Stifel Financial Annual Report 2009

← All annual reports

FY2009 Annual Report · Stifel Financial

Loading PDF…

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 number 1-9305

S T I F E L F I N A N C I A L C O R P .
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

43-1273600
(I.R.S. Employer Identification No.)

501 North Broadway, St. Louis, Missouri 63102-2188
(Address of principal executive offices and zip code)

(314) 342-2000
Registrant’s telephone number, including area code

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

Title of Each Class

Common Stock, $0.15 par value per share

Preferred Stock Purchase Rights

Name of Each Exchange
On Which Registered

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 √ No

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 No √

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
(“the Exchange Act”) 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 √ No

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. √

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 No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined
in Rule 12b-2 of the Exchange Act).
Large accelerated filer √
Smaller reporting company

Accelerated filer Non-accelerated filer (Do not check if 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

No √

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.

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.

DOCUMENTS INCORPORATED BY REFERENCE

Stifel Financial Corp. and Subsidiaries

Stifel Financial Corp.
Table of Contents

PART I

Item 1.

Business

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments

Item 2.

Properties

Item 3.

Legal Proceedings

Item 4.

Submission of Matters to a Vote of Security Holders

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases

of Equity Securities

Item 6.

Selected Financial Data

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8.

Financial Statements and Supplementary Data

Item 9.

Changes in and Disagreements With Accountants and Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

PART III

Item 10. Directors, Executive Officers, and Corporate Governance

Item 11. Executive Compensation

Item 12.

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

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accounting Fees and Services

PART IV

Item 15. Exhibits, Financial Statement Schedules

Signatures

Page

Stifel Financial Corp. and Subsidiaries

PART I

Certain statements in this report may be considered forward-looking. State-
ments 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 impor-
tant 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 mate-
rially 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:

• Private client services, including securities transaction and financial planning

services;

• Institutional equity and fixed income sales, trading and research, and

municipal finance;

• Investment banking services, including mergers and acquisitions, public

offerings and private placements; and

• Retail and commercial banking, including personal and commercial lending

programs.

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

We have grown our business both organically and through opportunistic acquisi-
tions. 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:

• Miller Johnson Steichen Kinnard, Inc. (“MJSK”) – On December 5, 2006, we
closed on the acquisition of the private client business and certain assets and li-
abilities of MJSK, a privately held broker-dealer. The acquisition was completed
to further grow our company’s private client business, particularly in the state of
Minnesota.

• Ryan Beck Holdings, Inc. (“Ryan Beck”) and its wholly owned broker-dealer
subsidiary Ryan Beck & Company, Inc. – On February 28, 2007, we closed
on the acquisition of Ryan Beck, a full-service brokerage and investment
banking firm with a strong private client focus, from BankAtlantic Bancorp,
Inc. The acquisition was made because the combination of Stifel Nicolaus
and Ryan Beck represented a good strategic fit between two well-established
regional broker-dealers with similar business models and cultures.

• First Service Financial Company (“First Service”) and its wholly owned

subsidiary FirstService Bank – On April 2, 2007, we completed our acquisi-
tion of First Service, and its wholly owned subsidiary FirstService Bank, a

St. Louis-based Missouri commercial bank, by means of the merger of First
Service with and into FSFC Acquisition Co. (“AcquisitionCo”), a Missouri
corporation and wholly owned subsidiary of Stifel Financial Corp., with
AcquisitionCo surviving the merger. Upon consummation of the merger, we
became a bank holding company and a financial holding company, subject
to the supervision and regulation of The Board of Governors of the Federal
Reserve System. Also, FirstService Bank has converted its charter from a
Missouri bank to a Missouri trust company and changed its name to “Stifel
Bank & Trust.” 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.

• Butler, Wick & Co., Inc. (“Butler Wick”) – On December 31, 2008, we

closed on the acquisition of Butler Wick, a privately-held broker-dealer who
specialized in providing financial advice to individuals, municipalities, and
corporate clients. Butler Wick was headquartered in Youngstown, Ohio.

• UBS Financial Services Inc. (“UBS”) – On March 23, 2009, we announced
that Stifel Nicolaus had entered into a definitive agreement with UBS to ac-
quire 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.

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.”

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 institu-
tions. 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 cli-
ents 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.

Stifel Financial Corp. and Subsidiaries

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 addi-
tion, 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 comfort-
able 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 com-
pensate them for their added expenses. CSA is an introducing broker-dealer
and, as such, clears its transactions through Stifel Nicolaus.

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 acquisi-
tion, 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 sav-
ings, 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 ad-
dition 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.

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 profes-
sionals 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.

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 in-
vestment 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, telecommunica-
tions, 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, pric-
ing, 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, unal-
located 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, iden-
tification, 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 ad-
ministration. 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 con-
tinued 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 head-
quarters, 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.

CAPITAL MARKETS

GROWTH STRATEGY

The Capital Markets segment includes research, equity, and fixed income insti-
tutional 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 trad-
ing 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

Stifel Financial Corp. and Subsidiaries

We believe our plans for growth will allow us to increase our revenues and to ex-
pand 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:

• Further expand our private client footprint in the U.S. We have expanded the

number of our private client branches from 39 at December 31, 1997 to 272
at December 31, 2009, and our branch-based financial advisors from 262 to
1,719 over the same period. In addition, assets under management have grown
from $11.7 billion at December 31, 1997 to $91.3 billion at December 31,
2009. Through organic growth and acquisitions, we currently have a strong
footprint nationally, concentrated in the Midwest and Mid-Atlantic regions,
with a growing presence in the Northeast, Southeast, and Western United
States. Over time, we plan to further expand our domestic private client
footprint. We plan on achieving this through recruiting experienced financial
advisors with established client relationships and continuing to selectively
consider acquisition opportunities as they may arise.

• Further expand our institutional equity business both domestically and interna-

tionally. Our institutional equity business is built upon the premise that high-
quality fundamental research is not a commodity. The growth of our business
over the last 10 years has been fueled by the effective partnership of our highly
rated research and institutional sales and trading teams. Several years ago, we
identified an opportunity to expand our research capabilities by taking advan-
tage of market disruptions and the long-term impact of the global settlement
on Wall Street research. As a result, we have grown from 43 analysts covering
513 companies in 2005 to 61 analysts covering 850 companies at December
31, 2009. In addition, as of December 31, 2009, our research department was
ranked the fourth largest research department, as measured by domestic equi-
ties under coverage, by StarMine. Our goal is to further monetize our research
platform by adding additional institutional sales and trading teams and by
placing a greater emphasis on client management.

• Grow our investment banking business. By leveraging our industry expertise,
our product knowledge, our research platform, our experienced associates,
our capital markets strength, our middle-market focus, and our private client
network, we intend to grow our investment banking business. We believe our
position as a mid-tier focused investment bank with broad-based and respected
research will allow us to take advantage of opportunities in the middle-market
and continue to align our investment banking coverage with our research
footprint.

• Focus on asset generation within our Stifel Bank operations and offer retail and
commercial banking services to our clients. We believe the addition of Stifel
Bank banking services strengthens our existing client relationships and helps
us recruit financial advisors seeking to provide a full range of services to
their private clients. We intend to increase the sale of banking products and
services to our private and corporate clients.

• Approach acquisition opportunities with discipline. Over the course of our

operating history, we have demonstrated our ability to identify, effect, and
integrate attractive acquisition opportunities. We believe the current environ-
ment and market dislocation will provide us with the ability to thoughtfully
consider acquisitions on an opportunistic basis.

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 pro-
viders, and other companies offering financial services. The Financial Moderniza-
tion 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.

REGULATION

The securities industry in the United States is subject to extensive regula-
tion 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 se-
curities businesses. Such regulations cover matters including capital requirements;
uses and safekeeping of clients’ funds; conduct of directors, officers, and employ-
ees; 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; limita-
tions 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 com-
mercial 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” determina-
tions 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 Cus-
tomer 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 subsid-
iary, 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.

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 addi-
tional 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 fac-
tors. 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 Condi-
tion 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 ad-
ditional 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.

Stifel Financial Corp. and Subsidiaries

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

Scott B. McCuaig

James M. Zemlyak

Richard J. Himelfarb

David M. Minnick

Thomas P. Mulroy

Victor J. Nesi

Ben A. Plotkin

David D. Sliney

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

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

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

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

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

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

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

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

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 Offi-
cer 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.

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

Stifel Financial Corp. and Subsidiaries

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 responsibil-
ity 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 indus-
try. 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 acquisi-
tion 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 responsibil-
ity for the firm’s Equity Syndicate Department.

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 Securi-
ties 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, Com-
pensation 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, Missouri
63102, telephone: (314) 342-2000.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should care-
fully 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, includ-
ing 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 ad-
ditional 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.

A significant portion of our revenue is derived from commissions, margin inter-
est revenue, principal transactions, asset management and service fees, and in-
vestment 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 volatil-
ity 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 collat-
eral 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 cer-
tain 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 mate-
rial adverse effect on the financial markets, which in turn could materially and
adversely affect our financial condition, results of operations, or liquidity.

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 prin-
ciple source of liquidity. These assets are financed primarily by our equity capi-
tal, 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 collat-
eral. 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 condi-
tions, 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

Stifel Financial Corp. and Subsidiaries

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 tech-
nologies, 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 distribu-
tions 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 condi-
tions, 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.

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 particu-
lar, 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:

• Developments in our business or in the financial sector generally, including the
effect of direct governmental action in the financial markets generally and with
respect to financial institutions in particular;

• Regulatory changes affecting our operations;

• The operating and securities price performance of companies that investors

consider to be comparable to us;

• Announcements of strategic developments, acquisitions, and other material

events by us or our competitors; and

• Changes in global financial markets and global economies and general mar-
ket conditions, such as interest or foreign exchange rates, stock, commodity
or asset valuations, or volatility.

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 bank-
ing 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

Stifel Financial Corp. and Subsidiaries

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 offer-
ings 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 opera-
tions, financial condition, and liquidity.

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 ad-
ditional or similar changes to statutes or regulations, including the interpreta-
tion 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 regula-
tions. 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 pro-
ceedings 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 organiza-
tions regarding our business which may result in adverse judgments, settle-
ments, fines, penalties, injunctions, and other relief.

The regulatory investigations include inquiries from the SEC, FINRA, and sev-
eral 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 state-
ments 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.”

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:

• Limiting our operations that require intensive use of capital, such as under-

writing or trading activities; or

• Restricting us from withdrawing capital from our subsidiaries, even where our
broker-dealer subsidiaries have more than the minimum amount of required
capital. This, in turn, could limit our ability to implement our business and
growth strategies, pay interest on and repay the principal of our debt, and/or
repurchase our shares.

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 mar-
gins. The trend towards using alternative trading systems is continuing to grow,
which may result in decreased commission and trading revenue, reduce our par-
ticipation 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 com-
missions 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 height-
ened 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.

Our ability to attract, develop, and retain highly skilled and productive employ-
ees 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 cur-
rent 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 quali-
fied 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 ad-
ditional 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 recruit-
ment 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 mate-
rial 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.

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

Stifel Financial Corp. and Subsidiaries

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 regula-
tion, 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 reg-
ulation 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.

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 require-
ments, client needs, and industry demands is critical for our business. Introduc-
tion of new technologies presents 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

Stifel Financial Corp. and Subsidiaries

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 can-
not 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, analyt-
ics, and other important information to the desktop computers of our financial
advisors. We contract with other vendors to produce, batch, and mail our con-
firmations 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 man-
age 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 circum-
stances warrant, our computer systems, software, and networks may be vulner-
able 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 notifica-
tions, 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.

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 ap-
pear 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 re-
quirements, 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 ad-
dress 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 se-
curities, 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, inves-
tors’ 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.”

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 reputa-
tional 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 expen-
sive to prospective acquirors and to encourage prospective acquirors to negotiate
with our board of directors rather than to attempt a hostile takeover. These provi-
sions 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 poten-
tial 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 provi-
sions 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.

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 con-
ditions, 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

One Financial Plaza
501 North Broadway
St. Louis, Missouri 63102

One South Street
Baltimore, Maryland 21202

237 Park Avenue
New York, New York 10017

18 Columbia Turnpike
Florham Park, New Jersey 07932

Approximate
Square Footage

127,000

76,000

60,000

50,000

Use

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

Capital Markets operations and administrative offices

Global Wealth Management and Capital Markets operations

We also maintain operations in 294 branch offices in various locations through-
out 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.

Stifel Financial Corp. and Subsidiaries

ITEM 3. LEGAL PROCEEDINGS

Our company and its subsidiaries are named in and subject to various proceed-
ings 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 pend-
ing 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 co-
operate 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 regula-
tory 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 acceler-
ated 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. Further-
more, approximately 97% of the Eligible ARS investors have agreed to participate
in the ARS repurchase offer.

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 “De-
fendants”) 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 dam-
ages, 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.

Stifel Financial Corp. and Subsidiaries

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):

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

2009

2008

High

$ 48.41
52.33
57.23
59.54

Low

$29.13
41.00
43.43
50.76

High

$ 35.02
39.71
60.61
50.00

Low

$24.67
28.12
31.56
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 compen-
sation 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 pur-
chased under this plan was 2,010,831.

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.

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.

Stifel Financial Corp.
Peer Group
S&P 500 Index
AMEX Securities Broker-Dealer Index

2005
$179
110
105
129

2006
$187
149
122
158

2007
$251
150
128
136

2008
$328
103
81
51

2009
$424
138
102
75

Stifel Financial Corp. (33.5% CAGR*)

Peer Group (6.6% CAGR*)

S&P 500 Index (0.4% CAGR*)

Securities Broker-Dealer Index (-5.5% CAGR*)

$500

$400

$300

$200

$100

2004

2005

2006

2007

2008

2009

*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.
Stifel Financial Corp.

SWS Group, Inc.
Raymond James Financial, Inc.

Sanders Morris Harris Group Inc.
Piper Jaffray Companies

Stifel Financial Corp. and Subsidiaries

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
Commissions
Investment banking
Asset management and service fees
Interest
Other income

Total revenues
Interest expense

Net revenues

Non-interest expenses:
Compensation and benefits
Occupancy and equipment rental
Communications and office supplies
Commissions and floor brokerage
Other operating expenses

Total non-interest expenses

Income before income tax expense
Provision for income taxes

Net income

Earnings per common share
Basic
Diluted
Weighted average number of common shares outstanding
Basic
Diluted
Financial Condition
Total assets
Long-term obligations
Shareholders’ equity

$ 458,188
345,520
125,807
112,706
46,860
13,789

1,102,870
12,234

1,090,636

718,115
89, 741
54,745
23,416
84,205

970,222

120,414
44,616

75,798

2.68
2.35

28,297
32,294

$
$

$ 293,285
341,090
83,710
119,926
50,148
688

$ 139,248
315,514
169,413
101,610
59,071
8,234

888,847
18,510

870,337

582,778
67,984
45,621
13,287
68,898

778,568

91,769
36,267

55,502

2.31
1.98

24,069
28,073

$
$

793,090
30,025

763,065

543,021
57,796
42,355
9,921
56,126

709,219

53,846
21,676

32,170

1.48
1.25

21,754
25,723

$
$

86,365
199,056
82,856
57,713
35,804
9,594

471,388
19,581

451,807

329,703
30,751
26,666
6,388
31,930

$ 44,110
107,976
55,893
43,476
18,022
533

270,010
6,275

263,735

174,765
22,625
12,087
4,134
17,402

425,438

231,013

26,369
10,938

32,722
13,078

15,431

$ 19,644

0.89
0.74

$
$

1.33
1.04

17,269
20,863

14,742
18,879

$ 842,001
$ 97,182
$ 155,093

$ 3,167,356
$ 101,979
$ 873,446

$ 1,558,145
$ 106,860
$ 593,185

$ 1,499,440
$ 124,242
$ 424,637

$ 1,084,774
98,379
$
$ 220,265

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.

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.

Stifel Financial Corp. and Subsidiaries

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 em-
ployees who are motivated and committed to providing the highest quality of
service and guidance to our clients.

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, includ-
ing 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.

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 transac-
tions 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 challeng-
ing 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 predict-
able 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 upheav-
al, we have incurred additional expenses related to increased Securities Investor

Protection Corporation (“SIPC”) assessments, higher FDIC premiums, includ-
ing 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 ad-
ditional 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 authori-
ties 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 inves-
tors 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 corre-
lated to the overall strength of economic conditions and financial market activity.
Overall market conditions are a product of many factors, which are beyond our
control and mostly unpredictable. These factors may affect the financial decisions
made by investors, including their level of participation in the financial markets.
In turn, these decisions may affect our business results. With respect to financial
market activity, our profitability is sensitive to a variety of factors, including
the demand for investment banking services as reflected by the number and
size of equity and debt financings and merger and acquisition transactions, the
volatility of the equity and fixed income markets, the level and shape of various
yield curves, the volume and value of trading in securities, and the value of our
customers’ assets under management.

Although we do not engage in 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.

Stifel Financial Corp. and Subsidiaries

RESULTS OF OPERATIONS

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

For the Year Ended December 31,

2009

2008

2007

$ 458,188
345,520
125,807
112,706
46,860
13,789

$ 293,285
341,090
83,710
119,926
50,148
688

$ 139,248
315,514
169,413
101,610
59,071
8,234

1,102,870
12,234

888,847
18,510

793,090
30,025

1,090,636

870,337

763,065

718,115
89,741
54,745
23,416
84,205

582,778
67,984
45,621
13,287
68,898

543,021
57,796
42,355
9,921
56,126

Revenues:
Principal transactions
Commissions
Investment banking
Asset management and service fees
Interest
Other income

Total revenues
Interest expense

Net revenues

Non-interest expenses:
Compensation and benefits
Occupancy and equipment rental
Communication and office supplies
Commissions and floor brokerage
Other operating expenses

Total non-interest expenses

970,222

778,568

709,219

Income before income taxes
Provision for income taxes

120,414
44,616

91,769
36,267

53,846
21,676

Percentage
Change

2009
vs.
2008

2008
vs.
2007

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

2009

2008

2007

56.2 %
1.3
50.3
(6.0)
(6.6)
*

24.1
(33.9)

25.3

23.2
32.0
20.0
76.2
22.2

24.6

31.2
23.0

110.6%
8.1
(50.6)
18.0
(15.1)
(91.6)

12.1
(38.4)

14.1

7.3
17.6
7.7
33.9
22.8

9.8

70.4
67.3

42.0%
31.7
11.5
10.3
4.3
1.3

101.1
1.1

100.0

65.8
8.2
5.0
2.2
7.8

89.0

11.0
4.1

33.7%
39.2
9.6
13.8
5.7
0.1

18.3%
41.3
22.2
13.3
7.7
1.1

102.1
2.1

103.9
3.9

100.0

67.0
7.8
5.2
1.5
7.9

89.4

10.6
4.2

71.2
7.6
5.6
1.3
7.4

93.1

6.9
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.

NET REVENUES

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

Revenues:
Principal transactions
Commissions
Investment banking:
Capital raising
Advisory

Asset management and service fees
Net interest
Other income

For the Year Ended December 31,

Percentage
Change

2009

2008

2007

$ 458,188
345,520

$ 293,285
341,090

$ 139,248
315,514

76,563
49,244

125,807
112,706
34,626
13,789

45,205
38,505

83,710
119,926
31,638
688

95,084
74,329

169,413
101,610
29,046
8,234

2009
vs.
2008

56.2%
1.3

69.4
27.9

50.3
(6.0)
9.4
*

2008
vs.
2007

110.6%
8.1

(52.5)
(48.2)

(50.6)
18.0
8.9
(91.6)

Total net revenues

$ 1,090,636

$ 870,337

$ 763,065

25.3%

14.1%

*Percentage is not meaningful

Stifel Financial Corp. and Subsidiaries

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 trans-
actions 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 trans-
actions 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.

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 improve-
ment 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 com-
parable 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.

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 mil-
lion in income before income taxes for the comparable period in 2007.

For the year ended December 31, 2008, net revenues (total revenues less inter-
est 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 trans-
actions 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.

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 cli-
ents. 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 bal-
ances 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 reve-
nues increased 18.0% to $119.9 million from $101.6 million in the compara-
ble 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.”

Stifel Financial Corp. and Subsidiaries

Other income – For the year ended December 31, 2008, other income de-
creased $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.

NET INTEREST INCOME

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

December 31, 2009
Interest
Income /
Expense

Average
Interest
Rate

Average
Balance

For the Year Ended
December 31, 2008
Interest
Income /
Expense

Average
Interest
Rate

Average
Balance

December 31, 2007

Average
Balance

Interest
Income /
Expense

Average
Interest
Rate

Interest-earning assets:
Margin balances (Stifel Nicolaus)
Interest-earning assets (Stifel Bank)*
Stock borrow (Stifel Nicolaus)

$ 290,043
687,232
32,588

$ 12,499
20,283
43

14,035

$ 46,860

4.31%
2.95%
0.13%

$ 382,536
273,893
61,097

$ 20,930
15,253
733

13,232

$ 50,148

5.47%
5.57%
1.20%

$ 332,196
188,022
37,019

8.00%
6.67%
3.63%

$ 26,565
9,400
1,342

21,764

$ 59,071

Other (Stifel Nicolaus)

Total interest revenue

Interest-bearing liabilities:
Short-term borrowings
(Stifel Nicolaus)
Interest-bearing liabilities
(Stifel Bank)*
Stock loan (Stifel Nicolaus)
Interest-bearing liabilities
(Capital Trusts)
Other (Stifel Nicolaus)

Total interest expense

Net interest income

$ 107,383

$ 1,065

0.99%

$ 132,660

$ 3,021

2.28%

$ 156,778

$ 7,626

4.86%

626,754
53,110

82,500

4,649
570

5,488
462

12,234

$ 34,626

0.74%
1.07%

229,205
105,424

6.65%

93,019

5,434
2,608

6,233
1,214

18,510

$ 31,638

2.37%
2.47%

152,284
119,590

6.70%

99,679

4.79%
4.82%

6.87%

5,469
5,764

6,849
4,317

30,025

$ 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.

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 inven-
tory 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.

Stifel Financial Corp. and Subsidiaries

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

Non-interest expenses:
Compensation and benefits
Occupancy and equipment rental
Communication and office supplies
Commissions and floor brokerage
Other operating expenses

2009

2008

2007

$718,115
89,741
54,745
23,416
84,205

$ 582,778
67,984
45,621
13,287
68,898

$ 543,021
57,796
42,355
9,921
56,126

Total non-interest expenses

$970,222

$ 778,568

$ 709,219

2009
vs.
2008

23.2%
32.0
20.0
76.2
22.2

24.6%

2008
vs.
2007

7.3%
17.6
7.7
33.9
22.8

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, transi-
tion 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 regard-
ing 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, increas-
ing 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 dur-
ing 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.

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, communica-
tions 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 com-
parable 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 enter-
tainment, 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 at-
tributable 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.

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, compen-
sation and benefits expense increased 7.3%, or $39.8 million, to $582.8 mil-
lion 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 com-
pensation. 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 ad-
dition, for the twelve months ended December 31, 2008 and 2007, employee
compensation and benefits includes $25.6 million and $24.2 million, respec-
tively, 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 pri-
marily 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.

Stifel Financial Corp. and Subsidiaries

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 commis-
sions 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 at-
tributable 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 operat-
ing 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 contin-
ued 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 provi-
sion 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, represent-
ing 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.

SEGMENT ANALYSIS

Our reportable segments include Global Wealth Management, Capital Markets,
and Other. The UBS branch acquisition and related customer account conver-
sion 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 pri-
vate 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. Previ-
ously 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 Capi-
tal 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-At-
lantic 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 cor-
porate 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 invest-
ments 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.

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):

Revenues:
Commissions
Principal transactions
Asset management and service fees
Interest
Investment banking
Other income/(loss)

Total revenues
Interest expense

Net revenues

Non-interest expenses:
Compensation and benefits
Occupancy and equipment rental
Communication and office supplies
Commissions and floor brokerage
Other operating expenses

For the Year Ended December 31,

2009

2008

2007

$ 234,052
194,384
112,166
35,269
14,906
8,626

$ 191,542
124,578
119,047
38,207
15,515
(1,174)

$ 191,987
89,363
101,128
40,690
40,071
1,851

599,404
8,081

487,715
16,710

465,090
24,579

591,323

471,005

440,511

370,157
50,487
26,628
7,606
36,397

289,207
36,200
19,341
4,452
23,708

275,728
29,033
15,915
4,747
18,745

Total non-interest expenses

491,275

372,908

344,168

Percentage
Change

2009
vs.
2008

2008
vs.
2007

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

2009

2008

2007

22.2 %
56.0
(5.8)
(7.7)
(3.9)
*

22.9
(51.6)

25.5

28.0
39.5
37.7
70.9
53.5

31.7

(0.2)%
39.4
17.7
(6.1)
(61.3)
*

4.9
(32.0)

6.9

4.9
24.7
21.5
(6.2)
26.5

8.4

39.6 %
32.9
19.0
6.0
2.5
1.4

101.4
1.4

100.0

62.6
8.5
4.5
1.3
6.2

83.1

40.7 % 43.6%
26.4
25.3
8.1
3.3
(0.2)

20.3
23.0
9.2
9.1
0.4

103.6
3.6

105.6
5.6

100.0

61.4
7.7
4.1
0.9
5.1

79.2

62.6
6.6
3.6
1.1
4.2

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

Stifel Financial Corp. and Subsidiaries

Branch offices (actual)
Financial advisors (actual)
Independent contractors (actual)

Assets in fee-based accounts
Value (in thousands)
Number of accounts (actual)

December 31, 2009
272
1,719
166

December 31, 2008
196
1,142
173

December 31, 2007
148
966
197

$9,309,775
44,071

$5,775,565
24,177

$6,668,882
21,803

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 rev-
enues increased 25.5% to $591.3 million from $471.0 million for the compa-
rable 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 ad-
dition, mutual fund revenue has increased over the comparable period in 2008.

Principal transactions – For the year ended December 31, 2009, principal trans-
actions 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 in-
crease 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 cus-
tomer 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 discus-
sion 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.

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 acquisi-
tions 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, compen-
sation 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, prin-
cipally 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 operat-
ing 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.

Stifel Financial Corp. and Subsidiaries

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 advan-
tage of the opportunities created by market displacement.

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 reve-
nues 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 trans-
actions 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 cus-
tomer margin balances. See “Distribution of Assets, Liabilities, and Sharehold-
ers’ 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 de-
creased 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.

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 compa-
rable period in 2007.

Compensation and benefits – For the year ended December 31, 2008, compensa-
tion 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 oper-
ating 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 compara-
ble period in 2007. The increase is primarily attributable to increased net revenues
and the scalability of increased production.

Stifel Financial Corp. and Subsidiaries

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):

Assets:
Federal funds sold
U.S. government agencies
State and political subdivisions:
Taxable
Non-taxable1
Mortgage-backed securities
Corporate bonds
Asset-backed securities
Federal Home Loan Bank (“FHLB”) and other capital stock
Loans2
Loans held for sale

Total interest-earning assets3
Cash and due from banks
Other non-interest-earning assets

Total assets

Liabilities and shareholders’ equity:
Deposits:
Money market
Time deposits
Demand deposits
Savings
FHLB advances
Federal funds and repurchase agreements

Total interest-bearing liabilities3
Non-interest-bearing deposits
Other non-interest-bearing liabilities

Total liabilities
Shareholders’ equity

Total liabilities and shareholders’ equity

Net interest margin

For the Year Ended

December 31, 2009

Average
Balance

Interest
Income /
Expense

Average
Interest
Rate

December 31, 2008
Interest
Income /
Expense

Average
Interest
Rate

Average
Balance

$ 195,783
1,775

763
97

0.39%
5.46

$ 10,027
13,361

214
824

2.14%
6.17

- -
45
5,878
1,244
717
9
9,914
1,616

- -
4.11
3.61
4.50
4.22
1.18
4.13
3.98

20,283

2.95%

$ 3,841
676
29
- -
103
- -

$ 4,649

0.65%
3.36
0.26
- -
3.12
- -

0.74%

- -
1,096
162,694
27,627
16,997
762
239,879
40,619

$ 687,232
4,927
23,289

$ 715,448

$ 591,961
20,104
11,072
303
3,304
10

$ 626,754
15,054
3,014

644,822
70,626

$ 715,448

9,240
1,530
32,916
926
20,060
991
170,244
14,598

273,893
3,444
23,350

$ 300,687

$ 178,198
36,287
2,755
339
10,739
887

$ 229,205
15,293
1,480

245,978
54,709

$ 300,687

375
58
1,731
57
1,519
28
9,807
640

4.05
3.81
5.26
6.12
7.57
2.82
5.76
4.38

15,253

5.57%

$ 3,491
1,600
44
3
275
21

$ 5,434

1.96%
4.41
1.60
0.97
2.56
2.41

2.37%

$ 15,634

2.27%

$ 9,819

3.58%

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.

Stifel Financial Corp. and Subsidiaries

Assets:
Federal funds sold
U.S. government agencies
State and political subdivisions:
Taxable
Nontaxable1
Mortgage-backed securities
Corporate bonds
Asset-backed securities
FHLB and other capital stock
Loans2
Loans held for sale

Total interest-earning assets3
Cash and due from banks
Other non-interest-earning assets

Total assets

Liabilities and shareholders’ equity:
Deposits:
Money market
Time deposits
Demand deposits
Savings
FHLB advances
Federal funds and repurchase agreements

Total interest-bearing liabilities3
Non-interest-bearing deposits
Other non-interest-bearing liabilities

Total liabilities
Shareholders’ equity

Period

April 2, 2007 - December 31, 2007*

Interest
Income /
Expense

944
897

231
38
902
36
517
19
5,816
- -

9,400

$ 3,290
1,982
40
9
145
3

5,469

Average
Interest
Rate

5.10%
5.57

5.88
3.32
6.18
7.18
7.28
5.05
7.39
- -

6.67%

4.69%
4.94
3.27
2.42
5.32
3.33

4.79%

Average
Balance

24,717
21,490

5,238
1,527
19,473
664
9,465
503
104,945
- -

188,022
1,696
16,746

$ 206,464

92,915
53,490
1,623
495
3,642
119

152,284
9,442
850

162,576
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.

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, securi-
ties, 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 associ-
ated 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.

Stifel Financial Corp. and Subsidiaries

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):

Interest income:
Federal funds sold
U.S. government agencies
State and political subdivisions:
Taxable
Non-taxable
Mortgage-backed securities
Corporate bonds
Asset-backed securities
FHLB and other capital stock
Loans
Loans held for sale

Interest expense:
Deposits:
Money market
Time deposits
Demand deposits
Savings
FHLB advances
Federal funds and repurchase agreements

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

Increase (decrease) due to

Volume

Rate

Total

Volume

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

Increase (decrease) due to
Rate

Total

$
(

862
646)

$ (313)
(81)

$ 549
(727)

$ (214)
(102)

$ (516)
29

$ (730)
(73)

(187)
(17)
4,846
1,206
(205)
(5)
3,697
912

(188)
4
(699)
(19)
(597)
(14)
(3,590)
64

(375)
(13)
4,147
1,187
(802)
(19)
107
976

243
- -
977
26
968
17
5,472
640

(99)
20
(148)
(5)
34
(8)
(1,481)
- -

144
20
829
21
1,002
9
3,991
640

$ 10,463

$(5,433)

$ 5,030

$ 8,027

$(2,174)

$ 5,853

Increase (decrease) due to

Volume

Rate

Total

Volume

Rate

Total

$ 3,900
(603)
46
- -
(222)
(11)

$(3,550)
(321)
(61)
(3)
50
(10)

$ 350
(924)
(15)
(3)
(172)
(21)

$ 3,227
(286)
34
(2)
261
19

$ 3,110

$(3,895)

$ (785)

$ 3,253

$(3,026)
(96)
(30)
(4)
(131)
(1)

$(3,288)

$ 201
(382)
4
(6)
130
18

(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.

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):

Available-for-sale:
U.S. government agencies
State and municipal securities
Mortgage-backed securities:
Agency
Non-agency
Commercial
Corporate fixed income securities
Asset-backed securities

Held-to-maturity:
Asset-backed securities2

Amortized
Cost

998
960

432,820
39,905
47,274
40,788
13,235

December 31, 2009

Gross
Unrealized
Gains1

13
32

1,880
683
683
2,102
1,235

Gross
Unrealized
Losses1

- -
- -

(1,681)
(2,122)
(317)
- -
- -

Estimated
Fair Value

1,011
992

433,019
38,466
47,640
42,890
14,470

$ 575,980

$6,628

$(4,120)

$ 578,488

7,574

- -

$ (3,298)

4,276

Stifel Financial Corp. and Subsidiaries

Available-for-sale:
U.S. government agencies
State and municipal securities
Mortgage-backed securities:
Agency
Non-agency
Asset-backed securities

Held-to-maturity:
Asset-backed securities2

Available-for-sale:
U.S. government agencies
State and municipal securities
Mortgage-backed securities:
Agency
Non-agency
Corporate bonds
Asset-backed securities

Amortized
Cost

$ 8,447
1,513

12,821
23,091
11,400

$ 57,272

$ 7,574

Amortized
Cost

$ 22,485
15,121

13,465
14,444
2,993
19,699

$ 88,207

December 31, 2008

Gross
Unrealized
Gains1

Gross
Unrealized
Losses1

- -
(1)

(391)
(5,669)
(977)

$(7,038)

$ 144
19

- -
- -
- -

$ 163

$ - -

Estimated
Fair Value

$ 8,591
1,531

12,430
17,422
10,423

$ 50,397

$ (1,324)

$ 6,250

December 31, 2007

Gross
Unrealized
Gains1

Gross
Unrealized
Losses1

$ 278
5

- -
232
- -
- -

$ 515

(1)
- -

(10)
- -
(23)
(1,581)

$(1,615)

Estimated
Fair Value

$ 22,762
15,126

13,455
14,676
2,970
18,118

$ 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.

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 trans-
ferred 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 incorpo-
rated an estimated discount rate based upon recent observable debt security
issuances with similar characteristics.

(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 non-credit-related
OTTI is recognized in other comprehensive income/(loss) (“OCI”). For securi-
ties which we expect to sell, all OTTI is recognized in earnings.

Non-credit-related OTTI results from other factors, including increased liquid-
ity 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 there-
fore 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 sum-
mary of our held-to-maturity security at December 31, 2009 (in thousands):

Held-to-maturity:
Original amortized cost1
Impairment losses

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

Carrying value2

December 31, 2009

$ 10,069
(1,881)

8,188
(614)

$ 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 amorti-
zation 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.

Stifel Financial Corp. and Subsidiaries

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):

Available-for-sale:1
U.S. government agencies
State and municipal securities
Mortgage-backed securities:
Agency
Non-agency
Commercial
Corporate fixed income securities
Asset-backed securities

Held-to-maturity:
Asset-backed securities

Weighted average yield

Within
1 Year

$ 1,011
- -

- -
- -
- -
6,271
691

1-5
Years

- -
992

- -
- -
9,866
35,532
4,246

5-10
Years

- -
- -

- -
9, 658
15,125
1,087
9,533

After 10
Years

- -
- -

433,019
28,808
22,649
- -
- -

Total

1,011
992

433,019
38,466
47,640
42,890
14,470

$ 7,973

$50,636

$ 35,403

$ 484,476

$ 578,488

- -

3.72%

4.66%

- -

4.55%

7,574

3.65%

3.79%

1Due 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.

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):

Consumer
Residential real estate
Home equity lines of credit
Commercial
Commercial real estate
Construction and land

Unamortized loan origination costs, net of loan fees
Loans in process
Allowance for loan losses

2009

$ 227,436
52,086
33,369
11,294
10,152
952

335,289
1,556
14
(1,702)

$ 335,157

As of December 31,

2008

$ 19,662
58,778
28,612
27,538
38,446
13,968

187,004
591
(3,878)
(2,448)

$ 181,269

2007

$ 4,044
24,285
1,524
31,417
39,184
24,447

124,901
- -
109
(1,685)

$ 123,325

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

Within 1 Year

$ 196,004

1-5 Years

64,188

Over 5 Years

$ 82,901

Total

$ 343,093

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

Fixed rate loans
Variable or adjustable rate loans

1-5
Years

$ 35,113
29,075

$ 64,188

Over 5
Years

$ 1,446
81,455

$ 82,901

Total

$ 36,559
110,530

$147,089

Stifel Financial Corp. and Subsidiaries

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

Allowance for loan losses, beginning of period
Acquisition of Stifel Bank
Provision for loan losses
Charge-offs:
Construction and land
Commercial real estate
Real estate construction loans
Other

Total charge-offs
Recoveries
Allowance for loan losses, end of period

2009

$ 2,448
- -
604

(859)
(294)
(213)
(25)

(1,391)
41
1,702

Year Ended December 31,

2008

$ 1,685
- -
1,923

(493)
(253)
(414)
- -

(1,160)
- -
2,448

Net charge-offs to average bank loans outstanding, net

0.58%

0.64%

*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):

2007*

- -
1,127
558

(2)
- -
- -
- -

(2)
2
1,685

0.00%

Residential real estate
Commercial real estate
Commercial
Consumer
Unallocated

December 31, 2009

December 31, 2008

December 31, 2007

Balance

Percent*

Balance

Percent*

Balance

Percent*

$ 619
610
321
152
- -

15.8%
3.0
3.4
77.8
- -

$ 1,702

100.0%

$ 584
1,192
646
26
- -

$ 2,448

44.8%
30.0
14.7
10.5
- -

100.0%

$ 100
972
56
8
549

$ 1,685

5.9%
57.7
3.3
0.5
32.6

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 restruc-
turings 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 ad-
dition 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 plac-
ing loans on non-accrual status.

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

$603,033
20,104
15,054
303

0.64%
3.36
*
- -

$ 180,953
36,287
15,293
339

1.95%
4.41
*
0.97

$ 94,538
53,490
9,442
495

4.23%
4.94
*
2.42

Demand deposits (interest-bearing)
Certificates of deposit (time deposits)
Demand deposits (non-interest-bearing)
Savings accounts

*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

$5,423

3-6 Months

$ 265

6-12 Months

Over 12 Months

$ 248

$1,770

Total

7,706

Stifel Financial Corp. and Subsidiaries

VI. Return on Equity and Assets

Return on assets (net income as a percentage of average total assets)
Return on equity (net income as a percentage of average shareholders’ equity)
Dividend payout ratio*
Equity to assets ratio (average shareholders’ equity as a percentage of average total assets)

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

VII. Short-Term Borrowings

2009

2.93%
9.97
- -
29.35%

Year Ended December 31,

2008

3.32%
11.10
- -
29.90%

2007

2.12%
8.24
- -
25.70%

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

2009:
Amounts outstanding at December 31, 2009
Weighted average interest rate thereon
Maximum amount of withdrawals at any month-end
Average amounts outstanding during the year
Weighted average interest rate thereon

2008:
Amounts outstanding at December 31, 2008
Weighted average interest rate thereon
Maximum amount of withdrawals at any month-end
Average amounts outstanding during the year
Weighted average interest rate thereon

2007:
Amounts outstanding at December 31, 2007
Weighted average interest rate thereon
Maximum amount of withdrawals at any month-end
Average amounts outstanding during the year
Weighted average interest rate thereon

Results of Operations – Capital Markets

Short-Term
Borrowings

90,800

1.04 %

$ 212,300
$ 107,383

0.99%

- -
- - %

$ 265,300
$ 132,660

2.28%

$ 127,850

4.53%

$ 362,050
$ 156,778

4.86%

Stock Loan

$
$

16,667

0.33%

85,432
53,110

1.07%

16,987

0.52%

$ 162,888
$ 105,424

2.47%

$ 138,475

4.12%

$ 186,164
$ 119,590

4.82%

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,

2009

2008

2007

$ 263,804
111,469
61,657
49,244

110,901
9,847
1,331

$ 168,707
149,547
29,690
38,506

68,196
9,068
1,439

497,352
3,260

396,957
6,231

$ 49,882
123,486
55,420
74,153

129,573
20,668
875

324,484
21,553

Revenues:
Principal transactions
Commissions
Capital raising
Advisory

Investment banking
Interest
Other income

Total revenues
Interest expense

Net revenues

Percentage
Change

2009
vs.
2008

2008
vs.
2007

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

2009

2008

2007

56.4 % 238.2%
(25.5)
107.7
27.9

21.1
(46.4)
(48.1)

53.3%
22.6
12.5
10.0

62.6
8.6
(7.6)

25.3
(47.7)

(47.4)
(56.1)
64.6

22.3
(71.1)

43.2%
38.3
7.6
9.9

17.5
2.3
0.3

101.6
1.6

16.4%
40.8
18.3
24.5

42.8
6.8
0.3

107.1
7.1

100.0

59.8
3.6
4.9
2.3
5.9

76.5

62.1
3.6
6.5
1.1
6.6

79.9

22.5
2.0
0.3

100.7
0.7

100.0

58.3
3.3
3.7
3.2
5.4

73.9

494,092

390,726

302,931

26.5

29.0

Non-interest expenses:
Compensation and benefits
Occupancy and equipment rental
Communication and office supplies
Commissions and floor brokerage
Other operating expenses

287,835
16,249
18,540
15,716
26,619

233,679
14,194
19,087
8,806
23,068

188,145
10,804
19,879
3,239
20,015

Total non-interest expenses

364,959

298,834

242,082

23.2
14.5
(2.9)
78.5
15.4

22.1

24.2
31.4
(4.0)
171.9
15.3

23.4

Income before income taxes

$ 129,133

$ 91,892

$ 60,849

40.5 %

51.0%

26.1 %

23.5 % 20.1%

Stifel Financial Corp. and Subsidiaries

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 at-
tributable 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 pe-
riod in 2008. The volatility in capital markets has resulted in a decrease in trad-
ing 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 compa-
rable 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 invest-
ment 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 compa-
rable 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 com-
parable 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 inter-
est 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.

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 profession-
als) and 34 support staff since December 31, 2008.

Compensation and benefits – For the year ended December 31, 2009, compen-
sation 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 compensa-
tion 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 mil-
lion from $8.8 million during the first year of 2008.

Other operating expenses – For the year ended December 31, 2009, other oper-
ating 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 mil-
lion 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.

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 princi-
pal 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 attribut-
able 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 pe-
riod 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 compa-
rable 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 mil-
lion 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.

Stifel Financial Corp. and Subsidiaries

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.

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, compen-
sation 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 compensa-
tion 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, oc-
cupancy 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 classi-
fying certain outsourced services which were historically recorded as communi-
cations 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 mil-
lion 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 dur-
ing 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 pro-
duction as a result of our continued expansion of the Capital Markets segment.

Results of Operations – Other Segment

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

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

2008
vs.
2007

(56.1)

(24.3)
7.1

(13.1)

For the Year Ended December 31,

2009

2008

2007

2009
vs.
2008

Net revenues

5,221

8,606

19,623

(39.3)%

Non-interest expenses:
Compensation and benefits
Other operating expenses

60,124
53,864

59,892
46,934

Total non-interest expenses

113,988

106,826

79,148
43,821

122,969

0.4
14.8

6.7

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

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

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 impair-
ment charge of $1.9 million on our held-to-maturity investment during the
fourth quarter due to an other-than-temporary decline in value.

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 mil-
lion 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 mil-
lion gain before certain expenses and taxes on the extinguishment of $12.5 mil-
lion of 6.78% Stifel Financial Capital Trust IV Cumulative Preferred Securities.

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

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

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 Mar-
kets 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 investiga-
tions in connection with ARS and an increase in the number of claims and
litigation costs to defend industry recruitment claims.

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.

Stifel Financial Corp. and Subsidiaries

Analysis of Financial Condition

Cash Flow

Our company’s consolidated statements of financial condition consist primarily
of cash and cash equivalents, receivables, trading inventory, bank loans, invest-
ments, 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 re-
ceivables, trading inventory, financial instruments, loans and advances to finan-
cial 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 subsid-
iaries, as well as accounts payable and accrued expenses, including accrued em-
ployee 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 ex-
penditures, 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 securi-
ties, and cash and cash equivalents. Stifel Bank’s current liquidity needs are gen-
erally 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 subsidiar-
ies 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.

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 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 ap-
proximately 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, and 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 continu-
ally 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 at-
tributable 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.

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 state-
ments 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

Stifel Financial Corp. and Subsidiaries

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 ex-
pansion, 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 imple-
ment 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 avail-
ability 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

Colorado, and with an association of other State securities regulatory authori-
ties 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 inves-
tors 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.

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 col-
lateralized 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
advisor’s 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.

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

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

Beginning balance
Notes issued – organic growth
Notes issued – acquisitions*
Amortization
Other

Ending balance

December 31,
2009

$105,767
81,953
31,659
(33,407)
(849)

$185,123

December 31,
2008

$ 70,407
52,339
2,209
(18,567)
(621)

$ 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 com-
petition 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.

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 imple-
ment 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 mini-
mum 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

Stifel Financial Corp. and Subsidiaries

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 regula-
tions 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, judg-
ments, 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

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 state-
ments 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 mea-
sured 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 observ-
ability 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.

When available, we use observable market prices, observable market param-
eters, 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.

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 Measure-
ment 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 dis-
located and largely ceased to function. Our Level III asset-backed securities are
valued using cash flow models that utilize unobservable inputs. Level III corpo-
rate 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.

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 repur-
chasing 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 proceed-
ings. 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 determina-
tions, 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.

Stifel Financial Corp. and Subsidiaries

Allowance for Doubtful Receivables From Former Employees

We offer transition pay, principally in the form of upfront loans, to finan-
cial 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.

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.” Impair-
ment 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, col-
lateral 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 bor-
rower’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 bal-
ance 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 evalua-
tions 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 estimat-
ing 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, inter-
est 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.

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 impair-
ment 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. Assump-
tions, 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, dis-
count 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 busi-
nesses. 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 use-
ful 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 represent-
ing 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 out-
standing restricted stock unit awards, 2,064,136 shares are currently vested and
5,024,462 are unvested. Assuming vesting requirements are met, the Company

Stifel Financial Corp. and Subsidiaries

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 withhold-
ing 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 withhold-
ing 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.

Contractual Obligations

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

Debenture to Stifel Financial Capital Trust II 1
Interest on debenture 1
Debenture to Stifel Financial Capital Trust III 2
Interest on debenture 2
Debenture to Stifel Financial Capital Trust IV 3
Interest on debenture 3
Stifel CAPCO LLC II non-interest-bearing notes 4
Liabilities subordinated to general creditors
Operating leases
Purchase obligations
Certificates of deposit
Contingent earn-out to UBS Financial Services,
Inc. related to branch acquisition5
Commitment to fund partnership interests
Commitments to extend credit – Stifel Bank 6
Federal Home Loan Bank advances
Voluntary plan to repurchase ARS7

Total

2010

2011

2012

2013

2014

Thereafter

$ 35,000
57,500
35,000
64,760
12,500
46,603
9,398
10,082
200,035
35,088
18,245

8,300
1,300
119,865
2,000
119,508

$ 35,000
2,233
- -
2,377
- -
1,695
9,398
1,391
38,000
23,507
15,711

- -
- -
- -
2,000
41,375

- -
2,233
- -
2,377
- -
1,695
- -
1,474
32,515
9,009
814

8,300
- -
- -
- -
78,133

- -
2,233
35,000
2,377
12,500
1,695
- -
1,722
27,359
2,318
918

- -
- -
- -
- -
- -

- -
2,233
- -
2,377
- -
1,695
- -
2,328
23,958
236
632

- -
- -
- -
- -
- -

- -
2,233
- -
2,377
- -
1,695
- -
3,167
20,122
16
170

- -
- -
- -
- -
- -

- -
46,335
- -
52,875
- -
38,128
- -
- -
58,081
2
- -

- -
- -
- -
- -
- -

$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 incorpo-
rated 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.

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, opera-
tional, 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 accord-
ingly, 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 obliga-
tions. 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 fac-
tors, along with the level of volatility.

We manage our trading businesses by product and have established trading de-
partments 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

Stifel Financial Corp. and Subsidiaries

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 consoli-
dated 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 activi-
ties, 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 monitor-
ing 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.

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 institu-
tional 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
Related portfolio value
VaR as a percentage of portfolio value

$
5,849
$ 127,620

$
278
$91,566

$
1,097
$ 128,730

4.58%

0.30%

0.85%

$
766
$138,053

0.55%

$
467
$19,157

2.44%

Stifel Bank’s interest rate risk is principally associated with changes in market
interest rates related to residential, consumer, and commercial lending activi-
ties, 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
+100
0
-100
-200

37.2%
19.2%
0.00%
n/a
n/a

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

Interest-earning assets:
Loans
Securities
Interest-bearing cash

Interest-bearing liabilities:
Transaction accounts and savings
Certificates of deposit
Borrowings

GAP

Cumulative GAP

0-6 Months

7-12 Months

1-5 Years

5+ Years

Repricing Opportunities

$ 393,605
89,015
112,596
$ 595,216

$ 616,828
15,106
2,000
$ 633,934

(38,718)

$ (38,718)

$ 9,899
38,053
- -
$ 47,952

$ 21,062
590
- -
$ 21,652

26,300

$ (12,418)

$ 25,437
214,624
- -
$ 240,061

$ 356,220
2,548
- -
$ 358,768

(118,707)

$ (131,125)

7,301
236,478
- -
$ 243,779

$ 39,469
- -
- -
$ 39,469

$ 204,310

$ 73,185

Stifel Financial Corp. and Subsidiaries

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 inven-
tory 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 counter-
parties 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 finan-
cial counterparties, reviewing security concentrations, holding and marking
to market collateral on certain transactions, and conducting business through
clearing organizations, which guarantee performance.

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 mar-
gin 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 deriva-
tive, 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 coun-
terparties 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 prop-
erty, or other assets of the borrower. Stifel Bank’s loan policy includes criteria to
adequately underwrite, document, monitor, and manage credit risk. Underwrit-
ing 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 li-
quidity, 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 agree-
ments, 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 busi-
nesses. 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 coun-
terparty, 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 opera-
tions, 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 dif-
ferent businesses in diverse markets and are reliant on the ability of our employ-
ees 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 through-
out 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.

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 investigat-
ing 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 ap-
plicable 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 com-
mitments 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.

Stifel Financial Corp. and Subsidiaries

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firms

Consolidated Statements of Financial Condition

Consolidated Statements of Operations

Consolidated Statements of Shareholders’ Equity

Consolidated Statements of Cash Flows

Notes to the Consolidated Financial Statements

Note 1 Nature of Operation and Basis of Presentation

Note 2 Summary of Significant Accounting Policies

Note 3 Acquisitions

Note 4 Assets and Liabilities Held for Sale

Note 5 Receivables From and Payables to Brokers, Dealers, and Clearing Organizations

Note 6 Fair Value of Financial Instruments

Note 7 Trading Securities Owned and Trading Securities Sold, But Not Yet Purchased

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

Note 9 Bank Loans

Note 10 Fixed Assets

Note 11 Goodwill and Intangible Assets

Note 12 Short-Term Borrowings from Banks

Note 13 Bank Deposits

Note 14 Federal Home Loan Bank Advances and Other Secured Financing

Note 15 Debentures to Stifel Financial Capital Trusts

Note 16 Derivative Instruments and Hedging Activities

Note 17 Liabilities Subordinated to Claims of General Creditors

Note 18 Commitments and Contingencies

Note 19 Legal Proceedings

Note 20 Regulatory Capital Requirements

Note 21 Employee Incentive, Deferred Compensation and Retirement Plans

Note 22 Off-Balance Sheet Credit Risk

Note 23 Income Taxes

Note 24 Segment Reporting

Note 25 Other Comprehensive Income

Note 26 Earnings Per Share

Note 27 Shareholders’ Equity

Note 28 Variable Interest Entities

Note 29 Subsequent Events

Note 30 Quarterly Financial Information (Unaudited)

Stifel Financial Corp. and Subsidiaries

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of
Stifel Financial Corp.

We have audited the accompanying consolidated statement 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.

Chicago, Illinois
February 26, 2010

Stifel Financial Corp. and Subsidiaries

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.

St. Louis, Missouri
February 28, 2008

Stifel Financial Corp. and Subsidiaries

STIFEL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands)

Assets

Cash and cash equivalents
Cash segregated for regulatory purposes
Receivables:
Brokerage clients, net
Broker, dealers, and clearing organizations
Securities purchased under agreements to resell
Trading securities owned, at fair value (includes securities pledged of $366,788
and $123,415, respectively)
Available-for-sale securities, at fair value
Held-to-maturity securities, at amortized cost
Loans held for sale
Bank loans, net
Bank foreclosed assets held for sale, net of estimated cost to sell
Investments
Fixed assets, net
Goodwill
Intangible assets, net
Loans and advances to financial advisors and other employees, net
Deferred tax assets, net
Other assets

December 31,

2009

2008

$ 161,820
19

$ 239,725
40

383,222
309,609
124,854

454,891
578,488
7,574
91,117
335,157
3,143
109,403
62,115
166,725
24,648
185,123
53,462
115,986

280,143
111,575
17,723

122,576
50,397
7,574
31,246
181,269
2,326
75,465
47,765
128,278
15,984
105,767
47,337
92,955

Total Assets

$3,167,356

$1,558,145

See accompanying Notes to Consolidated Financial Statements.

Stifel Financial Corp. and Subsidiaries

STIFEL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (continued)

(in thousands, except share and per share amounts)

2009

2008

December 31,

Liabilities and Shareholders’ Equity

Short-term borrowings from banks
Payables:
Cusstomers
Brokers, dealers, and clearing organizations
Drafts
Securities sold under agreements to repurchase
Bank deposits
Federal Home Loan Bank advances
Trading securities sold, but not yet purchased, at fair value
Accrued compensation
Accounts payable and accrued expenses
Debenture to Stifel Financial Capital Trust II
Debenture to Stifel Financial Capital Trust III
Debenture to Stifel Financial Capital Trust IV
Other

Liabilities subordinated to claims of general creditors

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
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income/(loss)

Treasury stock, at cost, 4,221 and 0 shares, respectively
Unearned employee stock ownership plan shares, at cost,
113,885 and 146,421 shares, respectively

Total Liabilities and Shareholders’ Equity

See accompanying Notes to Consolidated Financial Statements.

90,800

- -

214,883
90,460
66,964
122,533
1,047,211
2,000
277,370
166,346
113,364
35,000
35,000
12,500
9,398

2,283,829

10,081

- -

4,558
623,943
244,615
1,302

874,418
(242)

(730)

873,446

$3,167,356

156,495
29,691
49,401
2,216
284,798
6,000
98,934
130,037
100,528
35,000
35,000
12,500
19,998

960,598

4,362

- -

3,945
427,480
168,993
(6,295)

594,123
- -

(938)

593,185

$1,558,145

Stifel Financial Corp. and Subsidiaries

STIFEL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

Revenues:

Principal transactions
Commissions
Investment banking
Asset management and service fees
Interest
Other income1

Total revenues
Interest expense

Net revenues

Non-interest expenses:

Compensation and benefits
Occupancy and equipment rental
Communications and office supplies
Commissions and floor brokerage
Other operating expenses

Total non-interest expenses

Income before income tax expense
Provision for income taxes

Net income

Earnings per common share:
Basic
Diluted
Weighted average number of common shares outstanding:
Basic
Diluted

Years Ended December 31,

2009

2008

2007

$ 458,188
345,520
125,807
112,706
46,860
13,789

1,102,870
12,234

1,090,636

718,115
89,741
54,745
23,416
84,205

970,222

120,414
44,616

$ 293,285
341,090
83,710
119,926
50,148
688

888,847
18,510

870,337

582,778
67,984
45,621
13,287
68,898

778,568

91,769
36,267

$ 139,248
315,514
169,413
101,610
59,071
8,234

793,090
30,025

763,065

543,021
57,796
42,355
9,921
56,126

709,219

53,846
21,676

75,798

$ 55,502

$ 32,170

$
$

2.68
2.35

28,297
32,294

$
$

2.31
1.98

24,069
28,073

$
$

1.48
1.25

21,754
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 comprehen-
sive income as a component of shareholders’ equity at December 31, 2009, was $1,129.
See accompanying Notes to Consolidated Financial Statements.

Stifel Financial Corp. and Subsidiaries

STIFEL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Common Stock

Amount

Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income/(Loss)

Treasury
Stock,
At Cost

Unearned
Employee
Stock
Ownership
Plan

Total

Balance at December 31, 2006

18,038

$ 2,706

$ 124,263

$ 94,651

- -

$ (1,355)

220,265

Comprehensive income:
Net income
Net unrealized loss on securities, net of tax
Total comprehensive income
Purchase of treasury stock
Employee stock ownership plan purchases
Issuance of stock for employee benefit plans
Stock option exercises
Issuance of warrants
Warrant exercises
Unit amortization
Excess tax benefit from stock-based compensation
Issuance of shares – Ryan Beck acquisition
Acceleration of deferred compensation –
Ryan Beck
Issuance of stock – private placement
Adoption of FIN 48

- -
- -
- -
- -
- -
1,162
407
- -
- -
- -
- -
3,701

- -
12
- -

- -
- -
- -
- -
- -
174
61
- -
- -
- -
- -
555

- -
2
- -

- -
- -
- -
- -
882
(13,916)
1,196
16,895
(15)
38,101
11,841
101,974

16,673
198
- -

32,170
- -
- -
- -
- -
(79)
(1,507)
- -
(15)
- -
- -
- -

- -
- -
83

- -
(660)
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -

- -
- -
- -

- -
- -
- -
(4,165)
- -
450
3,220
- -
46
- -
- -
- -

- -
- -
- -

- -
- -
- -
- -
208
- -
- -
- -
- -
- -
- -
- -

- -
- -
- -

32,170
(660)
31,510
(4,165)
1,090
(13,371)
2,970
16,895
16
38,101
11,841
102,529

16,673
200
83

Balance at December 31, 2007

23,320

3,498

298,092

125,303

(660)

(450)

(1,146)

424,637

Comprehensive income:
Net income
Net unrealized loss on securities, net of tax
Reclassification adjustment for losses
included in net income, net of tax
Total comprehensive income
Purchase of treasury stock
Employee stock ownership plan purchases
Issuance of stock for employee benefit plans
Stock option exercises
Warrant exercises
Unit amortization
Excess tax benefit from stock-based compensation
Ryan Beck contingent earn-out
Issuance of stock – public offering
Extinguishment of Stifel Financial
Capital Trust IV

- -
- -

- -
- -
- -
- -
811
243
- -
- -
- -
289
1,495

142

- -
- -

- -
- -
- -
- -
122
37
- -
- -
- -
43
224

- -
- -

55,502
- -

- -
(6,634)

- -
- -
- -
1,004
(21,480)
1,062
(4)
52,593
14,840
11,277
64,145

- -
- -
- -
- -
(9,951)
(1,861)
- -
- -
- -
- -
- -

5,951

- -

999
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -

- -

Balance at December 31, 2008

26,300

3,945

427,480

168,993

(6,295)

Comprehensive income:
Net income
Unrealized gain on securities, net of tax
Unrealized loss on cash flow hedging
activities, net of tax
Total comprehensive income
Purchase of treasury stock
Employee stock ownership plan purchases
Issuance of stock for employee benefit plans
Stock option exercises
Unit amortization
Excess tax benefit from stock-based compensation
Ryan Beck contingent earn-out
Issuance of stock – at the market offering
Issuance of stock – public offering
Warrant exercises

- -
- -

- -
- -
- -
- -
738
354
- -
- -
271
1,000
1,725
- -

- -
- -

- -
- -
- -
- -
110
53
- -
- -
41
150
259
- -

- -
- -

75,798
- -

- -
7,517

- -
- -
572
1,347
(7,607)
986
42,502
13,337
9,260
44,544
91,511
11

- -
- -
- -
- -
(72)
(104)
- -
- -
- -
- -
- -
- -

80
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -

- -
- -

- -
- -
(12,141)
- -
9,874
2,657
4
- -
- -
56
- -

- -

- -
- -

- -
- -
(572)
- -
102
228
- -
- -
- -
- -
- -
- -

- -
- -

- -
- -
- -
208
- -
- -
- -
- -
- -
- -
- -

- -

55,502
(6,634)

999
49,867
(12,141)
1,212
(21,435)
1,895
- -
52,593
14,840
11,376
64,369

5,972

(938)

593,185

- -
- -

- -
- -
- -
208
- -
- -
- -
- -
- -
- -
- -
- -

75,798
7,517

80
83,395
- -
1,555
(7,467)
1,163
42,502
13,337
9,301
44,694
91,770
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.

Stifel Financial Corp. and Subsidiaries

STIFEL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

2009

2008

2007

Year Ended December 31,

Cash Flows From Operating Activities:
Net income
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
Depreciation and amortization
Amortization of loans and advances to financial advisors and
other employees
Accretion of discounts on available-for-sale securities
Provision for loan losses and allowance for loans and
advances to financial advisors and other employees
Deferred income taxes
Excess tax benefits from stock-based compensation
Warrant valuation adjustment
Gain on extinguishment of debt
Stock-based compensation
(Gains) losses on investments
Other, net

Decrease (increase) in operating assets, net of assets acquired:
Receivables:
Brokerage clients
Brokers, dealers, and clearing organizations
Securities purchased under agreements to resell
Loans originated as held for sale
Proceeds from mortgages held for sale
Trading securities owned, including those pledged
Loans and advances to financial advisors and other employees
Other assets
Increase/(decrease) in operating liabilities, net of liabilities assumed:
Payables:
Customers
Brokers, dealers, and clearing organizations
Drafts
Trading securities sold, but not yet purchased
Other liabilities and accrued expenses

$ 75,798

$ 55,502

$ 32,170

25,978

33,408
866

298
(10,270)
(13,337)
- -
- -
47,962
14,303
2,455

(79,688)
(198,034)
(107,131)
(874,786)
848,045
(332,315)
(108,327)
(14,115)

58,388
62,181
17,563
178,436
25,072

17,027

15,203
(593)

1,801
(6,168)
(14,840)
- -
(6,662)
54,356
10,843
254

215,146
70,036
(4,478)
(322,809)
293,544
4,624
(49,065)
6,475

(3,245)
(21,594)
(2,081)
61,616
(24,599)

15,663

16,578
- -

1,275
(22,070)
(11,841)
455
(3,750)
56,381
(1,225)
46

(221,017)
(45,231)
142,900
(20,279)
17,173
285,546
(45,072)
15,919

31,064
5,111
16,582
(226,627)
33,003

Net cash (used in) provided by operating activities

$(347,250)

$ 350,293

$ 72,754

See accompanying Notes to Consolidated Financial Statements.

Stifel Financial Corp. and Subsidiaries

STIFEL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in thousands)

2009

2008

2007

Year Ended December 31,

Cash Flows From Investing Activities:
Proceeds from:
Sale or maturity of investments
Maturities, calls, and principal paydowns on available-for-sale securities
Sale of property
Sale of bank foreclosed assets held for sale
Decrease/(increase) in bank loans, net
Excess cash acquired over cash disbursed in Ryan Beck acquisition

Payments for:
Purchase of available-for-sale securities
Acquisitions, net
Purchase of investments
Purchase of fixed assets
Purchase of bank foreclosed loans held for sale

Net cash used in investing activities

Cash Flows From Financing Activities:
Net proceeds/(payments) for short-term borrowings from banks
Securities sold under agreements to repurchase
Increase in bank deposits, net
Increase/(decrease) in securities loaned
Issuance of debentures to Stifel Financial Capital Trust III
Issuance of debentures to Stifel Financial Capital Trust IV
Excess tax benefits from stock-based compensation
Proceeds from offering of common stock, net
Issuance of common stock
Reissuance of treasury stock
Proceeds from/(payments to) Federal Home Loan Bank advances
and other secured financing
Calling of Stifel Financial Capital Trust I
Extinguishment of debenture to Stifel Financial Capital Trust IV
Extinguishment of subordinated debt
Repurchase of stock for treasury

Net cash provided by (used in) financing activities

(Decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year

57,515
49,259
- -
3,734
(2,626)
- -

(568,910)
(251,652)
(105,275)
(27,892)
(4,966)

(850,813)

90,800
120,317
762,413
(1,412)
- -
- -
13,337
136,464
2,719
820

(4,000)
- -
- -
(1,300)
- -

1,120,158

(77,905)
239,725

$ 63,428
43,950
766
1,340
(60,314)
- -

(24,909)
(10,589)
(76,396)
(21,647)
(2,093)

(86,464)

(127,850)
2,216
92,317
(114,211)
- -
- -
14,840
64,369
2,580
727

6,000
- -
- -
(914)
(12,141)

(72,067)

197,762
47,963

64,065
- -
1,131
691
(27,103)
3,545

(70,541)
(33,329)
(63,441)
(25,607)
(123)

(150,712)

(67,750)
- -
97,215
47,619
35,000
35,000
11,841
200
1,856
628

(11,035)
(34,500)
(6,250)
(720)
(4,165)

104,939

26,981
20,982

Cash and cash equivalents at end of year

$ 161,820

$ 239,725

47,963

Supplemental disclosures of cash flow information:
Cash paid for income taxes, net of refunds
Cash paid for interest
Noncash investing and financing activities:
Units, net of forfeitures
Payment of Ryan Beck contingent earn-out
Liabilities subordinated to claims of general creditors
Extinguishment of debenture to Stifel Capital Trust IV
Stocks and warrants issued for Ryan Beck acquisition
Exchange of Ryan Beck appreciation units for restricted stock units

See accompanying Notes to Consolidated Financial Statements.

15,617
12,066

89,633
9,301
3,166
- -
- -
- -

$ 31,966
19,375

$ 65,609
11,376
4,050
5,975
- -
- -

21,031
29,316

73,267
- -
1,474
- -
118,969
16,895

Stifel Financial Corp. and Subsidiaries

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

NOTE 2 – Summary of Significant Accounting Policies

Nature of Operations

Cash and Cash Equivalents

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, Incorporat-
ed. 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 ac-
tivities; 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 com-
pany’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 enti-
ties 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 inde-
pendently; 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 charac-
teristics 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.

We determine whether we are the primary beneficiary of a VIE by first perform-
ing 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 pri-
mary beneficiary of a VIE upon the occurrence of certain reconsideration events.

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, certifi-
cates 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 Securi-
ties 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 re-
ceivables, 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 gener-
ally 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 ex-
change 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 agree-
ments, 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.

Securities Purchased Under Agreements to Resell

Securities purchased under agreements to resell (“resale agreements”) are col-
lateralized 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 state-
ments, 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 unobserv-
able inputs by requiring that the most observable inputs be used when available.

Stifel Financial Corp. and Subsidiaries

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 informa-
tion 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 mar-
kets and are measured using management’s best estimate of fair value, where
the inputs into the determination of fair value require significant manage-
ment judgment or estimation.

Valuation of Financial Instruments

When available, we use observable market prices, observable market param-
eters, 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 pa-
rameters 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.

The degree of judgment used in measuring the fair value of financial instru-
ments generally correlates to the level of pricing observability. Pricing observ-
ability 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 gener-
ally 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 secu-
rities 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 com-
pany’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-tempo-
rary 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.

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 oc-
curred 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 informa-
tion 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 col-
lateral if the loan is collateral dependent.

Stifel Financial Corp. and Subsidiaries

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 prin-
cipal 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, valua-
tions are periodically performed and the assets are carried at the lower of car-
rying 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.

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 ei-
ther 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 equip-
ment 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 impair-
ment 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 report-
ing 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.

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 compensa-
tion 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 agree-
ments to repurchase and monitor the value of these securities on a daily basis.
When necessary, we will deliver additional collateral.

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 ex-
penses on the consolidated statements of financial condition and in the operat-
ing 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 net-
ting 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 dur-
ing 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. Com-
mission 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 propri-
etary equity research products are accounted for as a cost of doing business.

Investment banking revenues include advisory fees, management fees, under-
writing fees, net of reimbursable expenses, and sales credits earned in connec-
tion 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 contractu-
ally due. Expenses associated with investment banking transactions are deferred
until the related revenue is recognized or the engagement is otherwise concluded.

Stifel Financial Corp. and Subsidiaries

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 posses-
sion 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.

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 ben-
efits 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 informa-
tion regarding income taxes.

Recently Adopted Accounting Guidance

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 consoli-
dated financial statements.

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 re-
quires 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 consoli-
dated financial statements.

Other-Than-Temporary Impairments

In April 2009, the FASB issued new standards for the recognition and measure-
ment 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.

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification

Derivatives

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 state-
ment 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 sub-
sequent 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 as-
sistance 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 discus-
sion of fair value.

In September 2008, the FASB issued additional guidance, which requires ad-
ditional 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 disclo-
sures, 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 instru-
ments, 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.

Stifel Financial Corp. and Subsidiaries

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 ac-
counting 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 mea-
surements, 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 acqui-
sition 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 opera-
tions 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 liquid-
ity 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 ac-
counting 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 contin-
ued 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.

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 ongoing banking
operations in this market.

Stifel Financial Corp. and Subsidiaries

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):

Deposits paid for securities borrowed
Receivable from clearing organizations
Securities failed to deliver

December 31, 2009

December 31, 2008

$ 147,325
97,658
64,626

$ 309,609

$ 49,784
57,954
3,837

$ 111,575

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

Securities failed to receive
Deposits received from securities loaned
Payable to clearing organizations

December 31, 2009

December 31, 2008

$ 73,793
16,667
- -

$ 90,460

8,811
16,987
3,893

$ 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

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.

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.

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 unob-
servable 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 signifi-
cant 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.

Stifel Financial Corp. and Subsidiaries

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

Total

Level I

Level II

Level III

December 31, 2009

Assets:
Cash equivalents

Trading securities owned:
U.S. government agency securities
U.S. government securities
Corporate securities:
Fixed income securities
Equity securities
State and municipal securities

Total trading securities owned

Available-for-sale securities:
U.S. government agency securities
State and municipal securities
Mortgage-backed securities:
Agency
Non-agency
Commercial
Corporate fixed income securities
Asset-backed securities

Total available-for-sale securities

Investments:
Corporate equity securities
Mutual funds
U.S. government securities
Auction rate securities:
Equity securities
Municipal securities
Other

Total investments

3,824

- -

158,724
20,254

209,950
18,505
47,458

454,891

1,011
992

433,019
38,466
47,640
42,890
14,470

578,488

2,671
28,597
7,266

46,297
9,706
6,536

- -
20,254

36,541
18,505
- -

75,300

- -
- -

- -
- -
- -
32,204
- -

32,204

2,671
28,597
7,266

- -
- -
672

101,073

39,206

158,724
- -

172,166
- -
47,458

378,348

1,011
992

433,019
38,466
47,640
10,686
11,777

543,591

- -
- -
- -

- -
- -
438

438

- -

- -
- -

1,243
- -
- -

1,243

- -
- -

- -
- -
- -
- -
2,693

2,693

- -
- -
- -

46,297
9,706
5,426

61,429

Liabilities:
Trading securities sold, but not yet purchased:
U.S. government securities
U.S. government agency securities
Corporate securities:
Fixed income securities
Equity securities
State and municipal securities

Total trading securities sold, but not yet purchased
Derivative contracts

$ 1,138,276

$ 150,534

$ 922,377

$65,365

$ 127,953
1,537

122,491
25,057
332

277,370
78

$ 127,953
- -

11,744
25,057
- -

164,754
- -

- -
1,537

110,747
- -
332

112,616
78

$ 277,448

$ 164,754

$ 112,694

- -
- -

- -
- -
- -

- -
- -

- -

Stifel Financial Corp. and Subsidiaries

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

Total

Level I

Level II

Level III

December 31, 2008

Assets:
Cash equivalents

Trading securities owned:
U.S. government agency securities
U.S. government securities
Corporate securities:
Fixed income securities
Equity securities
State and municipal securities

Total trading securities owned

Available-for-sale securities:
U.S. government agency securities
State and municipal securities
Mortgage-backed securities:
Agency
Non-agency
Asset-backed securities

Total available-for-sale securities

Investments:
Corporate equity securities
Mutual funds
U.S. government securities
Auction rate securities:
Equity securities
Municipal securities
Other

Total investments

$ 172,589

- -

26,525
13,876

43,131
14,094
24,950

122,576

8,591
1,531

12,430
17,422
10,423

50,397

2,668
23,082
7,132

11,470
7,039
5,678

57,069

- -
13,876

11,820
14,094
4,397

44,187

- -
- -

- -
- -
- -

- -

2,668
23,082
9

- -
- -
90

25,849

26,525
- -

27,150
- -
20,553

74,228

8,591
1,531

12,430
17,422
- -

39,974

- -
- -
7,123

- -
- -
419

7,542

- -

- -
- -

4,161
- -
- -

4,161

- -
- -

- -
- -
10,423

10,423

- -
- -
- -

11,470
7,039
5,169

23,678

Liabilities:
Trading securities sold, but not yet purchased:
U.S. government securities
Corporate securities:
Equity securities
Fixed income securities
State and municipal securities

$ 402,631

$ 242,625

$ 121,744

$38,262

$ 33,279

- -

3,489
62,012
154

3,489
24,081
- -

- -
37,931
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.

Stifel Financial Corp. and Subsidiaries

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
Available-for-sale securities:
Asset-backed securities
Investments:
Auction rate securities:
Equity securities
Municipal securities
Other

Total investments

$ 4,161

$ (4,020)

$ 236

$ 1,448

$ (582)

$ 1,243

10,423

(4,450)

- -

11,470
7,039
5,169

23,678

36,690
2,725
350

39,765

- -
- -
(503)

(503)

- -

- -
- -
- -

- -

(3,280)

2,693

(1,863)
(58)
410

(1,511)

46,297
9,706
5,426

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 earn-
ings for the year ended December 31, 2009, relating to Level III assets still held at December 31, 2009.

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

Financial assets
Cash and cash equivalents*
Cash segregated for regulatory purposes*
Securities purchased under agreements to resell*
Trading securities owned
Available-for-sale securities
Held-to-maturity securities
Loans held for sale*
Bank loans
Investments

Financial liabilities
Non-interest-bearing deposits
Interest-bearing deposits
Securities sold under agreements to repurchase*
Federal Home Loan Bank advances*
Trading securities sold, but not yet purchased
Derivatives
Liabilities subordinated to the claims of general creditors

*The carrying amount approximates fair value.

Carrying
Amount

Estimated
Fair Value

$ 161,820
19
124,854
454,891
578,488
7,574
91,117
335,157
109,403

19,521
1,027,690
122,533
2,000
277,370
78
10,081

$ 161,820
19
124,854
454,891
578,488
4,276
91,117
332,437
109,403

19,013
1,027,403
122,533
2,000
277,370
78
9,299

Carrying
Amount

$ 239,725
40
17,723
122,576
50,397
7,574
31,246
181,269
75,465

$ 23,162
261,636
2,216
6,000
98,934
- -
4,362

Estimated
Fair Value

$239,725
40
17,723
122,576
50,397
6,250
31,246
181,269
75,465

$ 23,162
261,636
2,216
6,000
98,934
- -
7,552

Stifel Financial Corp. and Subsidiaries

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 trans-
actions 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.

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 in-
struments 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

Certain securities available for sale are classified as Level III, the majority of
which are asset-backed securities, consisting of collateral loan obligation securi-
ties 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 com-
pany’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; how-
ever, 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.

Investments

Investments in public companies are valued based on quoted prices in active
markets and reported. Investments in certain equity securities with unobserv-
able 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 manage-
ment’s best estimate of fair value, where the inputs require significant manage-
ment 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 dis-
counted 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 trans-
actions 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.

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 ob-
servable 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.

Liabilities subordinated to claims of general creditors

The fair value of subordinated debt was measured using the interest rates com-
mensurate 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 signifi-
cantly affect the estimates.

Stifel Financial Corp. and Subsidiaries

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
U.S. government securities
Corporate securities:
Fixed income securities
Equity securities
State and municipal securities

Trading securities sold, but not yet purchased:
U.S. government securities
U.S. government agency securities
Corporate securities:
Fixed income securities
Equity securities
State and municipal securities

$ 158,724
20,254

209,950
18,505
47,458

$ 454,891

$ 127,953
1,537

122,491
25,057
332

$ 277,370

$ 26,525
13,876

43,131
14,094
24,950

$ 122,576

- -
33,279

3,489
62,012
154

$ 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.

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):

Available-for-sale
U.S. government securities
State and municipal securities
Mortgage-backed securities:
Agency
Non-agency
Commercial
Corporate fixed income securities
Asset-backed securities

Held-to-maturity
Asset-backed securities

Amortized
Cost

998
960

432,820
39,905
47,274
40,788
13,235

$ 575,980

December 31, 2009

Gross
Unrealized
Gains1

13
32

1,880
683
683
2,102
1,235

$6,628

Gross
Unrealized
Losses1

- -
- -

(1,681)
(2,122)
(317)
- -
- -

Estimated
Fair Value

1,011
992

433,019
38,466
47,640
42,890
14,470

$(4,120)

$ 578,488

7,574

- -

$(3,298)

4,276

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

Stifel Financial Corp. and Subsidiaries

Available-for-sale
U.S. government securities
State and municipal securities
Mortgage-backed securities:
Agency
Non-agency
Asset-backed securities

Held-to-maturity
Asset-backed securities2

Amortized
Cost

$ 8,447
1,513

12,821
23,091
11,400

December 31, 2008

Gross
Unrealized
Gains1

Gross
Unrealized
Losses1

$ 144
19

- -
- -
- -

- -
(1)

(391)
(5,669)
(977)

$(7,038)

Estimated
Fair Value

8,591
1,531

12,430
17,422
10,423

$ 50,397

$ 57,272

$ 163

7,574

- -

$(1,324)

6,250

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 opera-
tions. 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 compre-
hensive income/(loss).

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 trans-
ferred 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 incorpo-
rated an estimated discount rate based upon recent observable debt security
issuances with similar characteristics.

collateralized debt obligation secondary market securities from distressed sell-
ers; and 5) difficult times in the banking sector, which has lead to a significant
amount of bank failures.

Held-to-maturity:
Original amortized cost1
Impairment losses

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

Carrying value2

December 31, 2009

$10,069
(1,881)

8,188

(614)

$ 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 accre-
tion or amortization of interest, less any impairment previously recognized in
earnings.
2 Held-to-maturity securities are carried on the consolidated statements of finan-
cial condition at amortized cost, and the changes in the value of these securities,
other than impairment charges, are not reported on the financial statements.

Our investment in a held-to-maturity asset-backed security consists of pools of
trust preferred securities related to banks. Unrealized losses were caused primar-
ily by: 1) widening of credit spreads; 2) illiquid markets for collateralized debt
obligations; 3) global disruptions in the credit markets; 4) increased supply of

The table below summarizes the amortized cost and fair values of debt securi-
ties, 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.

Debt securities
Within one year
After one year through three years
After three years through five years
After five years through ten years
After ten years
Mortgage-backed securities
After three years through five years
After five years through ten years
After ten years

December 31, 2009

Available-for-Sale

Held-to-Maturity

Amortized
Cost

Estimated
Fair Value

Amortized
Cost

Estimated
Fair Value

$ 7,818
29,176
9,021
9,966
- -

10,033
24,948
485,018

$575,980

7,973
30,649
10,122
10,619
- -

9,866
24,783
484,476

$578,488

- -
- -
- -
- -
7,574

- -
- -
- -

- -
- -
- -
- -
4,276

- -
- -
- -

$ 7,574

$ 4,276

Stifel Financial Corp. and Subsidiaries

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 invest-
ments 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):

Available-for-sale
Mortgage-backed securities:
Agency
Non-agency
Commercial

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

$ (1,512)
(341)
(167)

$ 174,504
9,832
9,866

(170)
(1,780)
(150)

$10,494
9,440
9,836

$ (1,682)
(2,121)
(317)

$ 184,998
19,272
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 accor-
dance 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 non-credit-related
OTTI is recognized in other comprehensive income/(loss). For securities which
we expect to sell, all OTTI is recognized in earnings.

Non-credit-related OTTI results from other factors, including increased liquid-
ity 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 spon-
sors 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 impair-
ment related to credit losses recognized in earnings for our held-to-maturity
security is as follows (in thousands):

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

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

2009

- -

1,881

- -

$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.

Stifel Financial Corp. and Subsidiaries

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

Consumer1
Residential real estate
Home equity lines of credit
Commercial
Commercial real estate
Construction and land

Unamortized loan origination costs, net of loan fees
Loans in process
Allowance for loan losses

Percent

67.8%
15.5
10.0
3.4
3.0
0.3

100.0%

Balance

$ 227,436
52,086
33,369
11,294
10,152
952

335,289
1,556
14
(1,702)

$335,157

Percent

10.5%
31.4
15.3
14.7
20.6
7.5

100.0%

Balance

$ 19,662
58,778
28,612
27,538
38,446
13,968

187,004
591
(3,878)
(2,448)

$ 181,269

1Includes 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):

Allowance for loan losses, beginning of period
Acquisition of Stifel Bank
Provision for loan losses
Charge-offs:
Construction and land
Commercial real estate
Real estate construction loans
Other

Total charge-offs
Recoveries
Allowance for loan losses, end of period

2009

$ 2,448
- -
604

(859)
(294)
(213)
(25)

(1,391)
41
1,702

Year Ended December 31,

2008

$ 1,685
- -
1,923

(493)
(253)
(414)
- -

(1,160)
- -
2,448

Net charge-offs to average bank loans outstanding, net

0.58%

0.64%

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

2007*

- -
1,127
558

(2)
- -
- -
- -

(2)
2
1,685

0.00%

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, respec-
tively, 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.

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 agree-
ment. 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

Furniture and equipment
Building and leasehold improvements

Total
Less accumulated depreciation and amortization

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 ex-
tensions 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

$ 92,126
41,434

133,560
(71,445)

$ 62,115

$ 70,049
31,791

101,840
(54,075)

$ 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.

Stifel Financial Corp. and Subsidiaries

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 operat-
ing 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 compar-
ing 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):

Goodwill
Global Wealth Management
Capital Markets

Intangible assets
Global Wealth Management
Capital Markets

December 31,
2008

Net Additions

Impairment
Losses

December 31,
2009

$ 75,058
53,220

$37,362
1,085

$128,278

$38,447

- -
- -

- -

$112,420
54,305

$166,725

December 31,
2008

Net Additions

Amortization

December 31,
2009

$12,242
3,742

$11,426
- -

$15,984

$11,426

$ (2,312)
(450)

$ (2,762)

$21,356
3,292

$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, primar-
ily 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.

Amortizable intangible assets consist of acquired customer lists, non-compete
agreements, and core deposits that are amortized to expense over their contractu-
al 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 amortiza-
tion as of December 31, 2009 and 2008 were as follows (in thousands):

Customer lists
Non-compete agreements
Core deposits

December 31, 2009

December 31, 2008

Gross
Carrying
Value

$ 30,754
2,789
2,157

$35,700

Accumulated
Amortization

$ 7,584
2,371
1,097

$11,052

Gross
Carrying
Value

$ 19,533
2,584
2,157

$24,274

Accumulated
Amortization

$5,371
2,115
804

$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
2011
2012
2013
2014
Thereafter

$ 2,740
2,498
2,164
2,051
1,949
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.

Stifel Financial Corp. and Subsidiaries

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 de-
mand 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 ongo-
ing credit arrangements with banks that provided a peak daily borrowing of
$379,300 during the year ended December 31, 2009. There are no compensat-
ing 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.

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):

Money market and savings accounts
Demand deposits (non-interest-bearing)
Certificates of deposit
Demand deposits (interest-bearing)

December 31, 2009

December 31, 2008

$ 993,264
19,521
18,245
16,181

$ 1,047,211

$233,276
23,162
24,102
4,258

$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):

Certificates of deposit, less than $100:
Within one year
One to three years
Over three years

Certificates of deposit, $100 and greater:
Within one year
One to three years
Over three years

December 31, 2009

December 31, 2008

$ 9,775
514
250

$ 10,539

$ 5,936
1,217
553

$ 7,706

$ 18,245

$ 8,525
3,562
1,349

$ 13,436

$ 7,455
1,949
1,262

$ 10,666

$ 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.

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, respec-
tively, 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 of-
fered 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 of-
fered 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. Distribu-
tions 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 Deben-
tures 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 of-
fered 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 pre-
sented 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% Cumula-
tive 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

Stifel Financial Corp. and Subsidiaries

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.

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 con-
solidated 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 vari-
able 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 modi-
fy 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 instru-
ments are recorded in other income or other expense. There was no ineffective-
ness 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.

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 man-
age 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 repay-
ment 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 nonperfor-
mance 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.

Stifel Financial Corp. and Subsidiaries

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 de-
faulted derivatives in a timely fashion. We monitor the risk that our uncollater-
alized 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 com-
pany 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

2010
2011
2012
2013
2014

2004
2005
2006
2007
2008

Total

$ 1,391
1,474
1,722
2,328
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 securi-
ties 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

2010
2011
2012
2013
2014
Thereafter

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 Cor-
poration, 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.

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 agree-
ments is not quantifiable and may exceed the cash and securities it has posted
as collateral. However, the potential requirement for our company to make pay-
ments 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 authori-
ties 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 redemp-
tion 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

$ 38,000
32,515
27,359
23,958
20,122
58,081

$ 200,035

Purchase
Obligations

$23,507
9,009
2,318
236
16
2

Total

$ 61,507
41,524
29,677
24,194
20,138
58,083

$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.

NOTE 19 – Legal Proceedings

Our company and its subsidiaries are named in and subject to various proceed-
ings and claims arising primarily from our securities business activities, includ-
ing lawsuits, arbitration claims, class actions, and regulatory matters. Some of
these claims seek substantial compensatory, punitive, or indeterminate damages.

Stifel Financial Corp. and Subsidiaries

Our company and its subsidiaries are also involved in other reviews, investiga-
tions, and proceedings by governmental and self-regulatory organizations re-
garding 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 consid-
eration 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 sev-
eral 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 pen-
alties 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 ap-
plicable 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 previ-
ously 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 thou-
sand 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 avail-
able 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.

“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, puni-
tive 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 ag-
gregate 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 vari-
ous 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 com-
pany’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 reg-
ulatory 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, 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

Stifel Financial Corp. and Subsidiaries

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
Tier 1 capital to risk-weighted assets
Tier 1 capital to adjusted average total assets

$ 720,138
718,436
718,436

40.6%
40.5
30.5

$ 141,862
70,931
94,146

8.0%
4.0
4.0

$ 177,328
106,397
117,682

10.0%
6.0
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
Tier 1 capital to risk-weighted assets
Tier 1 capital to adjusted average total assets

$ 83,851
82,149
82,149

14.5%
14.2
7.6

$ 46,371
23,185
43,292

8.0%
4.0
4.0

$ 57,963
34,778
54,115

10.0%
6.0
5.0

NOTE 21 – Employee Incentive, Deferred Compensation and Retirement Plans

We maintain several incentive stock award plans that provide for the grant-
ing of stock options, stock appreciation rights, restricted stock, performance
awards, and stock units to our employees. Awards under our company’s incen-
tive 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.

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 compen-
sation. 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):

Outstanding December 31, 2008
Granted
Exercised
Forfeited
Expired

Outstanding December 31, 2009

Exercisable December 31, 2009

Options

1,367
--
380
- -
- -

987

946

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 pro-
ceeds 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.

Unvested December 31, 2008
Granted
Vested
Cancelled

Unvested December 31, 2009

Weighted Average
Exercise Price

Weighted Average
Remaining
Contractual Term

Aggregate
Intrinsic
Value

$ 7.93
- -
6.14
- -
- -

$ 8.63

$ 7.94

Stock Units

2.99

2.84

$ 49,964

$ 48,509

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 em-
ployee and is issued in lieu of cash incentive, principally for deferred compensa-
tion and employee retention plans. At December 31, 2009, the total number of
stock units outstanding was 7,088,598.

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

Stock Units

4,428
2,109
(1,337)
(175)

5,025

Weighted Average
Grant Date
Fair Value

- -
41.10
- -
- -

- -

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.

Stifel Financial Corp. and Subsidiaries

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 in-
centive 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 com-
pany 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 compensa-
tion 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.

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 compen-
sation 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, respec-
tively. 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 con-
tributions 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 se-
curities 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 expo-
sure 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. Ad-
ditional collateral is required from customers and other counterparties when
appropriate.

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 ac-
cepted 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 dif-
ferences 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 commit-
ments 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. Finan-
cial standby letters of credit are primarily issued to support public and private
borrowing arrangements, including commercial paper, bond financing, and

Stifel Financial Corp. and Subsidiaries

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 obli-
gated 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.

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.

Lines of credit are agreements to lend to a customer as long as there is no viola-
tion of any condition established in the contract. Lines of credit generally have

NOTE 23 – Income Taxes

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

Current taxes:
Federal
State

Deferred taxes:
Federal
State

Provision for income taxes

2009

$ 46,646
10,854

57,500

(5,844)
(7,040)

(12,884)

$ 44,616

Years Ended December 31,

2008

$ 35,400
7,525

42,925

(5,491)
(1,167)

(6,658)

2007

$ 29,101
5,864

34,965

(11,060)
(2,229)

(13,289)

$ 36,267

$ 21,676

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

Statutory rate
State income taxes, net of federal income tax benefit
Investment and jobs creation state tax credit,
net of federal income tax effect
Other, net

Effective tax rate

2009

35.0%
5.0

(2.9)
- -

37.1%

Years Ended December 31,

2008

35.0%
4.7

- -
(0.2)

39.5%

2007

35.0%
3.9

- -
1.4

40.3%

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
Accrued expenses
Investment and jobs creation credit
Receivable reserves
Unrealized loss on investments
Net operating loss carryforward
Depreciation
Other

Deferred tax liabilities:
Prepaid expenses
Depreciation
Goodwill and other intangibles
Other

Net deferred tax asset

$ 49,309
8,336
2,740
2,128
2,042
1,152
- -
63

65,770

(2,990)
(1,637)
(7,337)
(344)

(12,308)

$ 53,462

$36,192
8,757
- -
1,811
6,946
1,265
264
- -

55,235

(1,727)
(6,171)
- -
- -

(7,898)

$47,337

Stifel Financial Corp. and Subsidiaries

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.

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

Beginning balance
Increase related to prior year tax positions
Decrease related to prior year tax positions
Increase related to current year tax positions
Decreases related to settlements with taxing authorities
Decreases related to lapsing of statute of limitations

Ending balance

December 31,
2009

December 31,
2008

$ 2,015
303
(157)
233
(319)
(29)

$ 2,046

$ 2,869
109
(530)
254
(572)
(115)

$ 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 com-
bined 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.

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 Pri-
vate 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 insur-
ance, 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.

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):

Net revenues: 1
Global Wealth Management
Capital Markets
Other

Income /(loss) before income taxes:
Global Wealth Management
Capital Markets
Other

2009

$ 591,323
494,092
5,221

$ 1,090,636

$ 100,048
129,133
(108,767)

$ 120,414

Years Ended December 31,

2008

$ 471,005
390,726
8,606

$ 870,337

$ 98,097
91,892
(98,220)

$ 91,769

2007

$ 440,511
302,931
19,623

$ 763,065

$ 96,343
60,849
(103,346)

$ 53,846

1No individual client accounted for more than 10 percent of total net revenues for the years ended December 31, 2009, 2008, or 2007.

Stifel Financial Corp. and Subsidiaries

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

Total assets:
Global Wealth Management
Capital Markets
Other

December 31, 2009

December 31, 2008

$ 2,226,050
701,213
240,093

$ 3,167,356

$ 959,638
243,130
355,377

$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.

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):

Net revenues:
United States
United Kingdom
Other European

2009

$ 1,069,066
13,527
8,043

$ 1,090,636

December 31,

2008

$ 837,152
21,610
11,575

$ 870,337

2007

$ 734,686
17,348
11,031

$ 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):

Net income
Other comprehensive income/(loss):
Unrealized gains/(losses) on securities, net of tax
Unrealized losses in cash flow hedging instruments, net of tax
Reclassification adjustment for losses included in net income, net of tax

Other comprehensive income/(loss), net of tax

NOTE 26 – Earnings Per Share

2009

$75,798

7,517
80
- -

$83,395

December 31,

2008

$ 55,502

(6,634)
- -
999

$ 49,867

2007

$32,170

(660)
- -
- -

$31,510

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):

Net income
Shares for basic and diluted calculations:
Average shares used in basic computation
Dilutive effect of stock options and units1,2

Average shares used in diluted computation

Net income per share:

Basic
Diluted1,2

2009

$75,798

28,297
3,997

32,294

$
$

2.68
2.35

December 31,

2008

$ 55,502

24,069
4,004

28,073

$
$

2.31
1.98

2007

$ 32,170

21,754
3,969

25,723

$
$

1.48
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 be-
cause their effect would be anti-dilutive.

Stifel Financial Corp. and Subsidiaries

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 em-
ployee 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 gen-
eral 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.

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 accelera-
tion 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 ne-
gotiated 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 ex-
change 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.

Our company’s involvement with VIEs is limited to entities used as investment
vehicles, the establishment of Stifel Financial Capital Trusts, and our invest-
ment 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 partner-
ship. 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 signifi-
cant 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 subordi-
nated 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 circum-
stances 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.

Stifel Financial Corp. and Subsidiaries

Investment in FSI Group, LLC (“FSI”)

We have provided financing of $18,000 in the form of a convertible promis-
sory 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.

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 state-
ments, 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)

2009

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Total revenues
Interest expense
Net revenues
Non-interest expense
Income before income taxes
Net income
Earnings per common share:
Basic
Diluted

$ 222,332
2,351
219,981
197,826
22,155
13,177

$
$

0.49
0.44

$ 264,550
3,045
261,505
235,396
26,109
15,815

$
$

0.58
0.51

$ 292,589
2,906
289,683
258,847
30,836
22,138

$
$

0.77
0.67

$ 323,399
3,932
319,467
278,153
41,314
24,668

$
$

0.82
0.71

2008

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Total revenues
Interest expense
Net revenues
Non-interest expense
Income before income taxes
Net income
Earnings per common share:
Basic
Diluted

$ 217,242
5,765
211,477
187,552
23,925
14,347

0.61
0.54

$ 214,020
5,069
208,951
188,801
20,150
12,332

0.53
0.45

$ 223,829
4,906
218,923
197,829
21,094
12,777

0.54
0.46

$ 233,756
2,770
230,986
204,386
26,600
16,046

0.62
0.53

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 of 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 report-
ing (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 sub-
sidiaries, 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 execu-
tive 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 ac-
cepted 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 Commit-
tee 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 as-
sets 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.

Stifel Financial Corp. and Subsidiaries

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 con-
trol 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 evaluat-
ing 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 transac-
tions 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.

Chicago, Illinois
February 26, 2010

Stifel Financial Corp. and Subsidiaries

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 certifica-
tion 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

Equity compensation plans approved by the shareholders
Equity compensation plans not approved by the shareholders

Number of
securities to be
issued upon exercise
of outstanding
options and units

8,052,940
22,806

8,075,746

Weighted average
exercise price
of outstanding
options and units

$ 26.33
6.00

$ 26.27

Number of securities
remaining available
for future issuance
under equity
compensation plans

3,787,868
- -

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 stock-
holders contained 22,806 units.

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 sub-
ject 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.

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 incorpo-
rated 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

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.

Information regarding certain relationships and related transactions and direc-
tor independence is contained in “Certain Relationships and Related Transac-
tions,” 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.

Equity compensation plans not approved by stockholders

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

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 in-
vestment 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

Information regarding principal accounting fees and services is contained in
“Ratification of Appointment of Independent Registered Public Account-
ing 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.

Stifel Financial Corp. and Subsidiaries

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) 1.

Financial Statements

PART IV

The following financial statements are included in Item 8, “Financial Statements and Supplementary Data,” and are incorporated by reference hereto:

Reports of Independent Registered Public Accounting Firms

Consolidated Financial Statements:

Statements of Financial Condition as of December 31, 2009 and 2008

Statements of Operations for the years ended December 31, 2009, 2008, and 2007

Statements of Shareholders’ Equity for the years ended December 31, 2009, 2008, and 2007

Statements of Cash Flows for the years ended December 31, 2009, 2008, and 2007

Notes to the Consolidated Financial Statements

Financial Statement Schedules

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

Page

Stifel Financial Corp. and Subsidiaries

Exhibit No.

(a)

EXHIBIT INDEX

Description

Restated Certificate of Incorporation and as amended of Financial filed with the Secretary of State of Delaware on May 31, 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.

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)

(c)

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.

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)

(f )

(g)(1)

(g)(2)

(h)

(i)(1)

(i)(2)

(i)(3)

(j)

(k)

(l)

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. *

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.*

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.*

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.*

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.*

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.*

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.*

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.*

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.*

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.*

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 (File No. 1-9305) 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 Financial’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.*

Stifel Financial Corp. and Subsidiaries

(q)

(r)

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.*

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 Deutsche 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.

(t)(1)

(t)(2)

(u)

(v)

(x)

(y)

(z)

(aa)

(bb)

(cc)

(dd)

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.

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.

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.*

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.

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 SFC’s Annual Report on Form 10-K for the year ended December 31, 2008, filed on
February 27, 2009.

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.

Amendment No. 1 to Asset Purchase Agreement, dated May 4, 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 May 4, 2009) filed on May 11, 2009.

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.

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.

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.

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. *

Computation of Per Share Earnings is set forth in Note 26 of Notes to Consolidated Financial Statements included in this Form 10-K.

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.

List of Subsidiaries of Stifel Financial Corp., filed herewith.

Consent of Independent Registered Public Accounting Firm, filed herewith.

Rule 13a-14(a) Certification of Chief Executive Officer.

Rule 13a-14(a) Certification of Chief Financial Officer.

Section 1350 Certification of Chief Executive Officer.**

Section 1350 Certification of Chief Financial Officer.**

11.

16.

21.

23. 1.

23. 2.

31.1

31.2

32.1

32.2

* 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.

Stifel Financial Corp. and Subsidiaries

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.

SIGNATURES

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
Ronald J. Kruszewski

James M. Zemlyak
James M. Zemlyak

Bruce A. Beda
Bruce A. Beda

Charles A. Dill
Charles A. Dill

John P. Dubinsky
John P. Dubinsky

Richard F. Ford
Richard F. Ford

Frederick O. Hanser
Frederick O. Hanser

Richard J. Himelfarb
Richard J. Himelfarb

Robert E. Lefton
Robert E. Lefton

Scott B. McCuaig
Scott B. McCuaig

Thomas P. Mulroy
Thomas P. Mulroy

Victor J. Nesi
Victor J. Nesi

James M. Oates
James M. Oates

Ben A. Plotkin
Ben A. Plotkin

Kelvin R. Westbrook
Kelvin R. Westbrook

Chairman of the Board, President,
Chief Executive Officer, and Director
(Principal Executive Officer)

Senior Vice President, Chief Financial
Officer, Treasurer, and Director
(Principal Financial and Accounting Officer)

Director

Stifel Financial Corp. and Subsidiaries