily attributable to increased revenues and the scalability of
increased production as a result of our continued expansion of the Capital
Markets segment.  




68












Results of Operations - Other Segment



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


	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		For the Year Ended December 31,
		
		

		 
		
		

		 
		
		

		As a Percentage of


		Net Revenues


		for the Year Ended


		December 31,
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		2009
		
		

		 
		
		


		2008
		
		

		 
		
		


		2007
		
		

		 
		
		

		 
		
		

		2009 vs. 2008
		
		

		 
		
		


		2008 vs. 2007
		
		

		 
		
		

		 
	
	
		
		


		Net revenues
		
		

		 
		
		

		$
		
		


		5,221
		
		

		 
		
		

		$
		
		


		8,606
		
		

		 
		
		

		$
		
		


		19,623
		
		

		 
		
		

		 
		
		

		(39.3
		
		


		) %
		
		


		(56.1
		
		

		) %
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
	
	
		
		


		Non-interest expenses:
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
	
	
		
		


		Compensation and benefits
		
		

		 
		
		


		 
		
		


		60,124
		
		

		 
		
		

		 
		
		


		59,892
		
		

		 
		
		

		 
		
		


		79,148
		
		

		 
		
		

		 
		
		

		0.4
		
		


		 
		
		


		(24.3
		
		

		)
		
		

		 
	
	
		
		


		Other operating expenses
		
		

		 
		
		


		 
		
		


		53,864
		
		

		 
		
		

		 
		
		


		46,934
		
		

		 
		
		

		 
		
		


		43,821
		
		

		 
		
		

		 
		
		

		14.8
		
		


		 
		
		


		7.1
		
		

		 
		
		

		 
	
	
		
		

		Total non-interest expenses
		
		

		 
		
		


		 
		
		


		113,988
		
		

		 
		
		

		 
		
		


		106,826
		
		

		 
		
		

		 
		
		


		122,969
		
		

		 
		
		

		 
		
		

		6.7
		
		


		 
		
		


		(13.1
		
		

		)
		
		

		 
	
	
		
		


		Loss before income taxes
		
		

		 
		
		


		$ 
		
		


		(108,767
		
		


		)
		
		

		$ 
		
		


		(98,220
		
		

		)
		
		

		$
		
		


		(103,346
		
		

		)
		
		

		 
		
		

		10.7
		
		


		% 
		
		


		(5.0
		
		

		) %
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	



Year
Ended December 31, 2009 Compared with Year Ended December 31, 2008



Net revenues
-
For the year ended December 31, 2009, net revenues decreased 39.3% to $5.2
million from $8.6 million for the comparable period in 2008. The decrease in net
revenues is primarily attributable to a $6.5 million decrease in net interest
revenues to $0.8 million in 2009 as a result of decreased interest charged for
short-term borrowings, offset by
the
reduction of investment losses during the year ended December 31, 2009.
In addition, we recorded
an impairment charge of $1.9 million on
our held-to-maturity investment during the fourth quarter due to an
other-than-temporary decline in value.



Compensation
and benefits -
For the year ended December 31, 2009, compensation and benefits expense of $60.1
million remained consistent with the comparable period in 2008.  



For the year ended
December 31, 2008, we incurred compensation charges of $25.6 million related to
the amortization of units awarded to LM Capital Markets associates, which were
fully amortized as of December 31, 2008. Excluding the impact of these charges,
the increase in compensation and benefits expense for the year ended December
31, 2009 over the comparable period in 2008 is primarily attributable to an
increase in support personnel as we continued our growth initiatives during
2009. Since December 31, 2008, we have added 145 support associates primarily in
Information Technology and Operations.




Other operating expenses -
For the year ended December 31, 2009, other operating expenses increased 14.8%
to $53.9 million from $46.9 million for the comparable period in 2008.





The
increase is primarily attributable to the continued growth in all segments
during 2009, which included increased SIPC assessments, securities processing
fees, travel and promotion, and legal expenses.  The increase in legal expenses
is attributable to an increase in litigation associated with the ongoing
investigations in connection with ARS and an increase in the number of claims
and litigation costs to defend industry recruitment claims.




69










Year
Ended December 31, 2008 Compared with Year Ended December 31, 2007



Net revenues
-
For the year ended December 31, 2008, net revenues decreased $11.0 million, or
56.1%, to $8.6 million from $19.6 million for the comparable period in 2007. The
decrease is primarily due to investment losses of $9.0 million as a result of
the downturn in the equity markets and a $6.5 million decrease in net interest
revenues to $7.3 million in 2008 as a result of decreased interest charged for
short-term borrowings. In November 2008, we recorded a $6.7 million gain before
certain expenses and taxes on the extinguishment of $12.5 million of 6.78%
Stifel Financial Capital Trust IV Cumulative Preferred Securities.  



Compensation
and benefits -
For the year ended December 31, 2008, compensation and benefits expense
decreased 24.3% to $59.9 million from $79.1 million for the comparable period in
2007.  



Included in
employee compensation and benefits in 2007 are acquisition-related charges of
$24.9 million principally for the amendment and acceleration of vesting of the
Ryan Beck deferred compensation plan. Excluding the 2007 acquisition-related
charges, overall compensation and benefits increased primarily as a result of a
13.0% increase in support personnel for overall company growth. Additionally,
included in employee compensation and benefits are acquisition-related expenses
associated with the LM Capital Markets acquisition consisting principally of
compensation charges of $25.6 million and $24.2 million in 2008 and 2007,
respectively, primarily for amortization of units awarded to LM Capital Markets
associates. These units were fully amortized as of December 31, 2008.




Other operating expenses -
For the year ended December 31, 2008, other operating expenses increased 7.1% to
$46.9 million from $43.8 million for the comparable period in 2007. Included in
2007 are $6.4 million of acquisition-related expenses associated with Ryan Beck.
Excluding the impact of the 2007 acquisition related charges, other operating
expenses increased as a result of our continued growth. In addition, in the
fourth quarter of 2008 we recorded a contingency charge of $5.3 million related
to our voluntary partial repurchase plan for certain auction rate securities.




70











Analysis of Financial Condition



Our
company's consolidated statements of financial condition consist primarily of
cash and cash equivalents, receivables, trading inventory, bank loans,
investments, goodwill, loans and advances to financial advisors, bank deposits,
and payables. Total assets of $3.2 billion at December 31, 2009 were up 103.3%
over December 31, 2008. The increase is primarily attributable to increased
receivables, trading inventory, financial instruments, loans and advances to
financial advisors and the recognition of goodwill associated with our
acquisition of UBS. Our broker-dealer subsidiary's gross assets and liabilities,
including trading inventory, stock loan/borrow, receivables and payables from/to
brokers, dealers and clearing organizations and clients, fluctuate with our
business levels and overall market conditions. The increase in assets is
primarily attributable to the growth of our company, both organically and
through the acquisition of UBS.



As of
December 31, 2009, our liabilities were comprised primarily of short-term
borrowings of $90.8 million, deposits of $1,047.2 million at Stifel Bank and
payables to brokerage clients and broker, dealers and clearing organizations of
$214.9 million and $90.5 million, respectively, at our broker-dealer
subsidiaries, as well as accounts payable and accrued expenses, including
accrued employee compensation of $279.7 million. To meet our obligations to
clients and operating needs, we have $161.8 million in cash. We also have client
brokerage receivables of $383.2 million and $335.2 million in loans at Stifel
Bank.




Liquidity and Capital Resources



Management of Our Liquidity



Liquidity
is essential to our business. We regularly
evaluate cash requirements for current operations, commitments, development
activities and capital expenditures and we may elect to raise additional funds
for these purposes in the future through the issuance of either debt or equity,
under our universal shelf registration filed with the SEC on March 30, 2009.



Based on our current cash flow budgets and
forecasts of our short-term and long-term liquidity needs, management believes
that our projected sources of liquidity will be sufficient to meet our projected
liquidity needs for more than the next 12 months. Management will continue to
assess our liquidity position and potential sources of supplemental liquidity in
view of our operating performance, current economic and capital market
conditions, and other relevant circumstances.



Our
assets, consisting mainly of cash or assets readily convertible into cash are
our principal source of liquidity. The liquid nature of these assets provides
for flexibility in managing and financing the projected operating needs of the
business. These assets are financed primarily by our equity capital, debentures
to trusts, client credit balances, short-term bank loans, proceeds from
securities lending, and other payables. We currently finance our client accounts
and firm trading positions through ordinary course borrowings at floating
interest rates from various banks on a demand basis and securities lending, with
company-owned and client securities pledged as collateral. Changes in securities
market volumes, related client borrowing demands, underwriting activity, and
levels of securities inventory affect the amount of our financing requirements.



Our bank
assets consist principally of retained loans, available-for-sale securities, and
cash and cash equivalents. Stifel Bank's current liquidity needs are generally
met through deposits from bank clients and equity capital. We monitor the
liquidity of Stifel Bank daily to ensure its ability to meet customer deposit
withdrawals, maintain reserve requirements and support asset growth.



We rely
exclusively on financing activities and distributions from our subsidiaries for
funds to implement our business and growth strategies. Net capital rules,
restrictions under the borrowing arrangements of our subsidiaries, as well as
the earnings, financial condition, and cash requirements of our subsidiaries,
may each limit distributions to us from our subsidiaries.



We have
an ongoing authorization, as amended, from the Board of Directors to repurchase
our common stock in the open market or in negotiated transactions. In May 2005,
the Board of Directors authorized the repurchase of an additional 3,000,000
shares, for a total authorization to repurchase up to 4,500,000 shares. The
share repurchase program will manage our equity capital relative to the growth
of our business and help to meet obligations under our employee benefit plans.
Under
existing Board authorizations at December 31, 2009, we are permitted to buy an
additional 2,010,831 shares.
We
currently do not pay cash dividends on our common stock.




71










We
believe our existing assets, most of which are liquid in nature, together with
the funds from operations, available informal short-term credit arrangements and
our ability to raise additional capital will provide sufficient resources to
meet our present and anticipated financing needs.



Cash Flow



Cash and
cash equivalents decreased $77.9 million to $161.8 million at December 31, 2009
from $239.7 million at December 31, 2008. Operating activities used $347.3
million of cash primarily due to an increase in operating assets and liabilities
offset by the net effect of non-cash expenses and cash from earnings. Investing
activities used cash of $850.8 million due our acquisition of the UBS branches,
bank customer loan originations, purchases of eligible ARS from our customers as
part of our voluntary repurchase plan, purchases of available-for-sale
securities as part of our investment strategy at Stifel Bank, and fixed asset
purchases, offset by proceeds from the sale of investments and bank customer
loan repayments. During the year ended December 31, 2009, we purchased $27.9
million in fixed assets, consisting primarily of information technology
equipment, leasehold improvements and furniture and fixtures. Financing
activities provided cash of $1,120.2 million due to an increase in bank deposits
principally due to the increase in affiliated deposits as a result of organic
growth and the acquisition of UBS, proceeds received from bank borrowings, net
proceeds of $44.7 million from an "at-the-market"
public offering of
1.0 million shares of our common stock in June 2009, and net proceeds of $91.8
million from a public offering of 1.7 million shares of our common stock in
September 2009.



Funding
Sources



We use
a variety of funding sources to obtain
funds, which includes, but is not limited
to,
gathering
deposits, issuing
equity securities, and securitizing assets. Further liquidity is available to
our company through
uncommitted

facilities, FHLB advances and federal
funds agreements.



Cash and Cash Equivalents



We held $161.8 million of cash and cash
equivalents at December 31, 2009, compared to $239.7 million at December 31,
2008. Cash and cash equivalents provide immediate sources of funds to meet our
liquidity needs.



Securities Available-for-Sale



We held $578.5 million in available-for-sale
investment securities at December 31, 2009 compared to $50.4 million at December
31, 2008. As of December 31, 2009, the weighted average life of the investment
securities portfolio was approximately 3.2 years. These investment securities
provide increased liquidity and flexibility to support our company's funding
requirements.



We monitor the available for sale investment
portfolio for other-than-temporary impairment based on a number of criteria,
including the size of the unrealized loss position, the duration for which the
security has been in a loss position, credit rating, the nature of the
investments, current market conditions. For debt securities, we also consider
any intent to sell the security and the likelihood it will be required to sell
the security before its anticipated recovery. We continually monitor the ratings
of its security holdings and conduct regular reviews of our credit sensitive
assets.



Deposits



Deposits have become one of our largest funding
sources. Deposits provide a stable, low-cost source of funds that we utilize to
fund loan and asset growth and to diversify funding sources. We have continued
to expand our deposit gathering efforts through our existing private client
network and through expansion. These channels offer a broad set of deposit
products that include demand deposits, money market deposits, and certificates
of deposit ("CDs").



As of December 31, 2009, we had $1,047.2 million
in deposits compared to $284.8 million at December 31, 2008. The growth in
deposits is primarily attributable to the increase in brokerage deposits held by
the bank and our UBS acquisition. Our core deposits are comprised of
non-interest bearing deposits, money market deposit accounts, savings accounts
and CDs.  




72










Short-term borrowings from banks



Our
short-term financing is generally obtained through the use of bank loans and
securities lending arrangements. We borrow from various banks on a demand basis
with company-owned and customer securities pledged as collateral. The value of
the customer-owned securities is not reflected on the consolidated statements of
financial condition. We maintain available ongoing credit arrangements with
banks that provided a peak daily borrowing of $379.3 million during the year
ended December 31, 2009. There are no compensating balance requirements under
these arrangements. At December 31, 2009, short-term borrowings from banks were
$90.8 million at an average rate of 1.04%, which were collateralized by
company-owned securities valued at $165.2 million. At December 31, 2008, there
were no short-term borrowings from banks. The average bank borrowing was $107.4
million, $132.7 million and $156.8 million during the year ended December 31,
2009, 2008 and 2007, respectively, at weighted average daily interest rates of
0.99%, 2.28% and 4.86%, respectively. At December 31, 2009 and 2008, Stifel
Nicolaus had a stock loan balance of $16.7 million and $17.0 million,
respectively, at weighted average daily interest rates of 0.33% and 0.52%,
respectively. The average outstanding securities lending arrangements utilized
in financing activities were $53.1 million, $105.4 million and $119.6 million
during the years ended December 31, 2009, 2008 and 2007, respectively, at
weighted average daily effective interest rates of 1.07%, 2.47% and 4.82%,
respectively. Customer-owned securities were utilized in these arrangements.



The
impact of the tightened credit markets has resulted in decreased financing
through stock loan as our counterparties sought liquidity. As a result, bank
loan financing used to finance trading inventories increased.



Federal Home Loan Bank Advances and other secured
financing



Stifel
Bank has borrowing capacity with the Federal Home Loan Bank of $125.7 million at
December 31, 2009, of which $123.7 million was unused, and a $13.9 million
federal funds agreement for the purpose of purchasing short-term funds should
additional liquidity be needed. Stifel Bank receives overnight funds from excess
cash held in Stifel Nicolaus brokerage accounts, which are deposited into a
money market account. These balances totaled $1,008.6 million at December 31,
2009.



Our liquidity
requirements may change in the event we need to raise more funds than
anticipated to increase inventory positions, support more rapid expansion,
develop new or enhanced services and products, acquire technologies, or respond
to other unanticipated liquidity requirements. We rely exclusively on financing
activities and distributions from our subsidiaries for funds to implement our
business and growth strategies, and repurchase our shares. Net capital rules,
restrictions under our borrowing arrangements of our subsidiaries, as well as
the earnings, financial condition, and cash requirements of our subsidiaries,
may each limit distributions to us from our subsidiaries.



In the event
existing internal and external financial resources do not satisfy our needs, we
may have to seek additional outside financing. The availability of outside
financing will depend on a variety of factors, such as market conditions, the
general availability of credit, the volume of trading activities, the overall
availability of credit to the financial services industry, credit ratings, and
credit capacity, as well as the possibility that lenders could develop a
negative perception of our long-term or short-term financial prospects if we
incurred large trading losses or if the level of our business activity decreased
due to a market downturn or otherwise. We currently do not have a credit rating,
which could adversely affect our liquidity and competitive position by
increasing our borrowing costs and limiting access to sources of liquidity that
require a credit rating as a condition to providing funds.



Use of
Capital Resources



On
December 28, 2009, we announced that Stifel Nicolaus had reached an agreement
between the State of Missouri, the State of Indiana, the State of Colorado and
with an association of other State securities regulatory authorities regarding
the repurchase of ARS from Eligible ARS investors. As part of the modified ARS
repurchase offer we have accelerated the previously announced repurchase plan.
We have agreed to repurchase ARS from Eligible ARS investors in four phases
starting in January 2010 and ending on December 31, 2011. During January 2010,
we repurchased $21.2 million of ARS at par. At January 31, 2010, we estimate
that our retail clients held $103.1 million of eligible ARS after issuer
redemptions of $23.5 million and Stifel repurchases of $81.2 million.
See Item 3, "Legal Proceedings," for further
details regarding ARS claims.




73










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 (the "Acquired Locations") from UBS in four separate
closings pursuant to this agreement. We completed the closings on the following
dates: August 14, 2009, September 11, 2009, September 25, 2009 and October 16,
2009. This acquisition further expands our private client footprint.  



The
transaction was structured as an asset purchase for cash at a premium over
certain balance sheet items, subject to adjustment.  The payments to UBS in
conjunction with all four closings of $252.2 million included: (i) an upfront
cash payment of $28.8 million based on the actual number of branches and
financial advisors acquired by Stifel Nicolaus; and (ii) aggregate payment of
$15.9 million for net fixed assets, employee forgivable loans and other assets,
and (iii) securities-based and margin loans of $207.4 million that were
collateralized by securities included in customer accounts converted to the
Stifel platform. In addition, a contingent earn-out payment is payable based on
the performance of those UBS financial advisors who joined Stifel Nicolaus, over
the two-year period following the closing.



We
utilize transition pay, principally in the form of upfront demand notes, to aid
financial advisors, who have elected to join our firm, to supplement their lost
compensation while transitioning their customers' accounts to the Stifel
platform. The initial value of the notes are determined primarily by the
financial advisors trailing production and assets under management. These notes
are generally forgiven over a five to ten year period based on production.  The
future estimated amortization expense of the upfront notes, assuming current
year production levels and static growth for the years ended December 31, 2010,
2011, 2012, 2013, 2014 and thereafter are $45.6 million, $36.9 million, $29.9
million, $23.2 million and $49.5 million, respectively. These estimates could
change if we continue to grow our business through expansion or experience
increased production levels.  



The following table summarizes the
activity related to our company's demand note receivable from January 1, 2008 to
December 31, 2009 (in thousands):


	
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		December 31,
		

		
		
		2009
		
		

		 
		
		


		December 31,



		 2008
		
		

		 
	
	
		
		


		Beginning balance
		
		


		 
		
		

		$ 
		
		

		105,767
		
		


		 
		
		


		$

		


		 
		
		

		70,407
		
		

		 
	
	
		
		


		Notes issued - organic growth
		
		

		 
		
		


		 
		
		


		81,953
		
		

		 
		
		

		 
		
		


		52,339
		
		

		 
	
	
		
		


		Notes issued - acquisitions  *
		
		

		 
		
		

		 
		
		


		31,659
		
		

		 
		
		

		 
		
		


		2,209
		
		

		 
	
	
		
		


		Amortization
		
		

		 
		
		

		 
		
		


		(33,407
		
		

		) 
		
		

		 
		
		


		(18,567
		
		

		)
	
	
		
		


		Other  
		
		

		 
		
		

		 
		
		


		(849
		
		

		) 
		
		

		 
		
		


		(621
		
		

		)
	
	
		
		


		Ending balance
		
		


		 
		
		

		$
		
		


		185,123
		
		


		 
		
		


		$
		
		

		105,767
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	



*
Notes issued in conjunction with our acquisition of UBS branches and Butler Wick
in 2009 and 2008, respectively.



We have
paid $113.6 million in the form of upfront notes to financial advisors for
transition pay during 2009, which includes $31.7 million of upfront notes issued
to UBS financial advisors as a form of transition pay. As we continue to take
advantage of the opportunities created by market displacement and as competition
for skilled professionals in the industry increases, we may have to devote more
significant resources to attracting and retaining qualified personnel.





We paid a
contingent earn-out of $25.5 million related to our acquisition of the LM
Capital Markets business from Citigroup Inc. during the second quarter of 2009.




74










Net
Capital Requirements



We
operate in a highly regulated environment and are subject to net capital
requirements, which may limit distributions to our company from our
broker-dealer subsidiaries. Distributions from our broker-dealer subsidiaries
are subject to net capital rules. These subsidiaries have historically operated
in excess of minimum net capital requirements. However, if distributions were to
be limited in the future due to the failure of our subsidiaries to comply with
the net capital rules or a change in the net capital rules, it could have a
material and adverse affect to our company by limiting our operations that
require intensive use of capital, such as underwriting or trading activities, or
limit our ability to implement our business and growth strategies, pay interest
on and repay the principal of our debt, and/or repurchase our common stock. Our
non broker-dealer subsidiary, Stifel Bank is also subject to various regulatory
capital requirements administered by the federal banking agencies.



At
December 31, 2009, Stifel Nicolaus had net capital of $187.5 million, which was
39.4% of its aggregate debit items, and $178.0 million in excess of its minimum
required net capital; CSA had net capital of $3.4 million, which was $3.2
million in excess of its minimum required net capital. At December 31, 2009, SN
Ltd had capital and reserves of $7.2 million, which was $6.6 million in excess
of the financial resources requirement under the rules of the FSA. At December
31, 2009, Stifel Bank was considered well capitalized under the regulatory
framework for prompt corrective action. See Note 20 of the Notes to Consolidated
Financial Statements for details of our regulatory capital requirements.



Critical Accounting Policies and
Estimates



In preparing our
consolidated financial statements in accordance with U.S. generally accepted
accounting principles and pursuant to the rules and regulations of the SEC, we
make assumptions, judgments and estimates that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities. We base our assumptions, judgments and
estimates on historical experience and various other factors that we believe to
be reasonable under the circumstances. Actual results could differ materially
from these estimates under different assumptions or conditions. On a regular
basis, we evaluate our assumptions, judgments and estimates. We also discuss our
critical accounting policies and estimates with the Audit Committee of the Board
of Directors.



We believe that
the assumptions, judgments and estimates involved in the accounting policies
described below have the greatest potential impact on our consolidated financial
statements. These areas are key components of our results of operations and are
based on complex rules that require us to make assumptions, judgments and
estimates, so we consider these to be our critical accounting policies.
Historically, our assumptions, judgments and estimates relative to our critical
accounting policies and estimates have not differed materially from actual
results.



For a full
description of these and other accounting policies, see Note 2 of the Notes to
Consolidated Financial Statements.



Valuation of Financial Instruments



We measure certain financial assets and liabilities at fair
value on a recurring basis, including cash equivalents, trading securities
owned, available-for-sale securities, investments and trading securities sold,
but not yet purchased.



Trading securities
owned and pledged and trading securities sold, but not yet purchased, are
carried at fair value on the consolidated statements of financial condition,
with unrealized gains and losses reflected on the consolidated statements of
operations.



The
fair
value of a financial instrument is defined as the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date, or an exit price. The
degree of judgment used in measuring the fair value of financial instruments
generally correlates to the level of pricing observability. Financial
instruments with readily available active quoted prices or for which fair value
can be measured from actively quoted prices in active markets generally have
more pricing observability and less judgment used in measuring fair value.
Conversely, financial instruments rarely traded or not quoted have less pricing
observability and are measured at fair value using valuation models that require
more judgment. Pricing observability is impacted by a number of factors,
including the type of financial instrument, whether the financial instrument is
new to the market and not yet established, the characteristics specific to the
transaction, and overall market conditions generally.  




75










When
available, we use observable market prices, observable market parameters, or
broker or dealer quotes (bid and ask prices) to derive the fair value of
financial instruments. In the case of financial instruments transacted on
recognized exchanges, the observable market prices represent quotations for
completed transactions from the exchange on which the financial instrument is
principally traded.



A
substantial percentage of the fair value of our trading securities and other
investments owned, trading securities pledged as collateral, and trading
securities sold, but not yet purchased, are based on observable market prices,
observable market parameters, or derived from broker or dealer prices. The
availability of observable market prices and pricing parameters can vary from
product to product. Where available, observable market prices and pricing or
market parameters in a product may be used to derive a price without requiring
significant judgment. In certain markets, observable market prices or market
parameters are not available for all products, and fair value is determined
using techniques appropriate for each particular product. These techniques
involve some degree of judgment.  




For
investments in illiquid or privately held securities that do not have readily
determinable fair values, the determination of fair value requires us to
estimate the value of the securities using the best information available.
Among the
factors we consider in determining the fair value of investments are the cost of
the investment, terms and liquidity, developments since the acquisition of the
investment, the sales price of recently issued securities, the financial
condition and operating results of the issuer, earnings trends and consistency
of operating cash flows, the long-term business potential of the issuer, the
quoted market price of securities with similar quality and yield that are
publicly traded, and other factors generally pertinent to the valuation of
investments.
In instances where a security is
subject to transfer restrictions, the value of the security is based primarily
on the quoted price of a similar security without restriction but may be reduced
by an amount estimated to reflect such restrictions.
The fair value of
these investments is subject to a high degree of volatility and may be
susceptible to significant fluctuation in the near term and the differences
could be material.



We have
categorized our financial instruments measured at fair value into a three-level
classification in accordance with ASC 820, "Fair Value Measurement and
Disclosures." Fair value measurements of financial instruments that use quoted
prices in active markets for identical assets or liabilities are generally
categorized as Level I, and fair value measurements of financial instruments
that have no direct observable levels are generally categorized as Level III.
All other fair value measurements of financial instruments that do not fall
within the Level I or Level III classification are considered Level II. The
lowest level input that is significant to the fair value measurement of a
financial instrument is used to categorize the instrument and reflects the
judgment of management.



Level III financial instruments have little to no pricing
observability as of the report date. These financial instruments do not have
active two-way markets and are measured using management's best estimate of fair
value, where the inputs into the determination of fair value require significant
management judgment or estimation. We have identified Level III financial
instruments to include certain asset-backed securities, consisting of collateral
loan obligation securities, that have experienced low volumes of executed
transactions,  certain corporate bonds and equity securities where there was
less frequent or nominal market activity and auction-rate securities for which
the market has been dislocated and largely ceased to function. Our Level III
asset-backed securities are valued using cash flow models that utilize
unobservable inputs. Level III corporate bonds are valued using prices from
comparable securities. Equity securities with unobservable inputs are valued
using management's best estimate of fair value, where the inputs require
significant management judgment. Auction-rate securities are valued based upon
our expectations of issuer redemptions and using internal models.




76










At
December 31, 2009, Level III assets for which we bear economic exposure were
$65.4 million or 5.7% of the total assets measured at fair value. During the
year ended December 31, 2009, we recorded net purchases of $31.3 million of
Level III assets. Our valuation adjustments (realized and unrealized) reduced
the value of our Level III assets by $3.9 million. In June 2009, we began
repurchasing eligible ARS from our customers as part of our voluntary repurchase
plan, which have been classified as Level III assets at December 31, 2009.



At
December 31, 2008, Level III assets for which we bear economic exposure were
$38.3 million or 9.5% of the total assets measured at fair value. During the
year ended December 31, 2008, we recorded net sales of $1.7 million of Level III
assets. Our valuation adjustments (realized and unrealized) reduced the value of
our Level III assets by $9.5 million. Additionally, there were $30.3 million of
net transfers into the Level III category during 2008. The increase in net
transfers is primarily attributable to reduced market volume and level of
activity on some of our preferred and municipal auction rate securities.



At
December 31, 2009, Level III assets included the following: $56.0 million of
auction rate securities, $2.7 million of asset-backed securities and $6.7
million of private equity and other fixed income securities.





Contingencies



We are involved in various pending and potential
legal proceedings related to our business, including litigation, arbitration and
regulatory proceedings. Some of these matters involve claims for substantial
amounts, including claims for punitive damages. We have, after consultation with
outside legal counsel and consideration of facts currently known by management,
recorded estimated losses in accordance with ASC 450 ("ASC 450"),
"Contingencies," to the extent that claims are probable of loss and the amount
of the loss can be reasonably estimated. The determination of these reserve
amounts requires us to use significant judgment and our final liabilities may
ultimately be materially different.
This determination
is inherently subjective, as it requires estimates that are subject to
potentially significant revision as more information becomes available and due
to subsequent events. In making these
determinations, we consider many factors, including, but not limited to, the
loss and damages sought by the plaintiff or claimant, the basis and validity of
the claim, the likelihood of a successful defense against the claim, and the
potential for, and magnitude of, damages or settlements from such pending and
potential litigation and arbitration proceedings, and fines and penalties or
orders from regulatory agencies. See
Item 3,
"Legal Proceedings," in Part I of this report for information on our legal,
regulatory and arbitration proceedings.




Allowance for Doubtful Receivables from Former Employees



We offer
transition pay, principally in the form of upfront loans, to financial advisors
and certain key revenue producers as part of our overall growth strategy. These
loans are generally forgiven over a five- to ten-year period if the individual
satisfies certain conditions, usually based on continued employment and certain
performance standards. If the individual leaves before the term of the loan
expires or fails to meet certain performance standards, the individual is
required to repay the balance. In determining the allowance for doubtful
receivables from former employees, we consider the facts and circumstances
surrounding each receivable, including the amount of the unforgiven balance, the
reasons for the terminated employment relationship, and the former employees'
overall financial position. The loan balance from former employees at December
31, 2009 and December 31, 2008 was $2.5 million and $2.4 million, respectively,
with associated loss allowances of $1.5 million and $1.2 million, respectively.



Allowance for Loan Losses



We regularly
review the loan portfolio of Stifel Bank and have established an allowance for
loan losses in accordance with ASC 450.  The allowance for loan losses is
established as losses are estimated to have occurred through a provision for
loan losses charged to income. In providing for the allowance for loan losses,
we consider historical loss experience, the nature and volume of the loan
portfolio, adverse situations that may affect the borrower's ability to repay,
estimated value of any underlying collateral and prevailing economic conditions.
This evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available. Large
groups of smaller balance homogenous loans are collectively evaluated for
impairment. Accordingly, we do not separately identify individual consumer and
residential loans for impairment measurements.  




77










In addition,
impairment is measured on a loan-by loan basis for commercial and construction
loans and a specific allowance established for individual loans determined to be
impaired in accordance with ASC 310 "Receivables." Impairment is measured using
the present value of the impaired loan's expected cash flow discounted at the
loan's effective interest rate, the loan's observable market price, or the fair
value of the collateral if the loan is collateral dependent.  



A loan is
considered impaired when, based on current information and events, it is
probable that the scheduled payments of principal or interest when due according
to the contractual terms of the loan agreement will not be collectible. Factors
considered in determining impairment include payment status, collateral value
and the probability of collecting scheduled principal and interest payments when
due. Loans that experience insignificant payment delays and payment shortfalls
generally are not classified as impaired. We determine the significance of
payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower,
including the length of the delay, the reasons for the delay, the borrower's
prior payment record and the amount of the shortfall in relation to the
principal and interest owed.  



Once a loan is
determined to be impaired, usually when principal or interest becomes 90 days
past due or when collection becomes uncertain, the accrual of interest and
amortization of deferred loan origination fees is discontinued ("non-accrual
status"), and any accrued and unpaid interest income is written off. Loans
placed on non-accrual status are returned to accrual status when all delinquent
principal and interest payments are collected and the collectibility of future
principal and interest payments is reasonably assured. Loan losses are charged
against the allowance when we believe the uncollectibility of a loan balance is
confirmed. Subsequent recoveries, if any, are credited to the allowance.




Derivative Instruments and Hedging Activities



Stifel
Bank utilizes certain derivative instruments to minimize significant unplanned
fluctuations in earnings caused by interest rate volatility. Our company's goal
is to manage sensitivity to changes in rates by offsetting the repricing or
maturity characteristics of certain assets and liabilities, thereby limiting the
impact on earnings. The use of derivative instruments does expose our company to
credit and market risk. We manage credit risk through strict counterparty credit
risk limits and/or collateralization agreements. At inception, we determine if a
derivative instrument meets the criteria for hedge accounting under ASC 815,
"Derivatives and Hedging." Ongoing effectiveness evaluations are made for
instruments that are designated and qualify as hedges. If the derivative does
not qualify for hedge accounting, no assessment of effectiveness is needed.

Income Taxes



The provision for
income taxes and related tax reserves is based on our consideration of known
liabilities and tax contingencies for multiple taxing authorities. Known
liabilities are amounts that will appear on current tax returns, amounts that
have been agreed to in revenue agent revisions as the result of examinations by
the taxing authorities and amounts that will follow from such examinations but
affect years other than those being examined. Tax contingencies are liabilities
that might arise from a successful challenge by the taxing authorities taking a
contrary position or interpretation regarding the application of tax law to our
tax return filings. Factors considered in estimating our liability are results
of tax audits, historical experience, and consultation with tax attorneys and
other experts.



ASC 740
("ASC 740"), "Income Taxes," clarifies the accounting for uncertainty in income
taxes recognized in an entity's financial statements and prescribed recognition
threshold and measurement attributes for financial statement disclosure of tax
positions taken or expected to be taken on a tax return. The impact of an
uncertain income tax position on the income tax return must be recognized at the
largest amount that is more-likely-than-not to be sustained upon audit by the
relevant taxing authority. An uncertain income tax position will not be
recognized if it has less than a 50% likelihood of being sustained.
Additionally, ASC 740 provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition.



Goodwill and
Intangible Assets



Under the
provisions of ASC 805, "Business Combinations," we record all assets and
liabilities acquired in purchase acquisitions, including goodwill and other
intangible assets, at fair value. Determining the fair value of assets and
liabilities requires certain estimates. At December 31, 2009, we had goodwill of
$166.7 million and intangible assets of $24.6 million.  




78










In
accordance with ASC 350, "Intangibles - Goodwill and Other," indefinite-life
intangible assets and goodwill are not amortized. Rather, they are subject to
impairment testing on an annual basis, or more often if events or circumstances
indicate there may be impairment. This test involves assigning tangible assets
and liabilities, identified intangible assets and goodwill to reporting units
and comparing the fair value of each reporting unit to its carrying amount. If
the fair value is less than the carrying amount, a further test is required to
measure the amount of the impairment. We have elected to test for goodwill
impairment in the third quarter of each calendar year. The results of the
impairment test performed as of July 31, 2009, our last annual measurement date,
did not indicate any impairment.



The
goodwill impairment test is a two-step process, which requires us to make
judgments in determining what assumptions to use in the calculation.
Assumptions, judgments and estimates about future cash flows and discount rates
are complex and often subjective. They can be affected by a variety of factors,
including, among others, economic trends and market conditions, changes in
revenue growth trends or business strategies, unanticipated competition,
discount rates, technology, or government regulations. In assessing the fair
value of our reporting units, the volatile nature of the securities markets and
industry requires us to consider the business and market cycle and assess the
stage of the cycle in estimating the timing and extent of future cash flows. In
addition to discounted cash flows, we consider other information such as public
market comparables and multiples of recent mergers and acquisitions of similar
businesses. Although we believe the assumptions, judgments and estimates we have
made in the past have been reasonable and appropriate, different assumptions,
judgments and estimates could materially affect our reported financial results.




Identifiable intangible assets, which are amortized over their estimated useful
lives, are tested for potential impairment whenever events or changes in
circumstances suggest that the carrying value of an asset or asset group may not
be fully recoverable.




Recent Accounting
Pronouncements



See Note 2 of the
Notes to Consolidated Financial Statements for information regarding the effect
of new accounting pronouncements on our consolidated financial statements.

Off-balance Sheet
Arrangements



Information
concerning our off-balance sheet arrangements is included in Note 22 of the
Notes to Consolidated Financial Statements. Such information is hereby
incorporated by reference.



Dilution



As of December 31, 2009, there were 945,537
shares of our common stock issuable on outstanding options, with an average
weighted exercise price of $7.94, and 7,088,598 outstanding stock unit grants,
with each unit representing the right to receive shares of our common stock at a
designated time in the future. The restricted stock units vest on an annual
basis over the next three to eight years, and are distributable, if vested, at
future specified dates. Of the outstanding restricted stock unit awards,
2,064,136 shares are currently vested and 5,024,462 are unvested. Assuming
vesting requirements are met, the Company anticipates that 909,714 shares under
these awards will be distributed in 2010, 1,053,436 will be distributed in 2011,
1,176,091 will be distributed in 2012, and the balance of 3,949,357 will be
distributed thereafter.  



An employee will realize income as a result of an
award of stock units at the time shares are distributed in an amount equal to
the fair market value of such shares at that time, and we are entitled to a
corresponding tax deduction in the year of such issuance. Unless an employee
elects to satisfy such withholding in another manner, such as by paying the
amount in cash or by delivering shares of Stifel Financial Corp. common stock
already owned by such person and held by such person for at least six months, we
may satisfy tax withholding obligations on income associated with such grants by
reducing the number of shares otherwise deliverable in connection with such
awards, such reduction to be calculated based on a current market price of our
common stock. Based on current tax law, we anticipate that the shares issued
when the awards are paid to the employees will be reduced by approximately 35%
to satisfy such withholding obligations, so that approximately 65% of the total
restricted stock units that are distributable in any particular year will be
converted into issued and outstanding shares.




79










Contractual Obligations



The
following table sets forth our contractual obligations to make future payments
as of December 31, 2009 (in thousands):


	
		
		

		 
		
		


		Total
		
		

		 
		
		

		2010
		
		

		 
		
		


		2011
		
		

		 
		
		

		2012
		
		

		 
		
		

		2013
		
		

		 
		
		

		2014
		
		

		 
		
		

		Thereafter
	
	
		
		

		Debenture to Stifel Financial Capital Trust II  
		(1)
		
		

		$
		
		


		35,000
		
		

		 
		
		

		$
		
		


		35,000
		
		

		 
		
		


		$
		
		


		-
		
		

		 
		
		

		$
		
		


		-
		
		

		 
		
		

		$
		
		


		-
		
		

		 
		
		

		$
		
		


		-
		
		

		 
		
		

		$
		
		


		-
	
	
		
		


		Interest on debenture  (1)
		
		


		 
		
		

		57,500
		
		

		 
		
		

		 
		
		


		2,233
		
		

		 
		
		

		 
		
		


		2,233
		
		

		 
		
		

		 
		
		


		2,233
		
		

		 
		
		

		 
		
		


		2,233
		
		

		 
		
		

		 
		
		


		2,233
		
		

		 
		
		

		 
		
		


		46,335
	
	
		
		

		Debenture to Stifel Financial Capital Trust III  

		(2)
		
		


		 
		
		


		35,000
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		35,000
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
	
	
		
		


		Interest on debenture  (2)
		
		


		 
		
		


		64,760
		
		

		 
		
		

		 
		
		


		2,377
		
		

		 
		
		

		 
		
		


		2,377
		
		

		 
		
		

		 
		
		


		2,377
		
		

		 
		
		

		 
		
		


		2,377
		
		

		 
		
		

		 
		
		


		2,377
		
		

		 
		
		

		 
		
		


		52,875
	
	
		
		

		Debenture to Stifel Financial Capital Trust IV  

		(3)
		
		


		 
		
		


		12,500
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		12,500
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
	
	
		
		


		Interest on debenture  (3)
		
		


		 
		
		

		46,603
		
		

		 
		
		

		 
		
		


		1,695
		
		

		 
		
		

		 
		
		


		1,695
		
		

		 
		
		

		 
		
		


		1,695
		
		

		 
		
		

		 
		
		


		1,695
		
		

		 
		
		

		 
		
		


		1,695
		
		

		 
		
		

		 
		
		


		38,128
	
	
		
		


		Stifel CAPCO LLC II non
		interest-bearing 

		

		

		notes  (4)
		
		


		 
		
		

		9,398
		
		

		 
		
		

		 
		
		


		9,398
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
	
	
		
		


		Liabilities subordinated to general creditors
		
		


		 
		
		

		10,082
		
		

		 
		
		

		 
		
		


		1,391
		
		

		 
		
		

		 
		
		


		1,474
		
		

		 
		
		

		 
		
		


		1,722
		
		

		 
		
		

		 
		
		


		2,328
		
		

		 
		
		

		 
		
		


		3,167
		
		

		 
		
		

		 
		
		


		-
	
	
		
		


		Operating leases
		
		


		 
		
		

		200,035
		
		

		 
		
		

		 
		
		


		38,000
		
		

		 
		
		

		 
		
		


		32,515
		
		

		 
		
		

		 
		
		


		27,359
		
		

		 
		
		

		 
		
		


		23,958
		
		

		 
		
		

		 
		
		


		20,122
		
		

		 
		
		

		 
		
		


		58,081
	
	
		
		


		Purchase obligations
		
		


		 
		
		

		35,088
		
		

		 
		
		

		 
		
		


		23,507
		
		

		 
		
		

		 
		
		


		9,009
		
		

		 
		
		

		 
		
		


		2,318
		
		

		 
		
		

		 
		
		


		236
		
		

		 
		
		

		 
		
		


		16
		
		

		 
		
		

		 
		
		


		2
	
	
		
		


		Certificates of deposit
		
		


		 
		
		

		18,245
		
		

		 
		
		

		 
		
		


		15,711
		
		

		 
		
		

		 
		
		


		814
		
		

		 
		
		

		 
		
		


		918
		
		

		 
		
		

		 
		
		


		632
		
		

		 
		
		

		 
		
		


		170
		
		

		 
		
		

		 
		
		


		-
	
	
		
		


		Contingent earn-out to UBS Financial Services, Inc. related to branch
		acquisition  (5)
		
		


		 
		
		

		8,300
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		8,300
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
	
	
		
		


		Commitment to fund partnership interests
		
		


		 
		
		

		1,300
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
	
	
		
		


		Commitments to extend credit - Stifel Bank  
		(6)
		
		


		 
		
		

		119,865
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
	
	
		
		


		Federal Home Loan Bank advances
		
		


		 
		
		

		2,000
		
		

		 
		
		

		 
		
		


		2,000
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
	
	
		
		


		Voluntary plan to repurchase ARS  
		(7)
		
		


		 
		
		

		119,508
		
		

		 
		
		

		 
		
		


		41,375
		
		

		 
		
		

		 
		
		


		78,133
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
	
	
		
		


		 
		
		


		$
		
		

		775,184
		
		

		 
		
		

		$
		
		


		172,687
		
		

		 
		
		

		$
		
		


		136,550
		
		

		 
		
		

		$
		
		


		86,122
		
		

		 
		
		

		$
		
		


		33,459
		
		

		 
		
		

		$
		
		


		29,780
		
		

		 
		
		

		$
		
		


		195,421
	
	


(1)    Debenture to Stifel Financial
Capital Trust II is callable at par no earlier than September 30, 2010, but no
later than September 30, 2035. The interest is payable at a fixed interest rate
equal to 6.38% per annum from the issue date to September 30, 2010 and then will
be payable at a floating interest rate equal to three-month London Interbank
Offered Rate ("LIBOR") plus 1.70% per annum. Thereafter interest rate assumes no
increase. 



(2)    Debenture to Stifel Financial
Capital Trust III is callable at par no earlier than June 6, 2012, but no later
than June 6, 2037. The interest is payable, in arrears, at a fixed interest rate
equal to 6.79% per annum from the issue date to June 6, 2012 and then will be
payable at a floating interest rate equal to three-month LIBOR plus 1.85% per
annum. Thereafter interest rate assumes no increase.



(3)    Debenture to Stifel Financial
Capital Trust IV is callable at par no earlier than September 6, 2012, but no
later than September 6, 2037. The interest is payable, in arrears, at a fixed
interest rate equal to 6.78% per annum from the issue date to September 6, 2012
and then will be payable at a floating interest rate equal to three-month LIBOR
plus 1.85% per annum. Thereafter interest rate assumes no increase.



(4)    We invested in zero coupon
U.S. government securities in an amount sufficient to accrete to the repayment
amount of the notes, which are placed in an irrevocable trust. At December 31,
2009, these securities had a carrying value of $8,332 and are included under the
caption investments on the consolidated statements of financial condition.



(5)    Information concerning the
UBS transaction is included in Note 3 of the Notes to the Consolidated Financial
Statements. Such information is hereby incorporated by reference.



(6)    Commitments to extend credit
include commitments to originate loans, outstanding standby letters of credit
and lines of credit which may expire without being funded and as such do not
represent estimates of future cash flow.



(7)    Stifel Nicolaus' modified ARS
repurchase offer where it will complete the repurchase of auction rate
securities, at par, from its retail clients who purchased ARS through Stifel
Nicolaus before the collapse of the ARS market in early 2008 no later than
December 31, 2011. The amounts estimated for repurchase assume no issuer
redemptions.



The contractual obligations table excludes
uncertain tax position liabilities of $1,912 because we cannot make a reliable
estimate of the timing of cash payments.




80










ITEM 7A. 


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Risk Management



Risks are an
inherent part of our business and activities. Management of these risks is
critical to our soundness and profitability. Risk management at our company is a
multi-faceted process that requires communication, judgment, and knowledge of
financial products and markets. Our senior management group takes an active role
in the risk management process and requires specific administrative and business
functions to assist in the identification, assessment, monitoring, and control
of various risks. The principal risks involved in our business activities are:
market (interest rates and equity prices), credit, operational, and regulatory
and legal.



Market Risk



The potential for
changes in the value of financial instruments owned by our company resulting
from changes in interest rates and equity prices is referred to as "market
risk." Market risk is inherent to financial instruments, and accordingly, the
scope of our market risk management procedures includes all market
risk-sensitive financial instruments.



We trade
tax-exempt and taxable debt obligations, including U.S. treasury bills, notes,
and bonds; U.S. government agency and municipal notes and bonds; bank
certificates of deposit; mortgage-backed securities; and corporate obligations.
We are also an active market-maker in over-the-counter equity securities. In
connection with these activities, we may maintain inventories in order to ensure
availability and to facilitate customer transactions.



Changes in value
of our financial instruments may result from fluctuations in interest rates,
credit ratings, equity prices, and the correlation among these factors, along
with the level of volatility.



We manage our
trading businesses by product and have established trading departments that have
responsibility for each product. The trading inventories are managed with a view
toward facilitating client transactions, considering the risk and profitability
of each inventory position. Position limits in trading inventory accounts are
established and monitored on a daily basis. We monitor inventory levels and
results of the trading departments, as well as inventory aging, pricing,
concentration, and securities ratings.  



We are also
exposed to market risk based on our other investing activities. These
investments consist of investments in private equity partnerships, start up
companies, venture capital investments and zero coupon U.S. government
securities and are included under the caption "Investments" on the consolidated
statements of financial condition.



Interest Rate Risk



We are exposed to
interest rate risk as a result of maintaining inventories of interest
rate-sensitive financial instruments and from changes in the interest rates on
our interest-earning assets (including client loans, stock borrow activities,
investments, and inventories) and our funding sources (including client cash
balances, stock lending activities, bank borrowings, and resale agreements),
which finance these assets. The collateral underlying financial instruments at
the broker-dealer is repriced daily, thus requiring collateral to be delivered
as necessary. Interest rates on client balances and stock borrow and lending
produce a positive spread to our company, with the rates generally fluctuating
in parallel.



We manage our
inventory exposure to interest rate risk by setting and monitoring limits and,
where feasible, hedging with offsetting positions in securities with similar
interest rate risk characteristics. While a significant portion of our
securities inventories have contractual maturities in excess of five years,
these inventories, on average, turn over several times per year.




81










Additionally, we
monitor, on a daily basis, the Value-at-Risk ("VaR") in our institutional
Capital Markets trading portfolios using daily market data for the previous
twelve months and report VaR at a 95% confidence level. VaR is a statistical
technique used to estimate the probability of portfolio losses based on the
statistical analysis of historical price trends and volatility. This model
assumes that historical changes in market conditions are representative of
future changes, and trading losses on any given day could exceed the reported
VaR by significant amounts in unusual volatile markets. Further, the model
involves a number of assumptions and inputs. While we believe that the
assumptions and inputs we use in our risk model are reasonable, different
assumptions and inputs could produce materially different VaR estimates. 





The following
table sets forth the high, low, and daily average VaR for our institutional
fixed income trading portfolio during the year ended December 31, 2009 and the
daily VaR at December 31, 2009 and 2008 (in thousands, except rates):


	
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		Year Ended December 31, 2009
		
		

		 
		
		

		VaR calculation at
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		High
		
		

		 
		
		

		Low
		
		

		 
		
		

		 
		
		

		Daily

		Average
		
		

		 
		
		

		December 31,
		

		2009
		
		

		 
		
		


		December 31,
		

		2008
		
		

		 
	
	
		
		


		Daily VaR
		
		

		 
		
		


		$
		
		


		5,849
		
		

		 
		
		

		$
		
		


		278
		
		

		 
		
		

		$ 
		
		


		1,097
		
		

		 
		
		

		 
		
		

		$
		
		


		766
		
		

		 
		
		

		$
		
		


		467
		
		

		 
	
	
		
		

		Related portfolio value
		
		

		 
		
		


		$
		
		


		127,620
		
		

		 
		
		


		$
		
		


		91,566
		
		

		 
		
		


		$ 
		
		


		128,730
		
		

		 
		
		

		 
		
		

		$
		
		


		138,053
		
		

		 
		
		


		$
		
		


		19,157
		
		

		 
	
	
		
		

		VaR as a percentage of portfolio value
		
		

		 
		
		

		 
		
		


		4.58
		
		

		%
		
		

		 
		
		


		0.30
		
		

		%
		
		

		 
		
		


		0.85
		
		

		%
		
		

		 
		
		


		 
		
		


		0.55
		
		

		%
		
		

		 
		
		


		2.44
		
		

		%
	



Stifel Bank's
interest rate risk is principally associated with changes in market interest
rates related to residential, consumer, and commercial lending activities, as
well as FDIC-insured deposit accounts to customers of our broker-dealer
subsidiaries and to the general public.  



Our primary
emphasis in interest rate risk management for Stifel Bank is the matching of
assets and liabilities of similar cash flow and repricing time frames. This
matching of assets and liabilities reduces exposure to interest rate movements
and aids in stabilizing positive interest spreads. Stifel Bank has established
limits for acceptable interest rate risk and acceptable portfolio value risk. To
ensure that Stifel Bank is within the limits established for net interest
margin, an analysis of net interest margin based on various shifts in interest
rates is prepared each quarter and presented to Stifel Bank's Board of
Directors. Stifel Bank utilizes a third party vendor to analyze the available
data.  



The following
table illustrates the estimated change in net interest margin at December 31,
2009 based on shifts in interest rates of up to positive 200 basis points and
negative 200 basis points:  



	
		
			
			


			 
			
			

			 
			
			


			 
			
			

			 
		
		
			
			

			Hypothetical change


			 in interest rates
			
			

			 
			
			


			Projected change in net interest margin
			
			

			 
		
		
			
			


			+200
			
			

			 
			
			


			37.2
			
			

			% 
		
		
			
			


			+100
			
			

			 
			
			


			19.2
			
			

			%
		
		
			
			


			0
			
			

			 
			
			


			0.00%
			
			

			 
		
		
			
			


			-100
			
			

			 
			
			


			n/a
			
			

			 
		
		
			
			


			-200
			
			

			 
			
			


			n/a
			
			

			 
		
		
			
			

			 
			
			

			 
			
			


			 
			
			

			 
		
	





82










The following GAP
Analysis table indicates Stifel Bank's interest rate sensitivity position at
December 31, 2009 (in thousands):



	
		
			
			

			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
		
		
			
			

			

			 
			
			

			 
			
			

			Repricing Opportunities
			
			

			 
		
		
			
			

			

			 
			
			

			 
			
			

			0-6 Months
			
			

			 
			
			

			7-12 Months
			
			

			 
			
			

			1-5 Years
			
			

			 
			
			

			5+ Years
			
			

			 
		
		
			
			

			

			Interest-earning assets:
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
			
			

			 
		
		
			
			

			Loans
			
			

			 
			
			


			$
			
			


			393,605
			
			

			 
			
			

			$
			
			


			9,899
			
			

			 
			
			


			$
			
			


			25,437
			
			

			 
			
			

			$
			
			


			7,301
			
			

			 
		
		
			
			

			Securities
			
			

			 
			
			

			 
			
			


			89,015
			
			

			 
			
			

			 
			
			


			38,053
			
			

			 
			
			


			 
			
			


			214,624
			
			

			 
			
			

			 
			
			


			236,478
			
			

			 
		
		
			
			

			Interest-bearing cash
			
			

			 
			
			

			 
			
			


			112,596
			
			

			 
			
			

			 
			
			


			-
			
			

			 
			
			


			 
			
			


			-
			
			

			 
			
			

			 
			
			


			-
			
			

			 
		
		
			
			

			
			 
			
			

			 
			
			

			$ 
			
			


			595,216
			
			

			 
			
			

			$ 
			
			


			47,952
			
			

			 
			
			


			$
			
			


			240,061
			
			

			 
			
			

			$
			
			


			243,779
			
			

			 
		
		
			
			


			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
			
			


			 
			
			


			 
			
			


			 
			
			

			 
			
			


			 
			
			

			 
		
		
			
			


			Interest-bearing liabilities:
			
			

			 
			
			

			 
			
			


			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
			
			


			 
			
			


			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
		
		
			
			


			Transaction accounts and savings
			
			

			 
			
			

			$ 
			
			


			616,828
			
			

			 
			
			

			$
			
			


			21,062
			
			

			 
			
			


			$
			
			


			356,220
			
			

			 
			
			


			$
			
			


			39,469
			
			

			 
		
		
			
			


			Certificates of deposit
			
			

			 
			
			

			 
			
			


			15,106
			
			

			 
			
			

			 
			
			


			590
			
			

			 
			
			


			 
			
			


			2,548
			
			

			 
			
			

			 
			
			


			-
			
			

			 
		
		
			
			


			Borrowings
			
			

			 
			
			

			 
			
			


			2,000
			
			

			 
			
			

			 
			
			


			-
			
			

			 
			
			

			 
			
			


			-
			
			

			 
			
			

			 
			
			


			-
			
			

			 
		
		
			
			

			
			 
			
			

			 
			
			

			$
			
			


			633,934
			
			

			 
			
			

			$
			
			


			21,652
			
			

			 
			
			


			$
			
			


			358,768
			
			

			 
			
			

			$
			
			


			39,469
			
			

			 
		
		
			
			


			GAP
			
			

			 
			
			

			 
			
			


			(38,718
			
			

			)
			
			

			 
			
			


			26,300
			
			

			 
			
			


			 
			
			


			(118,707
			
			

			)
			
			

			 
			
			


			204,310
			
			

			 
		
		
			
			


			Cumulative GAP
			
			

			 
			
			


			$
			
			


			(38,718
			
			

			)
			
			

			$
			
			


			(12,418
			
			

			)
			
			


			$
			
			


			(131,125
			
			

			)
			
			

			$
			
			


			73,185
			
			

			 
		
		
			
			


			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
			
			


			 
			
			


			 
			
			

			 
			
			

			 
			
			


			 
			
			

			 
		
	




We maintain a risk management
strategy that incorporates the use of derivative instruments to minimize
significant unplanned fluctuations in earnings caused by interest rate
volatility. Our goal is to manage sensitivity to changes in rates by hedging the
maturity characteristics of Fed-funds based affiliated deposits, thereby
limiting the impact on earnings. By using derivative instruments, we are exposed
to credit and market risk on those derivative positions. We manage the market
risk associated with interest rate contracts by establishing and monitoring
limits as to the types
and degree of risk that may be undertaken.
Our
interest rate hedging strategies may not work in all market environments and as
a result may not be effective in mitigating interest rate risk.



Equity Price Risk



We are exposed to
equity price risk as a consequence of making markets in equity securities. We
attempt to reduce the risk of loss inherent in our inventory of equity
securities by monitoring those security positions constantly throughout each
day.



Our equity
securities inventories are repriced on a regular basis, and there are no
unrecorded gains or losses. Our activities as a dealer are client-driven, with
the objective of meeting clients' needs while earning a positive spread.



Credit Risk



We are engaged in
various trading and brokerage activities, with the counterparties primarily
being broker-dealers. In the event counterparties do not fulfill their
obligations, we may be exposed to risk. The risk of default depends on the
creditworthiness of the counterparty or issuer of the instrument. We manage this
risk by imposing and monitoring position limits for each counterparty,
monitoring trading counterparties, conducting regular credit reviews of
financial counterparties, reviewing security concentrations, holding and marking
to market collateral on certain transactions, and conducting business through
clearing organizations, which guarantee performance.




83










Our client
activities involve the execution, settlement, and financing of various
transactions on behalf of our clients. Client activities are transacted on
either a cash or margin basis. Credit exposure associated with our private
client business consists primarily of customer margin accounts, which are
monitored daily and are collateralized. We monitor exposure to industry sectors
and individual securities and perform analyses on a regular basis in connection
with our margin lending activities. We adjust our margin requirements if we
believe our risk exposure is not appropriate based on market conditions.



We have accepted collateral in
connection with resale agreements, securities borrowed transactions, and
customer margin loans. Under many agreements, we are permitted to sell or
repledge these securities held as collateral and use these securities to enter
into securities lending arrangements or to deliver to counterparties to cover
short positions. At December 31, 2009, the fair value of securities accepted as
collateral where we are permitted to sell or repledge the securities was $792.1
million, and the fair value of the collateral that had been sold or repledged
was $201.6 million.




By using derivative instruments, we
are exposed to credit and market risk on those derivative positions. Credit risk
is equal to the fair value gain in a derivative, if the counterparty fails to
perform. When the fair value of a derivative contract is positive, this
generally indicates that the counterparty owes our company and, therefore,
creates a repayment risk for our company. When the fair value of a derivative
contract is negative, we owe the counterparty and, therefore, have no repayment
risk. We minimize the credit (or repayment) risk in derivative instruments by
entering into transactions with high-quality counterparties that are reviewed
periodically by senior management.



Stifel Bank
extends credit to individual and commercial borrowers through a variety of loan
products, including residential and commercial mortgage loans, home equity
loans, construction loans and non-real-estate commercial and consumer loans.
Bank loans are generally collateralized by real estate, real property, or other
assets of the borrower. Stifel Bank's loan policy includes criteria to
adequately underwrite, document, monitor, and manage credit risk. Underwriting
requires reviewing and documenting the fundamental characteristics of credit
including character, capacity to service the debt, capital, conditions, and
collateral. Benchmark capital and coverage ratios are utilized which include
liquidity, debt service coverage, credit, working capital, and capital to asset
ratios. Lending limits are established to include individual, collective,
committee, and board authority. Monitoring credit risk is accomplished through
defined loan review procedures including frequency and scope.  



We are subject to
concentration risk if we hold large positions, extend large loans to, or have
large commitments with a single counterparty, borrower, or group of similar
counterparties or borrowers (i.e., in the same industry). Securities purchased
under agreements to resell consist of securities issued by the U.S. government
or its agencies. Receivables from and payables to clients and stock borrow and
lending activities both with a large number of clients and counterparties, and
any potential concentration is carefully monitored. Stock borrow and lending
activities are executed under master netting agreements, which gives our company
right of offset in the event of counterparty default. Inventory and investment
positions taken and commitments made, including underwritings, may involve
exposure to individual issuers and businesses. We seek to limit this risk
through careful review of counterparties and borrowers and the use of limits
established by our senior management group, taking into consideration factors
including the financial strength of the counterparty, the size of the position
or commitment, the expected duration of the position or commitment, and other
positions or commitments outstanding.  



Operational Risk



Operational risk
generally refers to the risk of loss resulting from our operations, including,
but not limited to, improper or unauthorized execution and processing of
transactions, deficiencies in our technology or financial operating systems, and
inadequacies or breaches in our control processes. We operate different
businesses in diverse markets and are reliant on the ability of our employees
and systems to process a large number of transactions. These risks are less
direct than credit and market risk, but managing them is critical, particularly
in a rapidly changing environment with increasing transaction volumes. In the
event of a breakdown or improper operation of systems or improper action by
employees, we could suffer financial loss, regulatory sanctions, and damage to
our reputation. In order to mitigate and control operational risk, we have
developed and continue to enhance specific policies and procedures that are
designed to identify and manage operational risk at appropriate levels
throughout the organization and within such departments as Accounting,
Operations, Information Technology, Legal, Compliance, and Internal Audit. These
control mechanisms attempt to ensure that operational policies and procedures
are being followed and that our various businesses are operating within
established corporate policies and limits. Business continuity plans exist for
critical systems, and redundancies are built into the systems as deemed
appropriate.




84










Regulatory and
Legal Risk



Legal risk
includes the risk of large numbers of private client group customer claims for
sales practice violations. While these claims may not be the result of any
wrongdoing, we do, at a minimum, incur costs associated with investigating and
defending against such claims. See further discussion on our legal reserves
policy under "Critical Accounting Policies and Estimates" in Item 7, Part II and
"Legal Proceedings" in Item 3, Part I of this report. In addition, we are
subject to potentially sizable adverse legal judgments or arbitration awards,
and fines, penalties, and other sanctions for non-compliance with applicable
legal and regulatory requirements. We are generally subject to extensive
regulation by the SEC, FINRA, and state securities regulators in the different
jurisdictions in which we conduct business.
As a bank
holding company, we are subject to regulation by the Federal Reserve. Stifel
Bank is subject to regulation by the FDIC. As a result, we are subject to a risk
of loss resulting from failure to comply with banking laws.
We have
comprehensive procedures addressing issues such as regulatory capital
requirements, sales and trading practices, use of and safekeeping of customer
funds, the extension of credit, including margin loans, collection activities,
money laundering, and record keeping. We act as an underwriter or selling group
member in both equity and fixed income product offerings. Particularly when
acting as lead or co-lead manager, we have potential legal exposure to claims
relating to these securities offerings. To manage this exposure, a committee of
senior executives review proposed underwriting commitments to assess the quality
of the offering and the adequacy of due diligence investigation.



Effects of Inflation



Our assets are
primarily monetary, consisting of cash, securities inventory, and receivables
from customers and brokers and dealers. These monetary assets are generally
liquid and turn over rapidly, and consequently, are not significantly affected
by inflation. However, the rate of inflation affects various expenses of our
company, such as employee compensation and benefits, communications and office
supplies, and occupancy and equipment rental, which may not be readily
recoverable in the price of services we offer to our clients. Further, to the
extent inflation results in rising interest rates and has other adverse effects
upon the securities markets, it may adversely affect our financial position and
results of operations.




85










ITEM 8. 
 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 



INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS


	
		
		

		Reports of Independent Registered Public Accounting Firms
		
		

		87
	
	
		
		

		Consolidated Statements of Financial Condition 
		
		
		
89
	
	
		
		

		Consolidated Statements of Operations
		
		
91
	
	
		
		

		Consolidated Statements of Shareholders' Equity 
		
		
		
92
	
	
		
		

		Consolidated Statements of Cash Flows
		
		
94
	
	
		
		

		Notes to the Consolidated Financial Statements
		
		
 
	
	
		
		
Note 1    Nature of Operation and Basis of Presentation
		
		
97
	
	
		
		
Note 2    Summary of Significant Accounting Policies
		
		
98
	
	
		
		
Note 3    Acquisitions
		
		
106
	
	
		
		
Note 4    Assets and Liabilities Held for Sale
		
		
107
	
	
		
		
Note 5    Receivables from and Payables to Brokers, Dealers and Clearing
		Organizations
		
		
107
	
	
		
		
Note 6    Fair Value of Financial Instruments
		
		
108
	
	
		
		
Note 7    Trading Securities Owned and Trading Securities Sold, But Not
		Yet Purchased
		
		
116
	
	
		
		
Note 8    Available-for-Sale and Held-to-Maturity Securities
		
		
117
	
	
		
		
Note 9    Bank Loans
		
		
121
	
	
		
		
Note 10  Fixed Assets
		
		
122
	
	
		
		
Note 11  Goodwill and Intangible Assets
		
		
123
	
	
		
		
Note 12  Short-Term Borrowings from Banks
		
		
124
	
	
		
		
Note 13  Bank Deposits
		
		
125
	
	
		
		
Note 14  Federal Home Loan Bank Advances and Other Secured Financing
		
		
126
	
	
		
		
Note 15  Debentures to Stifel Financial Capital Trusts
		
		
126
	
	
		
		
Note 16  Derivative Instruments and Hedging Activities
		
		
127
	
	
		
		
Note 17  Liabilities Subordinated to Claims of General Creditors
		
		
129
	
	
		
		
Note 18  Commitments and Contingencies
		
		
129
	
	
		
		
Note 19  Legal Proceedings
		
		
131
	
	
		
		
Note 20  Regulatory Capital Requirements
		
		
132
	
	
		
		
Note 21  Employee Incentive, Deferred Compensation and Retirement Plans
		
		
133
	
	
		
		
Note 22  Off-Balance Sheet Credit Risk
		
		
136
	
	
		
		
Note 23  Income Taxes
		
		
138
	
	
		
		
Note 24  Segment Reporting
		
		
140
	
	
		
		
Note 25  Other Comprehensive Income
		
		
142
	
	
		
		
Note 26  Earnings Per Share
		
		
143
	
	
		
		
Note 27  Shareholders' Equity
		
		
143
	
	
		
		
Note 28  Variable Interest Entities
		
		
144
	
	
		
		
Note 29  Subsequent Events
		
		
146
	
	
		
		
Note 30  Quarterly Financial Information (Unaudited)
		
		
146
	
	



86










Report of Independent Registered Public Accounting
Firm




               
 



The Board
of Directors and Shareholders of 



Stifel Financial Corp.



 



We have
audited the accompanying consolidated statements of financial condition of Stifel
Financial Corp. (the "Company") as of December 31, 2009 and 2008, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the two years in the period ended December 31, 2009. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.



We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.



In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Stifel Financial Corp.
at December 31, 2009 and 2008, and the consolidated results of its operations
and its cash flows for each of the two years in the period ended December 31,
2009, in conformity with U.S. generally accepted accounting principles.





We also
have audited the adjustments to the 2007 financial statements to retrospectively
adjust the disclosures for a change in the composition of reportable segments in
2009, as described in Note 24.  Our procedures included (1) comparing the
adjustment amounts to the Company's underlying accounting records and (2)
testing the mathematical accuracy of the reconciliations of the segment amounts
to the financial statement totals. In our opinion, such retrospective
adjustments are appropriate and have been properly applied. However, we were not
engaged to audit, review, or apply any procedures to the 2007 financial
statements of the Company other than with respect to the retrospective
adjustments related to the change in composition of reportable segments and,
accordingly, we do not express an opinion or any other form of assurance on the
2007 financial statements taken as a whole.



We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company's internal control over financial
reporting as of December 31, 2009, based on the criteria established in 
Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated
February 26, 2010, expressed an unqualified opinion thereon.



 



/s/ Ernst & Young
LLP



 



Chicago,
Illinois



February
26, 2010




87












Report of
Independent Registered Public Accounting Firm




               
 



The Board
of Directors and Shareholders of



Stifel
Financial Corp.



St.
Louis, Missouri



 



We have
audited, before the effects of the retrospective adjustments to the disclosures
for a change in the composition of reportable segments discussed in Note 24 to
the consolidated financial statements, the accompanying consolidated statements
of operations, comprehensive income, stockholders' equity, and cash flows of
Stifel Financial Corp. and subsidiaries (the "Company") for the year ended
December 31, 2007 (the 2007 consolidated financial statements before the effects
of the retrospective adjustments discussed in Note 24 to the consolidated
financial statements are not presented herein). These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.



We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.



In our
opinion, such 2007 consolidated financial statements, before the effects of the
retrospective adjustments to the disclosures for a change in the composition of
reportable segments discussed in Note 24 to the consolidated financial
statements, present fairly, in all material respects, Stifel Financial Corp. and
subsidiaries' results of operations and cash flows for the year ended December
31, 2007, in conformity with accounting principles generally accepted in the
United States of America.



We were
not engaged to audit, review, or apply any procedures to the retrospective
adjustments to the disclosures for a change in the composition of reportable
segments discussed in Note 24 to the consolidated financial statements and,
accordingly, we do not express an opinion or any other form of assurance about
whether such retrospective adjustments are appropriate and have been properly
applied.  Those retrospective adjustments were audited by other auditors.



 



/s/
Deloitte & Touche LLP



 



St Louis,
Missouri



February
28, 2008








88











STIFEL FINANCIAL CORP.



Consolidated
Statements of Financial Condition 




	
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		December 31,  
		
		

		 
	
	
		
		


		(in thousands)
		
		

		 
		
		

		2009
		
		

		 
		
		


		2008
		
		

		 
	
	
		
		


		Assets
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Cash and cash equivalents
		
		

		 
		
		

		$
		
		

		161,820
		
		

		 
		
		

		$
		
		


		239,725
		
		

		 
	
	
		
		

		Cash segregated for regulatory purposes
		
		

		 
		
		

		 
		
		


		19
		
		

		 
		
		

		 
		
		


		40
		
		

		 
	
	
		
		

		Receivables:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Brokerage clients, net  
		
		

		 
		
		

		 
		
		


		383,222
		
		

		 
		
		

		 
		
		


		280,143
		
		

		 
	
	
		
		


		Broker, dealers and clearing organizations
		
		

		 
		
		

		 
		
		


		309,609
		
		

		 
		
		

		 
		
		


		111,575
		
		

		 
	
	
		
		


		Securities purchased under agreements to resell
		
		

		 
		
		

		 
		
		


		124,854
		
		

		 
		
		

		 
		
		


		17,723
		
		

		 
	
	
		
		


		Trading securities owned, at fair value (includes securities pledged of
		$366,788 and $123,415, respectively)
		
		

		 
		
		

		 
		
		


		454,891
		
		

		 
		
		

		 
		
		


		122,576
		
		

		 
	
	
		
		

		Available-for-sale securities, at fair value
		
		

		 
		
		

		 
		
		


		578,488
		
		

		 
		
		

		 
		
		


		50,397
		
		

		 
	
	
		
		

		Held-to-maturity securities, at amortized cost
		
		

		 
		
		

		 
		
		


		7,574
		
		

		 
		
		

		 
		
		


		7,574
		
		

		 
	
	
		
		

		Loans held for sale
		
		

		 
		
		

		 
		
		


		91,117
		
		

		 
		
		

		 
		
		


		31,246
		
		

		 
	
	
		
		


		Bank loans, net
		
		

		 
		
		

		 
		
		


		335,157
		
		

		 
		
		

		 
		
		


		181,269
		
		

		 
	
	
		
		

		Bank foreclosed assets held for sale, net of estimated cost to
		sell
		
		

		 
		
		

		 
		
		


		3,143
		
		

		 
		
		

		 
		
		


		2,326
		
		

		 
	
	
		
		

		Investments
		
		

		 
		
		

		 
		
		


		109,403
		
		

		 
		
		

		 
		
		


		75,465
		
		

		 
	
	
		
		


		Fixed assets, net  
		
		

		 
		
		

		 
		
		


		62,115
		
		

		 
		
		

		 
		
		


		47,765
		
		

		 
	
	
		
		

		Goodwill
		
		

		 
		
		

		 
		
		


		166,725
		
		

		 
		
		

		 
		
		


		128,278
		
		

		 
	
	
		
		


		Intangible assets, net
		
		

		 
		
		

		 
		
		


		24,648
		
		

		 
		
		

		 
		
		


		15,984
		
		

		 
	
	
		
		


		Loans and advances to financial advisors and other employees, net
		
		

		 
		
		

		 
		
		


		185,123
		
		

		 
		
		

		 
		
		


		105,767
		
		

		 
	
	
		
		

		Deferred tax assets, net
		
		

		 
		
		

		 
		
		


		53,462
		
		

		 
		
		

		 
		
		


		47,337
		
		

		 
	
	
		
		

		Other assets
		
		

		 
		
		

		 
		
		


		115,986
		
		

		 
		
		

		 
		
		


		92,955
		
		

		 
	
	
		
		


		Total Assets
		
		

		 
		
		

		$ 
		
		


		3,167,356
		
		

		 
		
		

		$
		
		


		1,558,145
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	






See accompanying
Notes to Consolidated Financial Statements.




89











STIFEL
FINANCIAL CORP.                 
 



Consolidated
Statements of Financial Condition (continued) 




	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		December 31,
		
		

		 
	
	
		
		


		(in thousands, except share and per share amounts)
		
		

		 
		
		


		2009
		
		

		 
		
		


		2008
		
		

		 
	
	
		
		


		Liabilities and Shareholders' Equity
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		

		Short-term borrowings from banks
		
		

		 
		
		

		$
		
		

		90,800
		
		

		 
		
		

		$
		
		


		-
		
		

		 
	
	
		
		

		Payables:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Customers
		
		

		 
		
		

		 
		
		


		214,883
		
		

		 
		
		

		 
		
		


		156,495
		
		

		 
	
	
		
		


		Brokers, dealers and clearing organizations
		
		

		 
		
		

		 
		
		


		90,460
		
		

		 
		
		

		 
		
		


		29,691
		
		

		 
	
	
		
		


		Drafts
		
		

		 
		
		

		 
		
		


		66,964
		
		

		 
		
		

		 
		
		


		49,401
		
		

		 
	
	
		
		


		Securities sold under agreements to repurchase
		
		

		 
		
		

		 
		
		


		122,533
		
		

		 
		
		

		 
		
		


		2,216
		
		

		 
	
	
		
		

		Bank deposits
		
		

		 
		
		

		 
		
		


		1,047,211
		
		

		 
		
		

		 
		
		


		284,798
		
		

		 
	
	
		
		

		Federal Home Loan Bank advances
		
		

		 
		
		

		 
		
		


		2,000
		
		

		 
		
		

		 
		
		


		6,000
		
		

		 
	
	
		
		

		Trading securities sold, but not yet purchased, at fair value
		
		

		 
		
		

		 
		
		


		277,370
		
		

		 
		
		

		 
		
		


		98,934
		
		

		 
	
	
		
		

		Accrued compensation
		
		

		 
		
		

		 
		
		


		166,346
		
		

		 
		
		

		 
		
		


		130,037
		
		

		 
	
	
		
		

		Accounts payable and accrued expenses
		
		

		 
		
		

		 
		
		


		113,364
		
		

		 
		
		

		 
		
		


		100,528
		
		

		 
	
	
		
		

		Debenture to Stifel Financial Capital Trust II
		
		

		 
		
		

		 
		
		

		35,000
		
		

		 
		
		

		 
		
		


		35,000
		
		

		 
	
	
		
		

		Debenture to Stifel Financial Capital Trust III
		
		

		 
		
		

		 
		
		

		35,000
		
		

		 
		
		

		 
		
		


		35,000
		
		

		 
	
	
		
		

		Debenture to Stifel Financial Capital Trust IV
		
		

		 
		
		

		 
		
		

		12,500
		
		

		 
		
		

		 
		
		


		12,500
		
		

		 
	
	
		
		

		Other
		
		

		 
		
		

		 
		
		


		9,398
		
		

		 
		
		

		 
		
		


		19,998
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		2,283,829
		
		

		 
		
		

		 
		
		


		960,598
		
		

		 
	
	
		
		

		Liabilities subordinated to claims of general creditors
		
		

		 
		
		

		 
		
		


		10,081
		
		

		 
		
		

		 
		
		


		4,362
		
		

		 
	
	
		
		


		Shareholders' Equity:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Preferred stock - $1 par value; authorized 3,000,000 shares; none issued
		
		

		 
		
		

		 
		
		

		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Common stock - $0.15 par value; authorized 97,000,000 shares; issued
		30,388,270 and 26,300,135 shares, respectively
		
		

		 
		
		

		 
		
		


		4,558
		
		

		 
		
		

		 
		
		


		3,945
		
		

		 
	
	
		
		

		Additional paid-in-capital
		
		

		 
		
		

		 
		
		


		623,943
		
		

		 
		
		

		 
		
		


		427,480
		
		

		 
	
	
		
		

		Retained earnings
		
		

		 
		
		

		 
		
		


		244,615
		
		

		 
		
		

		 
		
		


		168,993
		
		

		 
	
	
		
		

		Accumulated other comprehensive income/(loss)
		
		

		 
		
		

		 
		
		


		1,302
		
		


		 
		
		

		 
		
		


		(6,295
		
		

		)
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		874,418
		
		

		 
		
		

		 
		
		


		594,123
		
		

		 
	
	
		
		


		Treasury stock, at cost, 4,221 and 0 shares, respectively
		
		

		 
		
		

		 
		
		


		(242
		
		


		)
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Unearned employee stock ownership plan shares, at cost, 113,885 and
		146,421 shares, respectively
		
		

		 
		
		

		 
		
		


		(730
		
		


		)
		
		

		 
		
		


		(938
		
		

		)
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		873,446
		
		

		 
		
		

		 
		
		


		593,185
		
		

		 
	
	
		
		


		Total Liabilities and Shareholders' Equity
		
		

		 
		
		

		$
		
		


		3,167,356
		
		

		 
		
		

		$
		
		


		1,558,145
		
		

		 
	
	
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	






See
accompanying Notes to Consolidated Financial Statements.




90















STIFEL
FINANCIAL CORP.



Consolidated
Statements of Operations 




	
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		Year ended December 31,
		
		

		 
	
	
		
		


		(in thousands, except per share amounts)
		
		

		 
		
		

		2009
		
		

		 
		
		


		2008
		
		

		 
		
		


		2007
		
		

		 
	
	
		
		


		Revenues:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Principal transactions
		
		

		 
		
		

		$
		
		


		458,188
		
		

		 
		
		

		$ 
		
		


		293,285
		
		

		 
		
		

		$ 
		
		


		139,248
		
		

		 
	
	
		
		


		Commissions
		
		

		 
		
		

		 
		
		


		345,520
		
		

		 
		
		

		 
		
		


		341,090
		
		

		 
		
		

		 
		
		


		315,514
		
		

		 
	
	
		
		


		Investment banking
		
		

		 
		
		

		 
		
		


		125,807
		
		

		 
		
		

		 
		
		


		83,710
		
		

		 
		
		

		 
		
		


		169,413
		
		

		 
	
	
		
		


		Asset management and service fees
		
		

		 
		
		

		 
		
		


		112,706
		
		

		 
		
		

		 
		
		


		119,926
		
		

		 
		
		

		 
		
		


		101,610
		
		

		 
	
	
		
		


		Interest
		
		

		 
		
		

		 
		
		


		46,860
		
		

		 
		
		

		 
		
		


		50,148
		
		

		 
		
		

		 
		
		


		59,071
		
		

		 
	
	
		
		


		Other income  (1)
		
		

		 
		
		

		 
		
		


		13,789
		
		

		 
		
		

		 
		
		


		688
		
		

		 
		
		

		 
		
		


		8,234
		
		

		 
	
	
		
		


		Total revenues
		
		

		 
		
		

		 
		
		


		1,102,870
		
		

		 
		
		

		 
		
		


		888,847
		
		

		 
		
		

		 
		
		


		793,090
		
		

		 
	
	
		
		


		Interest expense
		
		

		 
		
		

		 
		
		


		12,234
		
		

		 
		
		

		 
		
		


		18,510
		
		

		 
		
		

		 
		
		


		30,025
		
		

		 
	
	
		
		


		Net revenues
		
		

		 
		
		

		 
		
		


		1,090,636
		
		

		 
		
		

		 
		
		


		870,337
		
		

		 
		
		

		 
		
		


		763,065
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Non-interest expenses:
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Compensation and benefits
		
		

		 
		
		

		 
		
		


		718,115
		
		

		 
		
		

		 
		
		


		582,778
		
		

		 
		
		

		 
		
		


		543,021
		
		

		 
	
	
		
		


		Occupancy and equipment rental
		
		

		 
		
		

		 
		
		


		89,741
		
		

		 
		
		

		 
		
		


		67,984
		
		

		 
		
		

		 
		
		


		57,796
		
		

		 
	
	
		
		


		Communications and office supplies
		
		

		 
		
		

		 
		
		


		54,745
		
		

		 
		
		

		 
		
		


		45,621
		
		

		 
		
		

		 
		
		


		42,355
		
		

		 
	
	
		
		


		Commissions and floor brokerage
		
		

		 
		
		

		 
		
		


		23,416
		
		

		 
		
		

		 
		
		


		13,287
		
		

		 
		
		

		 
		
		


		9,921
		
		

		 
	
	
		
		


		Other operating expenses
		
		

		 
		
		

		 
		
		


		84,205
		
		

		 
		
		

		 
		
		


		68,898
		
		

		 
		
		

		 
		
		


		56,126
		
		

		 
	
	
		
		


		Total non-interest expenses
		
		

		 
		
		

		 
		
		


		970,222
		
		

		 
		
		

		 
		
		


		778,568
		
		

		 
		
		

		 
		
		


		709,219
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Income before income tax expense
		
		

		 
		
		

		 
		
		


		120,414
		
		

		 
		
		

		 
		
		


		91,769
		
		

		 
		
		

		 
		
		


		53,846
		
		

		 
	
	
		
		


		Provision for income taxes
		
		

		 
		
		

		 
		
		


		44,616
		
		

		 
		
		

		 
		
		


		36,267
		
		

		 
		
		

		 
		
		


		21,676
		
		

		 
	
	
		
		


		Net income
		
		

		 
		
		

		$
		
		


		75,798
		
		

		 
		
		

		$
		
		


		55,502
		
		

		 
		
		

		$
		
		


		32,170
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Earnings per common share:
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Basic
		
		

		 
		
		

		$
		
		


		2.68
		
		

		 
		
		

		$
		
		


		2.31
		
		

		 
		
		

		$
		
		


		1.48
		
		

		 
	
	
		
		


		Diluted
		
		

		 
		
		

		$
		
		


		2.35
		
		

		 
		
		

		$
		
		


		1.98
		
		

		 
		
		

		$
		
		


		1.25
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Weighted average number of common shares outstanding:
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Basic
		
		

		 
		
		

		 
		
		


		28,297
		
		

		 
		
		

		 
		
		


		24,069
		
		

		 
		
		

		 
		
		


		21,754
		
		

		 
	
	
		
		


		Diluted
		
		

		 
		
		

		 
		
		


		32,294
		
		

		 
		
		

		 
		
		


		28,073
		
		

		 
		
		

		 
		
		


		25,723
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	






(1)
For the year ended December 31, 2009, we recorded other-than-temporary
impairment losses of $1,881. Total unrealized losses on the security recognized
in other comprehensive income as a component of shareholders' equity at December
31, 2009 was $1,129.



See
accompanying Notes to Consolidated Financial Statements.




91















STIFEL
FINANCIAL CORP.



Consolidated
Statements of Shareholders' Equity  




	
		
		


		 
		
		

		 
		
		

		Common Stock
		
		


		 
		
		


		Additional Paid-In  
		
		

		 
		
		

		Retained
		
		

		 
		
		

		Accumulated Other Comprehensive
		
		

		 
		
		

		Treasury Stock, at
		
		

		 
		
		

		Unearned Employee Stock Ownership
		
		
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		Shares
		
		

		 
		
		

		Amount
		
		


		 
		
		


		Capital
		
		

		 
		
		

		Earnings
		
		

		 
		
		

		Income/(Loss)
		
		

		 
		
		

		cost
		
		

		 
		
		

		Plan
		
		

		 
		
		

		Total
		
		

		 
	
	
		
		


		Balance at December 31, 2006
		
		

		 
		
		


		18,038
		
		

		 
		
		

		$
		
		


		2,706
		
		


		 
		
		


		$
		
		


		124,263
		
		

		 
		
		

		$
		
		


		94,651
		
		

		 
		
		

		$
		
		


		-
		
		

		 
		
		

		$
		
		


		-
		
		

		 
		
		

		$
		
		


		(1,355
		
		

		)
		
		

		$
		
		


		220,265
		
		

		 
	
	
		
		


		Comprehensive income:
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Net income
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		32,170
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		32,170
		
		

		 
	
	
		
		


		Net unrealized loss on securities, net of tax
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		(660
		
		

		)
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		(660
		
		

		)
	
	
		
		


		Total comprehensive income
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		31,510
		
		

		 
	
	
		
		


		Purchase of treasury stock
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		(4,165
		
		

		)
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		(4,165
		
		

		)
	
	
		
		


		Employee stock ownership plan purchases
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		882
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		208
		
		

		 
		
		

		 
		
		


		1,090
		
		

		 
	
	
		
		


		Issuance of stock for employee benefit plans
		
		

		 
		
		


		1,162
		
		

		 
		
		

		 
		
		


		174
		
		

		 
		
		

		 
		
		


		(13,916
		
		

		)
		
		

		 
		
		


		(79
		
		

		)
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		450
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		(13,371
		
		

		)
	
	
		
		


		Stock option exercises
		
		

		 
		
		


		407
		
		

		 
		
		

		 
		
		


		61
		
		

		 
		
		

		 
		
		


		1,196
		
		

		 
		
		

		 
		
		


		(1,507
		
		

		)
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		3,220
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		2,970
		
		

		 
	
	
		
		


		Issuance of warrants
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		16,895
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		16,895
		
		

		 
	
	
		
		


		Warrant exercises
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		(15
		
		

		)
		
		

		 
		
		


		(15
		
		

		)
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		46
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		16
		
		

		 
	
	
		
		


		Unit amortization
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		38,101
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		38,101
		
		

		 
	
	
		
		


		Excess tax benefit from stock-based compensation
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		11,841
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		11,841
		
		

		 
	
	
		
		


		Issuance of shares - Ryan Beck acquisition
		
		

		 
		
		


		3,701
		
		

		 
		
		

		 
		
		


		555
		
		

		 
		
		

		 
		
		


		101,974
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		102,529
		
		

		 
	
	
		
		


		Acceleration of deferred compensation - Ryan Beck
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		16,673
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		16,673
		
		

		 
	
	
		
		


		Issuance of stock - private placement
		
		

		 
		
		


		12
		
		

		 
		
		

		 
		
		


		2
		
		

		 
		
		

		 
		
		


		198
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		200
		
		

		 
	
	
		
		


		Adoption of FIN 48
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		83
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		83
		
		

		 
	
	
		
		


		Balance at December 31, 2007
		
		

		 
		
		


		23,320
		
		

		 
		
		

		 
		
		


		3,498
		
		

		 
		
		

		 
		
		


		298,092
		
		

		 
		
		

		 
		
		


		125,303
		
		

		 
		
		

		 
		
		


		(660
		
		

		)
		
		

		 
		
		


		(450
		
		

		)
		
		

		 
		
		


		(1,146
		
		

		)
		
		

		 
		
		


		424,637
		
		

		 
	
	
		
		


		Comprehensive income:
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Net income
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		55,502
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		55,502
		
		

		 
	
	
		
		


		Net unrealized loss on securities, net of tax
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		(6,634
		
		

		)
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		(6,634
		
		

		)
	
	
		
		


		Reclassification adjustment for losses included in net income, net of
		tax
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		999
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		999
		
		

		 
	
	
		
		


		Total comprehensive income
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		49,867
		
		

		 
	
	
		
		


		Purchase of treasury stock
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		(12,141
		
		

		)
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		(12,141
		
		

		)
	
	
		
		


		Employee stock ownership plan purchases
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		1,004
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		208
		
		

		 
		
		

		 
		
		


		1,212
		
		

		 
	
	
		
		


		Issuance of stock for employee benefit plans
		
		

		 
		
		


		811
		
		

		 
		
		

		 
		
		


		122
		
		

		 
		
		

		 
		
		


		(21,480
		
		

		)
		
		

		 
		
		


		(9,951
		
		

		)
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		9,874
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		(21,435
		
		

		)
	
	
		
		


		Stock option exercises
		
		

		 
		
		


		243
		
		

		 
		
		

		 
		
		


		37
		
		

		 
		
		

		 
		
		


		1,062
		
		

		 
		
		

		 
		
		


		(1,861
		
		

		)
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		2,657
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		1,895
		
		

		 
	
	
		
		


		Warrant exercises
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		(4
		
		

		)
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		4
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Unit amortization
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		52,593
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		52,593
		
		

		 
	
	
		
		


		Excess tax benefit from stock-based compensation
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		14,840
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		14,840
		
		

		 
	
	
		
		


		Ryan Beck contingent earn-out
		
		

		 
		
		


		289
		
		

		 
		
		

		 
		
		


		43
		
		

		 
		
		

		 
		
		


		11,277
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		56
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		11,376
		
		

		 
	
	
		
		


		Issuance of stock - public offering
		
		

		 
		
		


		1,495
		
		

		 
		
		

		 
		
		


		224
		
		

		 
		
		

		 
		
		


		64,145
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		64,369
		
		

		 
	
	
		
		


		Extinguishment of Stifel Financial Capital Trust IV
		
		

		 
		
		


		142
		
		

		 
		
		

		 
		
		


		21
		
		

		 
		
		

		 
		
		


		5,951
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		5,972
		
		

		 
	
	
		
		


		Balance at December 31, 2008
		
		

		 
		
		


		26,300
		
		

		 
		
		

		$
		
		


		3,945
		
		

		 
		
		

		$
		
		


		427,480
		
		

		 
		
		

		$
		
		


		168,993
		
		

		 
		
		

		$
		
		


		(6,295
		
		

		)
		
		

		$
		
		


		-
		
		

		 
		
		

		$
		
		


		(938
		
		

		)
		
		

		$
		
		


		593,185
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	






See
accompanying Notes to Consolidated Financial Statements.




92











STIFEL
FINANCIAL CORP.



Consolidated
Statements of Shareholders' Equity (continued)




	
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		Common Stock
		
		


		 
		
		


		Additional Paid-In  
		
		

		 
		
		

		Retained
		
		

		 
		
		

		Accumulated Other Comprehensive
		
		

		 
		
		

		Treasury Stock, at
		
		

		 
		
		

		Unearned Employee Stock Ownership
		
		
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		Shares
		
		

		 
		
		

		Amount
		
		


		 
		
		


		Capital
		
		

		 
		
		

		Earnings
		
		

		 
		
		

		income/(loss)
		
		

		 
		
		

		cost
		
		

		 
		
		

		Plan
		
		

		 
		
		

		Total
		
		

		 
	
	
		
		


		Balance at December 31, 2008
		
		

		 
		
		


		26,300
		
		

		 
		
		

		$
		
		


		3,945
		
		

		 
		
		

		$
		
		


		427,480
		
		

		 
		
		

		$
		
		


		168,993
		
		

		 
		
		

		$
		
		


		(6,295
		
		

		)
		
		

		$
		
		


		-
		
		

		 
		
		

		$
		
		


		(938
		
		

		)
		
		

		$
		
		


		593,185
		
		

		 
	
	
		
		


		Comprehensive income:
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Net income
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		75,798
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		75,798
		
		

		 
	
	
		
		


		Unrealized gain on securities, net of tax
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		7,517
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		7,517
		
		

		 
	
	
		
		


		Unrealized loss on cash flow hedging activities, net of tax
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		80
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		80
		
		

		 
	
	
		
		


		Total comprehensive income
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		83,395
		
		

		 
	
	
		
		


		Purchase of treasury stock
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		572
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		(572
		
		

		)
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Employee stock ownership plan purchases
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		1,347
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		208
		
		

		 
		
		

		 
		
		


		1,555
		
		

		 
	
	
		
		


		Issuance of stock for employee benefit plans
		
		

		 
		
		


		738
		
		

		 
		
		

		 
		
		


		110
		
		

		 
		
		

		 
		
		


		(7,607
		
		

		)
		
		

		 
		
		


		(72
		
		

		)
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		102
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		(7,467
		
		

		)
	
	
		
		


		Stock option exercises
		
		

		 
		
		


		354
		
		

		 
		
		

		 
		
		


		53
		
		

		 
		
		

		 
		
		


		986
		
		

		 
		
		

		 
		
		


		(104
		
		

		)
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		228
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		1,163
		
		

		 
	
	
		
		


		Unit amortization
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		42,502
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		42,502
		
		

		 
	
	
		
		


		Excess tax benefit from stock-based compensation
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		13,337
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		13,337
		
		

		 
	
	
		
		


		Ryan Beck contingent earn-out
		
		

		 
		
		


		271
		
		

		 
		
		

		 
		
		


		41
		
		

		 
		
		

		 
		
		


		9,260
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		9,301
		
		

		 
	
	
		
		


		Issuance of stock - at the market offering
		
		

		 
		
		


		1,000
		
		

		 
		
		

		 
		
		


		150
		
		

		 
		
		

		 
		
		


		44,544
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		44,694
		
		

		 
	
	
		
		


		Issuance of stock - public offering
		
		

		 
		
		


		1,725
		
		

		 
		
		

		 
		
		


		259
		
		

		 
		
		

		 
		
		


		91,511
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		91,770
		
		

		 
	
	
		
		


		Warrant exercises
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		11
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		11
		
		

		 
	
	
		
		


		Balance at December 31, 2009
		
		

		 
		
		


		30,388
		
		

		 
		
		

		$
		
		


		4,558
		
		

		 
		
		

		$
		
		


		623,943
		
		

		 
		
		

		$
		
		


		244,615
		
		

		 
		
		

		$
		
		


		1,302
		
		

		 
		
		

		$
		
		


		(242
		
		

		)
		
		

		$
		
		


		(730
		
		

		)
		
		

		$
		
		


		873,446
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	






See
accompanying Notes to Consolidated Financial Statements.




93











STIFEL
FINANCIAL CORP.



Consolidated
Statements of Cash Flows 




	
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		

		 
		
		

		 
		
		

		Year Ended December 31,
		
		

		 
	
	
		
		


		(in thousands)
		
		

		 
		
		

		2009
		
		

		 
		
		

		 
		
		


		2008
		
		

		 
		
		


		2007
		
		

		 
	
	
		
		


		Cash Flows from Operating Activities:
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Net income
		
		

		 
		
		

		$
		
		


		75,798
		
		

		 
		
		

		 
		
		

		$
		
		


		55,502
		
		

		 
		
		

		$
		
		


		32,170
		
		

		 
	
	
		
		


		Adjustments to reconcile net income to net cash (used in) provided by
		 operating activities:
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Depreciation and amortization
		
		

		 
		
		


		 
		
		


		25,978
		
		


		 
		
		

		 
		
		

		 
		
		


		17,027
		
		

		 
		
		

		 
		
		


		15,663
		
		

		 
	
	
		
		


		Amortization of loans and advances to financial advisors and other
		employees
		
		

		 
		
		


		 
		
		


		33,408
		
		


		 
		
		

		 
		
		

		 
		
		


		15,203
		
		

		 
		
		

		 
		
		


		16,578
		
		

		 
	
	
		
		


		Accretion of discounts on available for sale securities
		
		

		 
		
		


		 
		
		


		866
		
		


		 
		
		

		 
		
		

		 
		
		


		(593
		
		

		)
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Provision for loan losses and allowance for loans and advances to
		financial advisors and other employees
		
		

		 
		
		


		 
		
		


		298
		
		


		 
		
		

		 
		
		

		 
		
		


		1,801
		
		

		 
		
		

		 
		
		


		1,275
		
		

		 
	
	
		
		


		Deferred income taxes
		
		

		 
		
		


		 
		
		


		(10,270
		
		


		)
		
		

		 
		
		

		 
		
		


		(6,168
		
		

		)
		
		

		 
		
		


		(22,070
		
		

		)
	
	
		
		


		Excess tax benefits from stock-based compensation
		
		

		 
		
		


		 
		
		

		(13,337
		
		


		)
		
		

		 
		
		

		 
		
		


		(14,840
		
		

		)
		
		

		 
		
		


		(11,841
		
		

		)
	
	
		
		


		Warrant valuation adjustment
		
		

		 
		
		


		 
		
		

		-
		
		


		 
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		455
		
		

		 
	
	
		
		


		Gain on extinguishment of debt
		
		

		 
		
		


		 
		
		

		-
		
		


		 
		
		

		 
		
		

		 
		
		


		(6,662
		
		

		)
		
		

		 
		
		


		(3,750
		
		

		)
	
	
		
		


		Stock-based compensation
		
		

		 
		
		


		 
		
		


		47,962
		
		


		 
		
		

		 
		
		

		 
		
		


		54,356
		
		

		 
		
		

		 
		
		


		56,381
		
		

		 
	
	
		
		


		(Gains)/losses on investments
		
		

		 
		
		


		 
		
		


		14,303
		
		


		 
		
		

		 
		
		

		 
		
		


		10,843
		
		

		 
		
		

		 
		
		


		(1,225
		
		

		)
	
	
		
		


		Other, net
		
		

		 
		
		


		 
		
		

		2,455
		
		

		 
		
		


		 
		
		


		 
		
		


		254
		
		


		 
		
		


		 
		
		


		46
		
		

		 
	
	
		
		


		Decrease/(increase) in operating assets, net of assets acquired:
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Receivables:
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Brokerage clients
		
		

		 
		
		


		 
		
		


		(79,688
		
		

		)
		
		

		 
		
		

		 
		
		


		215,146
		
		

		 
		
		

		 
		
		


		(221,017
		
		

		)
	
	
		
		


		Brokers, dealers and clearing organizations
		
		

		 
		
		


		 
		
		


		(198,034
		
		

		)
		
		

		 
		
		

		 
		
		


		70,036
		
		

		 
		
		

		 
		
		


		(45,231
		
		

		)
	
	
		
		


		Securities purchased under agreements to resell
		
		

		 
		
		


		 
		
		


		(107,131
		
		

		)
		
		

		 
		
		

		 
		
		


		(4,478
		
		

		)
		
		

		 
		
		


		142,900
		
		

		 
	
	
		
		


		Loans originated as held for sale
		
		

		 
		
		


		 
		
		


		(874,786
		
		

		)
		
		

		 
		
		

		 
		
		


		(322,809
		
		

		)
		
		

		 
		
		


		(20,279
		
		

		)
	
	
		
		


		Proceeds from mortgages held for sale
		
		

		 
		
		


		 
		
		


		848,045
		
		

		 
		
		

		 
		
		

		 
		
		


		293,544
		
		

		 
		
		

		 
		
		


		17,173
		
		

		 
	
	
		
		


		Trading securities owned, including those pledged
		
		

		 
		
		


		 
		
		


		(332,315
		
		

		)
		
		

		 
		
		

		 
		
		


		4,624
		
		

		 
		
		

		 
		
		


		285,546
		
		

		 
	
	
		
		


		Loans and advances to financial advisors and other employees
		
		

		 
		
		


		 
		
		


		(108,327
		
		

		)
		
		

		 
		
		

		 
		
		


		(49,065
		
		

		)
		
		

		 
		
		


		(45,072
		
		

		)
	
	
		
		


		Other assets
		
		

		 
		
		


		 
		
		


		(14,115
		
		

		)
		
		

		 
		
		

		 
		
		


		6,475
		
		

		 
		
		

		 
		
		


		15,919
		
		

		 
	
	
		
		


		Increase/(decrease) in operating liabilities, net of liabilities
		assumed:
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Payables:
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Customers
		
		

		 
		
		


		 
		
		


		58,388
		
		

		 
		
		

		 
		
		

		 
		
		


		(3,245
		
		

		)
		
		

		 
		
		


		31,064
		
		

		 
	
	
		
		


		Brokers, dealers and clearing organizations
		
		

		 
		
		


		 
		
		


		62,181
		
		

		 
		
		

		 
		
		

		 
		
		


		(21,594
		
		

		)
		
		

		 
		
		


		5,111
		
		

		 
	
	
		
		


		Drafts
		
		

		 
		
		


		 
		
		


		17,563
		
		

		 
		
		

		 
		
		

		 
		
		


		(2,081
		
		

		)
		
		

		 
		
		


		16,582
		
		

		 
	
	
		
		


		Trading securities sold, but not yet purchased
		
		

		 
		
		


		 
		
		


		178,436
		
		

		 
		
		

		 
		
		

		 
		
		


		61,616
		
		

		 
		
		

		 
		
		


		(226,627
		
		

		)
	
	
		
		


		Other liabilities and accrued expenses
		
		

		 
		
		


		 
		
		


		25,072
		
		

		 
		
		

		 
		
		

		 
		
		


		(24,599
		
		

		)
		
		

		 
		
		


		33,003
		
		

		 
	
	
		
		


		Net cash (used in) provided by operating activities
		
		

		 
		
		


		$ 
		
		


		(347,250
		
		

		)
		
		

		 
		
		

		$
		
		


		350,293
		
		

		 
		
		

		$
		
		


		72,754
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	






See
accompanying Notes to Consolidated Financial Statements.




94











STIFEL FINANCIAL CORP.



Consolidated Statements of Cash Flows (continued)




	
		
		

		 
		
		

		 
		
		

		Year Ended December 31,
		
		

		 
	
	
		
		


		(in thousands)
		
		

		 
		
		

		2009
		
		

		 
		
		

		 
		
		


		2008
		
		

		 
		
		


		2007
		
		

		 
	
	
		
		


		Cash Flows from Investing Activities:
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Proceeds from:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		

		Sale or maturity of
		investments
		
		

		 
		
		


		$
		
		


		57,515
		
		

		 
		
		

		 
		
		

		$
		
		


		63,428
		
		


		 
		
		

		$
		
		


		64,065
		
		

		 
	
	
		
		


		Maturities, calls and principal paydowns on available for sale
		securities
		
		

		 
		
		


		 
		
		


		49,259
		
		

		 
		
		

		 
		
		

		 
		
		


		43,950
		
		


		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		

		Sale of property
		
		

		 
		
		


		 
		
		

		-
		
		

		 
		
		

		 
		
		

		 
		
		


		766
		
		


		 
		
		

		 
		
		


		1,131
		
		

		 
	
	
		
		

		Sale of bank foreclosed
		assets held for sale
		
		

		 
		
		


		 
		
		


		3,734
		
		

		 
		
		

		 
		
		

		 
		
		


		1,340
		
		


		 
		
		

		 
		
		


		691
		
		

		 
	
	
		
		


		Decrease/(increase) in bank loans, net
		
		

		 
		
		


		 
		
		


		(2,626
		
		

		)
		
		

		 
		
		

		 
		
		


		(60,314
		
		

		)
		
		

		 
		
		


		(27,103
		
		

		)
	
	
		
		


		Excess cash acquired over cash disbursed in Ryan Beck acquisition
		
		

		 
		
		


		 
		
		

		-
		
		

		 
		
		

		 
		
		

		 
		
		

		-
		
		

		 
		
		

		 
		
		


		3,545
		
		


		 
	
	
		
		


		Payments for:
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
	
	
		
		


		Purchase of available for sale securities
		
		

		 
		
		


		 
		
		


		(568,910
		
		

		)
		
		

		 
		
		

		 
		
		


		(24,909
		
		


		)
		
		

		 
		
		


		(70,541
		
		


		)
	
	
		
		


		Acquisitions, net
		
		

		 
		
		


		 
		
		


		(251,652
		
		

		)
		
		

		 
		
		

		 
		
		


		(10,589
		
		


		)
		
		

		 
		
		


		(33,329
		
		


		)
	
	
		
		


		Purchase of investments
		
		

		 
		
		


		 
		
		


		(105,275
		
		

		)
		
		

		 
		
		

		 
		
		


		(76,396
		
		


		)
		
		

		 
		
		


		(63,441
		
		


		)
	
	
		
		


		Purchase of fixed assets
		
		

		 
		
		


		 
		
		


		(27,892
		
		

		)
		
		

		 
		
		

		 
		
		


		(21,647
		
		


		)
		
		

		 
		
		


		(25,607
		
		


		)
	
	
		
		


		Purchase of bank foreclosed loans held for sale
		
		

		 
		
		


		 
		
		


		(4,966
		
		

		)
		
		

		 
		
		

		 
		
		


		(2,093
		
		


		)
		
		

		 
		
		


		(123
		
		


		)
	
	
		
		


		Net cash used in investing activities
		
		

		 
		
		

		 
		
		


		(850,813
		
		

		)
		
		

		 
		
		

		 
		
		


		(86,464
		
		


		)
		
		

		 
		
		


		(150,712
		
		


		)
	
	
		
		


		Cash Flows from Financing Activities:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
	
	
		
		


		Net proceeds/(payments) for short-term borrowings from banks
		
		

		 
		
		

		 
		
		

		90,800
		
		


		 
		
		

		 
		
		

		 
		
		


		(127,850
		
		

		)
		
		

		 
		
		


		(67,750
		
		

		)
	
	
		
		


		Securities sold under agreements to repurchase
		
		

		 
		
		

		 
		
		


		120,317
		
		


		 
		
		

		 
		
		

		 
		
		


		2,216
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Increase in bank deposits, net
		
		

		 
		
		

		 
		
		

		762,413
		
		

		 
		
		

		 
		
		

		 
		
		


		92,317
		
		


		 
		
		

		 
		
		


		97,215
		
		


		 
	
	
		
		


		Increase/(decrease) in securities loaned
		
		

		 
		
		

		 
		
		


		(1,412
		
		


		)
		
		

		 
		
		

		 
		
		


		(114,211
		
		


		)
		
		

		 
		
		


		47,619
		
		


		 
	
	
		
		


		Issuance of debentures to Stifel Financial Capital Trust III
		
		

		 
		
		

		 
		
		

		-
		
		

		 
		
		

		 
		
		

		 
		
		


		-
		
		


		 
		
		

		 
		
		


		35,000
		
		


		 
	
	
		
		


		Issuance of debentures to Stifel Financial Capital Trust IV
		
		

		 
		
		

		 
		
		

		-
		
		

		 
		
		

		 
		
		

		 
		
		


		-
		
		


		 
		
		

		 
		
		


		35,000
		
		


		 
	
	
		
		


		Excess tax benefits from stock-based compensation
		
		

		 
		
		

		 
		
		


		13,337
		
		

		 
		
		

		 
		
		

		 
		
		


		14,840
		
		


		 
		
		

		 
		
		


		11,841
		
		


		 
	
	
		
		


		Proceeds from offering of common stock, net
		
		

		 
		
		

		 
		
		


		136,464
		
		


		 
		
		

		 
		
		

		 
		
		


		64,369
		
		


		 
		
		

		 
		
		


		200
		
		


		 
	
	
		
		


		Issuance of common stock  
		
		

		 
		
		

		 
		
		


		2,719
		
		


		 
		
		

		 
		
		

		 
		
		


		2,580
		
		


		 
		
		

		 
		
		


		1,856
		
		


		 
	
	
		
		


		Reissuance of treasury stock
		
		

		 
		
		

		 
		
		


		820
		
		


		 
		
		

		 
		
		

		 
		
		


		727
		
		


		 
		
		

		 
		
		


		628
		
		


		 
	
	
		
		


		Proceeds from/(payments to) Federal Home Loan Bank advances and other
		secured financing
		
		

		 
		
		

		 
		
		


		(4,000
		
		


		)
		
		

		 
		
		

		 
		
		


		6,000
		
		


		 
		
		

		 
		
		


		(11,035
		
		


		)
	
	
		
		


		Calling of Stifel Financial Capital Trust I
		
		

		 
		
		

		 
		
		

		-
		
		


		 
		
		

		 
		
		

		 
		
		


		-
		
		


		 
		
		

		 
		
		


		(34,500
		
		


		)
	
	
		
		


		Extinguishment of debenture to Stifel Financial Capital Trust IV
		
		

		 
		
		

		 
		
		

		-
		
		


		 
		
		

		 
		
		

		 
		
		


		-
		
		


		 
		
		

		 
		
		


		(6,250
		
		


		)
	
	
		
		


		Extinguishment of subordinated debt
		
		

		 
		
		

		 
		
		


		(1,300
		
		


		)
		
		

		 
		
		

		 
		
		


		(914
		
		


		)
		
		

		 
		
		


		(720
		
		


		)
	
	
		
		


		Repurchase of stock for treasury
		
		

		 
		
		

		 
		
		

		-
		
		


		 
		
		

		 
		
		

		 
		
		


		(12,141
		
		


		)
		
		

		 
		
		


		(4,165
		
		


		)
	
	
		
		


		Net cash provided by (used in) financing activities
		
		

		 
		
		

		 
		
		


		1,120,158
		
		

		 
		
		

		 
		
		

		 
		
		


		(72,067
		
		


		)
		
		

		 
		
		


		104,939
		
		


		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		(Decrease)/increase in cash and cash equivalents
		
		

		 
		
		

		 
		
		


		(77,905
		
		

		)
		
		

		 
		
		

		 
		
		


		197,762
		
		


		 
		
		

		 
		
		


		26,981
		
		

		 
	
	
		
		


		Cash and cash equivalents at beginning of year
		
		

		 
		
		

		 
		
		


		239,725
		
		

		 
		
		

		 
		
		

		 
		
		


		47,963
		
		


		 
		
		

		 
		
		


		20,982
		
		

		 
	
	
		
		


		Cash and cash equivalents at end of year
		
		

		 
		
		

		$
		
		


		161,820
		
		

		 
		
		

		 
		
		

		$
		
		


		239,725
		
		

		 
		
		

		$
		
		


		47,963
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	






See
accompanying Notes to Consolidated Financial Statements.




95











STIFEL
FINANCIAL CORP.



Consolidated
Statements of Cash Flows (continued) 




	
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		

		 
		
		

		 
		
		

		Year Ended December 31,
		
		

		 
	
	
		
		


		(in thousands)
		
		

		 
		
		

		2009
		
		

		 
		
		

		 
		
		


		2008
		
		

		 
		
		


		2007
		
		

		 
	
	
		
		


		Supplemental disclosure of cash flow information:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Cash paid for income taxes, net of refunds
		
		

		 
		
		

		$
		
		


		15,617
		
		

		 
		
		

		 
		
		

		$
		
		


		31,966
		
		

		 
		
		

		$
		
		


		21,031
		
		

		 
	
	
		
		


		Cash paid for interest
		
		

		 
		
		

		 
		
		


		12,066
		
		

		 
		
		

		 
		
		

		 
		
		


		19,375
		
		

		 
		
		

		 
		
		


		29,316
		
		

		 
	
	
		
		

		Noncash investing and financing
		activities:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Units, net of forfeitures
		
		

		 
		
		

		$
		
		


		89,633
		
		

		 
		
		

		 
		
		

		$
		
		


		65,609
		
		

		 
		
		

		$
		
		


		73,267
		
		

		 
	
	
		
		


		Payment of Ryan Beck contingent earn-out
		
		

		 
		
		

		 
		
		


		9,301
		
		

		 
		
		

		 
		
		

		 
		
		


		11,376
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Liabilities subordinated to claims of general creditors
		
		

		 
		
		

		 
		
		


		3,166
		
		

		 
		
		

		 
		
		

		 
		
		


		4,050
		
		

		 
		
		

		 
		
		


		1,474
		
		

		 
	
	
		
		


		Extinguishment of debenture to Stifel Financial Capital Trust IV
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		

		 
		
		


		5,975
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Stock and warrants issued for Ryan Beck acquisition
		 
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		118,969
		
		

		 
	
	
		
		


		Exchange of Ryan Beck appreciation units for restricted stock units
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		16,895
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	






See
accompanying Notes to Consolidated Financial Statements.




96











 STIFEL
FINANCIAL CORP.



Notes to
Consolidated Financial Statements



(in thousands,
except share and per share amounts) 



NOTE 1 - Nature of
Operations and Basis of Presentation



Nature of Operations




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 principally engaged in retail brokerage, securities
trading, investment banking, investment advisory, retail, consumer and
commercial banking and related financial services throughout the United States.
Although we have offices throughout the United States and three European cities,
our major geographic area of concentration is in the Midwest and Mid-Atlantic
regions, with a growing presence in the Northeast, Southeast and Western United
States. Our company's principal customers are individual investors,
corporations, municipalities, and institutions.




Basis of Presentation




The consolidated
financial statements include Stifel Financial Corp. and its wholly-owned
subsidiaries, principally Stifel Nicolaus & Company, Incorporated. All material
intercompany balances and transactions have been eliminated.
Unless otherwise indicated, the terms "we," "us,"
"our," or "our company" in this report refer to Stifel Financial Corp. and its
wholly-owned subsidiaries.



The
accompanying consolidated financial statements have been prepared in conformity
with U.S. generally accepted accounting principles, which require management to
make certain estimates and assumptions that affect the reported amounts.
We consider
significant estimates, which are most susceptible to change and impacted
significantly by judgments, assumptions and estimates, to be: the fair value of
investments; the accrual for litigation; the allowance for doubtful receivables
from loans and advances to financial advisors and other employees; the allowance
for loan losses; derivative instruments and hedging activities; the fair value
of goodwill and intangible assets; the provision for income taxes and related
tax reserves; and the estimation of forfeitures associated with stock-based
compensation. Actual results could differ from those estimates.



Certain
amounts from prior periods have been reclassified to conform to the current
period's presentation. The effect of these reclassifications on our company's
previously reported consolidated financial statements was not material.




Consolidation Policies




The
consolidated financial statements include the accounts of Stifel Financial Corp.
and its subsidiaries. We also have investments or interests in other entities
for which we must evaluate whether to consolidate by determining whether we have
a controlling financial interest or are considered to be the primary
beneficiary. In determining whether to consolidate these entities or not, we
determine whether the entity is a voting interest entity or a variable interest
entity ("VIE").




Voting Interest Entity.
Voting interest entities are entities that have (i) total equity investment at
risk sufficient to fund expected future operations independently; and (ii)
equity holders who have the obligation to absorb losses or receive residual
returns and the right to make decisions about the entity's activities. We
consolidate voting interest entities when we determine that there is a
controlling financial interest, usually ownership of all, or a majority of, the
voting interest.




Variable Interest Entity.
VIEs are entities that lack one or more of the characteristics of a voting
interest entity. We are required to consolidate VIEs in which we are deemed to
be the primary beneficiary. The primary beneficiary is defined as the entity
that has a variable interest, or a combination of variable interests, that will
either: (i) absorb a majority of the VIEs expected losses; (ii) receive a
majority of the VIEs expected returns; or (iii) both. 


97












We
determine whether we are the primary beneficiary of a VIE by first performing a
qualitative analysis of the VIE's expected losses and expected residual returns.
This analysis includes a review of, among other factors, the VIE's capital
structure, contractual terms, which interests create or absorb variability,
related party relationships and the design of the VIE. Where qualitative
analysis is not conclusive, we perform a quantitative analysis. We reassess our
initial evaluation of an entity as a VIE and our initial determination of
whether we are the primary beneficiary of a VIE upon the occurrence of certain
reconsideration events.




NOTE 2 - Summary
of Significant Accounting Policies



Cash and
Cash Equivalents




We consider all
highly liquid investments with original maturities of three months or less that
are not segregated to be cash equivalents. Cash and cash equivalents include
money market mutual funds, deposits with banks, certificates of deposit, and
federal funds sold. Cash and cash equivalents also include balances that Stifel
Bank maintains at the Federal Reserve Bank.




Cash Segregated
for Regulatory Purposes




Our broker-dealer subsidiaries are
subject to Rule 15c3-3 under the Securities Exchange Act of 1934, which requires
our company to maintain cash or qualified securities in a segregated reserve
account for the exclusive benefit of its clients. In accordance with Rule
15c3-3, our company has portions of its cash segregated for the exclusive
benefit of clients at December 31, 2009.




Brokerage Client
Receivables and Allowance for Doubtful Accounts




Brokerage client
receivables include receivables of our company's broker-dealer subsidiaries,
which represent amounts due on cash and margin transactions and are generally
collateralized by securities owned by clients. Brokerage client receivables,
primarily consisting of floating-rate loans collateralized by customer-owned
securities, are charged interest at rates similar to other such loans made
throughout the industry.  The receivables are reported at their outstanding
principal balance net of allowance for doubtful accounts. When a broker-dealer
receivable is considered to be impaired, the amount of the impairment is
generally measured based on the fair value of the securities acting as
collateral, which is measured based on current prices from independent sources
such as listed market prices or broker-dealer price quotations. Securities owned
by customers, including those that collateralize margin or other similar
transactions, are not reflected in the consolidated statements of financial
condition.





Securities Borrowed and Securities Loaned 




Securities
borrowed require our company to deliver cash to the lender in exchange for
securities and are included in receivables from brokers, dealers, and clearing
organizations. For securities loaned, we receive collateral in the form of cash
in an amount equal to the market value of securities loaned. Securities loaned
are included in payables to brokers, dealers, and clearing organizations. We
monitor the market value of securities borrowed and loaned generally on a daily
basis, with additional collateral obtained or refunded as necessary. Fees
received or paid are recorded in interest revenue or interest expense.




Substantially all
of these transactions are executed under master netting agreements, which gives
us right of offset in the event of counterparty default; however, such
receivables and payables with the same counterparty are not set-off in the
consolidated statements of financial condition.


98











Securities
Purchased Under Agreements to Resell




Securities
purchased under agreements to resell ("resale agreements") are collateralized
investing transactions that are recorded at their contractual amounts plus
accrued interest. We obtain control of collateral with a market value equal to
or in excess of the principal amount loaned and accrued interest under resale
agreements. We value collateral on a daily basis, with additional collateral
obtained when necessary to minimize the risk associated with this activity.





Financial
Instruments



We measure certain
financial assets and liabilities at fair value on a recurring basis, including
cash equivalents, trading securities owned, available-for-sale securities,
investments and trading securities sold, but not yet purchased. Other than those
separately discussed in the notes to the consolidated financial statements, the
remaining financial instruments are generally short-term in nature and their
carrying values approximate fair value. 




Fair Value Hierarchy




The fair value of a financial instrument is
defined as the price that would be received to sell an asset or paid to transfer
a liability (i.e. "the exit price") in an orderly transaction between market
participants at the measurement date. We have categorized our financial
instruments measured at fair value into a three-level classification in
accordance with ASC 820, "Fair Value Measurement and Disclosures," which
established a hierarchy for inputs used in measuring fair value that maximizes
the use of observable inputs and minimizes the use of unobservable inputs by
requiring that the most observable inputs be used when available. Observable
inputs are inputs that market participants would use in pricing the asset or
liability developed based on market data obtained from independent sources.

Unobservable inputs reflect our assumptions that market participants would use
in pricing the asset or liability developed based on the best information
available in the circumstances. The hierarchy is broken down into three levels
based on the transparency of inputs as follows:



Level I -
Quoted prices (unadjusted) are available in active markets for identical assets
or liabilities as of the measurement date. A quoted price for an identical asset
or liability in an active market provides the most reliable fair value
measurement because it is directly observable to the market. 



Level II
- Pricing inputs are other than quoted prices in active markets, which are
either directly or indirectly observable as of the measurement date. The nature
of these financial instruments include instruments for which quoted prices are
available but traded less frequently, derivative instruments whose fair value
have been derived using a model where inputs to the model are directly
observable in the market, or can be derived principally from or corroborated by
observable market data, and instruments that are fair valued using other
financial instruments, the parameters of which can be directly observed.




Level III
- Instruments that have little to no pricing observability as of the measurement
date. These financial instruments do not have two-way markets and are measured
using management's best estimate of fair value, where the inputs into the
determination of fair value require significant management judgment or
estimation. 



Valuation of Financial Instruments



When
available, we use observable market prices, observable market parameters, or
broker or dealer prices (bid and ask prices) to derive the fair value of
financial instruments. In the case of financial instruments transacted on
recognized exchanges, the observable market prices represent quotations for
completed transactions from the exchange on which the financial instrument is
principally traded.



A
substantial percentage of the fair value of our trading securities and other
investments owned, trading securities pledged as collateral, available-for-sale
securities and trading securities sold, but not yet purchased, are based on
observable market prices, observable market parameters, or derived from broker
or dealer prices. The availability of observable market prices and pricing
parameters can vary from product to product. Where available, observable market
prices and pricing or market parameters in a product may be used to derive a
price without requiring significant judgment. In certain markets, observable
market prices or market parameters are not available for all products, and fair
value is determined using techniques appropriate for each particular product.
These techniques involve some degree of judgment. 


99












For
investments in illiquid or privately held securities that do not have readily
determinable fair values, the determination of fair value requires us to
estimate the value of the securities using the best information available.
Among the
factors we consider in determining the fair value of investments are the cost of
the investment, terms and liquidity, developments since the acquisition of the
investment, the sales price of recently issued securities, the financial
condition and operating results of the issuer, earnings trends and consistency
of operating cash flows, the long-term business potential of the issuer, the
quoted market price of securities with similar quality and yield that are
publicly traded, and other factors generally pertinent to the valuation of
investments.
In instances where a security is
subject to transfer restrictions, the value of the security is based primarily
on the quoted price of a similar security without restriction but may be reduced
by an amount estimated to reflect such restrictions.
The fair value of
these investments is subject to a high degree of volatility and may be
susceptible to significant fluctuation in the near term and the differences
could be material.



The degree of judgment used in measuring the fair value of
financial instruments generally correlates to the level of pricing
observability. Pricing observability is impacted by a number of factors,
including the type of financial instrument, whether the financial instrument is
new to the market and not yet established and the characteristics specific to
the transaction. Financial instruments with readily available active quoted
prices for which fair value can be measured from actively quoted prices
generally will have a higher degree of pricing observability and a lesser degree
of judgment used in measuring fair value. Conversely, financial instruments
rarely traded or not quoted will generally have less, or no, pricing
observability and a higher degree of judgment used in measuring fair value. See
Note 5 for additional information on how we value our financial instruments.




Available-for-Sale Securities





Securities available for sale are recorded at fair value based on quoted prices
for similar securities in active markets and other observable market data.
Securities available for sale include U.S. agency notes, state and municipal
securities, U.S. agency, non-agency and commercial mortgage-backed securities,
corporate debt securities, and asset-backed securities. We evaluate these
securities for other-than-temporary impairment on a quarterly basis. If we
determine other-than-temporary impairment exists, the cost basis of the security
is adjusted to the then-current fair value, with a corresponding loss recognized
in current earnings. Factors we consider in determining whether an impairment is
other-than-temporary are the length of time and extent of the impairment, the
credit rating of the securities and the issuer, whether the issuer continues to
make the contractual cash payments, whether we believe the issuer will be able
to continue to make the contractual payments until the value recovers or the
securities mature and our company's ability and intent to hold the investment
until its value recovers or the securities mature. We may determine that the
decline in fair value of an investment is other-than-temporary if our analysis
of these factors indicates that we will not recover our investment in the
securities.



Unrealized gains
and losses are reported, net of taxes, in accumulated other comprehensive
income/(loss) included in shareholders' equity.
Amortization of premiums and
accretion of discounts are recorded as interest income using the interest
method.
Realized gains and losses from sales of securities available for sale are
determined on a specific identification basis and are included in other revenue
on the consolidated statements of operations.






Held-to-Maturity Securities




Securities held to
maturity are recorded at amortized cost based on our company's positive intent
and ability to hold these securities to maturity. Securities held
to maturity include asset-backed securities, consisting of collateralized debt
obligation securities.
We evaluate these securities for other-than-temporary impairment on a quarterly
basis. If we determine other-than-temporary impairment exists, the cost basis of
the security is adjusted to the then-current fair value, with a corresponding
loss recognized in current earnings.




Loans Held for Sale




Loans held for
sale consist of fixed-rate and adjustable-rate residential real estate mortgage
loans intended for sale. Loans held for sale are stated at lower of cost or
market value. Declines in market value below cost and any gains or losses on the
sale of these assets are recognized in other revenues on the consolidated
statements of operations. Market value is determined based on prevailing market
prices for loans with similar characteristics or on sale contract prices.
Deferred fees and costs related to these loans are not amortized but are
recognized as part of the cost basis of the loan at the time it is sold.


100











Bank Loans




Bank loans consist
of commercial and residential mortgage loans, home equity loans, stock secured
loans, construction loans and non-real-estate commercial and consumer loans
originated by Stifel Bank. Bank loans that management has the intent and ability
to hold are recorded at outstanding principal adjusted for any charge-offs,
allowance for loan losses, and deferred origination fees and costs. Loan
origination costs, net of fees, are deferred and recognized over the contractual
life of the loan as an adjustment of yield using the interest method. Bank loans
are generally collateralized by real estate, real property, marketable
securities, or other assets of the borrower. Interest income is recognized in
the period using the effective interest rate method, which is based upon the
respective interest rates and the average daily asset balance. Stifel Bank does
not maintain any mortgage servicing rights on mortgages that are sold. Stifel
Bank's loan portfolio does not have any investments in sub-prime mortgages.



The allowance for
loan losses is established as losses are estimated to have occurred through a
provision for loan losses charged to income. In providing for the allowance for
loan losses, management considers historical loss experience, the nature and
volume of the loan portfolio, adverse situations that may affect the borrower's
ability to repay, estimated value of any underlying collateral and prevailing
economic conditions. This evaluation is inherently subjective as it requires
estimates that are susceptible to significant revision as more information
becomes available. Large groups of smaller balance homogenous loans are
collectively evaluated for impairment.



In addition,
impairment is measured on a loan-by-loan basis for commercial and construction
loans and a specific allowance is established for individual loans determined to
be impaired. Impairment is measured using the present value of the impaired
loan's expected cash flow discounted at the loan's effective interest rate, the
loan's observable market price, or the fair value of the collateral if the loan
is collateral dependent. 



A loan is
considered impaired when, based on current information and events, it is
probable that the scheduled payments of principal or interest when due according
to the contractual terms of the loan agreement will not be collectible. Factors
considered in determining impairment include payment status, collateral value
and the probability of collecting scheduled principal and interest payments when
due. Loans that experience insignificant payment delays and payment shortfalls
generally are not classified as impaired. We determine the significance of
payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower,
including the length of the delay, the reasons for the delay, the borrower's
prior payment record and the amount of the shortfall in relation to the
principal and interest owed. 



Once a loan is
determined to be impaired, usually when principal or interest becomes 90 days
past due or when collection becomes uncertain, the accrual of interest and
amortization of deferred loan origination fees is discontinued ("non-accrual
status"), and any accrued and unpaid interest income is written off. Loans
placed on non-accrual status are returned to accrual status when all delinquent
principal and interest payments are collected and the collectibility of future
principal and interest payments is reasonably assured. Loan losses are charged
against the allowance when management believes the uncollectibility of a loan
balance is confirmed. Subsequent recoveries, if any, are credited to the
allowance.




Bank
Foreclosed Assets Held for Sale




Assets
acquired through, or in lieu of, loan foreclosure by Stifel Bank are held for
sale and initially recorded at fair value, less estimated cost to sell, at the
date of foreclosure, establishing a new cost basis. Subsequent to foreclosure,
valuations are periodically performed and the assets are carried at the lower of
carrying amount or fair value less cost to sell. These valuations are performed
by a third-party appraisal firm. Revenue and expense from operations and changes
in the valuation allowance are included in other income or other operating
expense on the consolidated statements of operations.





Investments





Investments on the consolidated statements of financial condition contain
investments in securities that are marketable and securities that are not
readily marketable. These investments are not included in our broker-dealer
trading inventory or available-for-sale or held-to-maturity portfolios and
represent the acquiring and disposing of debt or equity instruments for our
benefit.


101












Our
broker-dealer subsidiaries report changes in fair value of marketable and
non-marketable securities through current period earnings based on guidance
provided by the AICPA Audit and Accounting Guide, "Brokers and Dealers in
Securities." The fair value of marketable investments is generally based on
either quoted market or dealer prices. The fair value of non-marketable
securities is based on management's estimate using the best information
available, which consists of quoted market prices for similar securities and
internally developed discounted cash flow models.





Fixed
Assets




Office equipment
is depreciated on an accelerated basis over the estimated useful life of the
asset of two to seven years. Leasehold improvements are amortized on a
straight-line basis over the lesser of the estimated useful life of the asset or
the term of the lease. Office equipment, leasehold improvements, and property
are stated at cost net of accumulated depreciation and amortization. Office
equipment is reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable.




Goodwill
and Intangible Assets




Goodwill
represents the cost of acquired businesses in excess of the fair value of the
related net assets acquired. Goodwill is tested for impairment at least annually
or whenever indications of impairment exist. In testing for the potential
impairment of goodwill, we estimate the fair value of each of our company's
reporting units (generally defined as the businesses for which financial
information is available and reviewed regularly by management), and compare it
to their carrying value. If the estimated fair value of a reporting unit is less
than its carrying value, we are required to estimate the fair value of all
assets and liabilities of the reporting unit, including goodwill. If the
carrying value of the reporting unit's goodwill is greater than the estimated
fair value, an impairment charge is recognized for the excess. We have elected
July 31 as our annual impairment testing date.



Identifiable
intangible assets, which are amortized over their estimated useful lives, are
tested for potential impairment whenever events or changes in circumstances
suggest that the carrying value of an asset or asset group may not be fully
recoverable.




Loans and
Advances




We offer
transition pay, principally in the form of upfront loans, to financial advisors
and certain key revenue producers as part of our company's overall growth
strategy. These loans are generally forgiven by a charge to compensation and
benefits over a five- to ten-year period if the individual satisfies certain
conditions, usually based on continued employment and certain performance
standards. We monitor and compare individual financial advisor production to
each loan issued to ensure future recoverability. If the individual leaves
before the term of the loan expires or fails to meet certain performance
standards, the individual is required to repay the balance. In determining the
allowance for doubtful receivables from former employees, management considers
the facts and circumstances surrounding each receivable, including the amount of
the unforgiven balance, the reasons for the terminated employment relationship,
and the former employees' overall financial positions. The loan balance from
former employees at December 31, 2009 and 2008 was $2,492 and $2,483,
respectively, with associated loss allowances of $1,500 and $1,186,
respectively. 




Securities Sold
Under Agreements to Repurchase




Securities sold
under agreements to repurchase ("repurchasee agreements") are collateralized
investing transactions that are recorded at their contractual amounts plus
accrued interest. We make delivery of securities sold under agreements to
repurchase and monitor the value of these securities on a daily basis. When
necessary, we will deliver additional collateral.


102











Derivative Instruments and Hedging Activities




Stifel
Bank recognizes all of its derivative instruments at fair value as either assets
or liabilities on the consolidated statements of financial condition. These
instruments are recorded in other assets or accounts payable and accrued
expenses on the
consolidated
statements of financial condition
and in the operating section of the consolidated statement of cash flows as
increases or decreases of other assets and accounts payable and accrued
expenses. Our company's policy is not to offset fair value amounts recognized
for derivative instruments and fair value amounts recognized for the right to
reclaim cash collateral or the obligation to return cash collateral arising from
derivative instruments recognized at fair value executed with the same
counterparty under master netting arrangements. The accounting for changes in
the fair value (i.e., gains and losses) of a derivative instrument depends on
whether it has been designated and qualifies as part of a hedging relationship
and, further, on the type of hedging relationship. For those derivative
instruments that are designated and qualify as hedging instruments under ASC
815, "Derivatives and Hedging," we must also designate the hedging instrument or
transaction, based upon the exposure being hedged. 



For
derivative instruments that are designated and qualify as cash flow hedges
(i.e., hedging the exposure to variability in expected future cash flows that is
attributable to a particular risk), the effective portion of the gain or loss on
the derivative instrument is reported as a component of other comprehensive
income/(loss) and reclassified into earnings in the same period or periods
during which the hedged transaction affects earnings. The remaining gain or loss
on the derivative instrument in excess of the cumulative change in the present
value of future cash flows of the hedged item, if any, is recognized in current
earnings during the period of change. We do not use derivatives for trading or
speculative purposes and, at December 31, 2009, do not have any derivatives that
are not designated in qualifying cash flow hedging relationships. See Note 16
for additional detail.




Revenue Recognition




Customer security
transactions are recorded on a settlement date basis, with related commission
revenues and expenses recorded on a trade date basis. Commission revenues are
recorded at the amount charged to the customer, which, in certain cases, may
include varying discounts. Principal securities transactions are recorded on a
trade date basis. We distribute our proprietary equity research products to our
client base of institutional investors at no charge. These proprietary equity
research products are accounted for as a cost of doing business. 



Investment banking
revenues include advisory fees, management fees, underwriting fees, net of
reimbursable expenses, and sales credits earned in connection with the
distribution of the underwritten securities. Investment banking management fees
are recorded on the offering date, sales credits on the trade date, and
underwriting fees at the time the underwriting is completed and the income is
determinable. Revenues derived from contractual arrangements, typically advisory
fees, are recorded when payments are earned and contractually due. Expenses
associated with investment banking transactions are deferred until the related
revenue is recognized or the engagement is otherwise concluded. For the periods
presented, there were no significant expenses recognized for incomplete
transactions. We have not recognized any incentive income that is subject to
contingent repayments.



Asset management
and service fees are recorded when earned based on the month-end assets in the
accounts and consist of customer account service fees, per account fees (such as
IRA fees), and wrap fees on managed accounts.




Leases




We lease office
space and equipment under operating leases. We recognize rent expense related to
these operating leases on a straight-line basis over the lease term. The lease
term commences on the earlier of the date when we become legally obligated for
the rent payments or the date on which we take possession of the property. For
tenant improvement allowances and rent holidays, we record a deferred rent
liability in "Accounts payable and accrued expenses" on the consolidated
statements of financial condition and amortize the deferred rent over the lease
term as a reduction to rent expense on the consolidated statements of
operations.


103











Income Taxes




We compute income taxes using the asset
and liability method, under which deferred income taxes are provided for the
temporary differences between the financial statement carrying amounts and the
tax basis of our company's assets and liabilities. We establish a valuation
allowance for deferred tax assets if it is more likely than not that these items
will either expire before we are able to realize their benefits, or that future
deductibility is uncertain.



We recognize the tax benefit from an
uncertain tax position only if it is more likely than not that the tax position
will be sustained on examination by the taxing authorities, based on the
technical merits of the position. The tax benefits recognized in the financial
statements from such a position are measured based on the largest benefit that
has a greater than 50% likelihood of being realized upon ultimate settlement. We
recognize interest and penalties related to uncertain tax positions in income
tax expense. See Note 23 for further information regarding income taxes.




Recently Adopted Accounting Guidance




Financial Accounting Standards Board ("FASB")
Accounting Standards Codification



In June
2009, the FASB issued the FASB Accounting Standards Codification (the
"Codification"), which will serve as the single source of authoritative
non-governmental generally accepted accounting principles, superseding existing
FASB, American Institute of Certified Public Accountants, Emerging Issues Task
Force and related accounting literature. This guidance is effective for interim
and annual reporting periods ending after September 15, 2009 (September 30, 2009
for our company) and has impacted our financial statement disclosures since all
future references to authoritative accounting literature will be referenced in
accordance with the Codification. 



Subsequent Events



In May
2009, the FASB issued new guidance on the treatment of subsequent events.
Subsequent events are defined as events or transactions that occur after the
balance sheet date, but before the financial statements are issued. Recognized
subsequent events are events or transactions that provide additional evidence
about conditions that existed at the date of the balance sheet. Unrecognized
subsequent events are events or transactions that provide evidence about
conditions that did not exist at the date of the balance sheet, but arose before
the financial statements were issued. Recognized subsequent events are recorded
in the financial statements and unrecognized subsequent events are excluded from
the financial statements but disclosed in the notes to the financial statements
if their effect is material. This guidance is effective for interim and annual
reporting periods ending after June 15, 2009 (June 30, 2009 for our company).
See Note 29 for a discussion of our analysis of subsequent events under the new
guidance.



Fair Value of Financial Instruments



In April
2009, the FASB issued new guidance that provides additional assistance in
estimating fair value of financial instruments when the volume and level of
activity for the asset or liability have significantly decreased, including how
to identify circumstances that indicate a transaction is distressed. This
guidance is effective for interim and annual reporting periods ending after June
15, 2009 (June 30, 2009 for our company). The adoption did not have an impact on
our consolidated financial statements. See Note 6 for further discussion of fair
value.



In
September 2006, the FASB issued new guidance, which defined fair value,
established guidelines for measuring fair value and expanded disclosures
regarding fair value measurements. The FASB delayed the application of the
guidance for nonfinancial assets and liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually), until fiscal years beginning after November 15, 2008
(January 1, 2009 for our company). The adoption did not have an impact on our
consolidated financial statements.


104












Consolidation



In June
2009, the FASB issued amended standards for determining whether to consolidate a
variable interest entity. These new standards amend the evaluation criteria to
identify the primary beneficiary of a variable interest entity and requires
ongoing reassessment of whether an enterprise is the primary beneficiary of the
variable interest entity. The provisions of the new standards are effective for
annual reporting periods beginning after November 15, 2009 and interim periods
within those fiscal years (January 1, 2010 for our company). We are currently
evaluating the impact the new standards will have on our consolidated financial
statements.



Other-Than-Temporary Impairments



In April
2009, the FASB issued new standards for the recognition and measurement of
other-than-temporary impairments for debt securities, which replaced the
pre-existing "intent and ability" indicator. These new standards specify that if
the fair value of a debt security is less than its amortized cost basis, an
other-than-temporary impairment is triggered in circumstances where (1) an
entity has an intent to sell the security, (2) it is more likely than not that
the entity will be required to sell the security before recovery of its
amortized cost basis, or (3) the entity does not expect to recover the entire
amortized cost basis of the security (that is, a credit loss exists).
Other-than-temporary impairments are separated into amounts representing credit
losses, which are recognized in earnings and amounts related to all other
factors, which are recognized in other comprehensive income (loss). We adopted
these standards in the second quarter of 2009. See Note 8 for further
information regarding our available-for-sale and held-to-maturity securities.



Derivatives



In
September 2008, the FASB issued additional guidance, which requires additional
disclosures by sellers of credit derivatives, including credit derivatives
embedded in hybrid instruments. This new guidance also amends previous guidance
related to accounting for guarantees to require additional disclosure about the
current status of the payment/performance risk of a guarantee. These new
provisions are effective for reporting periods ending after November 15, 2008
(January 1, 2009 for our company). These provisions further clarify the
effective date of new disclosure requirements regarding derivative instruments
and hedging activities. Since the new guidance only required additional
disclosures, the adoption did not impact our consolidated financial statements.



In March
2008, the FASB issued new standards that require companies with derivative
instruments to disclose information that should enable financial statement users
to understand how and why a company uses derivative instruments, how derivative
instruments and related hedged items are accounted for and how derivative
instruments and related hedged items affect a company's financial position,
financial performance and cash flows. We adopted these new standards in the
first quarter of 2009. See Note 16 for further information regarding derivative
instruments and related hedged items.



Business Combinations



In April
2009, the FASB issued new standards that provided guidance on the initial
recognition and measurement, subsequent measurement and accounting and
disclosure of assets and liabilities arising from contingencies in business
combinations. This new guidance is effective for assets or liabilities arising
from contingencies in business combinations occurring after January 1, 2009. See
Note 3 for further information regarding our acquisitions.



In April
2008, the FASB issued new standards that provided guidance on how to determine
the useful life of intangible assets by amending the factors an entity should
consider in developing renewal or extension assumptions used in determining the
useful life of recognized intangible assets. This new guidance applies
prospectively to intangible assets that are acquired individually or with a
group of other assets in business combinations and asset acquisitions. These
standards are effective for financial statements issued for fiscal years
beginning after December 15, 2008 (January 1, 2009 for our company) and interim
periods within those fiscal years. The
adoption did not have an impact on our consolidated financial statements.


105












In
December 2007, the FASB revised their guidance for business combinations and
non-controlling interests. The new standards will change how business
acquisitions are accounted for and will impact financial statements both on the
acquisition date and in subsequent periods. The changes also impact the
accounting and reporting for minority interests, which will be recharacterized
as non-controlling interests and classified as a component of equity. We adopted
these standards in the first quarter of 2009. See Note 3 for further information
regarding our acquisitions.

Recently Issued Accounting Guidance



Fair Value of Financial Instruments



In
January 2010, the FASB revised their guidance for disclosures about fair value
measurements, which will require a greater level of clarity and additional
disclosures about valuation techniques and inputs into fair value measurements.
These new standards are effective for interim and annual periods ending after
December 15, 2009 (January 1, 2010 for our company), except for certain
disclosures included in the rollforward of activity in Level III fair value
measurements, which are effective for annual periods beginning after December
15, 2010, and interim periods within those years. Since the new guidance will
only require additional disclosures, we do not expect the adoption to have an
impact on our consolidated financial statements. 



NOTE 3 -
Acquisitions



UBS Wealth Management Americas Branch Network



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 (the "Acquired Locations") from UBS in
four separate closings pursuant to this agreement. We completed the closings on
the following dates: August 14, 2009, September 11, 2009, September 25, 2009 and
October 16, 2009. This acquisition further expands our private client footprint.
Pro forma information is not presented because the acquisition is not considered
to be material, as defined by the Securities and Exchange Commission (the
"SEC"). The results of operations of the Acquired Locations have been included
in our results prospectively from the respective acquisition dates. 




The
transaction was structured as an asset purchase for cash at a premium over
certain balance sheet items, subject to adjustment. The payments to UBS in
conjunction with all four closings of $252,153 were funded by available
liquidity and included: (i) an upfront cash payment of $28,817 based on the
actual number of branches and financial advisors acquired by Stifel Nicolaus;
and (ii) aggregate payment of $15,901 for net fixed assets, employee forgivable
loans and other assets, and (iii) securities-based and margin loans of $207,435
that were collateralized by securities included in customer accounts converted
to the Stifel platform. In addition, a contingent earn-out payment is payable
based on the performance of those UBS financial advisors who joined Stifel
Nicolaus, over the two-year period following the closing. We have recognized a
liability of $8,300 for estimated earn-out payments over the two-year period.
The liability is included in "Accounts payable and accrued expenses" on the
consolidated statements of financial condition at December 31, 2009.



As a
result of all four closings, we converted approximately $16.0 billion in
customer assets, which included $1.8 billion in money market accounts and
Federal Deposit Insurance Corporation ("FDIC")-insured balances to the Stifel
Nicolaus platform. 



This
acquisition is being accounted for under the acquisition method of accounting in
accordance with ASC 805, "Business Combinations." Accordingly, the purchase
price was allocated to the acquired assets and liabilities based on their
estimated fair values as of the respective acquisition dates. Goodwill of
$33,377 is calculated as the purchase premium after adjusting for the fair value
of the net assets acquired and represents the value expected from the synergies
created through the operational enhancement benefits that will result from the
integration of the hired financial advisors and the conversion of the customer
accounts to the Stifel platform. During
the fourth quarter of 2009, we continued the analysis of the fair values of the
contingent earn-out liability, net assets of the Acquired Locations and purchase
price allocation of the net assets of the Acquired Locations. We recorded an
increase to goodwill of $4,836 as a result. The change was predominantly related
to recording an intangible asset for customer relationships as a result of the
purchase price allocation. The goodwill has been allocated to our Global Wealth
Management segment. Goodwill is expected to be deductible for federal income tax
purposes.



106












Butler,
Wick & Co., Inc. 



On December 31, 2008, we closed on the
acquisition of Butler, Wick & Co., Inc. ("Butler Wick"), a privately-held
broker-dealer that provides financial advice to individuals, municipalities, and
corporate clients. We acquired 100% of the voting interests of Butler Wick from
United Community Financial Corp. This acquisition extends our company's
geographic reach in the Ohio Valley region. The purchase price of $12,000 was
funded from cash generated from operations. Under the purchase method of
accounting, the assets and liabilities of Butler Wick are recorded as of the
acquisition date, at their respective fair values and consolidated in our
company's financial statements. Revisions to the allocation will be reported as
changes to various assets and liabilities, including goodwill and other
intangible assets. Pro forma information is not presented because the
acquisition is not considered to be material. Butler Wick's results of
operations have been included in our results prospectively from January 1, 2009.



Ryan Beck & Company, Inc. Earn-Out



On February 28, 2007, we completed the
acquisition of Ryan Beck & Company, Inc. ("Ryan Beck"), a full-service brokerage
and investment banking firm and wholly-owned subsidiary of BankAtlantic Bancorp,
Inc. Pursuant to the stock purchase agreement, an additional earn-out payment
was payable based on the achievement of defined revenues over the two year
period following the closing. We paid the final earn-out payment of $9,301
related to the two-year private client contingent earn-out in 271,353 shares of
our company's common stock at an average price of $34.30 per share in the first
quarter of 2009, with partial shares paid in cash.



NOTE 4 
- Assets and Liabilities Held for Sale




On December 30, 2009, Stifel Bank entered into a
Branch Purchase and Assumption Agreement providing for the sale of a
branch office to Anheuser-Busch Employees' Credit Union. Under the terms of the
agreement, Anheuser-Busch Employees' Credit Union is to assume $20,773 of
deposits, and will purchase $33,129 of loans as well as certain other assets,
including the building and office equipment of $661. The transaction, which is
subject to regulatory approvals and certain closing conditions, is expected to
be completed during the first quarter of 2010.



The assets and liabilities associated with the
branch office are reflected in 'Loans held for sale", "Other assets" and
"Deposits" on the consolidated statements of financial condition as of December
31, 2009, respectively, at the lower of their carrying value or fair value less
costs to sell. The branch sale has not been classified as discontinued
operations as Stifel Bank will have on-going banking operations in this market.



NOTE 5 -
Receivables from and Payables to Brokers, Dealers and Clearing Organizations



Amounts
receivable from brokers, dealers and clearing organizations at December 31, 2009
and 2008, included (in thousands):



	
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		December 31,
		

		
		
		 2009
		
		

		 
		
		


		December 31,
		


		 2008
		
		

		 
	
	
		
		

		Deposits paid for securities borrowed
		
		

		 
		
		


		$
		
		


		147,325
		
		

		 
		
		

		$
		
		


		49,784
		
		

		 
	
	
		
		

		Receivable from clearing organizations
		
		

		 
		
		

		 
		
		


		97,658
		
		

		 
		
		

		 
		
		


		57,954
		
		

		 
	
	
		
		

		Securities failed to deliver
		
		

		 
		
		


		 
		
		


		64,626
		
		

		 
		
		

		 
		
		


		3,837
		
		

		 
	
	
		
		

		 
		
		

		 
		
		

		$ 
		
		


		309,609
		
		

		 
		
		

		$
		
		


		111,575
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	



107












Amounts payable to brokers, dealers and
clearing organizations at December 31, 2009 and 2008, included (in thousands):



	
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		December 31,
		

		
		
		 2009
		
		

		 
		
		


		December 31,
		


		 2008
		
		

		 
	
	
		
		

		Securities failed to receive
		
		

		 
		
		


		$
		
		


		73,793
		
		

		 
		
		

		$
		
		


		8,811
		
		

		 
	
	
		
		

		Deposits received from securities loaned
		
		

		 
		
		

		 
		
		


		16,667
		
		

		 
		
		

		 
		
		


		16,987
		
		

		 
	
	
		
		

		Payable to clearing organizations
		
		

		 
		
		


		 
		
		

		-
		
		

		 
		
		

		 
		
		


		3,893
		
		

		 
	
	
		
		

		 
		
		

		 
		
		

		$ 
		
		
90,460
		
		

		 
		
		

		$
		
		


		29,691
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	




Deposits
paid for securities borrowed approximate the market value of the securities.
Securities failed to deliver and receive represent the contract value of
securities that have not been delivered or received on settlement date.




NOTE 6 - Fair
Value of Financial Instruments



We measure certain financial assets and liabilities at fair
value on a recurring basis, including cash equivalents, trading securities
owned, available-for-sale securities, investments and trading securities sold,
but not yet purchased.



The degree of judgment used in measuring the fair value of
financial instruments generally correlates to the level of pricing
observability. Pricing observability is impacted by a number of factors,
including the type of financial instrument, whether the financial instrument is
new to the market and not yet established and the characteristics specific to
the transaction. Financial instruments with readily available active quoted
prices for which fair value can be measured from actively quoted prices
generally will have a higher degree of pricing observability and a lesser degree
of judgment used in measuring fair value. Conversely, financial instruments
rarely traded or not quoted will generally have less, or no, pricing
observability and a higher degree of judgment used in measuring fair value.



The following is a description of the valuation techniques
used to measure fair value.


Cash
equivalents 



Cash equivalents include highly liquid investments with
original maturities of three months or less. Actively traded money market funds
are measured at their net asset value, which approximates fair value, and
classified as Level I.



Financial instruments (Trading securities and available-for-sale securities)



When available, the fair value of financial instruments are
based on quoted prices in active markets and reported in Level I. Level I
financial instruments include highly liquid instruments with quoted prices such
as equities listed in active markets, corporate obligations and certain U.S.
Treasury bonds and other government obligations.



If quoted prices are not available, fair values are obtained
from pricing services, broker quotes, or other model-based valuation techniques
with observable inputs such as the present value of estimated cash flows and
reported as Level II. The nature of these financial instruments include
instruments for which quoted prices are available but traded less frequently,
instruments whose fair value have been derived using a model where inputs to the
model are directly observable in the market, or can be derived principally from
or corroborated by observable market data, and instruments that are fair valued
using other financial instruments, the parameters of which can be directly
observed. Level II financial instruments generally include certain equity
securities not actively traded, corporate obligations infrequently traded,
certain government and municipal obligations, certain bank notes, and certain
mortgage-backed and asset-backed securities.


108












Level III financial instruments have little to no pricing
observability as of the report date. These financial instruments do not have
active two-way markets and are measured using management's best estimate of fair
value, where the inputs into the determination of fair value require significant
management judgment or estimation. We have identified Level III financial
instruments to include certain asset-backed securities, consisting of collateral
loan obligation securities that have experienced low volumes of executed
transactions; equity securities with unobservable inputs, certain corporate
obligations with unobservable pricing inputs, certain airplane trust
certificates, limited partnerships, and other investments. Our Level III
asset-backed securities are valued using cash flow models that utilize
unobservable inputs. Level III corporate bonds are valued using prices from
comparable securities.



Investments



Investments in public companies are valued based on quoted
prices in active markets and reported in Level I. Investments in certain equity
securities with unobservable inputs and auction-rate securities for which the
market has been dislocated and largely ceased to function are reported as Level
III assets. Investments in certain equity securities with unobservable inputs
are valued using management's best estimate of fair value, where the inputs
require significant management judgment. Auction-rate securities are valued
based upon our expectations of issuer redemptions and using internal discounted
cash flow models.



Derivatives 



Derivatives are valued using quoted market prices when
available or pricing models based on the net present value of estimated future
cash flows. The valuation models used require market observable inputs including
contractual terms, market prices, yield curves, credit curves and measures of
volatility. These measurements are classified as Level II within the fair value
hierarchy and are used to value interest rate swaps.


109












The following table summarizes the valuation of our
financial instruments by pricing observability levels as of December 31, 2009 
(in thousands):



	
		
		


		 
		
		

		 
		
		

		December 31, 2009
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		Total
		
		

		 
		
		

		Level I
		
		

		 
		
		


		Level II
		
		

		 
		
		

		Level III
		
		

		 
	
	
		
		


		Assets:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Cash equivalents
		
		

		 
		
		

		$
		
		


		3,824
		
		


		 
		
		


		$ 
		
		


		3,824
		
		


		 
		
		


		$
		
		


		-
		
		


		 
		
		


		$ 
		
		


		-
		
		

		 
	
	
		
		


		Trading securities owned:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		

		U.S.
		government agency securities
		
		

		 
		
		

		 
		
		


		158,724
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		158,724
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		

		U.S.
		government securities
		
		

		 
		
		

		 
		
		


		20,254
		
		

		 
		
		

		 
		
		


		20,254
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Corporate securities:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Fixed income securities
		
		

		 
		
		

		 
		
		


		209,950
		
		

		 
		
		

		 
		
		


		36,541
		
		

		 
		
		

		 
		
		


		172,166
		
		

		 
		

		 
		
		


		1,243
		
		

		 
	
	
		
		


		Equity securities
		
		

		 
		
		

		 
		
		


		18,505
		
		

		 
		
		

		 
		
		


		18,505
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		

		 
		
		


		-
		
		

		 
	
	
		
		


		State and municipal securities
		
		

		 
		
		

		 
		
		


		47,458
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		47,458
		
		

		 
		

		 
		
		


		-
		
		

		 
	
	
		
		

		Total trading securities owned
		
		

		 
		
		

		 
		
		


		454,891
		
		

		 
		
		

		 
		
		


		75,300
		
		

		 
		
		

		 
		
		


		378,348
		
		

		 
		
		

		 
		
		


		1,243
		
		

		 
	
	
		
		


		Available-for-sale securities:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		

		U.S.
		government agency securities
		
		

		 
		
		

		 
		
		


		1,011
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		1,011
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		State and municipal securities
		
		

		 
		
		

		 
		
		


		992
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		992
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Mortgage-backed securities:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Agency
		
		

		 
		
		

		 
		
		


		433,019
		
		

		 
		
		


		 
		
		


		-
		
		

		 
		
		


		 
		
		


		433,019
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Non-agency
		
		

		 
		
		

		 
		
		


		38,466
		
		

		 
		
		


		 
		
		


		-
		
		

		 
		
		


		 
		
		


		38,466
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Commercial
		
		

		 
		
		

		 
		
		


		47,640
		
		

		 
		
		


		 
		
		


		-
		
		

		 
		
		


		 
		
		


		47,640
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Corporate fixed income securities
		
		

		 
		
		

		 
		
		


		42,890
		
		

		 
		
		


		 
		
		


		32,204
		
		

		 
		
		


		 
		
		


		10,686
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Asset-backed securities
		
		

		 
		
		

		 
		
		

		14,470
		
		

		 
		
		


		 
		
		


		-
		
		

		 
		
		


		 
		
		


		11,777
		
		

		 
		
		

		 
		
		


		2,693
		
		

		 
	
	
		
		


		Total available-for-sale securities
		
		

		 
		
		

		 
		
		


		578,488
		
		

		 
		
		


		 
		
		


		32,204
		
		

		 
		
		


		 
		
		


		543,591
		
		

		 
		
		

		 
		
		


		2,693
		
		

		 
	
	
		
		


		Investments:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Corporate equity securities
		
		

		 
		
		

		 
		
		

		2,671
		
		

		 
		
		


		 
		
		


		2,671
		
		

		 
		
		


		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Mutual funds
		
		

		 
		
		

		 
		
		

		28,597
		
		

		 
		
		


		 
		
		


		28,597
		
		

		 
		
		


		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		

		U.S.
		government securities
		
		

		 
		
		

		 
		
		

		7,266
		
		

		 
		
		


		 
		
		


		7,266
		
		

		 
		
		


		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Auction rate securities:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Equity securities
		
		

		 
		
		

		 
		
		


		46,297
		
		

		 
		
		


		 
		
		


		-
		
		

		 
		
		


		 
		
		


		-
		
		

		 
		
		

		 
		
		


		46,297
		
		

		 
	
	
		
		


		Municipal securities
		
		

		 
		
		

		 
		
		


		9,706
		
		

		 
		
		


		 
		
		


		-
		
		

		 
		
		


		 
		
		


		-
		
		

		 
		
		

		 
		
		


		9,706
		
		

		 
	
	
		
		


		Other  
		
		

		 
		
		

		 
		
		


		6,536
		
		

		 
		
		


		 
		
		


		672
		
		

		 
		
		


		 
		
		


		438
		
		

		 
		
		

		 
		
		


		5,426
		
		

		 
	
	
		
		


		Total investments
		
		

		 
		
		

		 
		
		


		101,073
		
		

		 
		
		


		 
		
		


		39,206
		
		

		 
		
		


		 
		
		


		438
		
		

		 
		
		

		 
		
		


		61,429
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		$
		
		


		1,138,276
		
		

		 
		
		


		$ 
		
		


		150,534
		
		

		 
		
		


		$
		
		


		922,377
		
		

		 
		
		

		 $
		
		


		65,365
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Liabilities:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Trading securities sold, but not yet purchased:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		

		U.S.
		government securities
		
		

		 
		
		

		$
		
		


		127,953
		
		

		 
		
		

		$
		
		


		127,953
		
		

		 
		
		

		$
		
		


		-
		
		

		 
		
		

		$
		
		


		-
		
		

		 
	
	
		
		

		U.S.
		government agency securities
		
		

		 
		
		

		 
		
		


		1,537
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		1,537
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Corporate securities:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Fixed income securities
		
		

		 
		
		

		 
		
		


		122,491
		
		

		 
		
		

		 
		
		


		11,744
		
		

		 
		
		

		 
		
		


		110,747
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Equity securities
		
		

		 
		
		

		 
		
		


		25,057
		
		

		 
		
		

		 
		
		


		25,057
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		State and municipal securities
		
		

		 
		
		

		 
		
		


		332
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		332
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Total trading securities sold, but not yet purchased
		
		

		 
		
		

		 
		
		


		277,370
		
		

		 
		
		

		 
		
		


		164,754
		
		

		 
		
		

		 
		
		


		112,616
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Derivative contracts
		
		

		 
		
		

		 
		
		


		78
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		78
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		$
		
		


		277,448
		
		

		 
		
		

		$
		
		


		164,754
		
		

		 
		
		

		$
		
		


		112,694
		
		


		 
		
		

		$
		
		


		-
		
		

		 
	
	





110













The following table summarizes the valuation of our
financial instruments by pricing observability levels as of December 31, 2008 
(in thousands):



	
		
		


		 
		
		

		 
		
		


		December 31, 2008
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		Total
		
		

		 
		
		

		Level I
		
		

		 
		
		


		Level II
		
		

		 
		
		

		Level III
		
		

		 
	
	
		
		


		Assets:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Cash equivalents
		
		

		 
		
		


		$
		
		


		172,589
		
		


		 
		
		


		$ 
		
		


		172,589
		
		


		 
		
		


		$
		
		


		-
		
		


		 
		
		


		$ 
		
		


		-
		
		

		 
	
	
		
		


		Trading securities owned:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		

		U.S.
		government agency securities
		
		

		 
		
		

		 
		
		


		26,525
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		26,525
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		

		U.S.
		government securities
		
		

		 
		
		

		 
		
		


		13,876
		
		

		 
		
		

		 
		
		


		13,876
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Corporate securities:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Fixed income securities
		
		

		 
		
		

		 
		
		


		43,131
		
		

		 
		
		

		 
		
		


		11,820
		
		

		 
		
		

		 
		
		


		27,150
		
		

		 
		

		 
		
		


		4,161
		
		

		 
	
	
		
		


		Equity securities
		
		

		 
		
		

		 
		
		


		14,094
		
		

		 
		
		

		 
		
		


		14,094
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		

		 
		
		


		-
		
		

		 
	
	
		
		


		State and municipal securities
		
		

		 
		
		

		 
		
		


		24,950
		
		

		 
		
		

		 
		
		


		4,397
		
		

		 
		
		

		 
		
		


		20,553
		
		

		 
		

		 
		
		


		-
		
		

		 
	
	
		
		

		Total trading securities owned
		
		

		 
		
		

		 
		
		


		122,576
		
		

		 
		
		

		 
		
		


		44,187
		
		

		 
		
		

		 
		
		


		74,228
		
		

		 
		
		

		 
		
		


		4,161
		
		

		 
	
	
		
		


		Available-for-sale securities:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		

		U.S.
		government agency securities
		
		

		 
		
		

		 
		
		


		8,591
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		8,591
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		State and municipal securities
		
		

		 
		
		

		 
		
		


		1,531
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		1,531
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Mortgage-backed securities:
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Agency
		
		

		 
		
		


		 
		
		


		12,430
		
		

		 
		
		


		 
		
		


		-
		
		

		 
		
		


		 
		
		


		12,430
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Non-agency
		
		

		 
		
		


		 
		
		


		17,422
		
		

		 
		
		


		 
		
		


		-
		
		

		 
		
		


		 
		
		


		17,422
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Asset-backed securities
		
		

		 
		
		


		 
		
		


		10,423
		
		

		 
		
		


		 
		
		


		-
		
		

		 
		
		


		 
		
		


		-
		
		

		 
		
		

		 
		
		


		10,423
		
		

		 
	
	
		
		


		Total available-for-sale securities
		
		

		 
		
		


		 
		
		


		50,397
		
		

		 
		
		


		 
		
		


		-
		
		

		 
		
		


		 
		
		


		39,974
		
		

		 
		
		

		 
		
		


		10,423
		
		

		 
	
	
		
		


		Investments:
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Corporate equity securities
		
		

		 
		
		


		 
		
		


		2,668
		
		

		 
		
		


		 
		
		


		2,668
		
		

		 
		
		


		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Mutual funds
		
		

		 
		
		


		 
		
		


		23,082
		
		

		 
		
		


		 
		
		


		23,082
		
		

		 
		
		


		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		

		U.S.
		government securities
		
		

		 
		
		


		 
		
		


		7,132
		
		

		 
		
		


		 
		
		


		9
		
		

		 
		
		


		 
		
		


		7,123
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Auction rate securities:
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Equity securities
		
		

		 
		
		


		 
		
		


		11,470
		
		

		 
		
		


		 
		
		


		-
		
		

		 
		
		


		 
		
		


		-
		
		

		 
		
		

		 
		
		


		11,470
		
		

		 
	
	
		
		


		Municipal securities
		
		

		 
		
		


		 
		
		


		7,039
		
		

		 
		
		


		 
		
		


		-
		
		

		 
		
		


		 
		
		


		-
		
		

		 
		
		

		 
		
		


		7,039
		
		

		 
	
	
		
		


		Other  
		
		

		 
		
		


		 
		
		


		5,678
		
		

		 
		
		


		 
		
		


		90
		
		

		 
		
		


		 
		
		


		419
		
		

		 
		
		

		 
		
		


		5,169
		
		

		 
	
	
		
		


		Total investments
		
		

		 
		
		


		 
		
		


		57,069
		
		

		 
		
		


		 
		
		


		25,849
		
		

		 
		
		


		 
		
		


		7,542
		
		

		 
		
		

		 
		
		


		23,678
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		$
		
		


		402,631
		
		

		 
		
		


		$ 
		
		


		242,625
		
		

		 
		
		


		$
		
		


		121,744
		
		

		 
		
		

		 $
		
		


		38,262
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Liabilities:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Trading securities sold, but not yet purchased:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		

		U.S.
		government securities
		
		

		 
		
		


		$
		
		


		33,279
		
		

		 
		
		

		$
		
		


		33,279
		
		

		 
		
		

		$
		
		


		-
		
		

		 
		
		

		$
		
		


		-
		
		

		 
	
	
		
		


		Corporate securities:
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Equity securities
		
		

		 
		
		


		 
		
		


		3,489
		
		

		 
		
		

		 
		
		


		3,489
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Fixed income securities
		
		

		 
		
		


		 
		
		


		62,012
		
		

		 
		
		

		 
		
		


		24,081
		
		

		 
		
		

		 
		
		


		37,931
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		State and municipal securities
		
		

		 
		
		


		 
		
		


		154
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		154
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		$
		
		


		98,934
		
		

		 
		
		

		$
		
		


		60,849
		
		

		 
		
		

		$
		
		


		38,085
		
		

		 
		
		

		$
		
		


		-
		
		

		 
	
	



Our company's investment in a U.S. government security used
to fund our venture capital activities in qualified Missouri businesses is
classified as held-to-maturity and is not subject to fair value accounting;
therefore, it is not included in the above analysis of fair value at December
31, 2009 and 2008. This investment is included in "Investments" on the
consolidated statements of financial condition at December 31, 2009 and 2008.


111











The
following table summarizes the changes in fair value carrying values associated
with Level III financial instruments during the year ended December 31, 2009 
(in thousands):



	
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		 
		
		


		

		Balance at December 31, 2008
		
		

		 
		
		


		

		 Purchases/ (sales), net
		
		

		 
		
		


		

		Net transfers in/(out)
		
		

		 
		
		


		

		Realized gains/ (losses)(1)
		
		

		 
		
		


		

		Unrealized gains/ (losses)(1)(2)
		
		

		 
		
		

		
		Balance at December 31,
		

		2009
		
		

		 
	
	
		
		


		

		Assets:
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		

		Trading securities owned:
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Corporate fixed income securities
		
		


		$ 
		
		


		4,161
		
		

		 
		
		

		$ 
		
		


		(4,020
		
		

		)
		
		

		$ 
		
		


		236
		
		

		 
		
		

		$ 
		
		


		1,448
		
		

		 
		
		

		 $
		
		


		(582
		
		

		)
		
		


		$ 
		
		

		1,243
		
		

		 
	
	
		
		

		
		Available-for-sale securities:
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
	
	
		
		


		Asset-backed securities
		
		

		 
		
		


		10,423
		
		

		 
		
		

		 
		
		


		(4,450
		
		


		)
		
		

		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		

		 
		
		


		 
		
		


		(3,280
		
		

		)
		
		


		 
		
		

		2,693
		
		

		 
	
	
		
		


		

		Investments:
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
	
	
		
		


		Auction rate securities:
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
	
	
		
		


		Equity securities
		
		

		 
		
		


		11,470
		
		

		 
		
		

		 
		
		


		36,690
		
		


		 
		
		

		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		

		 
		
		


		 
		
		


		(1,863
		
		

		)
		
		


		 
		
		

		46,297
		
		

		 
	
	
		
		


		Municipal securities
		
		

		 
		
		


		7,039
		
		

		 
		
		

		 
		
		


		2,725
		
		


		 
		
		

		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		

		 
		
		


		 
		
		


		(58
		
		

		)
		
		


		 
		
		

		9,706
		
		

		 
	
	
		
		


		Other  
		
		

		 
		
		


		5,169
		
		

		 
		
		

		 
		
		


		350
		
		


		 
		
		

		 
		
		


		(503
		
		


		)
		
		


		 
		
		


		-
		
		

		 
		
		


		 
		
		


		410
		
		

		 
		
		


		 
		
		

		5,426
		
		

		 
	
	
		
		


		Total investments
		
		

		 
		
		


		23,678
		
		

		 
		
		

		 
		
		


		39,765
		
		


		 
		
		

		 
		
		


		(503
		
		


		)
		
		


		 
		
		


		-
		
		

		 
		
		


		 
		
		


		(1,511
		
		

		)
		
		


		 
		
		

		61,429
		
		

		 
	
	
		
		


		 
		
		

		
		$
		
		


		

		38,262
		
		

		 
		
		


		

		$
		
		


		

		31,295
		
		


		 
		
		


		

		$
		
		


		

		(267
		
		


		

		)
		
		


		

		$ 
		
		


		

		1,448
		
		

		 
		
		


		

		$
		
		


		

		(5,373
		
		

		
		)
		
		

		
		$
		
		

		
		65,365
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	




(1)   
Realized and unrealized gains/(losses) related to trading securities and
investments are reported in other income on the consolidated statements of
operations.



(2)   
Unrealized gains/(losses) related to available-for-sale securities are reported
in other comprehensive income/(loss).



The
results included in the table above are only a component of the overall trading
strategies of our company. The table above does not present Level I or Level II
valued assets or liabilities. We did not have any Level III liabilities at
December 31, 2009 and 2008. The changes to our company's Level III classified
instruments were principally a result of: purchases of auction rate securities
("ARS") from our customers, principal pay-downs of our available-for-sale
securities, unrealized gains and losses, and redemptions of ARS at par during
the year ended December 31, 2009. There were no changes in unrealized
gains/(losses) recorded in earnings for the year ended December 31, 2009
relating to Level III assets still held at December 31, 2009.


112










Fair Value of Financial Instruments



The
following reflects the fair value of financial instruments whether or not
recognized on the consolidated statements of financial condition at fair value
(in thousands).



	
		
		


		 

		


		 
		
		

		 
		
		


		

		December 31, 2009
		
		

		 
		
		


		December 31, 2008
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		

		Carrying Amount
		
		

		 
		
		

		
		Estimated Fair Value
		
		

		 
		
		


		Carrying Amount
		
		

		 
		
		

		Estimated Fair Value
		
		

		 
	
	
		
		


		

		Financial assets
		
		

		 
		
		

		
		 
		
		


		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Cash and cash equivalents *
		
		

		 
		
		


		

		$
		
		


		

		161,820
		
		

		 
		
		


		

		$ 
		
		


		

		161,820
		
		


		 
		
		


		$
		
		


		239,725
		
		

		 
		
		


		$ 
		
		


		239,725
		
		

		 
	
	
		
		


		Cash segregated for regulatory purposes *
		
		

		 
		
		

		 
		
		


		

		19
		
		


		 
		
		

		 
		
		


		

		19
		
		

		 
		
		

		 
		
		


		40
		
		


		 
		
		

		 
		
		


		40
		
		

		 
	
	
		
		


		Securities purchased under agreements to resell *
		
		

		 
		
		

		 
		
		


		

		124,854
		
		

		 
		
		

		 
		
		


		

		124,854
		
		

		 
		
		

		 
		
		


		17,723
		
		

		 
		
		

		 
		
		


		17,723
		
		

		 
	
	
		
		


		Trading securities owned
		
		

		 
		
		

		 
		
		


		

		454,891
		
		

		 
		
		

		 
		
		


		

		454,891
		
		

		 
		
		

		 
		
		


		122,576
		
		

		 
		

		 
		
		


		122,576
		
		

		 
	
	
		
		


		Available-for-sale securities
		
		

		 
		
		

		 
		
		


		

		578,488
		
		

		 
		
		

		 
		
		


		

		578,488
		
		

		 
		
		

		 
		
		


		50,397
		
		

		 
		

		 
		
		


		50,397
		
		

		 
	
	
		
		


		Held-to-maturity securities
		
		

		 
		
		

		 
		
		


		

		7,574
		
		

		 
		
		

		 
		
		


		

		4,276
		
		

		 
		
		

		 
		
		


		7,574
		
		

		 
		

		 
		
		


		6,250
		
		

		 
	
	
		
		


		Loans held for sale *
		
		

		 
		
		

		 
		
		


		

		91,117
		
		

		 
		
		

		 
		
		


		

		91,117
		
		

		 
		
		

		 
		
		


		31,246
		
		

		 
		

		 
		
		


		31,246
		
		

		 
	
	
		
		


		Bank loans
		
		

		 
		
		

		 
		
		


		

		335,157
		
		

		 
		
		

		 
		
		


		

		332,437
		
		

		 
		
		

		 
		
		


		181,269
		
		

		 
		

		 
		
		


		181,269
		
		

		 
	
	
		
		


		Investments
		
		

		 
		
		

		 
		
		


		

		109,403
		
		

		 
		
		

		 
		
		


		

		109,403
		
		

		 
		
		

		 
		
		


		75,465
		
		

		 
		

		 
		
		


		75,465
		
		

		 
	
	
		
		


		

		Financial liabilities
		
		

		 
		
		

		 
		
		


		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Non-interest bearing deposits
		
		

		 
		
		

		
		$
		
		


		

		19,521
		
		

		 
		
		

		
		$
		
		


		

		19,013
		
		

		 
		
		

		$
		
		


		23,162
		
		

		 
		
		

		$
		
		


		23,162
		
		

		 
	
	
		
		


		Interest-bearing deposits
		
		

		 
		
		

		 
		
		


		

		1,027,690
		
		

		 
		
		

		 
		
		


		

		1,027,403
		
		

		 
		
		

		 
		
		


		261,636
		
		

		 
		
		

		 
		
		


		261,636
		
		

		 
	
	
		
		


		Securities sold under agreements to repurchase *
		
		

		 
		
		

		
		 
		
		


		

		122,533
		
		

		 
		
		

		 
		
		


		

		122,533
		
		

		 
		
		


		 
		
		


		2,216
		
		

		 
		
		

		 
		
		


		2,216
		
		

		 
	
	
		
		


		Federal Home Loan Bank advances *
		
		

		 
		
		

		
		 
		
		


		

		2,000
		
		

		 
		
		


		 
		
		


		

		2,000
		
		

		 
		
		


		 
		
		


		6,000
		
		

		 
		
		

		 
		
		


		6,000
		
		

		 
	
	
		
		


		Trading securities sold but not yet purchased
		
		

		 
		
		

		
		 
		
		


		

		277,370
		
		

		 
		
		


		 
		
		


		

		277,370
		
		

		 
		
		


		 
		
		


		98,934
		
		

		 
		
		

		 
		
		


		98,934
		
		

		 
	
	
		
		


		Derivatives
		
		

		 
		
		

		
		 
		
		


		

		78
		
		

		 
		
		


		 
		
		


		

		78
		
		

		 
		
		


		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Liabilities subordinated to the claims of general creditors
		
		

		 
		
		

		
		 
		
		


		

		10,081
		
		

		 
		
		


		 
		
		


		

		9,299
		
		

		 
		
		


		 
		
		


		4,362
		
		

		 
		
		

		 
		
		


		7,552
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		* The carrying amount approximates fair value. 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	



The
following describes the valuation techniques used in estimating the fair value
of our financial instruments as of December 31, 2009 and 2008.


Financial Assets


Securities
purchased under agreements to resell



Securities
purchased under agreements to resell are collateralized investing transactions
that are recorded at their contractual amounts plus accrued interest. The
carrying values at December 31, 2009 and 2008 approximate fair value.


Trading securities
owned



Trading securities owned are recorded at fair value based on
quoted prices in active markets and other observable market data. Trading
securities owned include highly liquid instruments with quoted prices such as
certain U.S. Treasury bonds, corporate bonds, certain municipal securities and
equities listed in active markets.


113










If quoted prices are not available, fair values
are obtained from pricing services, broker quotes, or other model-based
valuation techniques with observable inputs such as the present value of
estimated cash flows. The nature of these financial instruments include
instruments for which quoted prices are available but traded less frequently,
instruments whose fair value have been derived using a model where inputs to the
model are directly observable in the market, or can be derived principally from
or corroborated by observable market data, and instruments that are fair valued
using other financial instruments, the parameters of which can be directly
observed.



Certain corporate bonds are classified as Level III, which
indicates there is less frequent or nominal market activity or the lack of
multiple broker quotes. The corporate bonds classified as Level III are valued
using prices from comparable securities.


Securities available for sale




Securities available for sale are recorded at fair value based on quoted prices
for similar securities in active markets and other observable market data.
Securities available for sale include U.S. agency notes, state and municipal
securities, U.S. agency, non-agency and commercial mortgage-backed securities,
corporate debt securities, and asset-backed securities.



Certain securities available for sale are classified as
Level III, the majority of which are asset-backed securities, consisting of
collateral loan obligation securities that have experienced low volumes of
executed transactions. Classification of Level III indicates that significant
valuation assumptions are not consistently observable in the market. When
significant assumptions are not consistently observable, fair values are derived
using the best available data. Such data may include quotes provided by a
dealer, the use of external pricing services, independent pricing models, or
other model-based valuation techniques such as calculation of the present values
of future cash flows.


Held-to-maturity securities




Securities held to maturity are recorded at amortized cost based on our
company's positive intent and ability to hold these securities to maturity.
Securities held to maturity include asset-backed securities, consisting of
collateralized debt obligation securities.
The fair value was determined using several factors; however, primary weight was
given to discounted cash flow modeling techniques that incorporated an estimated
discount rate based upon recent observable debt security issuances with similar
characteristics. 



The decrease in
fair value below the carrying amount at December 31, 2009 and 2008 is primarily
due to unrealized losses that were caused primarily by: widening of credit
spreads; illiquid markets for collateralized debt obligations; global
disruptions in the credit markets; increased supply of collateralized debt
obligation secondary market securities from distressed sellers; and difficult
times in the banking sector, which has lead to a significant amount of bank
failures.


Loans held for sale



Loans held for
sale consist of fixed-rate and adjustable-rate residential real estate mortgage
loans intended for sale. Loans held for sale are stated at lower of cost or
market value. Fair value is determined based on prevailing market prices for
loans with similar characteristics or on sale contract prices. The carrying
value as of December 31, 2009 and 2008 approximates fair value.


Bank Loans



The fair
values of mortgage loans and commercial loans were estimated using a discounted
cash flow method, a form of the income approach. Discount rates were determined
considering rates at which similar portfolios of loans would be made under
current conditions and considering liquidity spreads applicable to each loan
portfolio based on the secondary market. The carrying value at December 31, 2008
approximated fair value.


114









Investments



Investments in public companies are valued based on quoted
prices in active markets and reported. Investments in certain equity securities
with unobservable inputs and auction-rate securities for which the market has
been dislocated and largely ceased to function are reported as Level III assets.
Investments in certain equity securities with unobservable inputs are valued
using management's best estimate of fair value, where the inputs require
significant management judgment. Auction-rate securities are valued based upon
our expectations of issuer redemptions and using internal models.


Financial liabilities


Non-interest bearing deposits



The fair
value of non interest-bearing deposits was estimated using a discounted cash
flow method. 


Interest bearing deposits



The fair
values of money market and savings accounts were the amounts payable on demand
at December 31, 2009 and 2008, and therefore carrying value approximates fair
value. The fair value of other interest-bearing deposits, including certificates
of deposit, was calculated by discounting the future cash flows using discount
rates based on the expected current market rates for similar products with
similar remaining terms.

Securities sold under agreements to repurchase



Securities sold
under agreements to repurchase are collateralized investing transactions that
are recorded at their contractual amounts plus accrued interest. The carrying
values at December 31, 2009 and 2008 approximate fair value.


Trading securities sold but not yet purchased



Trading securities sold but not purchased are recorded at
fair value based on quoted prices in active markets and other observable market
data. Trading securities owned include highly liquid instruments with quoted
prices such as certain U.S. Treasury bonds, corporate bonds, certain municipal
securities and equities listed in active markets.



If quoted prices are not available, fair values
are obtained from pricing services, broker quotes, or other model-based
valuation techniques with observable inputs such as the present value of
estimated cash flows. The nature of these financial instruments include
instruments for which quoted prices are available but traded less frequently,
instruments whose fair value have been derived using a model where inputs to the
model are directly observable in the market, or can be derived principally from
or corroborated by observable market data, and instruments that are fair valued
using other financial instruments, the parameters of which can be directly
observed.


Derivative Liabilities



Most of
our derivatives are not exchange traded but instead traded in over the counter
markets where quoted market prices are not readily available. The fair value of
those derivatives is derived using models that use primarily market observable
inputs, such as interest rate yield curves, credit curves, option volatility and
currency rates. These derivatives are included in "Accounts payable and accrued
expenses" on the consolidated statements of financial condition.


115









Liabilities subordinated to claims of general
creditors



The fair
value of subordinated debt was measured using the interest rates commensurate
with borrowings of similar terms. 



These
fair value disclosures represent our best estimates based on relevant market
information and information about the financial instruments. Fair value
estimates are based on judgments regarding future expected losses, current
economic conditions, risk characteristics of the various instruments, and other
factors. These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision. Changes in the above methodologies and assumptions could
significantly affect the estimates.


NOTE 7 - Trading Securities Owned and Trading Securities Sold, But Not Yet Purchased



The components of
trading securities owned and trading securities sold, but not yet purchased at
December 31, 2009 and 2008, are as follows (in thousands):



	
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
	
	
		
		


		 
		
		

		 
		
		


		

		December 31,

		2009
		
		


		 
		
		


		December 31, 2008
		
		


		 
	
	
		
		


		

		Trading securities owned:
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
	
	
		
		


		U.S. government agency securities
		
		

		 
		
		

		
		$
		
		


		

		158,724
		
		

		 
		
		

		$
		
		


		26,525
		
		

		 
	
	
		
		

		U.S.
		government securities
		
		

		 
		
		


		

		 
		
		


		

		20,254
		
		

		 
		
		

		 
		
		


		13,876
		
		

		 
	
	
		
		


		Corporate securities:
		
		

		 
		
		


		

		 
		
		


		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Fixed income securities
		
		

		 
		
		


		

		 
		
		


		

		209,950
		
		

		 
		
		

		 
		
		


		43,131
		
		

		 
	
	
		
		


		Equity securities
		
		

		 
		
		


		

		 
		
		


		

		18,505
		
		

		 
		
		

		 
		
		


		14,094
		
		

		 
	
	
		
		


		State and
		municipal securities
		
		


		 
		
		

		
		 
		
		


		

		47,458
		
		


		 
		
		

		 
		
		


		24,950
		
		


		 
	
	
		
		


		 
		
		


		 
		
		

		
		$
		
		


		

		454,891
		
		


		 
		
		

		$
		
		


		122,576
		
		


		 
	
	
		
		


		

		Trading securities sold, but not yet purchased:
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
	
	
		
		

		U.S.
		government securities
		
		

		 
		
		

		
		$
		
		


		

		127,953
		
		


		 
		
		


		$
		
		


		-
		
		

		 
	
	
		
		

		U.S.
		government agency securities
		
		

		 
		
		

		
		 
		
		


		

		1,537
		
		


		 
		
		


		 
		
		


		33,279
		
		

		 
	
	
		
		


		Corporate securities:
		
		

		 
		
		

		
		 
		
		


		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
	
	
		
		


		Fixed income securities
		
		

		 
		
		

		
		 
		
		


		

		122,491
		
		


		 
		
		


		 
		
		


		3,489
		
		

		 
	
	
		
		


		Equity securities
		
		

		 
		
		

		
		 
		
		


		

		25,057
		
		


		 
		
		


		 
		
		


		62,012
		
		

		 
	
	
		
		


		State and municipal securities
		
		

		 
		
		

		
		 
		
		


		

		332
		
		


		 
		
		


		 
		
		


		154
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		
		$
		
		


		

		277,370
		
		

		 
		
		

		$
		
		


		98,934
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	




At
December 31, 2009 and 2008, trading securities owned in the amount of $366,788
and $123,415, respectively, were pledged as collateral for our repurchase
agreements and short-term borrowings from banks.



Trading
securities sold, but not yet purchased represent obligations of our company to
deliver the specified security at the contracted price, thereby creating a
liability to purchase the security in the market at prevailing prices. We are
obligated to acquire the securities sold short at prevailing market prices,
which may exceed the amount reflected on the consolidated statements of
financial condition.




116









NOTE 8 -
Available-for-Sale and Held-to-Maturity Securities



The following
tables provide a summary of the amortized cost and fair values of the
available-for-sale securities and held-to-maturity securities at December 31,
2009 and 2008 (in thousands):



	
		
		


		 
		
		

		 
		
		

		
		December 31, 2009
		
		


		 
	
	
		
		


		 
		
		

		 
		
		


		

		Amortized

		cost
		
		


		 
		
		

		
		Gross unrealized
		

		gains  
		(1)
		
		

		 
		
		


		

		Gross unrealized losses  
		(1)
		
		


		 
		
		

		
		Estimated

		fair value
		
		


		 
	
	
		
		


		

		Available-for-sale
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		U.S. government securities
		
		

		 
		
		

		$
		
		


		998
		
		

		 
		
		

		$
		
		


		13
		
		


		 
		
		


		$
		
		


		-
		
		

		 
		
		

		$
		
		


		1,011
		
		


		 
	
	
		
		


		State and municipal securities
		
		

		 
		
		

		 
		
		


		960
		
		

		 
		
		

		 
		
		


		32
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		


		 
		
		


		992
		
		


		 
	
	
		
		


		Mortgage-backed securities:
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
	
	
		
		


		Agency
		
		

		 
		
		


		 
		
		


		432,820
		
		

		 
		
		

		 
		
		


		1,880
		
		


		 
		
		


		 
		
		


		(1,681
		
		

		)
		
		

		 
		
		


		433,019
		
		

		 
	
	
		
		


		Non-agency
		
		

		 
		
		

		 
		
		


		39,905
		
		

		 
		
		

		 
		
		


		683
		
		

		 
		
		

		 
		
		


		(2,122
		
		

		)
		
		


		 
		
		


		38,466
		
		

		 
	
	
		
		


		Commercial
		
		


		 
		
		


		 
		
		


		47,274
		
		

		 
		
		

		 
		
		


		683
		
		


		 
		
		


		 
		
		


		(317
		
		

		)
		
		

		 
		
		


		47,640
		
		


		 
	
	
		
		


		Corporate fixed income securities
		
		


		 
		
		


		 
		
		


		40,788
		
		

		 
		
		

		 
		
		


		2,102
		
		


		 
		
		


		 
		
		


		-
		
		

		 
		
		

		 
		
		


		42,890
		
		


		 
	
	
		
		


		Asset-backed securities
		
		

		 
		
		

		 
		
		


		13,235
		
		


		 
		
		


		 
		
		


		1,235
		
		


		 
		
		


		 
		
		


		-
		
		

		 
		
		


		 
		
		

		14,470
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		$
		
		


		575,980
		
		

		 
		
		

		$
		
		


		6,628
		
		


		 
		
		


		$
		
		


		(4,120
		
		

		)
		
		

		$
		
		


		578,488
		
		

		 
	
	
		
		


		

		Held-to-maturity
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Asset-backed securities
		
		

		 
		
		

		$
		
		


		7,574
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		(3,298
		
		


		)
		
		

		$
		
		


		4,276
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	




(1)    

Unrealized
gains/(losses) related to available-for-sale securities are reported in other
comprehensive income/(loss).



	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		 
		
		

		 
		
		


		December 31, 2008
		
		


		 
	
	
		
		


		 
		
		

		 
		
		


		Amortized

		cost
		
		


		 
		
		

		Gross unrealized
		

		gains  
		(1)
		
		

		 
		
		


		Gross unrealized losses  
		(1)
		
		


		 
		
		

		Estimated

		fair value
		
		


		 
	
	
		
		


		

		Available-for-sale
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		U.S. government securities
		
		

		 
		
		


		$
		
		


		8,447
		
		

		 
		
		

		$
		
		


		144
		
		


		 
		
		


		$
		
		


		-
		
		

		 
		
		


		$
		
		


		8,591
		
		


		 
	
	
		
		


		State and municipal securities
		
		

		 
		
		

		 
		
		


		1,513
		
		

		 
		
		

		 
		
		


		19
		
		

		 
		
		

		 
		
		


		(1
		
		

		)
		
		

		 
		
		


		1,531
		
		


		 
	
	
		
		


		Mortgage-backed securities:
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
	
	
		
		


		Agency
		
		

		 
		
		


		 
		
		


		12,821
		
		

		 
		
		

		 
		
		


		-
		
		


		 
		
		


		 
		
		


		(391
		
		

		)
		
		


		 
		
		


		12,430
		
		

		 
	
	
		
		


		Non-agency
		
		

		 
		
		

		 
		
		


		23,091
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		(5,669
		
		

		)
		
		

		 
		
		


		17,422
		
		

		 
	
	
		
		


		Asset-backed securities
		
		


		 
		
		


		 
		
		


		11,400
		
		

		 
		
		

		 
		
		


		-
		
		


		 
		
		


		 
		
		


		(977
		
		

		)
		
		


		 
		
		


		10,423
		
		


		 
	
	
		
		


		 
		
		

		 
		
		


		$
		
		


		57,272
		
		

		 
		
		

		$
		
		


		163
		
		


		 
		
		


		$
		
		


		(7,038
		
		

		)
		
		


		$
		
		


		50,397
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		

		Held-to-maturity
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Asset-backed securities  (2)
		
		

		 
		
		


		$
		
		


		7,574
		
		

		 
		
		
 
		
		


		-
		
		

		 
		
		

		 
		
		


		(1,324
		
		


		)
		
		


		$
		
		


		6,250
		
		

		 
	
	



(1)  Unrealized
gains/(losses) related to available-for-sale securities are reported in other
comprehensive income/(loss).



(2) 
Held-to-maturity securities are carried on the consolidated statements of
financial condition at amortized cost and the changes in the value of these
securities, other than impairment charges, are not reported on the financial
statements.



During the year
ended December 31, 2009, available-for-sale securities with an aggregate par
value of $7,500 were called by the issuing agencies or matured resulting in no
gains or losses recorded on the consolidated statements of operations.
Additionally, during the year ended December 31, 2009, Stifel Bank received
principal payments on asset-backed and mortgage-backed securities of $40,474.
During the year ended December 31, 2009, unrealized gains, net of deferred
taxes, of $6,244 were recorded in accumulated other comprehensive income/(loss).
During the year ended December 31, 2008, unrealized losses, net of deferred tax
benefits, of $5,635 were recorded in accumulated other comprehensive
income/(loss).


117










On June 30, 2008,
we transferred a $10,000 par value asset backed security, consisting of
investment-grade trust preferred securities related primarily to banks, with an
amortized cost basis of $10,069 from our available-for-sale securities portfolio
to our held-to-maturity portfolio. This security was transferred at the
estimated fair value of $7,574. The gross unrealized loss of $2,495 included in
accumulated other comprehensive income is being amortized as an adjustment of
yield over the remaining life of the security. The estimated fair value of the
held-to-maturity security at December 31, 2009 was $4,276. The estimated fair
value was determined using several factors; however, primary weight was given to
discounted cash flow modeling techniques that incorporated an estimated discount
rate based upon recent observable debt security issuances with similar
characteristics. 



Our investment in
a held-to-maturity asset-backed security consists of pools of trust preferred
securities related to banks. Unrealized losses were caused primarily by: 1)
widening of credit spreads; 2) illiquid markets for collateralized debt
obligations; 3) global disruptions in the credit markets; 4) increased supply of
collateralized debt obligation secondary market securities from distressed
sellers; and 5) difficult times in the banking sector, which has lead to a
significant amount of bank failures. 



	
		
		


		 
		
		

		 
		
		


		

		December 31,
		

		2009
		
		


		 
	
	
		
		


		

		Held-to-maturity:
		
		

		 
		
		

		 
		
		


		 
		
		


		 
	
	
		
		


		

		Original Amortized cost  
		(1)  
		
		


		 
		
		

		
		$
		
		


		

		10,069
		
		


		 
	
	
		
		


		Impairment losses
		
		

		 
		
		

		 
		
		


		(1,881
		
		

		)
	
	
		
		

		
		Amortized cost
		
		


		

		 
		
		

		
		 
		
		


		

		8,188
		
		

		 
	
	
		
		


		Non-credit related impairment losses on securities not expected to be
		sold
		
		


		 
		
		

		 
		
		


		(614
		
		

		)
	
	
		
		


		

		Carrying value  
		(2)  
		
		


		 
		
		

		
		$
		
		


		

		7,574
		
		

		
		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	




(1)
For securities transferred to held-to-maturity from available-for-sale, original
amortized cost is defined as the original purchase cost, plus or minus any
accretion or amortization of interest, less any impairment previously recognized
in earnings.



(2)
Held-to-maturity securities are carried on the consolidated statements of
financial condition at amortized cost and the changes in the value of these
securities, other than impairment charges, are not reported on the financial
statements.



The table below
summarizes the amortized cost and fair values of debt securities, by contractual
maturity (in thousands). Expected maturities may differ significantly
from contractual maturities, as issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.



	
		
		


		 
		
		

		 
		
		

		
		December 31, 2009
		
		


		 
	
	
		
		


		 
		
		

		 
		
		

		
		Available-for-sale
		
		

		 
		
		

		
		Held-to-maturity
		
		


		 
	
	
		
		


		 
		
		

		 
		
		


		

		Amortized

		cost
		
		


		 
		
		

		
		Estimated

		fair value
		
		

		 
		
		


		

		Amortized

		cost
		
		


		 
		
		

		
		Estimated

		fair value
		
		


		 
	
	
		
		


		

		Debt securities
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Within one year
		
		

		 
		
		


		$
		
		


		7,818
		
		

		 
		
		

		$
		
		


		7,973
		
		


		 
		
		


		$
		
		


		-
		
		

		 
		
		


		$
		
		


		-
		
		


		 
	
	
		
		


		After one year through three years
		
		

		 
		
		

		 
		
		


		29,176
		
		

		 
		
		

		 
		
		


		30,649
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		


		 
	
	
		
		


		After three years through five years
		
		

		 
		
		

		 
		
		


		9,021
		
		


		 
		
		


		 
		
		


		10,122
		
		

		 
		
		

		 
		
		


		-
		
		


		 
		
		

		 
		
		


		-
		
		


		 
	
	
		
		


		After five years through ten years
		
		

		 
		
		


		 
		
		


		9,966
		
		

		 
		
		

		 
		
		


		10,619
		
		


		 
		
		


		 
		
		


		-
		
		

		 
		
		


		 
		
		


		-
		
		

		 
	
	
		
		


		After ten years
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		


		 
		
		


		-
		
		

		 
		
		

		 
		
		


		7,574
		
		

		 
		
		

		 
		
		


		4,276
		
		

		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		

		Mortgage-backed securities
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
	
	
		
		


		After three years through five years
		
		

		 
		
		

		 
		
		


		10,033
		
		


		 
		
		


		 
		
		


		9,866
		
		

		 
		
		

		 
		
		


		-
		
		


		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		After five years through ten years
		
		

		 
		
		

		 
		
		


		24,948
		
		


		 
		
		


		 
		
		


		24,783
		
		

		 
		
		

		 
		
		


		-
		
		


		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		After ten years
		
		

		 
		
		

		 
		
		


		485,018
		
		


		 
		
		

		 
		
		


		484,476
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		
		$
		
		


		

		575,980
		
		


		

		 
		
		


		

		$
		
		


		

		578,488
		
		


		

		 
		
		


		

		$
		
		


		

		7,574
		
		

		
		 
		
		


		

		$
		
		


		

		4,276
		
		


		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	



118










The carrying value
of securities pledged as collateral to secure public deposits and other purposes
was $76,502 and $39,570 at December 31, 2009 and 2008, respectively. 



Certain
investments in the available-for-sale portfolio at December 31, 2009 are
reported on the consolidated statements of financial condition at an amount less
than their amortized cost. The total fair value of these investments at December
31, 2009 was $223,972, which was 38.7% of our company's available-for-sale
investment portfolio. The amortized cost basis of these investments was $228,093
at December 31, 2009. The declines in the available-for-sale portfolio primarily
resulted from changes in interest rates, the widening of credit spreads and
liquidity issues that have had a pervasive impact on the market.







The following
table is a summary of the amount of gross unrealized losses and the estimated
fair value by length of time that the securities have been in an unrealized loss
position at December 31, 2009 (in thousands):



	
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
	
	
		
		


		 
		
		

		 
		
		

		
		December 31, 2009
		
		


		 
	
	
		
		


		 
		
		

		 
		
		

		
		Less than 12 months
		
		

		 
		
		

		
		12 months or more
		
		


		 
		
		

		
		Total
		
		


		 
	
	
		
		


		 
		
		

		 
		
		


		

		Gross unrealized losses
		
		


		 
		
		

		
		Estimated fair value
		
		

		 
		
		


		

		Gross unrealized losses
		
		


		 
		
		

		
		Estimated fair value
		
		


		 
		
		


		

		Gross unrealized losses
		
		


		 
		
		

		
		Estimated fair value
		
		


		 
	
	
		
		


		

		Available-for-sale
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Mortgage-backed securities:
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Agency
		
		

		 
		
		


		$
		
		


		(1,512
		
		

		)
		
		

		$
		
		


		174,504
		
		


		 
		
		


		$
		
		


		(170
		
		

		)
		
		


		$
		
		


		10,494
		
		

		 
		
		


		$
		
		


		(1,682
		
		

		)
		
		


		$
		
		


		184,998
		
		


		 
	
	
		
		


		Non-agency
		
		

		 
		
		

		 
		
		


		(341
		
		

		)
		
		

		 
		
		


		9,832
		
		

		 
		
		

		 
		
		


		(1,780
		
		

		)
		
		

		 
		
		


		9,440
		
		

		 
		
		

		 
		
		


		(2,121
		
		

		)
		
		

		 
		
		


		19,272
		
		

		 
	
	
		
		


		Commercial
		
		

		 
		
		


		 
		
		


		(167
		
		

		)
		
		

		 
		
		


		9,866
		
		


		 
		
		


		 
		
		


		(150
		
		

		)
		
		


		 
		
		


		9,836
		
		

		 
		
		


		 
		
		


		(317
		
		

		)
		
		


		 
		
		


		19,702
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		
		$
		
		


		

		(2,020
		
		

		
		)
		
		

		
		$
		
		

		
		194,202
		
		

		
		 
		
		

		
		$
		
		


		

		(2,100
		
		


		

		)
		
		


		

		$
		
		

		
		29,770
		
		


		

		 
		
		


		

		$
		
		


		

		(4,120
		
		


		

		)
		
		


		

		$
		
		

		
		223,972
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	




Our company's
available-for-sale securities are reviewed quarterly in accordance with its
accounting policy for other-than-temporary impairment. Since the decline in fair
value of the securities presented in the table above is not attributable to
credit quality but to changes in interest rates, the widening of credit spreads,
and the liquidity issues that have had a pervasive impact on the market and
because we have the ability and intent to hold these investments until a fair
value recovery or maturity, we do not consider these securities to be
other-than-temporarily impaired as of December 31, 2009.




Other-Than-Temporary Impairment



We evaluate our investment securities portfolio
on a quarterly basis for other-than-temporary impairment ("OTTI"). We assesses
whether OTTI has occurred when the fair value of a debt security is less than
the amortized cost basis at the balance sheet date. Under these circumstances,
OTTI is considered to have occurred (1) if we intend to sell the security; (2)
if it is more likely than not we will be required to sell the security before
recovery of its amortized cost basis; or (3) the present value of the expected
cash flows is not sufficient to recover the entire amortized cost basis. For
securities that we do not expect to sell or it is not more likely than not to be
required to sell, credit-related OTTI, represented by the expected loss in
principal, is recognized in earnings, while noncredit-related OTTI is recognized
in other comprehensive income/(loss). For securities which we expect to sell,
all OTTI is recognized in earnings.


119










Noncredit-related OTTI results from other
factors, including increased liquidity spreads and extension of the security.
Presentation of OTTI is made in the income statement on a gross basis with a
reduction for the amount of OTTI recognized in OCI. We applied the related OTTI
guidance on the debt security types listed below.



Pooled-trust-preferred securities represent
collateralized debt obligations (CDOs) backed by a pool of debt securities
issued by financial institutions. The collateral generally consisted of
trust-preferred securities and subordinated debt securities issued by banks,
bank holding companies, and insurance companies. A full cash flow analysis was
used to estimate fair values and assess impairment for each security within this
portfolio. We engaged a third party specialist with direct industry experience
in pooled trust preferred securities valuations to provide assistance in
estimating the fair value and expected cash flows for each security in this
portfolio. Relying on cash flows was necessary because there was a lack of
observable transactions in the market and many of the original sponsors or
dealers for these securities were no longer able to provide a fair value that
was compliant with ASC 820, "Fair Value Measurements and Disclosures."

Based on the evaluation, we recognized
other-than-temporary impairment of $1,881 related to credit through earnings for
the year ended December 31, 2009. For the impaired security, unrealized losses
not related to credit and therefore recognized in other comprehensive income was
$1,129 (net of tax was $614) as of December 31, 2009. Cumulative
other-than-temporary impairment related to credit losses recognized in earnings
for our held-to-maturity security is as follows (in thousands):



	
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
	
	
		
		
 
		
		
 
		
		

		
		2009
		
		
 
	
	
		
		

		
		Beginning balance of OTTI
		credit losses recognized for securities held at the period for which a
		portion of OTTI was recognized in OCI   
		
		
 
		
		
$ 
		
		

		
		-
		
		
 
	
	
		
		

		Additional increases to the
		amount related to credit loss for which an OTTI was previously
		recognized
		
		
 
		
		
 
		
		

		-
		
		
 
	
	
		
		

		Additional increases to the
		amount related to credit loss for which an OTTI was not previously
		recognized
		
		
 
		
		
 
		
		

		1,881
		
		
 
	
	
		
		

		Reductions for securities sold
		during the period
		
		
 
		
		
 
		
		

		-
		
		
 
	
	
		
		

		
		Ending balance of the amount
		related to credit losses held at the end of the period for which a
		portion of OTTI was recognized in OCI
		
		
 
		
		
$
		
		

		
		1,881
		
		
 
	
	
		
		

		 
		
		
 
		
		
 
		
		

		 
		
		
 
	




As of December 31, 2009, management has evaluated
all other investment securities with unrealized losses and all non-marketable
securities for impairment. The unrealized losses were primarily the result of
wider liquidity spreads on asset-backed securities and, additionally, increased
market volatility on non-agency mortgage and asset-backed securities that are
backed by certain mortgage loans. The fair values of these assets have been
impacted by various market conditions. In addition, the expected average lives
of the asset-backed securities backed by trust preferred securities have been
extended, due to changes in the expectations of when the underlying securities
would be repaid. The contractual terms and/or cash flows of the investments do
not permit the issuer to settle the securities at a price less than the
amortized cost. We have reviewed our asset-backed portfolio with independent
third parties and do not believe there is additional OTTI from these securities
other than what has already been recorded. We do not intend to sell, nor do we
believe we will be required to sell these securities until the fair value is
recovered, which may be maturity and, therefore, do not consider them to be
other-than-temporarily impaired at December 31, 2009.




120










NOTE 9
- Bank Loans




The following
table presents the balance and associated percentage of each major loan category
in Stifel Bank's loan portfolio at December 31, 2009 and 2008 (in thousands,
except percentages):



	
		
		


		 
		
		

		 
		
		


		

		December 31, 2009
		
		

		 
		
		

		 
		
		


		December 31, 2008
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		

		Balance
		
		

		 
		
		

		
		Percent
		
		

		 
		
		

		 
		
		


		Balance
		
		

		 
		
		


		Percent
		
		

		 
	
	
		
		


		Consumer  (1)
		
		

		 
		
		

		
		$
		
		


		

		227,436
		
		

		 
		
		

		 
		
		

		
		67.8
		
		


		

		%
		
		

		 
		
		


		$
		
		


		19,662
		
		

		 
		
		

		 
		
		


		10.5
		
		

		%
	
	
		
		


		Residential real estate
		
		

		 
		
		

		 
		
		


		

		52,086
		
		

		 
		
		

		 
		
		

		
		15.5
		
		


		

		 
		
		

		 
		
		

		 
		
		


		58,778
		
		

		 
		
		

		 
		
		


		31.4
		
		

		 
	
	
		
		


		Home equity lines of credit
		
		

		 
		
		

		 
		
		


		

		33,369
		
		

		 
		
		

		 
		
		

		
		10.0
		
		


		

		 
		
		

		 
		
		

		 
		
		


		28,612
		
		

		 
		
		

		 
		
		


		15.3
		
		

		 
	
	
		
		


		Commercial  
		
		

		 
		
		

		 
		
		


		

		11,294
		
		

		 
		
		

		 
		
		

		
		3.4
		
		


		

		 
		
		

		 
		
		

		 
		
		


		27,538
		
		

		 
		

		 
		
		


		14.7
		
		

		 
	
	
		
		


		Commercial real estate
		
		

		 
		
		

		 
		
		


		

		10,152
		
		

		 
		
		

		 
		
		

		
		3.0
		
		


		

		 
		
		

		 
		
		

		 
		
		


		38,446
		
		

		 
		
		

		 
		
		


		20.6
		
		

		 
	
	
		
		


		Construction and land
		
		

		 
		
		

		 
		
		


		

		952
		
		

		 
		
		

		 
		
		

		
		0.3
		
		


		

		 
		
		

		 
		
		

		 
		
		


		13,968
		
		

		 
		
		

		 
		
		


		7.5
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		

		335,289
		
		

		 
		
		

		 
		
		

		
		100.0
		
		


		

		%
		
		

		 
		
		

		 
		
		


		187,004
		
		

		 
		
		

		 
		
		


		100.0
		
		

		%
	
	
		
		


		Unamortized loan origination costs, net of loan fees
		
		

		 
		
		

		 
		
		


		

		1,556
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		591
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		

		Loans in process
		
		

		 
		
		

		 
		
		


		

		14
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		(3,878
		
		

		)
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Allowance for loan losses
		
		

		 
		
		

		
		 
		
		


		

		(1,702
		
		

		)
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		(2,448
		
		

		)
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		
		$
		
		


		

		335,157
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		$
		
		


		181,269
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	




(1)      

Includes
stock-secured loans of $226,527 and $18,861 at December 31, 2009 and 2008,
respectively.

Changes in the
allowance for loan losses at Stifel Bank were as follows (in thousands):



	
		
		


		 
		
		

		 
		
		


		

		Year Ended December 31,
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		
		2009
		
		


		 
		
		


		2008
		
		


		 
		
		


		2007*
		
		

		 
	
	
		
		


		

		Allowance for loan losses, beginning of period
		
		

		 
		
		


		

		$
		
		

		
		2,448
		
		


		 
		
		

		$ 
		
		


		1,685
		
		


		 
		
		


		$
		
		


		-
		
		

		 
	
	
		
		

		Acquisition of Stifel Bank
		
		

		 
		
		


		

		 
		
		


		

		-
		
		


		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		1,127
		
		

		 
	
	
		
		

		Provision for loan losses
		
		

		 
		
		


		

		 
		
		

		
		604
		
		


		 
		
		

		 
		
		


		1,923
		
		

		 
		
		

		 
		
		


		558
		
		

		 
	
	
		
		

		Charge-offs:
		
		

		 
		
		


		

		 
		
		

		
		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Construction and land
		
		

		 
		
		


		

		 
		
		

		
		(859
		
		


		)
		
		

		 
		
		


		(493
		
		

		)
		
		

		 
		
		


		(2
		
		

		)
	
	
		
		


		Commercial real estate
		
		

		 
		
		


		

		 
		
		

		
		(294
		
		


		)
		
		

		 
		
		


		(253
		
		

		)
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Real estate construction loans
		
		

		 
		
		


		

		 
		
		

		
		(213
		
		


		)
		
		

		 
		
		


		(414
		
		


		)
		
		


		 
		
		


		-
		
		

		 
	
	
		
		


		Other
		
		

		 
		
		


		

		 
		
		

		
		(25
		
		


		)
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Total charge-offs
		
		

		 
		
		


		

		 
		
		

		
		(1,391
		
		


		)
		
		

		 
		
		


		(1,160
		
		

		)
		
		

		 
		
		


		(2
		
		

		)
	
	
		
		

		Recoveries
		
		

		 
		
		


		

		 
		
		

		
		41
		
		


		 
		
		

		 
		
		


		-
		
		


		 
		
		


		 
		
		


		2
		
		

		 
	
	
		
		


		

		Allowance for loan losses, end of period
		
		

		 
		
		


		

		$
		
		

		
		1,702
		
		


		 
		
		

		$
		
		


		2,448
		
		


		 
		
		


		$
		
		


		1,685
		
		

		 
	
	
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
	
	
		
		

		Net charge-offs to average bank loans outstanding, net
		
		

		 
		
		

		 
		
		

		
		0.58
		
		


		%
		
		

		 
		
		


		0.64
		
		


		%
		
		


		 
		
		


		0.00
		
		

		%
	
	
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		

		*  The results of Stifel Bank are included prospectively from
		April 2, 2007, the date of acquisition.
		
		


		 
		
		

		 
	




At December 31,
2009 and 2008, Stifel Bank had mortgage loans held for sale of $91,117 and
$31,246, respectively. Included in loans held for sale are loans that are
expected to be assumed as part of the sale of Stifel Bank's branch office of
$33,129. See Note 4 for further discussion. For the years ended December 31,
2009 and 2008, Stifel Bank recognized a gain of $4,138 and $2,089, respectively,
from the sale of loans originated for sale, net of fees and costs to originate
these loans. For the year ended December 31, 2007, the gain recognized from the
sale of loans originated for sale was insignificant.


121












A loan is impaired
when it is probable that interest and principal payments will not be made in
accordance with the contractual terms of the loan agreement.

At
December 31, 2009, Stifel Bank had $1,368 of non-accrual loans that were more
than 90 days past due, for which there was a specific allowance of an
insignificant amount. Further, Stifel Bank had $533 in
troubled debt restructurings at December 31, 2009. At December 31, 2008, Stifel
Bank had $573 in non-accrual loans, for which there was a specific reserve of
$189. In addition, there were no accrual loans delinquent 90 days or more or
troubled debt restructurings at December 31, 2008. Stifel Bank has no exposure
to sub-prime mortgages.
The gross interest income related to impaired loans, which would have been
recorded had these loans been current in accordance with their original terms,
and the interest income recognized on these loans during the year, were
immaterial to the consolidated financial statements.



At December 31,
2009 and 2008, Stifel Bank had loans outstanding to its executive officers,
directors and significant stockholders and their affiliates in the amount of
$590 and $1,578, respectively, and loans outstanding to other Stifel Financial
Corp. executive officers, directors and significant stockholders and their
affiliates in the amount of $994 and $48, respectively. Such loans and other
extensions of credit were made in the ordinary course of business and were made
on substantially the same terms (including interest rates and collateral
requirements) as those prevailing at the time for comparable transactions with
other persons.



NOTE 10
- Fixed Assets




The following is a
summary of fixed assets as of December 31, 2009 and 2008 (in thousands):



	
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		December 31,
		

		
		
		 2009
		
		

		 
		
		


		December 31,
		


		 2008
		
		

		 
	
	
		
		

		Furniture and equipment
		
		

		 
		
		


		$
		
		
92,126
		
		
 
		
		

		$
		
		
70,049
		
		

		 
	
	
		

		

		Building and leasehold improvements
		
		

		 
		
		

		 
		
		
41,434
		
		
 
		
		

		 
		
		
31,791
		
		

		 
	
	
		
		Total 
		
		

		 
		
		


		 
		
		
133,560
		
		 
		
		

		 
		
		
101,840
		
		

		 
	
	
		
		

		Less accumulated depreciation
		
		

		 
		
		


		 
		
		
(71,445
		
		
) 
		
		

		 
		
		
(54,075
		
		

		)
	
	
		
		


		 
		
		

		 
		
		

		$ 
		
		
62,115
		
		
 
		
		

		$
		
		
47,765
		
		

		 
	
	
		
		 
		
		 
		
		 
		
		 
		
		 
		
		 
		
		 
		
		 
	
	
		

		* Excludes building owned by Stifel Bank that is included in 'Other
		assets' at December 31, 2009.
		
		 
		
		 
		
		 
		
		 
	




For the years
ended December 31, 2009, 2008 and 2007, depreciation and amortization of owned
furniture and equipment, and
leasehold improvements totaled $17,605, $12,948, and $10,643, respectively, and
are included in
"Occupancy and equipment rental" on the consolidated statements of operations.




122










NOTE 11
- Goodwill and Intangible Assets




During the year
ended December 31, 2009, we acquired 56 branches from the UBS Wealth Management
Americas branch network, which created $33,377 of goodwill. The goodwill
associated with the acquisition of these branches is reported in our Global
Wealth Management segment at December 31, 2009. See Note 3 for additional
information regarding our acquisition of the UBS branches.



Goodwill
impairment is tested at the reporting unit level, which is an operating segment
or one level below an operating segment on an annual basis. Our reporting units
are Private Client Group, Fixed Income Capital Markets, Equity Capital Markets,
and Stifel Bank. The goodwill impairment analysis is a two-step test. The first
step, used to identify potential impairment, involves comparing each reporting
unit's fair value to its carrying value including goodwill. If the fair value of
a reporting unit exceeds its carrying value, applicable goodwill is considered
not to be impaired. If the carrying value exceeds fair value, there is an
indication of impairment and the second step is performed to measure the amount
of impairment. No indicators of impairment were identified during our annual
impairment testing as of July 31, 2009. 



The carrying
amount of goodwill and intangible assets attributable to each of our segments is
presented in the following table (in thousands):



	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		 
		
		

		 
		
		


		

		December 31, 2008
		
		


		

		 
		
		

		
		Net additions
		
		

		
		 
		
		

		
		Impairment losses
		
		


		

		 
		
		

		
		December 31, 2009
		
		


		 
	
	
		
		


		Goodwill
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Global Wealth Management
		
		

		 
		
		

		$
		
		

		75,058
		
		

		 
		
		

		$
		
		


		37,362
		
		

		 
		
		

		$
		
		


		-
		
		

		 
		
		


		$
		
		


		112,420
		
		

		 
	
	
		
		


		Capital Markets
		
		

		 
		
		


		 
		
		


		53,220
		
		

		 
		
		

		 
		
		


		1,085
		
		

		 
		
		

		 
		
		


		-
		
		


		 
		
		


		 
		
		


		54,305
		
		

		 
	
	
		
		


		 
		
		


		 
		
		

		
		$
		
		

		
		128,278
		
		


		

		 
		
		

		
		$
		
		


		

		38,447
		
		


		 
		
		


		

		$
		
		


		

		-
		
		

		 
		
		

		
		$
		
		


		

		166,725
		
		


		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
	


	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		 

		


		 
		
		

		 
		
		


		

		December 31, 2008
		
		


		

		 
		
		

		
		Net additions
		
		

		
		 
		
		

		
		Amortization
		
		


		

		 
		
		

		
		December 31, 2009
		
		

		 
	
	
		
		


		Intangible assets
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
	
	
		
		


		Global Wealth Management
		
		

		 
		
		

		$
		
		

		12,242
		
		

		 
		
		

		$
		
		


		11,426
		
		


		 
		
		


		$
		
		


		(2,312
		
		

		)
		
		

		$
		
		


		21,356
		
		

		 
	
	
		
		


		Capital Markets
		
		

		 
		
		

		 
		
		

		3,742
		
		


		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		(450
		
		

		)
		
		


		 
		
		


		3,292
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		
		$
		
		


		

		15,984
		
		

		 
		
		

		
		$
		
		


		

		11,426
		
		

		 
		
		

		
		$
		
		


		

		(2,762
		
		


		

		)
		
		


		

		$
		
		


		

		24,648
		
		

		
		 
	
	
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
	




In addition to the
goodwill recorded from our acquisition of the UBS branches, the changes in
goodwill during the year ended December 31, 2009 primarily consist of payments
for the contingent earn-out of $4,338 for the Ryan Beck acquisition.
In connection with the acquisition of the UBS
branches, we recorded an intangible asset of $9,750 that consisted of customer
lists and brokerage relationships, which are subject to amortization. The
customer lists reflect the estimated value of customer relationships.


123










Amortizable
intangible assets consist of acquired customer lists, non-compete agreements,
and core deposits that are amortized to expense over their contractual or
determined useful lives. We stopped amortizing our core deposit intangible
during the fourth quarter as a result of the announced sale of the Stifel Bank
branch. See Note 4 for further discussion. Intangible assets subject to
amortization as of December 31, 2009 and 2008 were as follows (in thousands):



	
		
		
 
		
		
 
		
		

		
		December 31, 2009
		
		
 
		
		

		December 31, 2008
		
		
 
	
	
		
		
 
		
		
 
		
		

		
		Gross carrying value
		
		
 
		
		

		
		Accumulated Amortization
		
		
 
		
		

		Gross carrying value
		
		
 
		
		

		Accumulated Amortization
		
		
 
	
	
		
		

		Customer lists
		
		
 
		
		
$
		
		

		
		30,754
		
		
 
		
		
$
		
		

		
		7,584
		
		
 
		
		
$
		
		

		19,533
		
		
 
		
		
$
		
		

		5,371
		
		
 
	
	
		
		

		Non-compete agreements
		
		
 
		
		
 
		
		

		
		2,789
		
		
 
		
		
 
		
		

		
		2,371
		
		
 
		
		
 
		
		

		2,584
		
		
 
		
		
 
		
		

		2,115
		
		
 
	
	
		
		

		Core deposits
		
		
 
		
		
 
		
		

		
		2,157
		
		
 
		
		
 
		
		

		
		1,097
		
		
 
		
		
 
		
		

		2,157
		
		
 
		
		
 
		
		

		804
		
		
 
	
	
		
		

		 
		
		
 
		
		
$
		
		

		
		35,700
		
		
 
		
		
$
		
		

		
		11,052
		
		
 
		
		
$
		
		

		24,274
		
		
 
		
		
$
		
		

		8,290
		
		
 
	
	



Amortization
expense related to intangible assets was $2,762, $3,081 and $3,601 for the years
ended December 31, 2009, 2008 and 2007, respectively.






The
weighted-average remaining lives of the following intangible assets at December
31, 2009 are: customer lists 8.4 years; core deposits 5.5 years; and non-compete
agreements 1.9 years. As of December 31, 2009, we expect amortization expense in
future periods to be as follows (in thousands):



	
		
		


		Fiscal year *
		
		

		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		2010
		
		

		 
		
		


		$
		
		


		2,740
		
		


		 
	
	
		
		


		2011
		
		

		 
		
		


		 
		
		


		2,498
		
		

		 
	
	
		
		


		2012
		
		

		 
		
		


		 
		
		


		2,164
		
		

		 
	
	
		
		


		2013
		
		

		 
		
		


		 
		
		


		2,051
		
		

		 
	
	
		
		


		2014
		
		

		 
		
		


		 
		
		


		1,949
		
		

		 
	
	
		
		


		Thereafter
		
		


		 
		
		

		 
		
		


		12,186
		
		


		 
	
	
		
		


		 
		
		

		 
		
		


		

		$
		
		


		

		23,588
		
		

		 
	
	



* The above table
does not include the amortization expense associated with our core deposit
intangible. We have determined that the assets and liabilities meet the criteria
for being classified as held for sale, therefore, we have stopped amortizing the
intangible asset.




NOTE 12 - Short-Term Borrowings from Banks




Our
short-term financing is generally obtained through the use of bank loans and
securities lending arrangements. We borrow from various banks on a demand basis
with company-owned and customer securities pledged as collateral. The value of
the customer-owned securities used as collateral is not reflected on the
consolidated statements of financial condition. We maintain available ongoing
credit arrangements with banks that provided a peak daily borrowing of $379,300
during the year ended December 31, 2009. There are no compensating balance
requirements under these arrangements. At December 31, 2009, short-term
borrowings from banks were $90,800 at an average rate of 1.04%, which were
collateralized by company-owned securities valued at $165,150. At December 31,
2008, there were no short-term borrowings from banks. The average bank borrowing
was $107,383, $132,660 and $156,778 for the years ended December 31, 2009, 2008
and 2007, respectively, at weighted average daily interest rates of 0.99%, 2.28%
and 4.86%, respectively. At December 31, 2009 and 2008, Stifel Nicolaus had a
stock loan balance of $16,667 and $16,987, respectively, at weighted average
daily interest rates of 0.33% and 0.52%, respectively. The average outstanding
securities lending arrangements utilized in financing activities were $53,110,
$105,424 and $119,590 during the years ended December 31, 2009, 2008 and 2007,
respectively, at weighted average daily effective interest rates of 1.07%, 2.47%
and 4.82%, respectively. Customer-owned securities were utilized in these
arrangements.


124











NOTE 13
- Bank Deposits




Deposits consist of money market and savings
accounts, certificates of deposit and demand deposits. Deposits at December 31,
2009 and 2008 were as follows (in thousands):



	
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		

		 
		
		

		 
		
		


		

		December 31,
		

		2009
		
		

		 
		
		


		December 31,
		



		2008
		
		

		 
	
	
		
		

		Money market and savings accounts
		
		

		 
		
		


		

		$ 
		
		


		

		993,264
		
		

		 
		
		

		$
		
		


		233,276
		
		

		 
	
	
		
		

		Demand deposits (non-interest bearing)
		
		

		 
		
		

		 
		
		


		

		19,521
		
		

		 
		
		

		 
		
		


		23,162
		
		

		 
	
	
		
		

		Certificates of deposit
		
		

		 
		
		

		 
		
		

		
		18,245
		
		

		 
		
		

		 
		
		


		24,102
		
		

		 
	
	
		
		

		Demand deposits (interest bearing)
		
		

		 
		
		

		 
		
		


		

		16,181
		
		

		 
		
		

		 
		
		


		4,258
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		
		$ 
		
		


		

		1,047,211
		
		

		 
		
		

		$
		
		


		284,798
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	




The
weighted average interest rate on deposits was 0.5% and 0.4% at December 31,
2009 and 2008, respectively.



Scheduled
maturities of certificates of deposit at December 31, 2009 and 2008 were as
follows (in thousands):



	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		

		December 31,
		

		2009
		
		

		 
		
		


		December 31,
		



		2008
		
		

		 
	
	
		
		


		Certificates of deposit, less than $100:
		
		

		 
		
		

		
		 
		
		


		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Within one year
		
		

		 
		
		

		
		$
		
		


		

		9,775
		
		

		 
		
		

		$
		
		


		8,525
		
		

		 
	
	
		
		


		One to three years
		
		

		 
		
		

		 
		
		

		
		514
		
		

		 
		
		

		 
		
		


		 3,562
		
		

		 
	
	
		
		


		Over three years
		
		

		 
		
		

		 
		
		


		

		250
		
		

		 
		
		

		 
		
		


		1,349
		
		

		 
	
	
		
		

		 
		
		

		 
		
		

		
		$
		
		


		

		10,539
		
		

		 
		
		

		$
		
		


		13,436
		
		

		 
	
	
		
		

		 
		
		

		 
		
		

		 
		
		


		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Certificates of deposit, $100 and greater:
		
		

		 
		
		

		
		 
		
		


		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Within one year
		
		

		 
		
		

		
		$ 
		
		


		

		5,936
		
		

		 
		
		

		$
		
		


		7,455
		
		

		 
	
	
		
		


		One to three years
		
		

		 
		
		

		
		 
		
		


		

		1,217
		
		

		 
		
		

		 
		
		


		1,949
		
		

		 
	
	
		
		


		Over three years
		
		

		 
		
		

		
		 
		
		


		

		553
		
		

		 
		
		

		 
		
		


		1,262
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		
		$
		
		


		

		7,706
		
		

		 
		
		

		$
		
		


		10,666
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		
		 
		
		


		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		
		$
		
		


		

		18,245
		
		

		 
		
		

		$
		
		


		24,102
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	




At
December 31, 2009 and 2008, the amount of deposits includes deposits of related
parties, including $1,008,593 and $228,653, respectively, of brokerage
customer's deposits from Stifel Nicolaus, and interest-bearing and time deposits
of executive officers, directors and significant stockholders and their
affiliates of $391 and $750, respectively. Such deposits were made in the
ordinary course of business and were made on substantially the same terms
(including interest rates) as those prevailing at the time for comparable
transactions with other persons.




125










NOTE 14 - Federal
Home Loan Bank Advances and Other Secured Financing




At December 31,
2009, Stifel Bank had $2,000 of credit extended from the Federal Home Loan Bank,
consisting of advances. The FHLB advance is at a rate of 3.20% and matures on
April 30, 2010. At December 31, 2008, Stifel Bank had $6,000 in advances
outstanding. The average Federal Home Loan Bank advances outstanding were
$3,304, $10,739 and $3,642 in 2009, 2008 and 2007, respectively, at weighted
average daily interest rates of 3.12%, 2.56% and 5.32%, respectively.




In 2009, Stifel
Bank had an insignificant amount of average federal funds and repurchase
agreements outstanding. In 2008 and 2007, Stifel Bank had average federal funds
and repurchase agreements outstanding of $887 and $119, respectively, at
weighted average interest rates of 2.30% and 3.33%, respectively.

NOTE 15
- Debentures to Stifel Financial Capital Trusts  



On August 12,
2005, we completed a private placement of $35,000 of 6.38% Cumulative Trust
Preferred Securities. The trust preferred Securities were offered by Stifel
Financial Capital Trust II (the "Trust II"), a non-consolidated wholly-owned
subsidiary of our company. The trust preferred securities mature on September
30, 2035, but may be redeemed by our company, and in turn, the Trust II would
call the debenture beginning September 30, 2010. The Trust II requires quarterly
distributions of interest to the holders of the trust preferred securities.
Distributions will be payable at a fixed interest rate equal to 6.38% per annum
from the issue date to September 30, 2010 and then will be payable at a floating
interest rate equal to three-month London Interbank Offered Rate ("LIBOR") plus
1.70% per annum. The trust preferred securities represent an indirect interest
in a junior subordinated debenture purchased from our company by the Trust II.
The debenture bears the same terms as the trust preferred securities and is
presented as "Debenture to Stifel Financial Capital Trust II" on the
consolidated statements of financial condition.



On March
30, 2007, we completed a private placement of $35,000 of 6.79% Cumulative Trust
Preferred Securities. The trust preferred securities were offered by Stifel
Financial Capital Trust III (the "Trust III"), a non-consolidated wholly-owned
subsidiary of our company. The trust preferred securities mature on June 6,
2037, but may be redeemed by our company and in turn, Trust III would call the
debenture beginning June 6, 2012. Trust III requires quarterly distributions of
interest to the holders of the trust preferred securities. Distributions will be
payable quarterly in arrears at a fixed interest rate equal to 6.79% per annum
from the issue date to June 6, 2012 and then will be payable at a floating
interest rate equal to three-month LIBOR plus 1.85% per annum. The trust
preferred securities represent an indirect interest in a junior subordinated
debenture purchased from our company by Trust III. The debenture bears the same
terms as the trust preferred securities and is presented as "Debentures to
Stifel Financial Capital Trust III" on the consolidated statements of financial
condition. The net proceeds from the sale of the Junior Subordinated Debentures
to Trust III were utilized to fund the acquisition of Stifel Bank.



On June
28, 2007, we completed a private placement of $35,000 of 6.78% Cumulative Trust
Preferred Securities. The trust preferred securities were offered by Stifel
Financial Capital Trust IV (the "Trust IV"), a non-consolidated wholly-owned
subsidiary of our company. The trust preferred securities mature on September 6,
2037, but may be redeemed by our company and in turn, Trust IV would call the
debenture beginning September 6, 2012. Trust IV requires quarterly distributions
of interest to the holders of the trust preferred securities. Distributions will
be payable quarterly in arrears at a fixed interest rate equal to 6.78% per
annum from the issue date to September 6, 2012 and then will be payable at a
floating interest rate equal to three-month LIBOR plus 1.85% per annum. The
trust preferred securities represent an indirect interest in a junior
subordinated debenture purchased from our company by Trust IV. The debenture
bears the same terms as the trust preferred securities and is presented as
"Debentures to Stifel Financial Capital Trust IV" on the consolidated statements
of financial condition. The net proceeds from the sale of the Junior
Subordinated Debentures to Trust IV were used to call on July 13, 2007 our
$34,500, 9% Cumulative Trust Preferred Securities, issued through Stifel
Financial Capital Trust I on April 25, 2002 and callable June 30, 2007.




On
November 28, 2007, we purchased $10,000 par value of 6.78% Cumulative Trust
Preferred Securities in an open market transaction for $6,250. The Cumulative
Trust Preferred Securities were originally offered and sold by Stifel Financial
Capital Trust IV. As a result, we extinguished $10,000 of our debenture to
Stifel Financial Capital IV and recorded an approximate $3,750 gain before
certain expenses and taxes in the fourth quarter of 2007 reflected in other
revenues on the consolidated statements of operations. 


126











Additionally, on November 4, 2008, we issued 142,196 shares of our common stock
in exchange for $12,500 par value of 6.78% Cumulative Trust Preferred
Securities, originally offered and sold by Stifel Financial Capital Trust IV. As
a result, we extinguished $12,500 of our debenture to Stifel Financial Capital
Trust IV in the fourth quarter of 2008 and recorded an approximate $6,700 gain
before certain expenses and taxes reflected in other revenues on the
consolidated statements of operations.




NOTE 16 - Derivative Instruments and Hedging Activities




Stifel Bank uses interest rate swaps
as part of its interest rate risk management strategy. Interest rate swaps
generally involve the exchange of fixed and variable rate interest payments
between two parties, based on a common notional principal amount and maturity
date with no exchange of underlying principal amounts. Interest rate swaps
designated as cash flow hedges involve the receipt of variable amounts from a
counterparty in exchange for our company making fixed payments.



The following table provides the
notional values and fair values of Stifel Bank's derivative instruments as of
December 31, 2009 (in thousands):



	
		
		

		 
		
		
 
		
		

		 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
	
	
		
		

		 
		
		

		
		As of December 31, 2009
		
		
 
	
	
		
		

		 
		
		
 
		
		

		 
		
		
 
		
		

		
		Asset derivatives
		
		
 
		
		

		
		Liability derivatives
		
		
 
	
	
		
		

		 
		
		

		
		Notional Value
		
		
 
		
		

		
		Balance sheet location
		
		
 
		
		

		
		Positive fair value
		
		
 
		
		

		
		Balance sheet location
		
		
 
		
		

		
		Negative fair value
		
		
 
	
	
		
		

		
		Derivatives designated as hedging instruments under ASC 815:
		
		
 
		
		

		 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
	
	
		
		

		Cash flow interest rate contracts
		
		
$
		
		

		403,503
		
		
 
		
		

		Other assets
		
		

		$
		
		

		157
		
		
 
		
		

		Accounts payable and accrued expenses
		
		

		$
		
		

		(78
		
		
)
	
	
		
		

		 
		
		
 
		
		

		 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
	




Cash Flow Hedges




Stifel Bank has entered into interest rate swap agreements that effectively
modify its exposure to interest rate risk by converting floating rate debt to a
fixed rate debt over the next ten years. The agreements involve the receipt of
floating rate amounts in exchange for fixed rate interest payments over the life
of the agreement without an exchange of underlying principal amounts.




Any unrealized gains or losses related to cash flow hedging instruments are
reclassified from other comprehensive loss into earnings in the same period or
periods during which the hedged forecasted transaction affects earnings and are
recorded in interest expense on the accompanying statements of operations.
Adjustments related to the ineffective portion of the cash flow hedging
instruments are recorded in other income or other expense. There was no
ineffectiveness recognized during the year ended December 31, 2009.




At December 31, 2009, we expect to reclassify $3,363 of net losses, net of tax
benefits, on derivative instruments from cumulative other comprehensive
income/(loss) to earnings during the next 12 months as terminated swaps are
amortized and as interest payments on derivative instruments occur.


127











The following table shows the effect of our company's derivative instruments on
the consolidated statements of operations for the year ended December 31, 2009
(in thousands):



	
		
		

		 
		
		

		
		Gain/(loss) recognized in OCI (effectiveness)
		
		
 
		
		

		
		Location of gain/(loss) reclassified from OCI into income
		
		
 
		
		

		
		Gain/(loss) reclassified from OCI into income
		
		
 
		
		

		
		Location of gain/(loss) recognized in OCI (ineffectiveness)
		
		
 
		
		

		
		Gain/(loss) recognized due to ineffectiveness
		
		
 
	
	
		
		

		
		For the year ended December 31, 2009:
		
		
 
		
		

		 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
	
	
		
		

		Cash flow interest rate contracts
		
		

		$
		
		

		(1,540
		
		
)
		
		

		Interest expense
		
		

		$
		
		

		(1,619
		
		
)
		
		

		None
		
		

		$
		
		

		-
		
		
 
	
	
		
		

		 
		
		
 
		
		

		 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
		
		
 
	





We maintain a risk management
strategy that incorporates the use of derivative instruments to minimize
significant unplanned fluctuations in earnings caused by interest rate
volatility. Our goal is to manage sensitivity to changes in rates by hedging the
maturity characteristics of Fed-funds based affiliated deposits, thereby
limiting the impact on earnings. By using derivative instruments, we are exposed
to credit and market risk on those derivative positions. We manage the market
risk associated with interest rate contracts by establishing and monitoring
limits as to the types and degree of risk that may be undertaken. Credit risk is
equal to the extent of the fair value gain in a derivative, if the counterparty
fails to perform. When the fair value of a derivative contract is positive, this
generally indicates that the counterparty owes our company and, therefore,
creates a repayment risk for our company. When the fair value of a derivative
contract is negative, we owe the counterparty and therefore, have no repayment
risk. See Note 6 for further discussion on
how we determine the fair value of our financial instruments.
We minimize the credit (or repayment) risk in derivative instruments by entering
into transactions with high-quality counterparties that are reviewed
periodically by senior management.






Credit Risk-Related Contingency Features



We have agreements with our derivative
counterparties containing provisions where if we default on any of our
indebtedness, including default where repayment of the indebtedness has not been
accelerated by the lender, then we could also be declared in default on our
derivative obligations.



We have agreements with certain of our derivative
counterparties that contain provisions where if our shareholders' equity
declines below a specified threshold or if we fail to maintain a specified
minimum shareholders' equity, then we could be declared in default on our
derivative obligations.



Finally, certain of our company's agreements with
its derivative counterparties contain provisions where if a specified event or
condition occurs that materially changes our creditworthiness in an adverse
manner, we may be required to fully collateralize our obligations under the
derivative instrument.



Regulatory Capital-Related Contingency
Features




Certain of Stifel Bank's derivative instruments contain provisions that require
it to maintain its capital adequacy requirements. If Stifel Bank were to lose
its status as "adequately capitalized," it would be in violation of those
provisions, and the counterparties of the derivative instruments could request
immediate payment or demand immediate and ongoing full overnight
collateralization on derivative instruments in net liability positions.




As of December 31, 2009 the fair value of
derivatives in a net liability position, which includes accrued interest but
excludes any adjustment for nonperformance risk, related to these agreements was
$663. We have minimum collateral posting thresholds with certain of our
derivative counterparties, and have posted collateral of $6,200 against our
obligations under these agreements. If we had breached any of these provisions
at December 31, 2009, we would have been required to settle our obligations
under the agreements at the termination value.




128










Counterparty Risk




In the event of counterparty default, our economic loss may be higher than the
uncollateralized exposure of our derivatives if we were not able to replace the
defaulted derivatives in a timely fashion. We monitor the risk that our
uncollateralized exposure to each of our counterparties for interest rate swaps
will increase under certain adverse market conditions by performing periodic
market stress tests. These tests evaluate the potential additional
uncollateralized exposure we would have to each of these derivative
counterparties assuming changes in the level of market rates over a brief time
period.




NOTE 17 - Liabilities Subordinated to Claims of General Creditors




Stifel Nicolaus
maintains a deferred compensation plan for its financial advisors who achieve
certain levels of production, whereby a certain percentage of their earnings are
deferred as defined by the plan, of which 50% is deferred into company stock
units and 50% is deferred in mutual funds that earn a return based on the
performance of index mutual funds as designated by our company or a fixed income
option. We obtained approval from the New York Stock Exchange to subordinate the
liability for future payments for the portion of compensation that is not
deferred in stock units. Required annual payments, as of December 31, 2009, are
as follows (in thousands):



	
		
		


		

		Distribution - January 31,   
		
		

		 
		
		

		
		Plan year
		
		

		 
		
		

		
		Total   
		
		

		 
	
	
		
		


		2010
		
		

		 
		
		

		 
		
		


		2004
		
		


		 
		
		

		$
		
		


		1,391
		
		

		 
	
	
		
		


		2011
		
		

		 
		
		

		 
		
		


		2005
		
		


		 
		
		

		 
		
		


		1,474
		
		

		 
	
	
		
		


		2012
		
		

		 
		
		

		 
		
		


		2006
		
		


		 
		
		

		 
		
		


		1,722
		
		

		 
	
	
		
		


		2013
		
		

		 
		
		

		 
		
		


		2007
		
		


		 
		
		

		 
		
		


		2,328
		
		

		 
	
	
		
		


		2014
		
		

		 
		
		

		 
		
		


		2008
		
		


		 
		
		

		 
		
		


		3,166
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		


		

		$
		
		

		
		10,081
		
		

		 
	
	



The subordinated liabilities are subject to cash
subordination agreements approved by FINRA and, therefore, are included in our
computation of net capital under the SEC's Uniform Net Capital Rule. We have
estimated the fair value of the liability to be $9,299 as of December 31, 2009.



NOTE 18 - Commitments and Contingencies




Concentration of Credit Risk



We
provide investment, capital-raising and related services to a diverse group of
domestic customers, including governments, corporations, and institutional and
individual investors. Our company's exposure to credit risk associated with the
non-performance of customers in fulfilling their contractual obligations
pursuant to securities transactions can be directly impacted by volatile
securities markets, credit markets and regulatory changes. To alleviate the
potential for risk concentrations, counterparty credit limits have been
implemented for certain products and are continually monitored in light of
changing customer and market conditions. As of December 31, 2009 and 2008, we
did not have significant concentrations of credit risk with any one customer or
counterparty, or any group of customers or counterparties.



Other Commitments



In the normal
course of business, we enter into underwriting commitments. Settlement of
transactions relating to such underwriting commitments, which were open at
December 31, 2009, had no material effect on the consolidated financial
statements.



In connection with
margin deposit requirements of The Options Clearing Corporation, we pledged
customer-owned securities valued at $84,376 to satisfy the minimum margin
deposit requirement of $42,663 at December 31, 2009. 



In connection with
margin deposit requirements of the National Securities Clearing Corporation, we
deposited $23,600 in cash at December 31, 2009, which satisfied the minimum
margin deposit requirements of $8,431.


129












We also provide
guarantees to securities clearinghouses and exchanges under their standard
membership agreement, which requires members to guarantee the performance of
other members. Under the agreement, if another member becomes unable to satisfy
its obligations to the clearinghouse, other members would be required to meet
shortfalls. Our company's liability under these agreements is not quantifiable
and may exceed the cash and securities it has posted as collateral. However, the
potential requirement for our company to make payments under these arrangements
is considered remote. Accordingly, no liability has been recognized for these
arrangements.



On December 28, 2009, we announced that Stifel
Nicolaus had reached an agreement between the State of Missouri, the State of
Indiana, the State of Colorado and with an association of other State securities
regulatory authorities regarding the repurchase of ARS from Eligible ARS
investors. As part of the modified ARS repurchase offer we have accelerated the
previously announced repurchase plan. We have agreed to repurchase ARS from
Eligible ARS investors in four phases starting in January 2010 and ending on
December 31, 2011. At December 31, 2009, we estimate that our retail clients
held $124,383 of eligible ARS after issuer redemptions of $23,370 and Stifel
repurchases of $60,000.




As part of the first phase of the modified ARS
repurchase offer, completed in January 2010, we estimate that we will repurchase
at par the greater of ten percent or twenty-five thousand dollars of eligible
ARS of $21,175. The remaining three phases of the modified ARS repurchase offer
will be completed by December 31, 2011. During phases two and three, which will
be completed by December 31, 2010, we estimate that we will repurchase ARS, in
total, of $20,050. During phase four, we estimate that we will repurchase ARS of
$78,133, which will be completed December 31, 2011.



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.



In the ordinary
course of business, Stifel Bank has commitments to extend credit in the form of
commitments to originate loans, standby letters of credit, and lines of credit.
See Note 22 for further details.



Operating leases
and purchase obligations



We have
noncancelable operating leases for office space and equipment and purchase
obligations for services such as professional services and hardware-and-software
related agreements. Future minimum commitments under these operating leases and
purchase obligations at December 31, 2009 are as follows (in thousands):



	
		
		


		 
		
		


		

		Operating leases
		
		

		 
		
		

		
		Purchase obligations
		
		

		 
		
		

		
		Total
		
		

		 
	
	
		
		


		2010
		
		

		$
		
		


		38,000
		
		

		 
		
		

		 
		
		


		23,507
		
		

		 
		
		

		$
		
		


		61,507
		
		

		 
	
	
		
		


		2011
		
		

		 
		
		


		32,515
		
		

		 
		
		

		 
		
		


		9,009
		
		

		 
		
		

		 
		
		


		41,524
		
		

		 
	
	
		
		


		2012
		
		

		 
		
		


		27,359
		
		

		 
		
		

		 
		
		


		2,318
		
		

		 
		
		

		 
		
		


		29,677
		
		

		 
	
	
		
		


		2013
		
		

		 
		
		


		23,958
		
		

		 
		
		

		 
		
		


		236
		
		

		 
		
		

		 
		
		


		24,194
		
		

		 
	
	
		
		


		2014
		
		

		 
		
		


		20,122
		
		

		 
		
		

		 
		
		


		16
		
		

		 
		
		

		 
		
		


		20,138
		
		

		 
	
	
		
		


		Thereafter
		
		


		 
		
		


		58,081
		
		

		 
		
		


		 
		
		


		2
		
		


		 
		
		


		 
		
		


		58,083
		
		


		 
	
	
		
		


		 
		
		

		$
		
		


		200,035
		
		

		 
		
		

		$
		
		


		35,088
		
		

		 
		
		

		$
		
		


		235,123
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	




Certain leases
contain provisions for renewal options and escalation clauses based on increases
in certain costs incurred by the lessor. We amortize office lease incentives and
rent escalation on a straight-line basis over the life of the lease. Rent
expense for the years ended December 31, 2009, 2008 and 2007 was $40,855,
$31,736 and $29,614, respectively. 




130











Note 19 - Legal Proceedings




Our
company and its subsidiaries are named in and subject to various proceedings and
claims arising primarily from our securities business activities, including
lawsuits, arbitration claims, class actions, and regulatory matters. Some of
these claims seek substantial compensatory, punitive, or indeterminate damages.
Our company and its subsidiaries are also involved in other reviews,
investigations and proceedings by governmental and self-regulatory organizations
regarding our business, which may result in adverse judgments, settlements,
fines, penalties, injunctions and other relief. We are contesting the
allegations in these claims, and we believe that there are meritorious defenses
in each of these lawsuits, arbitrations and regulatory investigations. In view
of the number and diversity of claims against the company, the number of
jurisdictions in which litigation is pending and the inherent difficulty of
predicting the outcome of litigation and other claims, we cannot state with
certainty what the eventual outcome of pending litigation or other claims will
be. In our opinion, based on currently available information, review with
outside legal counsel, and consideration of amounts provided for in our
consolidated financial statements with respect to these matters, the ultimate
resolution of these matters will not have a material adverse impact on our
financial position. However, resolution of one or more of these matters may have
a material effect on the results of operations in any future period, depending
upon the ultimate resolution of those matters and depending upon the level of
income for such period.



The
regulatory investigations include inquiries from the SEC, FINRA and several
state regulatory authorities requesting information concerning our activities
with respect to auction rate securities ("ARS"), and inquiries from the SEC and
a state regulatory authority requesting information relating to our role in
investments made by five Southeastern Wisconsin school districts (the "school
districts") in transactions involving collateralized debt obligations ("CDOs").
We intend to cooperate fully with the SEC, FINRA and the several states in these
investigations.



On or about December 28, 2009, an
agreement in principle was reached between the State of Missouri, the State of
Indiana, the State of Colorado and with an association of other State securities
regulatory authorities related to previously disclosed ARS matters. The
agreement provided, among other things: for the dismissal with prejudice of all
actions filed against Stifel Nicolaus and its agents; for the modification of
the previously disclosed ARS repurchase offer; for the payment of: five hundred
and twenty five thousand dollars for fines and penalties to state securities
regulatory authorities; two hundred and fifty thousand dollars to the State of
Missouri for costs, expenses and other payments; twenty five thousand dollars to
the State of Indiana for costs of investigation; for the retention of an outside
consultant not unacceptable to the Missouri and Indiana Securities Commissioners
concerning Stifel Nicolaus' Supervisory Policies and Procedures regarding
certain types of investment products; and, subject to applicable regulatory
requirements and limitations, for Stifel Nicolaus to cooperate with its bank
affiliate to use its best efforts to make no net cost loans to Eligible ARS
investors, provided such investors have a demonstrated need for liquidity.



As part of the modified ARS repurchase offer we
have accelerated the previously disclosed repurchase plan. The second repurchase
from Eligible ARS investors of the greater of 10% or twenty five thousand
dollars of Eligible ARS, originally planned for June 30, 2010, was completed in
January 2010. We will follow up with similar repurchases in December 2010 and
December 2011. The accelerated plan exceeds the initial target date for
completing the voluntary repurchase program - June 2012 - by six months. A
supplemental repurchase will be made of any Eligible ARS remaining after the one
in December 2010 for Eligible ARS investors who held ARS totaling one hundred
and fifty thousand dollars or less as of January 1, 2009.



We are
named in a civil lawsuit filed in the United States District Court for the
Eastern District of Missouri (the "Missouri Federal Court") on August 8, 2008
seeking class action status for investors who purchased and continue to hold ARS
offered for sale between June 11, 2003 and February 13, 2008, the date when most
auctions began to fail and the auction market froze, which alleges
misrepresentation about the investment characteristics of ARS and the auction
markets (the "ARS Class Action"). We believe that, based upon currently
available information and review with outside counsel, we have meritorious
defenses to this lawsuit, and intend to vigorously defend all claims asserted
therein. Furthermore, approximately 97% of the Eligible ARS investors have
agreed to participate in the ARS repurchase offer.


131










We are
also named in a civil lawsuit filed in the Circuit Court of Milwaukee, Wisconsin
(the "Wisconsin State Court") on September 29, 2008. The lawsuit has been filed
against our company and Stifel Nicolaus, Royal Bank of Canada Europe Ltd. ("RBC")
and certain other RBC entities (collectively the "Defendants") by the school
districts and the individual trustees for other post-employment benefit ("OPEB")
trusts established by those school districts (the "Plaintiffs"). The suit was
removed to the United States District Court for the Eastern District of
Wisconsin (the "Wisconsin Federal Court") on October 31, 2008, which remanded
the case to the Wisconsin State Court on April 10, 2009. 



The suit
arises out of the purchase of certain CDOs by the OPEB trusts. The RBC entities
structured and served as "arranger" for the CDOs. We served as placement
agent/broker in connection with the OPEB trusts' purchase of the investments.
The total amount of the investments made by the OPEB trusts was $200,000.
Plaintiffs assert that the school districts contributed $37,500 to the OPEB
trusts to purchase the investments. The balance of $162,500 used to purchase the
investments was borrowed by the OPEB trusts from Depfa Bank. The recourse of the
lender is each of the OPEB trusts' respective assets and the moral obligations
of each school district. The legal claims asserted include violation of the
Wisconsin Securities Act, fraud and negligence. The lawsuit seeks equitable
relief, unspecified compensatory damages, treble damages, punitive damages and
attorney's fees and costs. The Plaintiffs claim that the RBC entities and our
company either made misrepresentations or failed to disclose material facts in
connection with the sale of the CDOs in violation of the Wisconsin Securities
Act. We believe the Plaintiffs reviewed and understood the relevant offering
materials and that the investments were suitable based upon, among other things,
our receipt of written acknowledgement of risks from each of the Plaintiffs. The
Wisconsin State Court recently denied the Defendants' motions to dismiss, and
the Defendants will formally respond to the allegations of the Second Amended
Complaint. We believe, based upon currently available information and review
with outside counsel, that we have meritorious defenses to this lawsuit, and
intend to vigorously defend all of the Plaintiffs' claims.





NOTE 20
-  Regulatory Capital Requirements




Distributions from our broker-dealer subsidiaries are subject to net capital
rules. A
broker-dealer that fails to comply with the SEC's Uniform Net Capital Rule (Rule
15c3-1) may be subject to disciplinary actions by the SEC and self-regulatory
organizations, such as FINRA, including censures, fines, suspension, or
expulsion. Stifel Nicolaus has chosen to calculate its net capital under the
alternative method, which prescribes that its net capital shall not be less than
the greater of $1,000, or two percent of aggregate debit balances (primarily
receivables from customers) computed in accordance with the SEC's Customer
Protection Rule (Rule 15c3-3). CSA calculates its net capital under the
aggregate indebtedness method whereby its aggregate indebtedness may not be
greater than fifteen times its net capital (as defined). Stifel Nicolaus and CSA
have consistently operated in excess of their capital adequacy requirements. The
only restriction with regard to the payment of cash dividends by our company is
its ability to obtain cash through dividends and advances from its subsidiaries,
if needed.  



At December 31,
2009, Stifel Nicolaus had net capital of $187,515, which was 39.4% of aggregate
debit items and $178,004 in excess of our minimum required net capital. CSA had
net capital of $3,378, which was $3,199 in excess of its minimum required net
capital.



Our international
subsidiary, SN Ltd, is subject to the regulatory supervision and requirements of
the Financial Services Authority ("FSA") in the United Kingdom. At December 31,
2009, SN Ltd's capital and reserves were $7,152, which was $6,594 in excess of
the financial resources requirement under the rules of the FSA.




Our company, as a
bank holding company, and Stifel Bank are subject to various regulatory capital
requirements administered by the Federal Reserve Board and the Missouri State
Division of Finance, respectively. Additionally, Stifel Bank is regulated by the
FDIC.  
Failure to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary, actions by regulators that, if undertaken,
could have a direct material effect on our company's and Stifel Bank's financial
results. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, our company and Stifel Bank must meet specific capital
guidelines that involve quantitative measures of our assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. Our company's and Stifel Bank's capital amounts and classification
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.




132










Quantitative
measures established by regulation to ensure capital adequacy require our
company, as a bank holding company, and Stifel Bank to maintain minimum amounts
and ratios of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and Tier 1 capital to average assets (as
defined). Management believes, as of December 31, 2009, that our company and
Stifel Bank meet all capital adequacy requirements to which they are subject and
are considered to be categorized as "well capitalized" under the regulatory
framework for prompt corrective action. To be categorized as "well capitalized,"
our company and Stifel Bank must maintain total risk-based, Tier 1 risk-based
and Tier 1 leverage ratios as set forth in the tables below.


	
		
		

		Stifel Financial Corp. - Federal
		Reserve Capital Amounts
	
	
		
		


		 
		
		

		 
		
		

		Actual
		
		

		 
		
		

		For Capital Adequacy Purposes
		
		

		 
		
		

		To be Well Capitalized Under Prompt
		Corrective Action Provisions
	
	
		
		


		 
		
		

		 
		
		

		Amount
		
		

		 
		
		

		Ratio
		
		

		 
		
		

		Amount
		
		

		 
		
		

		Ratio
		
		

		 
		
		

		Amount
		
		

		 
		
		

		Ratio
	
	
		
		

		Total capital to
		risk-weighted assets
		
		

		 
		
		


		$
		
		


		720,138
		
		

		 
		
		


		40.6
		
		

		%
		
		

		 
		
		

		$ 
		
		


		141,862
		
		

		 
		
		


		8.0
		
		

		% 
		
		


		 
		
		

		$
		
		


		177,328
		
		

		 
		
		


		10.0
		
		

		%
	
	
		
		

		Tier 1 capital to
		risk-weighted assets
		
		

		 
		
		

		 
		
		


		718,436
		
		

		 
		
		


		40.5
		
		

		 
		
		

		 
		
		

		 
		
		


		70,931
		
		

		 
		
		


		4.0
		
		

		 
		
		


		 
		
		


		 
		
		


		106,397
		
		

		 
		
		


		6.0
		
		

		 
	
	
		
		

		Tier 1 capital to
		adjusted average total assets
		
		

		 
		
		

		 
		
		


		718,436
		
		

		 
		
		


		30.5
		
		

		 
		
		

		 
		
		

		 
		
		


		94,146
		
		

		 
		
		


		4.0
		
		

		 
		
		


		 
		
		


		 
		
		


		117,682
		
		

		 
		
		


		5.0
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		

		Stifel Bank - Federal Reserve Capital
		Amounts
	
	
		
		


		 
		
		

		 
		
		


		Actual
		
		

		 
		
		

		For Capital Adequacy Purposes
		
		

		 
		
		

		To be Well Capitalized Under Prompt
		Corrective Action Provisions
	
	
		
		


		 
		
		

		 
		
		

		Amount
		

		 
		
		


		Ratio
		
		

		 
		
		

		Amount
		
		

		 
		
		

		Ratio
		
		

		 
		
		

		Amount
		
		

		 
		
		

		Ratio
	
	
		
		

		Total capital to
		risk-weighted assets
		
		

		 
		
		


		$
		<
		


		83,851
		

		 
		
		


		14.5
		
		

		%
		
		

		 
		
		

		$ 
		
		


		46,371
		
		

		 
		
		


		8.0
		
		

		% 
		
		


		 
		
		

		$
		
		


		57,963
		
		

		 
		
		


		10.0
		
		

		%
	
	
		
		

		Tier 1 capital to
		risk-weighted assets
		
		

		 
		
		

		 
		
		


		82,149
		
		

		 
		

		


		14.2
		
		

		 
		
		

		 
		
		

		 
		
		


		23,185
		
		

		 
		
		


		4.0
		
		

		 
		
		


		 
		
		


		 
		
		


		34,778
		
		

		 
		
		


		6.0
		
		

		 
	
	
		
		

		Tier 1 capital to
		adjusted average total assets
		
		

		 
		
		

		 
		
		


		82,149
		
		

		 
		
		


		7.6
		
		

		 
		
		

		 
		
		

		 
		
		


		43,292
		
		

		 
		
		


		4.0
		
		

		 
		
		


		 
		
		


		 
		
		


		54,115
		
		

		 
		
		


		5.0
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	



NOTE 21
-  Employee Incentive, Deferred Compensation and Retirement Plans



We maintain
several incentive stock award plans that provide for the granting of stock
options, stock appreciation rights, restricted stock, performance awards and
stock units to our employees. Awards under our company's incentive stock award
plans are granted at market value at the date of grant. Options expire ten years
from the date of grant. The awards generally vest ratably over a three- to
eight-year vesting period.



All stock-based
compensation plans are administered by the Compensation Committee of the Board
of Directors of the Parent, which has the authority to interpret the plans,
determine to whom awards may be granted under the plans, and determine the terms
of each award. According to these plans, we are authorized to grant an
additional 3,787,868 shares at December 31, 2009.


133










Stock-based
compensation expense included in "Compensation and benefits" on the consolidated
statements of operations for our company's incentive stock award plans was
$45,744, $52,594 and $54,640 for the years ended December 31, 2009, 2008 and
2007, respectively. The related income tax benefit recognized in income was
$13,337, $10,762 and $8,358 for the years ended December 31, 2009, 2008 and
2007, respectively.

Stock Options



We have
substantially eliminated the use of stock options as a form of compensation.
During the year ended December 31, 2009, no options were granted.  



A summary of
option activity under the plans as of December 31, 2009, and changes during the
year then ended is presented below  (in thousands, except exercise price and
contractual terms):


	
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		 
		
		

		 
		
		


		Options
		
		

		 
		
		

		Weighted- average exercise price
		
		


		 
		
		


		Weighted-average remaining contractual term
		
		

		 
		
		


		Aggregate intrinsic value
		
		


		 
	
	
		
		


		Outstanding December 31, 2008
		
		

		 
		
		


		1,367
		
		

		 
		
		

		$
		
		


		7.93
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Granted
		
		

		 
		
		


		-
		
		

		 
		
		

		$
		
		


		-
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Exercised
		
		

		 
		
		


		380
		
		

		 
		
		

		$
		
		


		6.14
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Forfeited
		
		

		 
		
		


		-
		
		

		 
		
		

		$
		
		


		-
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
	
	
		
		


		Expired
		
		

		 
		
		


		-
		
		

		 
		
		

		$
		
		


		-
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Outstanding December 31, 2009
		
		

		 
		
		


		987
		
		

		 
		
		

		$
		
		

		8.63
		
		

		 
		
		

		 
		
		


		2.99
		
		

		 
		
		

		$
		
		


		49,964
		
		

		 
	
	
		
		


		Exercisable December 31, 2009
		
		

		 
		
		


		946
		
		

		 
		
		

		$
		
		


		7.94
		
		

		 
		
		

		 
		
		


		2.84
		
		


		 
		
		


		$
		
		


		48,509
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	



At December 31, 2009, there was $358 of
unrecognized compensation expense related to non-vested options. The expense is
expected to be recognized over a weighted-average period of 1.32 years. The
total intrinsic value of options exercised during the years 2009, 2008, and 2007
was $10,907, $10,344, and $9,147, respectively. The fair value of options vested
during the years ended December 31, 2009, 2008 and 2007 was $4,223, $4,394 and
$6,963, respectively. Cash proceeds from the exercise of stock options were
$2,344, $2,210 and $3,315 for 2009, 2008 and 2007, respectively. Tax benefits
realized from the exercise of stock options were $4,310, $4,078 and $3,483 for
2009, 2008, and 2007, respectively.  



Stock Units



A stock unit
represents the right to receive a share of common stock from our company at a
designated time in the future without cash payment by the employee and is issued
in lieu of cash incentive, principally for deferred compensation and employee
retention plans. At December 31, 2009, the total number of stock units
outstanding was 7,088,598.


134










A summary of 2009
activity for unvested stock units is presented below (in thousands, except
weighted-average fair value):


	
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
	
	
		
		


		 
		
		

		 
		
		


		Stock Units
		
		

		 
		
		

		Weighted-average grant date fair
		value
		
		


		 
	
	
		
		


		Unvested December 31, 2008
		
		

		 
		
		


		4,428
		
		

		 
		
		

		$
		
		


		 
		
		


		 
	
	
		
		


		Granted
		
		

		 
		
		


		2,109
		
		

		 
		
		

		$
		
		


		41.10
		
		

		 
	
	
		
		


		Vested
		
		

		 
		
		


		(1,337
		
		

		)
		
		

		$
		
		


		 
		
		

		 
	
	
		
		


		Cancelled
		
		

		 
		
		


		(175
		
		

		)
		
		

		$
		
		


		 
		
		

		 
	
	
		
		


		Unvested December 31, 2009
		
		

		 
		
		


		5,025
		
		

		 
		
		

		$
		
		


		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	



At December 31,
2008 there was unrecognized compensation cost for stock units of $127,931, which is
expected to be recognized over a weighted-average period of 3.04 years.



Deferred
Compensation Plans



Our company's
Deferred Compensation Plan (the "Plan") is provided to certain revenue
producers, officers, and key administrative employees, whereby a certain
percentage of their incentive compensation is deferred as defined by the Plan
into company stock units with a 25% matching contribution by our company.
Participants may elect to defer up to an additional 15% of their incentive
compensation with a 25% matching contribution. Units generally vest over a
three- to five-year period and are distributable upon vesting or at future
specified dates. Deferred compensation costs are amortized on a straight-line
basis over the vesting period. Elective deferrals are 100% vested.

We charged $24,468, $35,097 and $27,445 to "Compensation and
benefits" on the consolidated statement of operations for the years ended
December 31, 2009, 2008 and 2007, respectively, relating to units granted under
the Plan. As of December 31, 2009, there were 2,714,672 units outstanding under
the Plan.



Additionally,
Stifel Nicolaus maintains a deferred compensation plan for its financial
advisors who achieve certain levels of production, whereby a certain percentage
of their earnings are deferred as defined by the plan, of which 50% is deferred
into company stock units with a 25% matching contribution and 50% is deferred in
mutual funds that earn a return based on the performance of index mutual funds
as designated by our company or a fixed income option. Financial advisors may
elect to defer an additional 1% of earnings into company stock units with a 25%
matching contribution. Financial advisors have no ownership in the mutual funds.
Included on the  consolidated statements of financial condition under the
caption "Investments" are $28,597 and $23,082 at December 31, 2009 and 2008,
respectively, in mutual funds that were purchased by our company to economically
hedge, on an after-tax basis, its liability to the financial advisors who choose
to base the performance of their return on the index mutual fund option. At
December 31, 2009 and 2008, the deferred compensation liability of $26,728 and
$23,882, respectively, is included in "Accrued employee compensation" on the
consolidated statements of financial condition.



In addition,
certain financial advisors, upon joining our company, may receive company stock
units in lieu of transition cash payments. Deferred compensation related to
these awards generally vests over a five to eight-year period. Deferred
compensation costs are amortized on a straight-line basis over the deferral
period.  



Charges to
"Compensation and benefits" related to these plans were $20,113, $11,692 and
$7,565 for the years ended December 31, 2009, 2008 and 2007, respectively. As of
December 31, 2009, there were 3,475,645 units outstanding under the two plans.


135










Employee Stock
Ownership Plans



We have an
internally leveraged employee stock ownership plan ("ESOP") in which qualified
employees of our company, as defined in the ESOP participate. We make annual
contributions to the ESOP in an amount determined by the Compensation Committee
of the Board of Directors on behalf of all eligible employees based upon the
relationship of individual compensation to total compensation.  



The ESOP shares
were initially pledged as collateral for its debt. As the debt is repaid, shares
are released from collateral and allocated to active participants. The remaining
collateral shares are reported as a reduction to paid-in capital in equity. As
shares are committed to be released, the Company reports compensation expense
equal to the current market value of the shares.



Compensation
expense of $1,555, $1,212 and $1,089 relating to the ESOP was recorded for the
years ended December 31, 2009, 2008 and 2007, respectively. The ESOP trust owned
457,947 and 441,423 shares of common stock at December 31, 2009 and 2008,
respectively. At December 31, 2009 and 2008, there were 113,885 and 146,421
shares held in suspense with a fair value of $6,747 and $6,713, respectively.



Retirement Plans



Eligible employees
of our company who have met certain service requirements may participate in the
Stifel Nicolaus Profit Sharing 401(k) Plan (the "Profit Sharing Plan"). Under
the Profit Sharing Plan, participants can purchase up to 500,000 shares of our
common stock. We may match certain employee contributions or make additional
contributions to the Profit Sharing Plan at our discretion. Our contributions to
the Profit Sharing Plan amounted to $3,076, $1,871, and $2,058 for the years
ended December 31, 2009, 2008 and 2007, respectively.



NOTE 22
-  Off-Balance Sheet Credit Risk



In the normal
course of business, we execute, settle, and finance customer and proprietary
securities transactions. These activities expose our company to off-balance
sheet risk in the event that customers or other parties fail to satisfy their
obligations.



In accordance with
industry practice, securities transactions generally settle within three
business days after trade date. Should a customer or broker fail to deliver cash
or securities as agreed, we may be required to purchase or sell securities at
unfavorable market prices.



We borrow and lend
securities to facilitate the settlement process and finance transactions,
utilizing customer margin securities held as collateral. We monitor the adequacy
of collateral levels on a daily basis. We periodically borrow from banks on a
collateralized basis utilizing firm and customer margin securities in compliance
with SEC rules. Should the counterparty fail to return customer securities
pledged, we are subject to the risk of acquiring the securities at prevailing
market prices in order to satisfy our customer obligations. We control our
exposure to credit risk by continually monitoring our counterparties' positions
and, where deemed necessary, we may require a deposit of additional collateral
and/or a reduction or diversification of positions. Our company sells securities
it does not currently own (short sales) and is obligated to subsequently
purchase such securities at prevailing market prices. We are exposed to risk of
loss if securities prices increase prior to closing the transactions. We control
our exposure to price risk from short sales through daily review and setting
position and trading limits.  



We manage our
risks associated with the aforementioned transactions through position and
credit limits, and the continuous monitoring of collateral. Additional
collateral is required from customers and other counterparties when appropriate.


136










We have accepted collateral in
connection with resale agreements, securities borrowed transactions, and
customer margin loans. Under many agreements, we are permitted to sell or
repledge these securities held as collateral and use these securities to enter
into securities lending arrangements or to deliver to counterparties to cover
short positions. At December 31, 2009, the fair value of securities accepted as
collateral where we are permitted to sell or repledge the securities was
$792,094, and the fair value of the collateral that had been sold or repledged
was $201,638. At December 31, 2008, the fair value of securities accepted as
collateral where we are permitted to sell or repledge the securities was
$432,751, and the fair value of the collateral that had been sold or repledged
was $123,415.  




Derivatives' notional contract amounts are not reflected as assets or
liabilities on the consolidated statements of financial condition. Rather, the
market, or fair value, of the derivative transactions are reported on the
consolidated statements of financial condition as other assets or accounts
payable and accrued expenses, as applicable.



 We enter
into interest rate derivative contracts to manage exposures that arise from
business activities that result in the receipt or payment of future known and
uncertain cash amounts, the value of which are determined by interest rates. Our
derivative financial instruments are principally used to manage differences in
the amount, timing, and duration of our known or expected cash payments related
to certain variable-rate affiliated deposits.  Interest rate swaps designated as
cash flow hedges involve the receipt of variable-rate amounts from a
counterparty in exchange for us making fixed-rate payments. Our interest rate
hedging strategies may not work in all market environments and as a result may
not be effective in mitigating interest rate risk.  



For a
complete discussion of our activities related to derivative instruments, see
Note 16 in the notes to our consolidated financial statements.



In the
ordinary course of business, Stifel Bank has commitments to originate loans,
standby letters of credit and lines of credit. Commitments to originate loans
are agreements to lend to a customer as long as there is no violation of any
condition established by the contract. These commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since a portion of the commitments may expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash commitments.
Each customer's creditworthiness is evaluated on a case-by-case basis. The
amount of collateral obtained, if necessary, is based on the credit evaluation
of the counterparty. Collateral held varies, but may include accounts
receivable, inventory, property, plant and equipment, commercial real estate and
residential real estate.  



At
December 31, 2009 and 2008, Stifel Bank had outstanding commitments to originate
loans aggregating $91,670 and $86,327, respectively. The commitments extended
over varying periods of time with all commitments at December 31, 2009 scheduled
to be disbursed in the following two months.  



Standby
letters of credit are irrevocable conditional commitments issued by Stifel Bank
to guarantee the performance of a customer to a third-party. Financial standby
letters of credit are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing and similar
transactions. Performance standby letters of credit are issued to guarantee
performance of certain customers under non-financial contractual obligations.
The credit risk involved in issuing standby letters of credit is essentially the
same as that involved in extending loans to customers. Should Stifel Bank be
obligated to perform under the standby letters of credit, it may seek recourse
from the customer for reimbursement of amounts paid. At December 31, 2009 and
2008, Stifel Bank had outstanding letters of credit totaling $1,047 and $414,
respectively. For all but one of the standby letters of credit commitments at
December 31, 2009, the expiration terms are less than one year. The remaining
commitment, in the amount of $10, has an expiration term of April 2013.





Lines of
credit are agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Lines of credit generally have fixed
expiration dates. Since a portion of the line may expire without being drawn
upon, the total unused lines do not necessarily represent future cash
requirements. Each customer's creditworthiness is evaluated on a case-by-case
basis. The amount of collateral obtained, if necessary, is based on the credit
evaluation of the counterparty. Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment, commercial real estate and
residential real estate. Stifel Bank uses the same credit policies in granting
lines of credit as it does for on-balance sheet instruments. At December 31,
2009 and 2008, Stifel Bank had granted unused lines of credit to commercial and
consumer borrowers aggregating $27,148 and $18,153, respectively.  


137










NOTE 23 - Income
Taxes



The provision for income taxes consists
of the following (in thousands):


	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		Year Ended December 31,  
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		2009
		
		


		 
		
		


		2008
		
		


		 
		
		


		2007
		
		

		 
	
	
		
		

		Current taxes:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
	
	
		
		


		Federal
		
		

		 
		
		


		$ 
		
		

		46,646
		
		

		 
		
		

		$
		
		


		35,400
		
		

		 
		
		

		$
		
		


		29,101
		
		

		 
	
	
		
		


		State
		
		

		 
		
		


		 
		
		


		10,854
		
		

		 
		
		

		 
		
		


		7,525
		
		

		 
		
		

		 
		
		


		5,864
		
		

		 
	
	
		
		

		 
		
		

		 
		
		


		 
		
		


		57,500
		
		

		 
		
		

		 
		
		


		42,925
		
		

		 
		
		

		 
		
		


		34,965
		
		

		 
	
	
		
		

		Deferred taxes:
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Federal
		
		

		 
		
		


		 
		
		


		(5,844
		
		


		)
		
		

		 
		
		


		(5,491
		
		

		)
		
		

		 
		
		


		(11,060
		
		

		)
	
	
		
		


		State
		
		

		 
		
		


		 
		
		


		(7,040
		
		


		)
		
		

		 
		
		


		(1,167
		
		

		)
		
		

		 
		
		


		(2,229
		
		

		)
	
	
		
		


		 
		
		

		 
		
		


		 
		
		


		(12,884
		
		


		)
		
		

		 
		
		


		(6,658
		
		

		)
		
		

		 
		
		


		(13,289
		
		

		)
	
	
		
		


		Provision for income taxes
		
		

		 
		
		


		$
		
		


		44,616
		
		

		 
		
		

		$
		
		


		36,267
		
		

		 
		
		

		$
		
		


		21,676
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	



Reconciliation of the statutory federal
income tax rate with our company's effective income tax rate:


	
		
		


		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		 
		
		


		Year Ended December 31,
		
		

		 
	
	
		
		


		 
		
		


		2009
		
		

		 
		
		


		2008
		
		

		 
		
		


		2007
		
		

		 
	
	
		
		

		Statutory rate
		
		

		 
		
		


		35.0
		
		


		%
		
		

		 
		
		


		35.0
		
		

		 %
		
		


		 
		
		


		35.0
		
		

		%
	
	
		
		

		State income taxes, net of federal income tax benefit
		
		


		 
		
		

		5.0
		
		


		 
		
		

		 
		
		


		4.7
		
		

		 
		
		

		 
		
		


		3.9
		
		

		 
	
	
		
		


		Investment and jobs creation state tax credit, net of federal income tax
		effect
		
		


		 
		
		


		(2.9
		
		


		) 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		

		Other, net
		
		


		 
		
		

		-
		
		


		 
		
		

		 
		
		


		(0.2
		
		

		) 
		
		

		 
		
		


		1.4
		
		

		 
	
	
		
		


		Effective tax rate
		
		


		 
		
		


		37.1
		
		


		%
		
		

		 
		
		


		39.5
		
		

		%
		
		

		 
		
		


		40.3
		
		

		%
	
	
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	


138










Tax effect of temporary differences and
carryforwards that comprise significant portions of deferred tax assets and
liabilities (in thousands):


	
		
		


		 
		
		

		 
		
		

		December 31,
		

		
		
		2009
		
		

		 
		
		


		December 31, 2008
		
		

		 
	
	
		
		

		Deferred tax assets:
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Deferred compensation
		
		

		 
		
		

		$
		
		


		49,309
		
		

		 
		
		

		$
		
		


		36,192
		
		

		 
	
	
		
		


		Accrued expenses
		
		

		 
		
		

		 
		
		

		8,336
		
		

		 
		
		

		 
		
		


		8,757
		
		

		 
	
	
		
		


		Investment and jobs creation credit
		
		

		 
		
		

		 
		
		


		2,740
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Receivable reserves
		
		

		 
		
		

		 
		
		


		2,128
		
		

		 
		
		

		 
		
		


		1,811
		
		

		 
	
	
		
		


		Unrealized loss on investments
		
		

		 
		
		

		 
		
		


		2,042
		
		

		 
		
		

		 
		
		


		6,946
		
		

		 
	
	
		
		


		Net operating loss carryforward
		
		

		 
		
		

		 
		
		


		1,152
		
		

		 
		
		

		 
		
		


		1,265
		
		

		 
	
	
		
		


		Depreciation
		
		

		 
		
		

		 
		
		

		-
		
		

		 
		
		

		 
		
		


		264
		
		

		 
	
	
		
		


		Other
		
		

		 
		
		

		 
		
		


		63
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		65,770
		
		

		 
		
		

		 
		
		


		55,235
		
		

		 
	
	
		
		

		Deferred tax liabilities:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Prepaid expenses
		
		

		 
		
		

		 
		
		


		(2,990
		
		


		)
		
		

		 
		
		


		(1,727
		
		

		)
	
	
		
		


		Depreciation
		
		

		 
		
		

		 
		
		


		(1,637
		
		


		)
		
		

		 
		
		


		(6,171
		
		

		)
	
	
		
		


		Goodwill and other intangibles
		
		

		 
		
		

		 
		
		


		(7,337
		
		


		)
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Other
		
		

		 
		
		

		 
		
		


		(344
		
		


		)
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		(12,308
		
		


		)
		
		

		 
		
		


		(7,898
		
		

		)
	
	
		
		

		Net deferred tax asset
		
		

		 
		
		

		$
		
		


		53,462
		
		

		 
		
		

		$
		
		


		47,337
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	



We will establish a valuation allowance
if either it is more likely than not that the deferred tax asset will expire
before we are able to realize their benefits, or the future deductibility is
uncertain. We believe that our future taxable income will be sufficient to
recognize our deferred tax assets.  



As of December 31, 2009, we have net
operating loss carryforwards of $12,471 with expiration dates between 2011 and
2027.




Uncertain Tax Positions



As of December 31, 2009, we had $2,046
of gross unrecognized tax benefits all of which, if recognized, would affect the
effective tax rate. We recognize interest and penalties related to uncertain tax
positions in income tax expense. As of December 31, 2009 and 2008, we had
accrued interest and penalties of $422 and $647, respectively, before benefit of
federal tax deduction, recorded on our consolidated statements of financial
condition. The amount of interest and penalties recognized on our consolidated
statements of operations for the years ended December 31, 2009, 2008 and 2007
was not material.


139










The following table summarizes the
activity related to our company's unrecognized tax benefits from January 1, 2008
to December 31, 2009 (in thousands):


	
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		December 31,
		

		
		
		2009
		
		

		 
		
		


		December 31,



		 2008
		
		

		 
	
	
		
		


		Beginning balance
		
		


		 
		
		

		$ 
		
		

		2,015
		
		


		 
		
		


		$ 

		
		

		2,869
		
		

		 
	
	
		
		


		Increase related to prior year tax positions
		
		

		 
		
		


		 
		
		


		303
		
		

		 
		
		

		 
		
		


		109
		
		

		 
	
	
		
		


		Decrease related to prior year tax positions
		
		

		 
		
		

		 
		
		


		(157
		
		

		) 
		
		

		 
		
		


		(530
		
		

		)
	
	
		
		


		Increase related to current year tax positions
		
		

		 
		
		

		 
		
		


		233
		
		

		 
		
		

		 
		
		


		254
		
		

		 
	
	
		
		


		Decreases related to settlements with taxing authorities
		
		

		 
		
		


		 
		
		


		(319
		
		

		)
		
		

		 
		
		


		(572
		
		

		)
	
	
		
		


		Decreases related to lapsing of statute of limitations
		
		

		 
		
		


		 
		
		


		(29
		
		

		)
		
		

		 
		
		


		(115
		
		

		)
	
	
		
		


		Ending balance
		
		


		 
		
		

		$
		
		


		2,046
		
		


		 
		
		


		$
		
		

		2,015
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	



We file income tax returns with the
U.S. federal jurisdiction, various states, and foreign jurisdictions. We are not
subject to U.S. federal, certain state and local or non-U.S. income tax
examination by tax authorities for taxable years before 2005. Certain state
returns are not subject to examination by tax authorities for taxable years
before 2000.



There is a reasonable possibility that
the unrecognized tax benefits will change within the next 12 months as a result
of the expiration of various statutes of limitations or for the resolution of
U.S. federal and state examinations, but we do not expect this change to be
material to the consolidated financial statements.



NOTE 24 - Segment
Reporting



We currently
operate through the following three business segments: Global Wealth Management;
Capital Markets; and various corporate activities combined in the Other segment. The UBS branch acquisition and related
customer account conversion to our platform has enabled us to leverage our
customers' assets, which allows us the ability to provide a full array of
financial products to both our Private Client Group and Stifel Bank customers.
As a result, we have changed how we manage
these reporting units and consequently they were combined to form the Global
Wealth Management segment. Previously reported segment information has been
revised to reflect this change.  



As a result of
organizational changes in the second quarter of 2009, which included a change in
the management reporting structure of our company, the segments formerly
reported as Equity Capital Markets and Fixed Income Capital Markets have been
combined into a single segment called Capital Markets. Previously reported
segment information has been revised to reflect this change.



Our Global Wealth
Management segment consists of two businesses, the Private Client Group and
Stifel Bank.  The Private Client Group includes branch offices and independent
contractor offices of our broker-dealer subsidiaries located throughout the

United
States, primarily in the Midwest and Mid-Atlantic regions with a growing
presence in the Northeast, Southeast and Western United States. These branches
provide securities brokerage services, including the sale of equities, mutual
funds, fixed income products, and insurance, as well as offering banking
products to their private clients through Stifel Bank.
Stifel Bank segment provides residential, consumer, and commercial lending, as
well as FDIC-insured deposit accounts to customers of our broker-dealer
subsidiaries and to the general public.


140










The Capital
Markets segment includes institutional sales and trading. It provides securities
brokerage, trading, and research services to institutions with an emphasis on
the sale of equity and fixed income products. This segment also includes the
management of and participation in underwritings for both corporate and public
finance (exclusive of sales credits, which are included in the Global Wealth
Management segment), merger and acquisition, and financial advisory services.





The Other segment
includes certain corporate activities of our company.



Information
concerning operations in these segments of business for the years ended December
31, 2009, 2008 and 2007 is as follows (in thousands):


	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		 
		
		

		Year Ended December 31,
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		2009
		
		


		 
		
		


		2008
		
		


		 
		
		


		2007
		
		

		 
	
	
		
		


		Net revenues:  

		(1) 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
	
	
		
		


		Global Wealth Management
		
		

		 
		
		


		$ 
		
		

		591,323
		
		

		 
		
		

		$
		
		


		471,005
		
		

		 
		
		

		$
		
		


		440,511
		
		

		 
	
	
		
		


		Capital Markets
		
		

		 
		
		


		 
		
		


		494,092
		
		

		 
		
		

		 
		
		


		390,726
		
		

		 
		
		

		 
		
		


		302,931
		
		

		 
	
	
		
		


		Other
		
		

		 
		
		


		 
		
		


		5,221
		
		

		 
		
		

		 
		
		


		8,606
		
		

		 
		
		

		 
		
		


		19,623
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		$
		
		


		1,090,636
		
		

		 
		
		

		$
		
		


		870,337
		
		

		 
		
		

		$
		
		


		763,065
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Income/(loss) before income taxes:
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Global Wealth Management
		
		

		 
		
		


		 
		
		

		100,048
		
		

		 
		
		

		 
		
		


		98,097
		
		

		 
		
		

		 
		
		


		96,343
		
		

		 
	
	
		
		


		Capital Markets
		
		

		 
		
		


		 
		
		

		129,133
		
		

		 
		
		

		 
		
		


		91,892
		
		

		 
		
		

		 
		
		


		60,849
		
		

		 
	
	
		
		


		Other
		
		

		 
		
		


		 
		
		

		(108,767
		
		


		)
		
		

		 
		
		


		(98,220
		
		

		)
		
		

		 
		
		


		(103,346
		
		

		)
	
	
		
		


		 
		
		

		 
		
		


		$
		
		

		120,414
		
		

		 
		
		

		$
		
		


		91,769
		
		

		 
		
		

		$
		
		


		53,846
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	



(1)      

No individual
client accounted for more than 10 percent of total net revenues for the years
ended December 31, 2009, 2008 or 2007.


The following
table presents our company's total assets on a segment basis at December 31,
2009 and 2008 (in thousands):


	
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		December 31,
		

		
		
		2009
		
		

		 
		
		


		December 31,
		



		2008
		
		

		 
	
	
		
		


		Total assets: 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Global Wealth Management
		
		

		 
		
		

		$
		
		


		2,226,050
		
		

		 
		
		

		$
		
		


		959,638
		
		

		 
	
	
		
		


		Capital Markets
		
		

		 
		
		

		 
		
		

		701,213
		
		

		 
		
		

		 
		
		


		243,130
		
		

		 
	
	
		
		


		Other
		
		

		 
		
		

		 
		
		


		240,093
		
		

		 
		
		

		 
		
		


		355,377
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		$ 
		
		


		3,167,356
		
		

		 
		
		

		$
		
		


		1,558,145
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	



We have operations
in the United States, United Kingdom and Europe. Our company's foreign
operations are conducted through its wholly-owned subsidiary, SN Ltd.
Substantially all long-lived assets are located in the United States.


141










Revenues,
classified by the major geographic areas in which they are earned for the years
ended December 31, 2009, 2008 and 2007, were as follows (in thousands):


	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		December 31,
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		2009
		
		


		 
		
		


		2008
		
		


		 
		
		


		2007
		
		

		 
	
	
		
		

		Net revenues:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
	
	
		
		

		United States
		
		

		 
		
		


		$ 
		
		

		1,069,066
		
		

		 
		
		

		$
		
		


		837,152
		
		

		 
		
		

		$
		
		


		734,686
		
		

		 
	
	
		
		

		United Kingdom
		
		

		 
		
		


		 
		
		


		13,527
		
		

		 
		
		

		 
		
		


		21,610
		
		

		 
		
		

		 
		
		


		17,348
		
		

		 
	
	
		
		


		Other European
		
		

		 
		
		


		 
		
		


		8,043
		
		

		 
		
		

		 
		
		


		11,575
		
		

		 
		
		

		 
		
		


		11,031
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		$
		
		


		1,090,636
		
		

		 
		
		

		$
		
		


		870,337
		
		

		 
		
		

		$
		
		


		763,065
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	



NOTE 25 
- Other Comprehensive income/(loss)



The following
table sets forth the components of other comprehensive income/(loss) for the
years ended December 31, 2009, 2008 and 2007 (in thousands):


	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		December 31,  
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		2009
		
		


		 
		
		


		2008
		
		


		 
		
		


		2007
		
		

		 
	
	
		
		


		Net income
		
		

		 
		
		

		$
		
		


		75,798
		
		

		 
		
		

		$
		
		


		55,502
		
		

		 
		
		


		$
		
		


		32,170
		
		

		 
	
	
		
		


		Other comprehensive income/(loss):
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Unrealized gains/(losses) on securities, net of tax
		
		

		 
		
		


		 
		
		

		7,517
		
		

		 
		
		

		 
		
		


		(6,634
		
		

		)
		
		

		 
		
		


		(660
		
		

		)
	
	
		
		


		Unrealized losses in cash flow hedging instruments, net of tax
		
		

		 
		
		


		 
		
		

		80
		
		

		 
		
		

		 
		
		


		-
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Reclassification adjustment for losses included in net income, net of
		tax
		
		

		 
		
		


		 
		
		

		-
		
		

		 
		
		

		 
		
		


		999
		
		

		 
		
		

		 
		
		


		-
		
		

		 
	
	
		
		


		Other comprehensive income/(loss), net of tax
		
		

		 
		
		


		$ 
		
		


		83,395
		
		

		 
		
		

		$ 
		
		


		49,867
		
		

		 
		
		

		$
		
		


		31,510
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	



 


142










NOTE 26 
- Earnings Per Share



Basic EPS is
computed by dividing earnings available to common shareholders by the
weighted-average number of common shares outstanding. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity. Diluted
earnings per share include dilutive stock options and stock units under the
treasury stock method.  



The following
table sets forth the computation of basic and diluted earnings per share for the
years ended December 31, 2009, 2008 and 2007 (in thousands, except per share
data):


	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		December 31,  
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		2009
		
		


		 
		
		


		2008
		
		


		 
		
		


		2007
		
		

		 
	
	
		
		


		Net income
		
		

		 
		
		

		$
		
		


		75,798
		
		

		 
		
		

		$
		
		


		55,502
		
		

		 
		
		


		$
		
		


		32,170
		
		

		 
	
	
		
		


		Shares for basic and diluted calculations:
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Average shares used in basic computation
		
		

		 
		
		

		 
		
		


		28,297
		
		

		 
		
		

		 
		
		


		24,069
		
		

		 
		
		

		 
		
		


		21,754
		
		

		 
	
	
		
		


		Dilutive effect of stock options and units  
		(1) (2)
		
		

		 
		
		

		 
		
		


		3,997
		
		

		 
		
		

		 
		
		


		4,004
		
		

		 
		
		

		 
		
		


		3,969
		
		

		 
	
	
		
		


		Average shares used in diluted computation
		
		

		 
		
		

		 
		
		


		32,294
		
		

		 
		
		

		 
		
		


		28,073
		
		

		 
		
		

		 
		
		


		25,723
		
		

		 
	
	
		
		


		Net income per share:
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Basic
		
		

		 
		
		

		$
		
		


		2.68
		
		

		 
		
		

		$
		
		


		2.31
		
		

		 
		
		


		$
		
		


		1.48
		
		

		 
	
	
		
		


		Diluted  (1) (2)
		
		

		 
		
		

		$ 
		
		


		2.35
		
		

		 
		
		

		$
		
		


		1.98
		
		

		 
		
		


		$ 
		
		


		1.25
		
		

		 
	
	
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	



 (1)     
Diluted earnings per share is computed on the basis of the weighted average
number of shares of common stock plus the effect of dilutive potential common
shares outstanding during the period using the treasury stock method. Diluted
earnings per share include stock options and units.



(2)      
For the years ended December 31, 2009, 2008 and 2007, there were no securities
excluded from the weighted average diluted common shares calculation because
their effect would be anti-dilutive.



NOTE 27 
- Shareholders' Equity



On May 5, 2005,
the board of directors authorized the repurchase of up to 3,000,000 additional
shares in addition to an existing authorization of 1,500,000 shares. These
purchases may be made on the open market or in privately negotiated
transactions, depending upon market conditions and other factors. Repurchased
shares may be used to meet obligations under our employee benefit plans and for
general corporate purposes. Under existing Board authorizations at December 31,
2009, we are permitted to buy an additional 2,010,831 shares. The repurchase
program has no expiration date.  



During the year ended December 31, 2009, we did
not repurchase shares under existing board authorizations. We repurchased
567,953, and 132,912 shares for the years ending December 31, 2008, and 2007,
respectively, using existing board authorizations, at average prices of $27.96,
and $32.93 per share, respectively, to meet obligations under our employee
benefit plans and for general corporate purposes. We reissued 581,833, and
119,032 shares during 2008, and 2007, respectively, for employee benefit plans.
During 2009,
2008 and 2007,
we issued 1,091,952, 2,980,259 and
5,281,770 new shares, respectively,
for employee
benefit plans.



As partial consideration of the purchase price of
Ryan Beck, we issued 3,701,400 shares of common stock valued at $27.70 per share
and issued five-year immediately exercisable warrants, upon obtaining
shareholder approval on June 22, 2007, to purchase up to 750,000 shares of our
common stock at an exercise price of $24.00 per share. The warrants were
initially determined to be a liability recorded at fair value of $16,440 as of
the date of closing. Upon obtaining shareholder approval, the fair value of the
warrants at that date of $16,895 was reclassified to shareholders' equity. At
December 31, 2009 and 2008, there were 746,950 and 747,419 warrants outstanding,
respectively, to purchase shares of our common stock at an exercise price of
$24.00.


143










On June 22, 2007, we issued 420,372 restricted
stock units under the Stifel Financial Corp. 2007 Incentive Stock Plan (for Ryan
Beck Employees) in exchange for Ryan Beck appreciation units held by Ryan Beck
employees under Ryan Beck's deferred compensation plans. The value of the
restricted stock units issued was $39.73 per share, which was the price as of
the date on which shareholder approval for the Plan was obtained. On June 29,
2007, the Ryan Beck deferred compensation plans were amended, resulting in the
acceleration of vesting for the liability awards for certain Ryan Beck employees
and the reclassification of $16,673 from liabilities to additional paid-in
capital. Additionally, on June 22, 2007 we issued 591,269 restricted stock units
valued at $23,493 using the closing stock price on that date as part of the
retention program established for certain associates of Ryan Beck.



On January 14, 2008, we repurchased 375,000
shares of our company's outstanding common stock from BankAtlantic Bancorp, Inc.
in a privately negotiated transaction. The shares were purchased at $28.23 per
share, the closing price on Friday, January 11, 2008. These shares had been
initially acquired by BankAtlantic Bancorp, Inc. on February 28, 2007 pursuant
to our acquisition of Ryan Beck. The repurchase transaction was effected
pursuant to a previously announced authorization by our company's board of
directors to acquire shares of common stock to meet obligations under our
company's employee benefit plans and for general corporate purposes.  



During the second quarter of 2008, we elected to
pay the contingent earn-out for the Ryan Beck first year investment banking of
$1,790 in 57,059 shares of our common stock valued at $31.35 per share, with
partial shares paid in cash. On August 14, 2008, we agreed to prepay $9,585 of
BankAtantic's pro-rata share of the estimated private client contingent earn-out
payment in exchange for a $10,000 permanent reduction of BankAtlantic's pro-rata
share of the private client contingent payment. We elected to make such
pre-payment using 233,500 shares of our common stock at an agreed upon per share
price of $41.05 per share.  



On September 29, 2008, we completed the public
offering of 1,495,000 new shares of our common stock at an offering price of
$45.00 per share, which generated gross proceeds of $67,275 (net proceeds of
$64,369 after fees and expenses).  Net
proceeds were used for general corporate
purposes.



On November 4, 2008, we issued 142,196 shares of
our common stock in exchange for $12,500 par value of 6.78% Cumulative Trust
Preferred Securities. The Cumulative Trust Preferred Securities were originally
offered and sold in a $35,000 private placement by Stifel Financial Capital
Trust IV, a non-consolidated wholly-owned subsidiary of our company, on June 28,
2007. As a result, we extinguished $12,500 of our debenture to Stifel Financial
Capital Trust IV in the fourth quarter and record an approximate $6,700 gain
before certain expenses and taxes.



During the first
quarter of 2009, we paid $9,301 related to the Ryan Beck two-year private client
contingent earn-out in 271,353 shares of our company's common stock at an
average price of $34.30 per share, with partial shares paid in cash.



In June 2009, we
completed an "at-the-market" public offering of 1,000,000 shares of our common
stock at an average price of $45.00 per share, which generated gross proceeds of
$45,000 (net proceeds of $44,694 after fees and expenses).  Net proceeds were
used for general corporate purposes.



In September 2009,
we completed a public offering of 1,725,000 shares of our common stock at an
average price of $56.00 per share, which generated gross proceeds of $96,600
(net proceeds of $91,770 after fees and expenses).  Net proceeds were used for
general corporate purposes.



NOTE 28 - Variable Interest Entities ("VIE")



The
determination as to whether an entity is a VIE is based on the structure and
nature of the entity. We also consider other characteristics such as the ability
to influence the decision making relative to the entity's activities and how the
entity is financed. The determination as to whether we are the primary
beneficiary is based on a qualitative analysis of the VIE's expected losses and
expected residual returns. This analysis includes a review of, among other
factors, the VIE's capital structure, contractual terms, which interests create
or absorb variability, related party relationships and the design of the VIE.
Where qualitative analysis is not conclusive, we perform a quantitative
analysis.


144










 Our
company's involvement with VIEs is limited to entities used as investment
vehicles, the establishment of Stifel Financial Capital Trusts
and our investment
in a convertible promissory note.




We have
formed several non-consolidated investment funds with third-party investors that
are typically organized as limited liability companies or limited partnerships.
These partnerships and LLCs have assets of approximately $237,034 at December
31, 2009. For those funds where we act as the general partner, our company's
economic interest is generally limited to management fee arrangements as
stipulated by the Operating Agreements. We have generally provided the
third-party investors with rights to terminate the funds or to remove us as the
general partner. In assessing whether or not we have control we look to the
accounting guidance in determining whether a general partner controls a limited
partnership. Under the current accounting rules, the general partner in a
limited partnership is presumed to control that limited partnership. The
presumption may be overcome if the limited partners have either (1) the
substantive ability to dissolve the limited partnership or otherwise remove the
general partner without cause or (2) substantive participating rights, which
provide the limited partners with the ability to effectively participate in
significant decisions that would be expected to be made in the ordinary course
of the limited partnership's business and thereby preclude the general partner
from exercising unilateral control over the partnership. If the criteria are
met, the consolidation of the partnership or limited liability company is
required. Based on our evaluation of these entities, we determined that these
entities do not require consolidation. Management fee revenue earned by our
company during the years ended December 31, 2009, 2008 and 2007 was
insignificant.



Debenture to Stifel Financial Capital Trusts



We have completed
private placements of cumulative trust preferred securities through Stifel
Financial Capital Trust II, Stifel Financial Capital Trust III, and Stifel
Financial Capital Trust IV (collectively, the "Trusts"). The Trusts are
non-consolidated wholly-owned business trust subsidiaries of our company and
were established for the limited purpose of issuing trust securities to third
parties and lending the proceeds to our company.



The trust
preferred securities represent an indirect interest in junior subordinated
debentures purchased from our company by the Trusts, and we effectively provide
for the full and unconditional guarantee of the securities issued by the Trusts.
We make timely payments of interest to the Trusts as required by contractual
obligations, which are sufficient to cover payments due on the securities issued
by the Trusts and believe that it is unlikely that any circumstances would occur
that would make it necessary for our company to make payments related to these
Trusts other than those required under the terms of the debenture agreements and
the trust preferred securities agreements. The Trusts were determined to be VIEs
because the holders of the equity investment at risk do not have adequate
decision making ability over the Trust's activities.
Our
investment in the Trusts is not a variable interest because equity interests are
variable interests only to the extent that the investment is considered to be at
risk. Because our investment was funded by the Trusts, it is not considered to
be at risk.



Investment in FSI Group, LLC ("FSI")



We have
provided financing of $18,000 in the form of a convertible promissory note to
FSI, a limited liability company
specializing in
investing in banks, thrifts, insurance companies, and other financial services
firms.
The note is convertible at our election into a 49.9% interest in FSI at any time
after the third anniversary or during the defined conversion period. The
convertible promissory note has a minimum coupon rate equal to 10% per annum
plus additional interest related to certain defined cash flows of the business,
not to exceed 18% per annum. As we do not absorb a majority of the expected
losses, or receive a majority of the expected residual returns, it was
determined that we are not the primary beneficiary.



Our
company's exposure to loss is limited to the carrying value of the note with FSI
at December 31, 2009 of $18,000, which is included in "Other assets" on the
consolidated statements of financial condition. Our Company had no liabilities
related to this entity at December 31, 2009. We have the discretion to make
additional capital contributions. We have not provided financial or other
support to FSI that we were not previously contractually required to provide as
of December 31, 2009. Our company's involvement with FSI has not had a material
effect on its consolidated financial position, operations or cash flows.


145










NOTE 29 - Subsequent Events



In accordance with ASC 855 "Subsequent Events,"
we evaluate subsequent events that have occurred after the balance sheet date
but before the financial statements are issued. There are two types of
subsequent events: (1) recognized, or those that provide additional evidence
about conditions that existed at the date of the balance sheet, including the
estimates inherent in the process of preparing financial statements, and (2)
non-recognized, or those that provide evidence about conditions that did not
exist at the date of the balance sheet but arose after that date. We evaluated
subsequent events through February 26, 2010. Based on the evaluation, we did not
identify any recognized subsequent events that required adjustment to or
disclosure in the consolidated financial statements.  

NOTE 30 -Quarterly Financial Information
(Unaudited)


	
		
		


		 
		
		

		 
		
		


		1st Quarter
		
		

		 
		
		

		2nd Quarter
		
		


		 
		
		


		3rd Quarter
		
		

		 
		
		


		4th Quarter
		
		


		 
	
	
		
		


		2009:
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Total revenues
		
		

		 
		
		


		$
		
		


		222,332
		
		

		 
		
		

		$
		
		


		264,550
		
		


		 
		
		


		$
		
		


		292,589
		
		

		 
		
		


		$
		
		


		323,399
		
		

		 
	
	
		
		


		Interest expense
		
		

		 
		
		


		$
		
		


		2,351
		
		

		 
		
		


		$
		
		


		3,045
		
		

		 
		
		


		$
		
		


		2,906
		
		

		 
		
		


		$
		
		


		3,932
		
		

		 
	
	
		
		


		Net revenues
		
		

		 
		
		


		$
		
		


		219,981
		
		

		 
		
		


		$
		
		


		261,505
		
		

		 
		
		


		$
		
		


		289,683
		
		


		 
		
		


		$
		
		


		319,467
		
		

		 
	
	
		
		


		Non-interest expense
		
		

		 
		
		


		$
		
		


		197,826
		
		

		 
		
		


		$
		
		


		235,396
		
		

		 
		
		


		$
		
		


		258,847
		
		


		 
		
		


		$
		
		


		278,153
		
		

		 
	
	
		
		


		Income before income taxes
		
		

		 
		
		


		$
		
		


		22,155
		
		

		 
		
		


		$
		
		


		26,109
		
		

		 
		
		


		$
		
		


		30,836
		
		


		 
		
		


		$
		
		


		41,314
		
		

		 
	
	
		
		


		Net income
		
		

		 
		
		


		$
		
		


		13,177
		
		

		 
		
		


		$
		
		


		15,815
		
		

		 
		
		


		$
		
		


		22,138
		
		


		 
		
		


		$
		
		


		24,668
		
		

		 
	
	
		
		


		Earnings per common share:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Basic
		
		

		 
		
		


		$
		
		


		0.49
		
		

		 
		
		


		$
		
		


		0.58
		
		

		 
		
		


		$
		
		


		0.77
		
		


		 
		
		


		$
		
		


		0.82
		
		

		 
	
	
		
		


		Diluted
		
		

		 
		
		


		$
		
		


		0.44
		
		

		 
		
		


		$
		
		


		0.51
		
		

		 
		
		


		$
		
		


		0.67
		
		


		 
		
		


		$
		
		


		0.71
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
	
	
		
		

		 
		
		

		 
		
		


		

		1st Quarter
		
		

		 
		
		


		

		2nd Quarter
		
		

		 
		
		


		

		3rd Quarter
		
		


		 
		
		


		

		4th Quarter
		
		

		 
	
	
		
		


		2008:
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
	
	
		
		


		Total revenues
		
		

		 
		
		


		$
		
		


		217,242
		
		

		 
		
		

		$
		
		


		214,020
		
		


		 
		
		


		$
		
		


		223,829
		
		

		 
		
		


		$
		
		


		233,756
		
		

		 
	
	
		
		


		Interest expense
		
		

		 
		
		


		$
		
		


		5,765
		
		

		 
		
		


		$
		
		


		5,069
		
		

		 
		
		


		$
		
		


		4,906
		
		

		 
		
		


		$
		
		


		2,770
		
		

		 
	
	
		
		


		Net revenues
		
		

		 
		
		


		$
		
		


		211,477
		
		

		 
		
		


		$
		
		


		208,951
		
		

		 
		
		


		$
		
		


		218,923
		
		


		 
		
		


		$
		
		


		230,986
		
		

		 
	
	
		
		


		Non-interest expense
		
		

		 
		
		


		$
		
		


		187,552
		
		

		 
		
		


		$
		
		


		188,801
		
		

		 
		
		


		$
		
		


		197,829
		
		


		 
		
		


		$
		
		


		204,386
		
		

		 
	
	
		
		


		Income before income taxes
		
		

		 
		
		


		$
		
		


		23,925
		
		

		 
		
		


		$
		
		


		20,150
		
		

		 
		
		


		$
		
		


		21,094
		
		


		 
		
		


		$
		
		


		26,600
		
		

		 
	
	
		
		


		Net income
		
		

		 
		
		


		$
		
		


		14,347
		
		

		 
		
		


		$
		
		


		12,332
		
		

		 
		
		


		$
		
		


		12,777
		
		


		 
		
		


		$
		
		


		16,046
		
		

		 
	
	
		
		


		Earnings per common share:
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		

		 
	
	
		
		


		Basic
		
		

		 
		
		


		$
		
		


		0.61
		
		

		 
		
		


		$
		
		


		0.53
		
		

		 
		
		


		$
		
		


		0.54
		
		


		 
		
		


		$
		
		


		0.62
		
		

		 
	
	
		
		


		Diluted
		
		

		 
		
		


		$
		
		


		0.54
		
		

		 
		
		


		$
		
		


		0.45
		
		

		 
		
		


		$
		
		


		0.46
		
		


		 
		
		


		$
		
		


		0.53
		
		

		 
	
	
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
	


146










ITEM 9. 

CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE



None



ITEM 9A. 


CONTROLS AND PROCEDURES



Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures   




As of the
end of the period covered by this report, an evaluation was carried out by the
management Stifel Financial Corp., with the participation of our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer
and Chief Financial Officer concluded that these disclosure controls and
procedures were effective as of the end of the period covered by this report. In
addition, no change in our internal control over financial reporting (as defined
in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the
fourth quarter of our fiscal year ended December 31, 2009 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.



Management's
Report on Internal Control over Financial Reporting



Management of Stifel Financial Corp., together
with its consolidated subsidiaries, is responsible for establishing and
maintaining adequate internal control over financial reporting. Our company's
internal control over financial reporting is a process designed under the
supervision of our principal executive and principal financial officers to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of our consolidated financial statements for external
purposes in accordance with U.S. generally accepted accounting principles. All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation.



As of December 31, 2009, we conducted an
assessment of the effectiveness of our company's internal control over financial
reporting based on the framework established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on this assessment, we have determined that our
company's internal control over financial reporting as of December 31, 2009 was
effective.



Our internal control over financial reporting
includes those policies and procedures that pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets; provide reasonable assurances that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with U.S. generally accepted accounting principles, and
that receipts and expenditures are being made only in accordance with
authorizations of management and directors of our company; and provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our company's assets that could have a
material effect on our consolidated financial statements.



Our company's internal control over financial
reporting as of December 31, 2009 has been audited by Ernst & Young LLP, an
independent registered public accounting firm, as stated in their report
appearing on the following page, which expresses an unqualified opinion on the
effectiveness of our company's internal control over financial reporting as of
December 31, 2009.


147










Report of
Independent Registered Public Accounting Firm on Internal Control over Financial
Reporting



The Board
of Directors and Shareholders



of Stifel Financial Corp.



 



We have audited Stifel Financial
Corp.'s (the "Company's") internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the "COSO criteria"). The Company's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management's Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on the
Company's internal control over financial reporting based on our audit.



We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.



A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.



Because
of the inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation of the
effectiveness to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.  



In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2009, based on the COSO
criteria.



We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements of the
Company as of December 31, 2009 and 2008, and the related consolidated
statements of operations, shareholders' equity, and cash flows for
each of the two
years in the period ended December 31, 2009
and our report dated February 26, 2010 expressed an unqualified opinion thereon.



 



/s/ Ernst & Young
LLP


Chicago,
Illinois

February
26, 2010



148












ITEM 9B. 

OTHER
INFORMATION



None



PART III



ITEM 10. 


DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE



Information
regarding our Board of Directors and committees, our Corporate Governance,
compliance with Section 16(a) of the Securities Exchange Act of 1934, and
procedures by which stockholders may recommend nominees to our Board of
Directors is contained in our Proxy Statement for the 2010 Annual Meeting of
Stockholders to be filed with the SEC within 120 days after our fiscal year end,
which information is incorporated herein by reference.



Information
regarding the executive officers is contained in Part 1, Item 1, "Executive
Officers of the Registrant," hereof. There is no family relationship between any
of the directors or named executive officers.



Under Section
303A.12 (a) NYSE Listed Company Manual, the CEO certification was submitted to
the NYSE after the 2009 Annual Meeting of Stockholders.



ITEM 11. 


EXECUTIVE COMPENSATION



Information
regarding compensation of certain executive officers and directors ("Executive
Compensation"), as well as "Compensation Committee Interlocks and Insider
Participation" and "Compensation Committee Report" is contained in our Proxy
Statement for the 2010 Annual Meeting of Stockholders to be filed with the SEC
within 120 days after our fiscal year end, which information is incorporated
herein by reference.



ITEM 12. 


SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS



Securities
authorized for issuance under equity compensation plans



The following
table provides information as of December 31, 2009 with respect to the shares of
our common stock that may be issued under our existing equity compensation
plans.  


	
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Plan category
		
		


		Number of securities to be issued upon exercise of outstanding options
		and units
		
		

		 
		
		

		Weighted-average exercise price of
		outstanding options and units
		
		


		 
		
		


		Number of securities remaining available for future issuance under
		equity compensation plans
		
		


		 
	
	
		
		


		Equity compensation plans approved by the shareholders
		
		


		 
		
		


		8,052,940
		
		


		 
		
		


		$
		
		


		26.33
		
		


		 
		
		


		 
		
		


		3,787,868
		
		

		 
	
	
		
		


		Equity compensation plans not approved by the shareholders
		
		


		 
		
		


		22,806
		
		


		 
		
		


		$
		
		


		6.00
		
		


		 
		
		


		 
		
		


		-
		
		

		 
	
	
		
		


		 
		
		


		 
		
		


		8,075,746
		
		


		 
		
		


		$
		
		


		26.27
		
		


		 
		
		


		 
		
		


		3,787,868
		
		

		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
		
		

		 
		
		


		 
		
		

		 
	



On December 31,
2009, the total number of securities to be issued upon exercise of options and
units consisted of 987,149 options and 7,088,597 units for a total of 8,075,746
shares. The equity compensation plans approved by the stockholders contained
987,149 options and 7,065,791 units for a total of 8,052,940 shares. The equity
compensation plan not approved by the stockholders contained 22,806 units.


149










Equity
compensation plans approved by stockholders



The total
options granted as of December 31, 2009 for equity compensation plans approved
by the stockholders consists of 82,143 shares subject to options granted under
the 1997 Stock Incentive Plan, 828,324 shares subject to options granted under
the 2001 Incentive Stock Plan, and 76,682 shares subject to options granted
under the Equity Incentive Plan for Non-Employee Directors.  



The total
units granted as of December 31, 2009 for equity compensation plans approved by
the stockholders consists of 6,167,512 shares that are subject to stock units
granted under the 2001 Incentive Stock Plan, 772,629 under the 2007 Incentive
Stock Plan and 125,650 shares that are subject to stock units granted under the
Equity Incentive Plan for Non-Employee Directors.  



As of
December 31, 2009, the remaining shares available for future grants or awards
under equity compensation plans approved by the stockholders consist of
3,069,112 shares under the 2001 Incentive Stock Plan, 442,761 under the 2007
Incentive Stock Plan and 275,995 shares under the Equity Incentive Plan for
Non-Employee Directors for a total of 3,787,868 shares.  



Equity
compensation plans not approved by stockholders



Equity
compensation plans not approved by the stockholders as of December 31, 2009
include 22,806 shares that are subject to stock units granted to our investment
financial advisors and administrative employees who are not executive officers
pursuant to a Wealth Accumulation Plan. The Wealth Accumulation Plan was not
approved by our stockholders nor funded by another stock-based compensation plan
approved by our stockholders. There were no shares reserved for future grants or
awards under this plan as of December 31, 2009.



Security ownership
of certain beneficial owners



Information
regarding security ownership of certain beneficial owners is contained in
"Ownership of Certain Beneficial Owners," included in our Proxy Statement for
the 2010 Annual Meeting of Stockholders to be filed with the SEC within 120 days
after our fiscal year end, which information is incorporated herein by
reference.



Security ownership
of management



Information
regarding security ownership of certain beneficial owners and management is
contained in "Ownership of Directors, Nominees and Executive Officers," included
in our Proxy Statement for the 2010 Annual Meeting of Stockholders to be filed
with the SEC within 120 days after our fiscal year end, which information is
incorporated herein by reference.



ITEM 13. 

CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE



Information
regarding certain relationships and related transactions and director
independence is contained in "Certain Relationships and Related Transactions,"
and "Director Independence" included in our Proxy Statement for the 2010 Annual
Meeting of Stockholders to be filed with the SEC within 120 days after our
fiscal year end, which information is incorporated herein by reference.



ITEM 14. 


PRINCIPAL ACCOUNTANT FEES AND SERVICES



Information
regarding principal accounting fees and services is contained in "Ratification
of Appointment of Independent Registered Public Accounting Firm," included in
our Proxy Statement for the 2010 Annual Meeting of Stockholders to be filed with
the SEC within 120 days after our fiscal year end, which information is
incorporated herein by reference.


150











PART IV



ITEM 15. 


EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



(a)   1.    
Financial Statements



The following
financial statements are included in Item 8, "Financial Statements and
Supplementary Data," and incorporated by reference hereto:



 


	
		
		

		 
		
		

		

		Page
	
	
		
		


		Reports of Independent Registered Public Accounting Firms
		
		

		87
	
	
		
		


		Consolidated Financial Statements:
		
		
 
	
	
		
		

		Statements of Financial Condition as
		of December 31, 2009 and 2008
		
		

		89
	
	
		
		

		Statements of Operations for the
		years ended December 31, 2009, 2008 and 2007
		
		

		91
	
	
		



		

		Statements of Shareholders' Equity
		for the years ended December 31, 2009, 2008 and 2007
		
		

		92
	
	
		
		

		Statements of Cash Flows
		for the years ended December 31, 2009, 2008 and 2007
		
		

		94
	
	
		
		

		Notes to the Consolidated Financial
		Statements
		
		

		97
	
	
		
		

		 
		
		

		 
	



    
	
  1. 
	Financial
	Statement Schedules
    2. 




All schedules are
omitted since the required information is either not applicable, not deemed
material, or is shown in the respective financial statements or in the notes
thereto.




(b)          
Exhibits


151









	
		
		

		Exhibit
		No.
		
		

		 
		
		


		Description
	
	
		
		

		3.
		
		

		(a)
		
		

		 
		
		

		Restated
		Certificate of Incorporation and as amended of Financial filed with the
		Secretary of State of Delaware on May31, 2001, incorporated herein by
		reference to Exhibit 3.(a) to Stifel Financial Corp.'s Quarterly Report
		on Form 10-Q for the quarterly period ended June 30, 2001.
	
	
		
		

		 
		
		

		(b)
		
		

		 
		
		

		Amended
		and Restated By-Laws of Financial, incorporated herein by reference to
		Exhibit 3. (b)(1) to Stifel Financial Corp.'s Annual Report on Form 10-K
		for fiscal year ended July 30, 1993.
	
	
		
		

		4.
		
		

		 
		
		

		 
		
		


		Registration Rights Agreement dated February 28, 2007 of Financial,
		incorporated herein by reference to Stifel Financial Corp.'s Current
		Report on Form 8-K/A filed March 6, 2007.
	
	
		
		

		10.
		
		

		(a)
		
		

		 
		
		

		Form of
		Indemnification Agreement with directors dated as of June 30, 1987,
		incorporated herein by reference to Exhibit 10.2 to Stifel Financial
		Corp.'s Current Report on Form 8-K (date of earliest event reported -
		June 22, 1987) filed July 14, 1987.  
	
	
		
		

		 
		
		

		(b)
		
		

		 
		
		

		Dividend
		Reinvestment and Stock Purchase Plan of Financial, incorporated herein
		by reference to Stifel Financial Corp.'s Registration Statement on Form
		S-3 (Registration File No. 33-53699) filed May 18, 1994.
	
	
		
		

		 
		
		

		(c)
		
		

		 
		
		

		Amended
		and Restated 1997 Incentive Plan of Financial, incorporated herein by
		reference to Stifel Financial Corp.'s Registration Statement on Form S-8
		(Registration File No. 333-84717) filed on August 6, 1999. *
	
	
		
		

		 
		
		

		(d)(1)
		
		

		 
		
		

		Employment
		Letter with Ronald J. Kruszewski, incorporated herein by reference to
		Exhibit 10.(l) to Stifel Financial Corp.'s Annual Report on Form 10-K
		for the year ended December 31, 1997.*
	
	
		
		

		 
		
		

		(d)(2)
		
		

		 
		
		

		Stock Unit
		Agreement with Ronald J. Kruszewski, incorporated herein by reference to
		Exhibit 10.(j)(2) to Stifel Financial Corp.'s Annual Report on Form 10-K
		for the year ended December 31, 1998. *
	
	
		
		

		 
		
		

		(e)
		
		

		 
		
		

		1999
		Executive Incentive Performance Plan of Financial, incorporated herein
		by reference to Annex B of Stifel Financial Corp.'s Proxy Statement for
		the 1999 Annual Meeting of Stockholders filed March 26, 1999. *
	
	
		
		

		 
		
		

		(f)
		
		

		 
		
		

		Equity
		Incentive Plan for Non-Employee Directors of Financial, incorporated
		herein by reference to Stifel Financial Corp.'s Registration Statement
		on Form S-8 (Registration File No. 333-52694) filed December 22, 2000. *
	
	
		
		

		 
		
		

		(g)(1)
		
		

		 
		
		

		Stifel,
		Nicolaus & Company, Incorporated Wealth Accumulation Plan, incorporated
		herein by reference to Stifel Financial Corp.'s Registration Statement
		on Form S-8 (Registration File No. 333-60506) filed May 9, 2001. *
	
	
		
		

		 
		
		

		(g)(2)
		
		

		 
		
		

		Stifel,
		Nicolaus & Company, Incorporated Wealth Accumulation Plan Amendment No.
		1, incorporated herein by reference to Stifel Financial Corp.'s
		Registration Statement on Form S-8 (Registration File No. 333-105759)
		filed June 2, 2003. *
	
	
		
		

		 
		
		

		(h)
		
		

		 
		
		

		Stifel
		Nicolaus Profit Sharing 401(k) Plan, incorporated herein by reference to
		Stifel Financial Corp.'s Registration Statement on Form S-8
		(Registration File No. 333-60516) filed May 9, 2001.*
	
	
		
		

		 
		
		

		(i)(1)
		
		

		 
		
		

		Stifel
		Financial Corp. 2001 Incentive Plan, incorporated herein by reference to
		Stifel Financial Corp.'s Registration Statement on Form S-8
		(Registration File No. 333-82328) filed February 7, 2002. *
	
	
		
		

		 
		
		

		(i)(2)
		
		

		 
		
		

		Stifel
		Financial Corp. 2001 Incentive Plan Amendment No. 1, incorporated herein
		by reference to Stifel Financial Corp.'s Registration Statement on Form
		S-8 (Registration File No. 333-105756) filed June 2, 2003. *
	
	
		
		

		 
		
		

		(i)(3)
		
		

		 
		
		

		Stifel
		Financial Corp. 2001 Incentive Plan Amendment No. 2, incorporated herein
		by reference to Stifel Financial Corp.'s Registration Statement on Form
		S-8 (Registration File No. 333-140662) filed February 13, 2007. *
	
	
		
		

		 
		
		

		(j)
		
		

		 
		
		

		Stock Unit
		Agreement with James M. Zemlyak dated January 11, 2000, incorporated
		herein by reference to Exhibit 10.(s) to Stifel Financial Corp.'s Annual
		Report on Form 10-K / A Amendment No. 1 for the year ended December 31,
		2001, filed on April 9, 2002. *
	
	



152









	
		
		

		Exhibit
		No.
		
		

		 
		
		


		Description  
	
	
		
		 
		
		

		(k)
		
		

		 
		
		

		Stock Unit
		Agreement with Scott B. McCuaig dated December 20, 1998, incorporated
		herein by reference to Exhibit 10.(t) to Stifel Financial Corp.'s Annual
		Report on Form 10-K / A Amendment No. 1 for the year ended December 31,
		2001, filed on April 9, 2002. *
	
	
		
		

		 
		
		

		(l)
		
		

		 
		
		

		Amended
		and Restated Promissory Note dated December 21, 1998, from Ronald J.
		Kruszewski payable to Financial, incorporated herein by reference to
		Exhibit 10.(u) to Stifel Financial Corp.'s Annual Report on Form 10-K /
		A Amendment No. 1 for the year ended December 31, 2001, filed on April
		9, 2002. *
	
	
		
		

		 
		
		

		(m)(1)
		
		

		 
		
		

		Third
		Amendment to Lease by and among EBS Building, L.L.C., Stifel Financial
		Corp., and Stifel, Nicolaus & Company, Incorporated, dated September 1,
		1999, incorporated herein by reference to EBS Building, L.L.C.'s Annual
		Report on Form 10-K (File No. 000-24167) for the year ended December 31,
		2001.
	
	
		
		

		 
		
		

		(m)(2)
		
		

		 
		
		

		Fourth
		Amendment to Lease by and among EBS Building, L.L.C., Stifel Financial
		Corp., and Stifel, Nicolaus & Company, Incorporated, dated November 1,
		1999, incorporated herein by reference to EBS Building, L.L.C.'s Annual
		Report on Form 10-K (File No. 000-24167) for the year ended December 31,
		2001.
	
	
		
		

		 
		
		

		(m)(3)
		
		

		 
		
		

		Fifth
		Amendment to Lease by and among EBS Building, L.L.C., Stifel Financial
		Corp., and Stifel, Nicolaus & Company, Incorporated dated June 11, 2001,
		incorporated herein by reference to EBS Building, L.L.C.'s Annual Report
		on Form 10-K (File No. 000-24167) for the year ended December 31, 2001.
	
	
		
		

		 
		
		

		(n)
		
		

		 
		
		

		Stifel
		Financial Corp. 2003 Employee Stock Purchase Plan, incorporated herein
		by reference to Stifel Financial Corp.'s Registration Statement on Form
		S-8 (Registration File No. 333-100414) filed October 8, 2002. *
	
	
		
		

		 
		
		

		(o)(1)
		
		

		 
		
		


		Acquisition agreement by and between Stifel Financial Corp. and
		Citigroup Inc., incorporated herein by reference to Exhibit 10 to Stifel
		Financial Corp.'s quarterly report on Form 10-Q/A No. 1 for the
		quarterly period ended September 30, 2005.
	
	
		
		

		 
		
		

		(o)(2)
		
		

		 
		
		

		Amendment
		No.1 to Acquisition Agreement by and between Stifel Financial Corp. and
		Citigroup Inc., incorporated herein by reference to Exhibit 10.(v)(2) to
		Stifel Financial Corp.'s Annual Report on Form 10-K for the year ended
		December 31, 2005, filed on March 16, 2006.
	
	
		
		

		 
		
		

		(o)(3)
		
		

		 
		
		

		Amendment
		No.2 to Acquisition Agreement by and between Stifel Financial Corp. and
		Citigroup Inc., incorporated herein by reference to Exhibit 10.(v)(3) to
		Stifel Financial Corp.'s Annual Report on Form 10-K for the year ended
		December 31, 2005, filed on March 16, 2006.
	
	
		
		

		 
		
		

		(p)
		
		

		 
		
		

		Employment
		Agreement with Richard Himelfarb dated September 6, 2005, incorporated
		herein by reference to Exhibit 10.(p) to Stifel Financial Corp.'s Annual
		Report on Form 10-K/A Amendment No. 1 for the year ended December 31,
		2005, filed on January 26, 2007. *
	
	
		
		

		 
		
		

		(q)
		
		

		 
		
		

		Employment
		Agreement with Thomas Mulroy dated September 7, 2005, incorporated
		herein by reference to Exhibit 10.(q) to Stifel Financial Corp.'s Annual
		Report on Form 10-K/A Amendment No. 1 for the year ended December 31,
		2005, filed on January 26, 2007. *
	
	
		
		

		 
		
		

		(r)
		
		

		 
		
		


		Agreement and Plan of Merger, dated as of November 20, 2006, by and
		among Stifel Financial Corp., FSFC Acquisition Co. and First Service
		Financial Company incorporated herein by reference to Exhibit 2.1 to
		Stifel Financial Corp.'s Current Report on Form 8-K (date of earliest
		event reported-November 20, 2006) filed on November 20, 2006.
	
	
		
		

		 
		
		

		(s)(1)
		
		

		 
		
		


		Office Sublease Agreement by and between Deutsch Bank Securities, Inc.
		(Lessor) and Stifel, Nicolaus & Company, Incorporated (Lessee),
		incorporated herein by reference to Exhibit 10.(t)(1) to Stifel
		Financial Corp.'s Annual Report on Form 10-K/A Amendment No. 1 for the
		year ended December 31, 2006, filed on June 28, 2007.  
	
	
		
		

		 
		
		

		(s)(2)
		
		

		 
		
		


		Office Lease Agreement by and between ABB South Street Associates, LLC
		(Landlord) and Stifel, Nicolaus & Company, Incorporated (Tenant),
		incorporated herein by reference to Exhibit 10.(t)(1) to Stifel
		Financial Corp.'s Annual Report on Form 10-K/A Amendment No. 1 for the
		year ended December 31, 2006, filed on June 28, 2007.  
	
	


153









	
		
		

		Exhibit
		No.
		
		

		 
		
		


		Description  
	
	
		
		

		 
		
		

		(t)(1)
		
		

		 
		
		


		Agreement and Plan of Merger, dated as of January 8, 2007 by and among
		Stifel Financial Corp., SF RB Merger Sub, Inc., BankAtlantic Bancorp,
		Inc. and Ryan Beck Holdings, Inc. incorporated herein by reference to
		Exhibit 2.1 to Stifel Financial Corp.'s Current Report on Form 8-K / A
		(date of earliest event reported-January 8, 2007) filed on January 12,
		2007.
	
	
		
		

		 
		
		

		(t)(2)
		
		

		 
		
		

		Amendment
		No.1 to Merger Agreement by and among Stifel Financial Corp. and BankAtlantic Bancorp, Inc.
		incorporated herein by reference to
		Exhibit 2.1 to Stifel Financial Corp.'s Current Report on Form 8-K (date
		of earliest event reported August 14, 2008) filed on August 15, 2008.
	
	
		
		

		 
		
		

		(u)
		
		

		 
		
		

		Stifel
		Financial Corp. 2007 Incentive Stock Plan, incorporated herein by
		reference to Stifel Financial Corp.'s Registration Statement on Form S-8
		(Registration File No. 333-145990) filed September 11, 2007. *
	
	
		
		

		 
		
		

		(v)
		
		

		 
		
		


		Purchase Agreement among Stifel Financial Corp., The Western and
		Southern Life Insurance Company ("Western and Southern"), and Stifel,
		Nicolaus & Company, Incorporated, Merrill Lynch & Co., Merrill Lynch,
		Pierce, Fenner & Smith Incorporated, and Keefe, Bruyette & Woods, Inc.
		incorporated herein by reference to Exhibit 10.1 to Stifel Financial
		Corp.'s Current Report on Form 8-K (date of earliest event reported
		September 24, 2008) filed on September 29, 2008.
	
	
		
		

		 
		
		

		(x)
		
		

		 
		
		


		Stock Purchase Agreement, dated December 18, 2008, by and among Stifel
		Financial Corp., Butler Wick & Co. Inc. and Butler Wick Corp.,
		incorporated herein by reference to Exhibit 10. (x) to Stifel Financial
		Corp.'s Annual Report on Form 10-K for the year ended December 31, 2008,
		filed on February 27, 2009.
	
	
		
		

		 
		
		

		(y)
		
		

		 
		
		


		Asset Purchase Agreement dated March 23, 2009, by and between Stifel
		Nicolaus & Company, Incorporated and UBS Financial Services, Inc.
		incorporated herein by reference to Exhibit 2.1 to Stifel Financial
		Corp.'s Current Report on Form 8-K (date of earliest event reported
		March 23, 2009) filed on March 23, 2009.
	
	
		
		

		 
		
		

		(z)
		
		

		 
		
		


		Amendment No. 1 to Asset Purchase Agreement, dated May 4, 2009, by and
		between StifelNicolaus & Company, Incorporated and UBS Financial Services, Inc.
		incorporated herein by reference to Exhibit 2.1 to Stifel Financial
		Corp.'s Current Report on Form 8-K (date of earliest event reported May
		4, 2009) filed on May 11, 2009.

	
	
		
		

		 
		
		

		(aa)
		
		

		 
		
		

		Amendment
		No. 2 to Asset Purchase Agreement, dated June 1, 2009, by and between
		Stifel, Nicolaus & Company, Incorporated and UBS Financial Services,
		Inc. incorporated herein by reference to Exhibit 10 (aa) to Stifel
		Financial Corp.'s Quarterly Report on Form 10-Q for the quarterly period
		ended September 30, 2009 filed on November 9, 2009.
	
	
		
		

		 
		
		

		(bb)
		
		

		 
		
		

		Amendment
		No. 3 to Asset Purchase Agreement, dated August 12, 2009, by and between
		Stifel, Nicolaus & Company, Incorporated and UBS Financial Services,
		Inc. incorporated herein by reference to Exhibit 2.1 to Stifel Financial
		Corp.'s Current Report on Form 8-K (date of earliest event reported
		August 12, 2009) filed on August 18, 2009.
	
	
		
		

		 
		
		

		(cc)
		
		

		 
		
		

		Amendment
		No. 4 to Asset Purchase Agreement, dated September 11, 2009, by and
		between Stifel, Nicolaus & Company, Incorporated and UBS Financial
		Services, Inc. incorporated herein by reference to Exhibit 10 (cc) to
		Stifel Financial Corp.'s Quarterly Report on Form 10-Q for the quarterly
		period ended September 30, 2009 filed on November 9, 2009.
	
	
		
		

		 
		
		

		(dd)
		
		

		 
		
		

		Office
		Sublease Agreement by and between The Bear Stearns Companies LLC
		(Landlord) and Stifel, Nicolaus & Company, Incorporated (Tenant),
		incorporated herein by reference to Exhibit 10 (dd) to Stifel Financial
		Corp.'s Quarterly Report on Form 10-Q for the quarterly period ended
		September 30, 2009 filed on November 9, 2009.
	
	
		
		

		 
		
		

		(ee)
		
		
		
		

		 
		
		

		Employment
		Agreement with Victor Nesi dated June 25, 2009, filed herewith. *
	
	
		
		

		11.
		
		

		 
		
		

		 
		
		


		Computation of Per Share Earnings is set forth in Note 26 of Notes to
		Consolidated Financial Statements included in this Form 10-K.
		
		
	
	
		
		

		16.
		
		

		 
		
		

		 
		
		

		Letter
		from Stifel Financial Corp.'s former independent accountant regarding
		its concurrence with the statements made by the Company in the current
		report concerning the dismissal as the Company's principal accountant is
		incorporated herein by reference to Exhibit 16 to Stifel Financial
		Corp.'s Current Report on Form 8-K (date of earliest event reported
		April 8, 2008) filed on April 14, 2008.
	



154












	
		
		

		Exhibit
		No.
		
		

		 
		
		


		Description  
	
	
		
		

		21.
		
		

		 
		
		

		 
		
		

		List of
		Subsidiaries of Stifel Financial Corp., filed herewith.
	
	
		
		

		23.1
		
		

		 
		
		

		 
		
		

		Consent of
		Independent Registered Public Accounting Firm, filed herewith.
	
	
		
		

		23.2
		
		

		 
		
		

		 
		
		

		Consent of
		Independent Registered Public Accounting Firm, filed herewith.
	
	
		
		

		31.1.
		
		

		 
		
		

		 
		
		

		Rule
		13a-14(a) Certification of Chief Executive Officer.
	
	
		
		

		31.2.
		
		

		 
		
		

		 
		
		

		Rule
		13a-14(a) Certification of Chief Financial Officer.
	
	
		
		

		32.1
		
		

		 
		
		

		 
		
		

		Section
		1350 Certification of Chief Executive Officer. **
	
	
		
		

		32.2.
		
		

		 
		
		

		 
		
		

		Section
		1350 Certification of Chief Financial Officer. **
	
	
		
		 
		
		 
		
		 
		
		 
	


*      Management
contract or compensatory plan or arrangement.



**  
The certifications
attached as Exhibits 32.1 that accompany this Annual Report on Form 10-K, are
not deemed filed with the Securities and Exchange Commission and are not to be
incorporated by reference into any filing of Stifel Financial Corp. under the
Securities Act of 1933, as amended, or the Securities Act of 1934, as amended,
whether made before or after the date of this Form 10-K, irrespective of any
general incorporation language contained in such filing.


155











SIGNATURES




Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on February 26, 2010.



STIFEL FINANCIAL
CORP.




	
		
		

		 
		
		

		 
	
	
		
		

		By:
		
		

		/s/ Ronald
		J. Kruszewski
	
	
		
		

		 
		
		

		Ronald J.
		Kruszewski

		Chairman of the Board, President,

		Chief Executive Officer, and Director
	



 




Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
indicated on February 26, 2010.





 


	
		
		

		/s/
		
		

		Ronald J.
		Kruszewski
		
		

		Chairman
		of the Board, President,

		Chief Executive Officer, and Director

		(Principal Executive Officer)
	
	
		
		

		 
		
		

		Ronald J.
		Kruszewski
	
	
		
		

		/s/
		
		

		James M.
		Zemlyak  
		
		

		Senior
		Vice President, Chief Financial

		Officer, Treasurer, and Director

		(Principal Financial and Accounting Officer)
	
	
		
		

		 
		
		

		James M.
		Zemlyak
	
	
		
		

		/s/
		
		

		Bruce A.
		Beda
		
		

		Director

		
	
	
		
		

		 
		
		

		Bruce A.
		Beda
		
		

		 
	
	
		
		

		/s/
		
		
		
		

		Charles A.
		Dill
		
		

		Director

		
	
	
		
		

		 
		
		

		Charles A.
		Dill
		
		

		 
	
	
		
		

		/s/
		
		

		John P.
		Dubinsky
		
		

		Director

	
	
		
		

		 
		
		

		John P.
		Dubinsky
		
		

		 
	
	
		
		

		/s/
		
		

		Richard F.
		Ford
		
		

		Director
	
	
		
		

		 
		
		

		Richard F.
		Ford
		
		

		 
	
	
		
		

		/s/
		
		

		Frederick
		O. Hanser
		
		

		Director

	
	
		
		

		 
		
		

		Frederick
		O. Hanser
		
		

		 
	
	



156











	
		
		

		/s/
		
		

		Richard J.
		Himelfarb
		
		

		Director
	
	
		
		

		 
		
		

		Richard J.
		Himelfarb
		
		

		 
	
	
		
		

		/s/
		
		

		Robert E.
		Lefton
		
		

		Director

		
	
	
		
		

		 
		
		

		Robert E.
		Lefton
		
		

		 
	
	
		
		

		/s/
		
		

		Scott B.
		McCuaig
		
		

		Director

		
	
	
		
		

		 
		
		

		Scott B.
		McCuaig
		
		

		 
	
	
		
		

		/s/
		
		

		Thomas P.
		Mulroy
		
		

		Director
	
	
		
		

		 
		
		

		Thomas P.
		Mulroy
		
		

		 
	
	
		
		

		/s/
		
		


		Victor J. Nesi
		
		

		Director
	
	
		
		

		 
		
		


		Victor J. Nesi
		
		

		 
	
	
		
		

		/s/
		
		


		James M. Oates
		
		

		Director
	
	
		
		

		 
		
		


		James M. Oates
		
		

		 
	
	
		
		

		/s/
		
		

		Ben A.
		Plotkin
		
		

		Director
	
	
		
		

		 
		
		

		Ben A.
		Plotkin
		
		

		 
	
	
		
		

		/s/
		
		

		Kelvin R.
		Westbrook
		
		

		Director
	
	
		
		

		 
		
		

		Kelvin R.
		Westbrook
		
		

		 
	



157